The Loonie Bin: Renting Versus Home Ownership

The Loonie Bin: Renting Versus Home Ownership

Renting Versus Home Ownership

Ever since I was a kid I wanted to own a home. I’m not sure if it was planted in my head from watching too much TV, but I always imagined myself with a wife and two kids posing in front of my house with everyone smiling and not a having a care in the world. Owning a house is a huge responsibility, and even though it’s perceived to be a generic goal in life, it’s not for everyone.

So what’s better, renting or owning your own home? There are plenty of people who just want to pay rent for their entire life, not having to worry about wear and tear, repairing foundations or fixing hot water heaters. On the other hand, a majority of people want the satisfaction that home ownership gives you, as well as the ability to build equity with each mortgage payment and the eventual freedom of not having a mortgage. The debate over renting versus home ownership for me has always been one sided, but after reading a few articles on the subject and talking to some people, renting does have its perks.

There has always been a stigma associated with renting in that the money you spend on rent is money that you throw out the window. The fact is that it wasn’t totally wasted as it protected you and your belongings from the elements, thieves and possible wild animal attacks which vary with your location. Just because rent usually pays the mortgage for your landlord, it still pays for one of your basic needs. Once you pay the rent, the only other financial concerns you have to worry about are utilities, personal spending, food and insurance which is optional but is highly recommended. As a renter you don’t have to worry about any upkeep or maintenance that a homeowner has to deal with and budget for. The money you save on maintenance can be invested for an earlier retirement or allow for more luxurious personal spending. Renting allows you the freedom to uproot with a month’s notice and you can move across the street, across the city, or across the country, with less hassle then if you had to sell your home first. I know a lot of people who like not being tied down with a mortgage and feel renting gives them more freedom to work abroad and rent wherever they land a job.

That being said, I have rented in the past and from personal experience I can tell you renting can have its downfalls. Having neighbors is a fact of life whether you rent or are a home owner but if you rent an apartment or townhouse, you are guaranteed to have more of them. One might think renting a more expensive dwelling will allow more like minded neighbors, but that is a common misconception. For example, a rent payment of $2500 a month might be expensive for one person to pay, but that same rent split between four people is a “steal of a deal”. So now you live next door to party central because four friends are “moving on up” and need to celebrate…every night! If you do decide to rent, make sure you find a good landlord. Just because they have to maintain their property doesn’t mean they will do it in a timely manner. You could be waiting a week to get a new stove or hot water heater and have no choice but to wait. Another problem with renting is you could eventually find the perfect place to rent, live there for years and then without warning the landlord could ask you to move out because they are selling the property and the new owners want their kids to live there. That and the rent can increase once your lease is up, which can wreak havoc on your budget.

Although a diehard renter could argue any negative point with a positive, it all boils down to personal choice. Not everyone can afford a mortgage and have no choice but to rent. Some people like myself have no choice but to own a home so my wife will be happy; happy wife, happy life. Make sure you catch my next post where I list the pros and cons of home ownership.


Anonymous said…

It would be interesting to compare renting vs buying as an investment over a 25yr period. If the renter were to match $4$(in his investment acct(dividends only please) the buyer’s costs ie mort payments, interest, taxes, repairs, insurance etc vs rent payments,I think the renter would be ahead especially with the advantage of rent price controls in some provinces .The comparison would end with the sale or current appraisel of mrkt value of the house

Invest It Wisely said…

There are pros and cons to both, and financially speaking when you add in the opportunity costs of investing those mortgage payments, there may not be a large difference between renting and owning. In some instances you will make more money owning (2002-2005?) and in other instances renting would have been better (1990-2000 and investing in equities?). Since there probably isn’t that large of a difference in the long run, much of it does come down to personal preference and choice, and when it’s about that, you can’t really be “wrong” either way.

Addicted2dividends said…

I thought about the pros and cons quite a bit. It all depends on the willpower of the renter if they actually do invest the extra money or not. You might be able to invest the extra money over the years and the dividends may be able to pay your rent depending on what you invest in.

But what about the home equity that you can tap to invest while you pay the mortgage down and claim the interest as an investment which can help pay the mortgage at the same time which I will talk about in the next part.

Anonymous said…

I think there are huge advantages to owning over renting…Not to dis any renters or anyone else who believes whole heartedly in renting. I just can’t toss up the leverage you can get on owning a house and building that equity. It gives a individual so much more of an edge the next time you need to loan money for investments.

Little House said…

I’ve been a renter for years with the goal of purchasing my own house. I definitely see both sides of the coin. I think it depends on a lot of variables such as flexibility, cost of renting vs. buying, what long term goals are in store, and if you need access to HELOCs (which can be both good and bad!).

Addicted2dividends said…

Yeah HELOCs can be a double edged sword. Good having access to money anytime you might need it. Bad if you get over your head and the bank comes to collect. Good luck with your goal of owning a home one day!

Sunil from the Extra Money Blog said…

all good points

just wanted to add that many think that paying off a mortgage means owning property free and clear (and no more payments). truth is, at least in the USA you never own your property free and clear. property tax has to be factored in, and that is a variable that has been steadily on the rise

Addicted2dividends said…

One thing is certain about property taxes; they always go up. I wish I could deduct the interest from my mortgage like you can in the states…jealous!

Doctor Stock said…

Interesting post. Whether renting or owning, all investors should consider another option to the real estate play, namely, REITs. They carry less risk than many hard real estate asset options with far less capital investment. Furthermore, they pay you a dividend to hold them… anyway, just a thought to mix into the discussion.


About EdR

Tant que les lions n’auront pas leurs propres historiens, les histoires de chasse continueront de glorifier le chasseur. (proverbe africain)

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