Renting your home vs owning it isn’t so much of a debate as it is a discussion. So much of whether you rent or own depends on factors that may not be in your control. The Canadian Real Estate Association puts the average price of a home across the country at about $525,000 (this figure includes houses, condos and townhomes). That number doesn’t seem outrageous. But when you start looking at the average cost of homes in urban areas, where over 80% of Canadians reside, that number balloons. Let’s look at the average home price* in some of Canada’s more popular cities:
Toronto — over $819,000
Vancouver — over $1,001,000
Victoria — over $698,000
Montreal — over $382,000
*According to CREA
Apart from Montreal, all of these cities have home prices well above the national average. This is partly why renting has become such a valid part of the housing discussion.
Below we breakdown what you need to consider before making the choice to rent or own your next place.
The upfront cost around homeownership can be a bit deflating. But if you’re renting now or thinking of renting, you shouldn’t feel any less accomplished. More and more people are choosing to rent instead of buy. We live in a different world than our parents and grandparents, where owning a home doesn’t have to be the Holy Grail of adulting.
There are a few good reasons people whose to rent instead of own.
Less responsibility — Hands down, one of the biggest advantages of renting is not being responsible for the potentially costly maintenance of your home. Your landlord is required to repair and maintain your rental property, which means keeping everything in working order. If something in the house stops working (your fridge, your heat, your pipes), your landlord is the one on the hook for ensuring things get fixed (and pays for these fixes).
Lifestyle — Renting allows you to live a much more flexible lifestyle. If you’re not someone who needs to be committed to a place, neighbourhood, or city, then renting might be a better choice for you. Owning is a much more firm commitment to stay somewhere in the longer term.
Amenities — If you live in a condo, having access to amenities can be a huge bonus. Being able to use a swimming pool, outdoor patios and barbeques, gym, spa, or multipurpose room would be expensive on their own. But as part of your rent, you may receive convenient access to these amenities without ever leaving your building.
While renting can be a positive experience, you still need to think about a few things. Before jumping headfirst into a lease, decide on your goals for renting and what you can get out of your time as a renter. Here are a few things to consider:
How much should you spend on rent? This is usually one of your top considerations. Knowing what you can afford will determine things like where you can live, how much you can save, and what kind of lifestyle you’ll be able to live. Experts have historically suggested that you should spend a maximum of 30% of your pre-tax monthly income on rent. So if you make $5,000/month, and you ascribe to these recommendations, you should be looking to pay no more than $1,500 in rent each month.
Are you planning to own in the near future? Ultimately, everything comes down to priorities! If you’re someone who prioritizes short commute times and access to everything a central location has to offer, paying a bit more to be in your neighbourhood of choice might make sense. But if you’re trying to save for a down payment, the location and size of your rental are factors that will influence price significantly, so keep those in mind.
Beyond the equity, owning a home comes with a number of advantages (if it’s an option for you). It’s important to consider your goals for homeownership. Why you want to own will help inform how you go about getting there.
One of the most difficult parts of buying your first home is coming up with the down payment. First time home buyers in Canada will need a minimum of 5% of the home’s value as a down payment. But that 5% only extends to the first $500,000 of the home’s purchase price. You’ll be paying 10% after $500,000 and then 20% on any purchase price over $1 million.
So if a home costs $600,000, you’ll be paying 5% on the first $500,000, which is $25,000. For the next $100,000, you’ll be paying 10%, which is $10,000. Your minimum down payment on this $600,000 home would be $35,000.
Cost to purchase — This goes without saying, but must be said. We gave you an idea of the average cost of a home across Canada. If you’re like most Canadians and planning to live in an urban area, it won’t be cheap. It’s important you speak with a lender (mortgage broker or a financial advisor) to find out exactly how much you can afford without overextending yourself. Once you have a sense of what you can afford, then you can start to narrow your search to locations and the type of home that will meet your needs.
Cost to own — Here’s something many hopeful homeowners don’t consider. The cost to buy your home is one thing, but owning your home comes with its own costs that you must be prepared for before making a purchase. Consider property taxes (which can be monthly or quarterly), utilities, home insurance, and any regular or irregular maintenance. Including these variables gives you a true cost of what it will take to maintain your home on a month-to-month basis.
Again, the best way to know what you can afford is to speak to a mortgage professional. There are also some great online tools that help give you an idea of how much you can afford. OJO Home uses actual data to show you an estimated monthly cost for each home listing you’re looking at within the GTA. The tool includes mortgage, property tax, home insurance and utilities so you can better understand the full cost of homeownership!
Ultimately, there is no right or wrong answer to whether you should rent or buy. This decision will depend entirely on your priorities, goals, finances and, for some, the city you live in.
Get Digs lets you pay rent on your credit card. Collect points, book more trips and earn cashback. Sign up today.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.