Buying a home is a dream for many, but it might not always be the most realistic choice. Personal finance expert Bruce Sellery explains the pros and cons of buying or renting a home in today’s housing market.
Financial factors to consider when buying include:
- The price of the house
- Amortization in years
- Condo fees
- Property taxes
- Maintenance – paint, roof, appliances, etc.
- Price appreciation – how much will the price increase?
- Duration: how long will you live there? Real estate commission: five per cent of the sale price ($600,000 house is $30,000 thousand).
Other important factors to consider when thinking about buying a home:
- It is a trade-off. For example, if you want a walk-in closet, is it worth sacrificing a vacation in the sun?
- The bank will calculate what you can afford based on whether you will default on the loan – they do not consider any other investments such as retirement savings, kids’ education or any personal luxuries.
Financial factors to consider when renting include:
- Price of rent
- Investment return – you have to invest that money, how much will it earn?
The advantages of owning a home include:
- Forced savings: you might not pay your credit cards or your car loan, but you will pay your mortgage.
- Nesting: some people just want to own and fix their place up just the way they want it.
The advantages of renting include:
- It is cheaper – it can cost less, depending on where you live.
- It is worry-free – if you have a good landlord, you can call them when the roof leaks.
- It is flexible – you’re 27 years old, you can accept a job and move across the country at a moment’s notice. It is way harder to do it if you own.
- It can free up capital – a senior without a pension. If all your money is in your house, how are you going to pay for groceries?