Infographic: To buy or not to buy? That is the question
WATCH ABOVE: When does it make sense to rent long-term? The experts weigh in.
Should you rent or should you buy? There are a lot of factors to consider when tackling this question. Affordability, of course, is one of the biggest.
A 2015 Global New-Ipsos Reid Poll found 17 per cent of renters were confident they could buy soon while 83 per cent said they just couldn’t afford it.
That doesn’t surprise Ben Myers, a market research and analytics expert with Fortress Real Developments. He thinks those wanting to buy may need to temper their expectations.
READ MORE: 4 dos and don’ts of buying your first home
“I always recommend starting out with a small condominium. Less maintenance to take care of. … Not immediately pushing out to your maximum budget gives you the additional freedom to take vacations, have more fun on the weekends, and gives you greater flexibility should your employment situation change or the housing market or interest rates change dramatically.
“Although renting also provides tremendous flexibility, you may be missing out on appreciation in the market, and a tax-advantaged forced savings plan that is home ownership.”
His bottom line?
“If you’re planning on living somewhere for five years, you’re in a stable job, then you should be looking to buy.
If you’re transient in nature and unsure about your employment situation, then I would definitely recommend renting.”
Credit: Leo Kavanagh
WATCH: New mortgage rules are now in effect for first-time homebuyers. They’ll now need a larger down payment on homes over $500,000.
- If the property you want is under $500,000, you need a down-payment of at least five per cent. Banks prefer first-time home-buyers to have an average of 10 per cent down. If you put less than 20 per cent down, you’ll be hit with mortgage default insurance.
- Experts recommend setting aside one to two per cent of your after-tax income each year to a “house maintenance fund.”
- If you work on contract or commission and are applying for a mortgage, your past two years of income will be averaged.
- You may not get a return on your investment if you buy a home and sell it a year later.
- Fixed costs are basically everything you have to pay each month whether you like it or not. Keeping them below 50-60% of your after-tax income is key if you want to avoid becoming “house poor.”
Sean Mahoney, an agent with Sage Real Estate, urges cash-strapped millennials to “save every penny and have a plan to get to the next step.”
WATCH: Adriana Zhang talks about how daunting it is for many students looking to get into the market.
But what about renters whose next step doesn’t involve buying a place? Is it really that crazy to be paying off someone else’s mortgage instead of your own? Not according to a study from the director of the UBC Centre for Urban Economics and Real Estate, Tsur Somerville. He argues home ownership isn’t necessarily a path to future wealth; neither is renting without careful saving.
Somerville stressed that renters have to be very disciplined about saving the difference between their rent and what they would pay in mortgages and ownership costs.
“From a wealth perspective, renters could do as well as home owners,” Somerville said.
“That’s a long term assessment,” he later added. “In a year where houses prices rise 20 per cent and the equity market falls, it isn’t going to work.”
On the other side of the spectrum are seniors. They’re in a unique situation, in that they may be tempted to sell their property and opt for something with less maintenance and commitment.
“Sometimes it does make sense to sell your asset. Take everything out, rent maybe short-term — six months — and travel the rest of the time,” said Mahoney.
The decision is a personal one, and should also be dependent on your economic security.
“A lot of them are use to owning and having full control of their unit, and gardening,” Myers adds. “So it’s really something they need to think long and hard about.”
WATCH: Does renting make sense for seniors?
With files from Leslie Young and Erika Tucker, Global News
Editor’s note: The article was originally published March 5. 2015. It was updated March 7, 2016 with new mortgage information, as well as new statements from Ben Myers and Tsur Somerville.
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