?“Is it time to buy a home, or should I continue renting?”
Should I continue to rent, or should I take the leap into home ownership?
1. What’s your time horizon?
As you plan your move, it’s important to ask yourself how long you intend to live in your new home. The time horizon of your stay in that property is one of the key factors that should influence whether you choose to buy or rent.
The general rule is that the longer you plan to live in the home, the more favourable the decision to buy becomes. Real estate is a long-term investment and there are real costs associated with buying and then selling a property in the short run. Although the Canadian real estate market as a whole has experienced a decades-long streak of positive appreciation, the thousands of dollars in transaction costs such as land transfer taxes, moving costs, and real estate professional and legal fees will eat into any appreciation and may not justify the financial investment involved over the short term, even in the most positive market conditions.
If you plan to live in the same home for less than three years, it’s probably better to rent and avoid making what amounts to a speculative investment. If you’re planning to live in the home for at least five years, the decision to buy is likely better. If you anticipate needing to move again within the next three to five years, it might be a good idea to take a look at the broader financial aspects of owning and carrying a home, as they apply to your personal circumstances before moving forward.
But how do you determine how long you’re likely to live in your new home? Your decision should be driven by your lifestyle needs, both today and in the future. For example, will the property you move into be able to accommodate an expansion or contraction of your family? Do you live in a neighbourhood with good schools and, if not, will this be important to you in the future? Do you expect changes to your daily commute?
The goal is to choose a property and location that account for as many factors as possible, so you can limit the number of times you need to move, minimize financial churn associated with moving and maximize your investment return should you choose to buy.
2. Take a closer look at your financial picture
Beyond having a down payment, it’s important that prospective buyers take into account two other financial aspects of home ownership: the monthly carrying costs of owning a home and, as I outlined above, the costs associated with selling that property in the future.
When it comes to carrying costs, here are some of the key carrying costs that prospective buyers should account for:
· Mortgage payments
· Utilities
· Home insurance
· Property taxes
· Maintenance fees (if you purchase a condo) and/or repairs
If you’re a renter looking to make a leap into home ownership, some of the costs outlined above will likely increase your monthly housing costs, and make a dent in your disposable income. That being said, with interest rates at historical lows, payment against your mortgage principal will likely account for more than half of these monthly payments, and you can think of that portion as forced savings and contributions toward building your net worth.
The bottom line
At the end of the day, there isn’t one silver bullet that I can share to help you make the decision that’s best for you. There are benefits to both buying and to renting and, ultimately, the choice must be carefully weighed and considered, keeping your lifestyle needs and financial picture at the forefront. However, a little effort and research can go a long way toward helping prospective home buyers find clarity as you prepare to make your next move.
Please give us a call and we can help you go over all the details. 289-642-2655
