Renting Versus Owning

One isn't better than the other. Whether you rent or own is a matter of personal preference and lifestyle.

The housing market has gone wild in much of the country recently and every time real estate looks like a good "investment" people start questioning whether they should make the jump from renters to home owners.

There's Something About Money
Did you see that? Did you? The question moved from the issue of "shelter" to the issue of "profit". That's because people often believe that a home is a good investment. Unfortunately, and I speak from experience, this isn't always so. I was one of those people who bought into the market during the boom of the 1980s only to watch my equity evaporate when the real estate bubble burst.

While the money is one of the considerations - and it's a pretty complex one - it shouldn't be the only consideration. That being said, if you're going to make this decision, you have to look at the dollars and sense.

First there's the straight calculation that compares the cost of carrying your own home (your principal and interest payments and property taxes) with the cost of renting. Sometimes that comes out a wash, which immediately brings people to the conclusion that renting sucks.

Hang on now; there are some other factors. Renters aren't responsible for maintenance. Generally the older the home, the higher the maintenance. A good rule of thumb is to estimate maintenance costs to be three to five percent of the home's value per year. So a house worth $200,000 would cost $6,000 a year or $500 a month to maintain.

You also need to consider "closing costs": legal fees, land transfer tax, and other miscellaneous expenses that you don't pay if you are renting. Assume five percent of the purchase price on the home.

First-and-last-months'-rent is also a ways smaller than the typical downpayment on a home.

Of course, all that has to be balanced off against the fact that no matter how small the principal portion of your mortgage is (and it's miniscule in the early years), as long as the market is stable or rising, homeowners are building equity and increasing their net worth with every mortgage payment. And that money is earned tax-free since with the principal residence exemption the capital gains on the sale of a home is zip, zero, zilch.

It's A Wonderful Life

When I was in my 20s, I lived in a neighbourhood that was suited to a single girl hell bent on a good time. Back then renting was the perfect solution: one of limited responsibilities and commitment. If a window broke, I called the landlord. If the fridge stopped working, I called the landlord. Renting is virtually a worry-free existence. (All this is assuming you have a decent landlord).

Home ownership is a pain in the rump, make no mistake. There's always something that needs fixing. But home ownership also brings a ton of warm, fuzzy feelings. It means you can put down roots. You have complete control of your environment so, yes, you can paint your living room red. And if you're handy around the house and enjoy puttering about, you've just secured yourself years of weekend entertainment.

On The Road Again

Do you suffer from wanderlust? Are you upwardly mobile and constantly on the move in your career? Stick with renting. People who relocate for work are often better off as renters because they don't have to worry about the horrendous home acquisition and disposal costs (selling commissions alone average 6 per cent). Unless you get lucky and the value of the home you purchased goes up by at least 10 per cent, you'll be losing money.

Buying a home in a neighborhood you don't know well is one of the top mistakes home buyers make. If you're new in town, you may be better of renting a house for six months or a year to get a feel for it. If you like living there and you like your neighbors, you'll feel much more comfortable signing on the dotted line later on.

Steady As She Goes

Your employment prospects should be pretty stable before you consider buying your own home. Home ownership requires a number of regular payments - the mortgage, property taxes, utilities, maintenance, and insurance. Missing any of these payments can trigger dire consequences.

There are a number of financial factors that will weigh in when it comes to the rent versus buy question. But the decision involves much more than just running the numbers. You've also got to look at the emotional rewards and challenges of each alternative. I've been a renter and I've been an owner and overall I like home-ownership more. Course, like the weather and my underwear, that could change. Who knows what the future holds.