The most important factor that you should consider when choosing to rent or buy a house is how long you think you will be staying in a certain area. On balance, the longer you plan to stay, the more cost-efficient it will be to buy a house. This is because the home value generally appreciates over time and the costs involved in buying/selling the house (approximately 5% of the property’s selling price) are spread out/amortized over a longer period of time. The cost of selling a house a house consists of real estate agent commissions and legal fees while the closing costs for buyers consists of land transfer taxes and legal fees
Let’s say you buy a $500K home. Assuming a 2% growth rate, after 25 years your home will be worth $820,303. You will have to pay closing costs of 5%, or $41,015, but because your property value has appreciated, it more than covers your closing costs. If we assume you buy a house for 1 year with the same 2% growth rate, then your house will be worth $510,000. You will pay closing costs of 5%, or $25,500. Your home has appreciated by $10,000 but your closing costs of $25,500 exceeds this value because you only bought the house for 1 year.
Buying is generally recommended if you plan to reside in an area for a long period of time. There are many advantages to buying a home, and these include:
Consider this Scenario: Jack and Maggie are newlyweds looking for a place to stay in Vancouver, BC. They are looking for a property with 1 bedroom and 1 bathroom. They are both very career driven and plan to move to California in the next 3 years. Should Jack and Maggie rent or buy a house in Vancouver?
The average rent in Vancouver for 1 bed 1 bath is $2000. The price to purchase a property with similar characteristics is $570K. With savings of $114K (20% of the purchase price), the couple are able to obtain a mortgage pre-approval with RBC. RBC offers them an interest rate of 2.95% for a mortgage with a 25 year amortization. If they buy a home, they will have to pay about $1,668 in property taxes, $1,000 in home insurance, and $5,700 in condo/maintenance fees each year. They will also have to pay $11,300 in closing costs from buying and selling the home. The property’s price will appreciate by 2% per year.
Using the rent vs buy calculator, Jack and Maggie see that they will be paying $73,234 in total costs over the next 3 years if they choose to buy and $72,000 if they choose to rent. The calculator also advises Jack and Maggie that buying will be better if they choose to stay longer than 3.17 years. Since Jack and Maggie hope to move to California in the next 3 years, they decide that renting is more cost-effective.
In addition to paying the mortgage and down payment, homeowners also have home ownership and maintenance fees. These include property tax and home insurance expenses. If the home is part of a condo unit, then there are also condo fees.
Property Taxes are taxes that you have to pay if you own a home. They are used by the provincial and municipal governments to pay for services such as libraries, local police, firefighting, education, and health care. Property tax is generally calculated using the assessed value of your property and a tax rate that can be a combination of both municipal and provincial taxes.
Homeowners Insurance is a type of property insurance that covers damages to the interior or exterior of the home, personal assets inside the home, and any personal injuries that occur on the property. It does not cover damages due to wear and tear or typical usage for your home. On average, Canadians pay between $500-$1000 per year for homeowners insurance.
All of the costs of renting vs buying mentioned above are taken into account with the Rent vs Buy calculator. Generally, buying is the better option if you are staying for a longer period of time in a specific location. The calculator will indicate how many years you should plan to stay in a location before buying a home is more profitable in comparison to renting.
Renting is generally recommended if you do not plan to stay in an specific location for a long period of time. There are many advantages to renting instead of buying, and these include:
WOWA.ca’s Rent vs. Buy calculator can help you determine if renting or buying is a better financial decision for your family. Important factors that you should consider in making this important decision include:
The Landlord and Tenant Board is an adjunctive tribunal that provides dispute resolution services to landlords and tenants. The Residential Tenancies Act is the law that governs relations between landlords and tenants. If you choose to rent, you should be familiar with your rights as a tenant. For instance, in different provinces, landlords are allowed to evict tenants for different reasons. If you are wrongfully evicted or if the landlord evicts you in bad faith, then you may be entitled to eviction protection from the Landlord and Tenant Board and/or monetary claims for damages.
The Landlord and Tenant Board of Ontario allows landlords to evict tenants if the landlord wants the property for personal use, if they are trying to sell the property, or if they plan to renovate/demolish/repair the property.
The Landlord and Tenant Board of Alberta allows landlords to evict tenants if the tenant fails to pay rent, breaks rental agreements, causes damage to the property, or disturbs/endangers others on the premises.
The Landlord and Tenant Board of Saskatchewan allows landlords to evict tenants for many different reasons. These include, but are not limited to, if the landlord or landlord’s family want the property for personal use, if the tenant fails to pay rent or utilities, if the landlord plans to sell the property, or if the landlord plans to demolish or renovate the property.
The Landlord and Tenant Board of British Columbia allows landlords to evict tenants for many different reasons. Some common reasons include: if the landlord wants the property for personal use, if the landlord plans to demolish or renovate the unit, or if the tenant fails to pay rent or utilities.
The Residential Tenancies Act of each province also specifies the maximum percentage rent increase that your landlord is allowed to increase your rent by each year. This ensures that you will not end up paying unreasonable amounts on your rental agreement.
There are three main incentives offered by the government to help a first time home buyer with your home purchase.
The Land Transfer Tax is a tax levied by the provincial government payable at the time of closing. The Land Transfer Tax Rebate is a rebate on the Land Transfer Tax that the provincial government offers to first time home buyers. This rebate can either be for the full or a partial amount of the tax, depending on the province.
The Government of Canada First-Time Home Buyer Incentive is a program that allows you to share 5-10% of your home’s equity with the government. The government will contribute this amount to your purchase, which can be repaid within 25 years. This helps lower the interest on your mortgage and CMHC insurance.
The RRSP Home Buyers’ Plan allows you to withdraw up to $35,000 tax-free from your RRSP to help pay for the purchase of your new home. This amount must be repaid within 15 years.
WOWA.ca’s Rent vs Buy calculator can help you determine if renting or buying is a better financial decision. However, there are also many other factors that affect your decision. These might include how much savings you have for a mortgage down payment, how often you plan on moving, and how much you are willing to pay for the maintenance and upkeep of the property.