Should You Rent or Buy? The Case for Renting pt. 1
There are distinct advantages to both renting and buying property: one choice isn’t inherently better than the other. It all depends on when you do it, and why.
When you sit down to write your Homestory, consider the following benefits of renting.
1. Location and Career Mobility
You are likely at a point in your life and your career where you still have plenty of room to grow and evolve, whether that means moving companies, getting a promotion, changing industries, going back to school, or anything else you have planned (or maybe unplanned).
The great thing about renting is that it grants you the flexibility to roll with the tides and go where your life and career take you. Buying a home presents you with an astonishing investment opportunity, but you have to be prepared to settle down into one place to fully realize those gains.
This is because real estate is an investment with a prolonged time horizon. When you get a mortgage it’s typically amortized over 25 years, which is broken down into terms, with 5 years being the most common.
In the first few terms of your mortgage the majority of your payments go towards interest rather than principle. If you sell your new home in the first couple terms you’ll need to make enough money in the appreciation of the home’s value to offset what you paid in interest over those terms to enjoy a profit.
2. Owning Brings Commitments
If you own a home in one city, and a can’t-miss career opportunity emerges in another, you are suddenly faced with a difficult — but certainly not unresolvable — life decision.
Do you pass up that career opportunity? Do you go for it? Do you find someone to rent your property while you move?
The first is easy to understand. You might choose to let it go, and wait for something to emerge that is closer to home. This decision may also be based on the high costs involved in breaking a mortgage term early, which can often be thousands of dollars.
Depending on your mortgage contract, your breakage fee can include a steep penalty fee, an administration fee, a new appraisal fee, and a fee to remove the charge placed on your property by that lender.
If you’re in the first term of your mortgage you may find that after the early breakage penalties you have lost money on your home purchase.
With renting you can abandon your lease with two months’ notice and not incur any addition penalties, which enables you to make career decisions independent of considerations around your property commitments.
3. Renting Frees Up Cash Flow
There’s no two ways about it. Owning a home can be one of the best investment decisions you ever make. In the short to medium-term, though, it will also very likely be one of the most expensive.
An increasing number of potential homebuyers are finding that securing a mortgage requires them to put higher and higher amounts of what they’ve saved towards the down payment. Renting, meanwhile, is typically the cheaper option to buying, provided that you make decisions on where to live in line with budgetary concerns.
The money you are saving can be applied to various investment vehicles, such as mutual funds, ETFs, GICs, etc., which are very likely to grant you real, considerable monetary return. And that’s not nothing!
Another, often overlooked option with the money you’re saving as a renter is investing in professional development courses. Whether they’re needed for your current role, or to open doors for you down the road, these courses can be an investment in your future, and your future earnings.