There’s too much divisiveness in this world already. We split ourselves into different camps of opinion based on what we feel is right. Nowhere can this be seen more clearly than the housing options we find ourselves in during the 21st century. Is it better to rent or buy?
The truth is that there are unique benefits and drawbacks to each situation. It’s not uncommon for long-time homeowners to rent property in unique circumstances. It’s also not unusual for long-time renters to find out how attainable a home is and make the switch sooner than later.
It all depends on your needs, preferences, and the situation you find yourself in today. Finding out where you stand now is the first step to figuring out tomorrow. In this blog post, I’m going to try and help kickstart this initial conversation. Instead of fear-based motives, I’ll stick to the facts so you can decide the rest for yourself. I will also use our local Vernon market as a case study, giving you tangible examples of benefits and drawbacks.
There is nothing inherently “wrong” with renting property, whether it be short-term or long-term. It all depends on your preferences, needs and financial situation. Let’s go over some pros and cons of renting property.
Predictability - when you rent property, you’re generally not responsible for general maintenance and upkeep. Your payment is pre-arranged and fixed for a set time period (typically one year, at least). You’re also protected by law against excessive rent increases in most Canadian jurisdictions. Sometimes, even your utilities are worked into this arrangement, further increasing the predictability factor.
Less Short-Term Financial Burden- As a renter, you don’t need a down payment like a mortgagee. The extent of your financial obligations are the first-months rent (and sometimes the last months, but not in British Columbia), damage deposit, pet deposit when applicable, and the monthly rent cost.
Location Flexibility- Did you accidentally end up in the wrong area of town? As a renter, you have the freedom to move without excessive repercussion, especially if you carry out your lease term, at the very least. You avoid the stresses and market fluctuations homeowners experience, and you often have more choice of where to settle next. Moving from a lower-class area to a middle-class area as a renter is usually far more attainable than for a property buyer.
Lack of Investment Potential - It’s true that when you rent, you’re indirectly paying someone else’s mortgage. Landlords generally rent their home out with the assumption of gaining value through equity over time. With a renter paying the mortgage each month (and sometimes, hundreds of dollars per month over and above this baseline cost), the landlord’s investment prospect is financed by the tenant. The tenant may have more predictability in their immediate financial obligations, but they also lose out on the increased equity that property might gain over the years.
Less Freedom - When I say freedom, I’m talking about property customization. For homeowners, the ability to customize their home to suit their unique tastes is a huge factor in purchasing a home. Renters do not generally enjoy such freedom. The extent of a renter’s renovation freedom is usually the painting of some walls or furniture arrangement.
Buying a home is a stressful but gratifying experience for most homeowners, new and seasoned alike. The decision to purchase property requires extensive planning and several professionals (in most cases). Let’s go over some pros and cons of buying property:
Investment Potential - As a homeowner, your home purchase represents an investment in the local real estate market. While fluctuations in the market are highly dependent on location, most real estate markets will provide investment gains in the long-term. Earning equity allows you the freedom to make additional investments based on your goals, and often this means upgrading your properties over time. Sometimes homeowners begin in a condo or apartment; then as their property increases in value, they earn enough equity to afford the down payment on a single-family house. You are paying your mortgage instead of somebody else’s.
More Freedom - When you own your own home, you don’t need to ask permission to make changes and upgrades. It is always wise to make smart renovation decisions but you have the utmost freedom to put your unique touch on important property aspects. Sometimes these are aesthetic changes; sometimes they’re functional. Want a treehouse in the backyard? Skip the permission stage and head to the hardware store. Need 200 amp service for a hot-tub? Start the process as soon as you’re confident in the outcome.
Investment Reliability - There’s a saying that goes something like this, “the best investment on Earth, is Earth.” Real estate is, in most cases, an immovable asset. Investing in stocks or other speculative assets can be inherently risky, based on perceived value and other factors out of your control. Aside from the real estate market forces in your particular area, your investment gains over time are highly reliable, especially as you upgrade the home to make it more desirable for the next buyer.
Hefty Financial Obligations - The largest barrier for most aspiring homeowners is the dreaded down payment - which is a minimum of 5% of the purchase price. You also must have adequate credit and income in proportion to the home you seek. If you manage to purchase a house successfully, you now owe the lender that provided you with the mortgage for the foreseeable future (most of today’s amortization schedules are 25 years long!). You’re also responsible for all utilities and property upgrades, as well as the pesky unforeseen repairs.
Moving Stress & Limitations - It is considerably more stressful to move as a homeowner, especially if you’re currently a homeowner relocating. You not only have to coordinate the selling of your property and the subsequent purchase of another with a variety of paid professionals, but you also have to plan for moving arrangements. You’re responsible for the home you move from being in substantially the same condition as you left it. As well, if your home hasn’t gained any value since you bought it, you may not be able to relocate as readily as you’d planned after paying all expenses.
When it comes to real estate in Vernon, or even real estate in the greater Okanagan region, we have unique market conditions. We have a greater proportion of seniors than most other Canadian areas, for example. The Okanagan is also known for hilly terrain, creating situations where houses on the same street and of similar build quality, can be vastly different in price. This is simply because some homes will enjoy a more expansive view!
As a Vernon Realtor, one scenario I run into often is helping clients navigate a new build while trying to sell their current home. In this scenario, the renting vs buying conversation comes into play. Some clients have enough financial stability to undertake construction loans while still living in their home for the duration of the build. However, many people do not. In this case, people often choose to sell their home using a Realtor, freeing free up equity to finance construction.
When it comes to seniors moving into long-term care, they’re essentially choosing to rent instead of own. They approach the renting vs buying scenario in a completely different way than a 25-year old couple would. For them, owning real estate is less important than the benefits of long-term care. In the Okanagan, we see this all the time!
As a Realtor, it’s not my job to dissuade people from renting property if it’s truly the better option. There are so many myths surrounding the renting vs buying process that we end up getting lost in perception rather than steered by fact. The truth is that for some, buying property is preferable. For others, renting is preferable! It all depends on your lifestyle, current financial situation, and your appetite for things like freedom and risk.
Whatever the case, I’m always here as your trusted Vernon Realtor! If you need help in dealing with anything real estate related, please feel free to give me a call.