Many people believe that home ownership is something everyone should aspire towards. However, there are actually a number of reasons why renting a home makes more financial sense and may be a better choice than buying. Here we unpack some of the top reasons why renting may be preferential to buying.
No Down Payment Required
One major benefit to renting over owning is the minimal upfront cost. If anything, renters only have to pay a security deposit which usually equals one month’s rent. Those wanting to purchase a house, however, must put forward a significant down payment. According to the Canadian Housing Mortgage Corporation down payments are typically 5% of the purchase price. Depending on the value of a house, this can be a pretty big chunk of change that you may not have.
Lower Monthly Cost
The monthly costs to renting typically amount to less than what you would pay as a homeowner. Homeowners are responsible for monthly mortgage payments, property tax, insurance and maintenance costs, which usually add up to be more than what one would pay as a renter. This may be an important factor for people with tight budgets.
No Maintenance Costs
Homeownership comes with a lot of extra expenses, like unexpected maintenance costs and repair bills that can catch homeowners by surprise. As a renter, you don’t have to cover the cost of a leaky roof, broken appliances or faulty furnace. Typically, all maintenance and repair costs are the responsibility of the landlord. These additional costs are hard often to budget for and can add up to hundreds of dollars a year.
Depending on your stage of life or circumstances, the freedom to relocate without much hassle may be important and invaluable. A new job or change in family composition may necessitate the need to move. Or you may find that your current neighbourhood or neighbours are less than desirable. As a renter, the solution to bad neighbours or the need for different accommodations is simply to move. You only need to wait until the lease expires or pay a fee to break the lease. Homeowners, on the other hand, have to go through the time consuming and costly process of selling their home. And in some cases, selling a home may takes months or even years.
Lower Insurance Costs
Another financial benefit of renting is lower insurance costs. As a homeowner you must carry home insurance, while renters typically only need to have a tentants insurance policy. Tenants insurance covers furniture, appliances you bring in, belongings, personal liability and other coverage. Generally, renters insurance is less expensive than a homeowners policy and is also customizable.
Not Always a Great Investment
Many people believe that buying a house is a good investment, but this isn’t always the case. Depending on the housing market and economy in the community that you live, the value of a house may only appreciate at or slightly ahead of the rate of inflation. This means that given the hefty down payment that is required and the current mortgage rate, the rate of return on your house when it comes times to sell may not be profitable. In other words, if you use the down payment on a different investment, you could realize a much better return.
Although homeownership might be a lifelong goal and favourable option for some people, renting offers up a lot of advantages and should not be dismissed. It is important to weigh the pros and cons of each, but for those who want flexibility, lower costs and minimal upkeep, renting might be the best choice.