Buying Vs. Renting

By: Reza Afshar

Buying Vs. Renting

Tags: Downtown Toronto, BUyers, Renters, Home Ownership

The Downtown Toronto rental market has grown stronger ever since the turbulent market conditions started to discourage potential buyers from pursuing home ownership, or who, at least, postponed the home buying process until they are able to compete with other buyers or the real estate prices. Affordability problems have pushed many into the rental market and it suddenly isn’t seen as a short-term solution anymore. Does it mean that the long-standing tradition of home ownership is fading away? Probably not. The majority of millennials still dream of buying a home, but in certain circumstances, renting might be the right choice

Why Buying Makes More Sense In The Long Run?

Owning a home has always been and still is  associated with financial security and stability. It might be a safe bet, but it also comes with dozens of responsibilities. Besides the monthly mortgage amount, which is often compared to a month’s rent, homeowners have additional costs that renters don’t have. They have to invest their savings in a down payment, pay the land transfer and property taxes and the closing costs which easily climb  to another several thousands of dollars. Some of these costs are one-time expenses, but the property tax, monthly mortgage payments and upkeep of the property are long-term commitments. Renters only have the month’s rent and utility bills. Something doesn’t work in the rental? Just call the landlord and have them take care of the issue.

The biggest problem with rentals though is that they don’t build equity. That’s why rental money is labeled money thrown out of the window, while homeowners earn more in equity with every mortgage payment until they finally pay off their debt. Homeowners will probably add value to the home in the years to come, which will allow them to sell the property for more than they initially paid for.

The market influences prices in both segments, but once you sign up for a mortgage, you know in advance how much it will be every month (at least until it’s time to renew the mortgage), while rents are most likely to increase. Landlords have the right to raise the rent on an annual basis in Toronto an amount set by the Government of Ontario and they’ll probably increase it by the maximum every year since they are capped by that amount. Landlords are allowed to file for a larger increase if they incurred unexpected cost increases.

Homeowners Enjoy More Freedom

Owning a home means you are the boss. You can renovate the kitchen, upgrade the bath or change the floors anytime you want, while renters don’t have the luxury. The landlord decides what and if anything is going to change, so you might be stuck with hideous wall colour or ugly bathroom tiles until you move.

When Is Renting The Better Option?

Some buyers are not able to afford a three or four-bedroom in Downtown Toronto, but the desire to become a proud homeowner urges them to buy a smaller unit, usually, a one-bedroom even if it doesn’t fit their needs. Young parents often improvise and create a makeshift bedroom for children in the tiny apartment which turns out as an uncomfortable solution. Such families would probably be better off in a larger rental until they figure out how to save up for a bigger home.

Renting is also a better solution for people who are yet not quite sure which Toronto neighbourhood suits them the most or if they want to stay in Toronto at all. People who don’t feel ready to be tied to one place yet should stick to rentals for a year or two before investing in a home.

The out-of-pocket expenses are smaller when renting, but in the long-run, a homeowner’s increase in equity helps to build wealth by paying down a mortgage. While the cost of living exists in both scenarios, rental costs are calculated as fixed costs while home ownership can be amortized and considered as paying yourself in terms of a savings account.

Whatever suits your situation best, I can help you rent or buy your first home or condo in downtown Toronto!