The Rent v. Buy Dilemma

There is an automatic assumption that only students and poverty-ridden adults rent their living spaces – all others buy houses.

The fact is, that if you own your home outright or have a fixed mortgage on favorable terms, you’re largely inflation-proof when it comes to housing costs. However, in certain circumstances, renting may actually be a better financial choice for you.

When is renting an attractive option? If you only require the living space for a short duration, renting is a better option. As well, the appreciation rate may justify rental - if the appreciation rate for your equity in your home is 4% but you could earn 15% on the cash you’ve set aside for the house, investing the monies elsewhere, all else being equal, renting may be a better option. Furthermore, if real estate has peaked in your area, it may be better to rent, unless you get a really good appreciation rate or if you are going to own for a long period of time.

Conversely, if real estate prices have declined, (as they usually do in the winter season in large metropolitan areas in North America), it may be a better time to buy.

There are other considerations, as well. When you are paying rent, you are paying the landlord to assume the risk of homeownership. Therefore, if there is a problem with the roof, or a defective pipe, these issues are their problem. As well, the costs of home ownership are in excess of the mortgage payments; there are a host of other costs which you have to consider, when doing an analysis as to what you can afford (start with an estimate of home insurance, factor in an “home cushion fund” for emergency home repairs depending upon the age of the home, lawn maintenance costs and so on).

All in all, if the cost of renting approximates the cost of buying, it is always better to buy. If you are in it for “the long haul” then buying is the way to go. Home ownership allows a certain pride that a rental doesn’t allow. Furthermore, notwithstanding certain legislative protections, renting places you at the mercy of your landlord as regards rental increases, repair of broken necessities, and so on.

You will find on the internet a variety of formulas (free) and software programs which can help you perform the necessary cost calculations to actually crunch out the number comparables for a rent v. buy scenario.