Are you on the fence? Take a look at what will work for you.
Buying vs. Renting
This is a pretty widely argued topic with great justifications for both sides. Lets take a look at both sides of the coin.
Taking renting into consideration, our costs can widely vary. First the rent itself, but here is some other factors that may come into play:
- The rent! This is what you will pay every month to live in the place. It can include a variety of things such as maintenance fees, utilities, or parking. But it can also NOT include a lot of things so it’s best to be aware of some of the items below.
- Security deposit: A security deposit will always be part of the deal. This is collected to pay for any damages should they be incurred during your stay. Normally if all is well when you leave you’ll get this money back but it has to be there up front.
- Application fee: Depending on the circumstances you may be required to pay for an application, which would include a credit/background check.
- Moving fees: The more stuff you have the more it will cost you to move it, plain and simple. It is better to get some friends or family together and complete the task yourself rather than hiring a company to move your belongings, as this can be more costly.
- Utilities: If things like water, gas, electricity, internet, or garbage disposal aren’t included in the rent you will have to pay for them on top of the rent.
- Parking fees: Your parking spot may not be included in the rent depending on the place. You might have to pay for your own spot in the parkade, or get a permit to part on the street.
- Laundry: If your building has a communal laundry and you have no machines in your unit this will be an extra cost that can add up.
- Renters insurance: Some places will require that you have a renters, or tenants insurance policy. But even if it isn’t a requirement you want to make sure that you’ll be compensated should your things be damaged due to events out of your control.
All these things can add up to a sizable amount so it is important that they all be considered when looking for a place. You don’t want to budget just for the rent, or you will end up over extending yourself financially which leads to no good.
But that’s about it in a nutshell. Make sure you ask your prospective landlord if there is any other costs that you should be aware of before signing any paperwork.
There are lots of costs between buying and renting that will apply to both situations but a few differ for owning property. Lets take a look at them:
- Down payment: Unless you intend on paying cash for your place, you will need what is called a down payment. Depending on the rules where you live or who you obtain your mortgage from this could be anywhere from 5-10%+
- Interest: In thinking about that down payment, the more down the better. Your mortgage lender is going to charge you interest on your loan so the more you can put down, the less you will pay in interest. Keep in mind, a 5% down payment can lead to nearly 50% of your mortgage payment being interest.
- Mortgage payment: This is what you will pay towards your loan. You might have some different options on how often you pay such as monthly, or bi-weekly.
- Property tax: If it is a thing, chances are there is a tax for it that you have to pay. Your property tax will be based on the valuation of the property and what your jurisdiction requires to upkeep public services.
- Moving costs: Applies to both renting and buying. Again try and keep your cost low by moving your things on your own.
- Utilities: Where with renting a lot of this stuff tends to be covered by the rent with buying it is on you to pay for it. This can include garbage removal, electricity, water, gas, internet etc. Make sure you have budgeted properly for these things, utilities in some areas can cost $400 plus a month depending on the size of your home.
- Lawyer fees: When you close the deal on your new home you’ll be required to pay a fee to have the legal documentation handled properly. This can range from $1000 to over $2000.
- Home inspection: You will likely want to hire a home inspector to have a look at the place you are considering, inside and out, to make sure that it is up to spec and won’t need any immediate repairs when you get the keys.
- Insurance: Like renting, you will want to get some contents insurance for your belongings. But on top of this you will also need insurance for the building in the case of a fire, flood, hail, or other unexpected damages. Also you will want some insurance on your mortgage. This will protect you should you be injured and off work for a while for example. Most banks at minimum require you to get home insurance before they will release funds for the property.
- Maintenance: Owning a home means that you have to take responsibility for the upkeep of the place. This way you don’t risk losing the money that you have invested in the property. Another reason it’s a good idea to get a home inspector to have a look and tell you if there is anything that needs work. But things age, and break down. You will have to pay to fix them.
Do some extended research on any other costs that might arise in buying a home and be careful in your budgeting for these things or you will end up home broke!
Which is more costly, renting or buying?
With all that said, the costs of owning or renting are largely within our control.
Renting can be a great way to be more fluid, and worry free when it comes to the costs of maintaining a property.
Buying can be a valuable investment that allows you to build equity and hopefully see some appreciation in the value of your property. But you also have to remember, some housing markets right now are grossly overvalued, and buying actually may be a hindrance. You HAVE to make sure you’re getting the right price.
But as for which is more expensive, this is up to you.
You can decide how much of your income that you are willing to sacrifice to have a roof over your head. This is a variable that you can control, don’t over spend in either scenario and you will be far less likely to have a negative experience.
There are lots of headaches in each scenario, it isn’t really a decision based on cost, more so on what we feel comfortable with and our life style.
Do what you feel you are ready to do. Each choice holds risk, and rewards. If you are not ready to buy, rent, and if you are ready to buy, then buy! But take some time in determining for certain which one is going to work best for your particular situation.