To rent or to own, that’s the question you’ll have to face when you’re planning out the next stage of your life in Canada.
Depending on the city you are choosing to call home, you might not have the luxury of choosing. According to The Toronto Real Estate Board the average cost of a home in the city, as of December of 2019, was $837,788.1 The Real Estate Board of Greater Vancouver, meanwhile, benchmarked the average cost of real estate in the city at about $1 million.2 In fact, Toronto was recently ranked the world's second most overvalued property market, with Vancouver following closely behind in sixth.3 For a recent graduate, those prices are often well out of reach.
For those not planning to settle in some of the world's most competitive real estate markets, however, the decision of whether to rent or buy is more complicated. While traditionally there’s been the belief that it's always better to buy, in recent years experts have pushed back against that idea.4
Here are a few things to consider before deciding to rent or buy a place.
What are your goals?
Buying your first home is an exciting and major decision step and you want to make sure you’re doing it when you are ready. When you’re graduating from school, you likely have a number of financial goals that you are trying to balance, like paying off your student loan as well as saving and investing for your future.
Come into your bank and meet with your financial advisor to help you map out a plan that details your goals, how much money it will take for you to achieve them and what it will take for you to get there. Once you have your plan, you’ll have a better idea of if you’re ready to buy a place after commencement or if that goal is 5 or more years down the road.
Where do you see yourself in 5 years?
Where you buy your home ties you to a specific location in a real way. Because of that, it should only be considered by those who are certain (or fairly certain) they know where they want to live for at least the next three, but ideally five or more years. If you are not sure where you’ll be in three years, the costs of homeownership might not make sense, as the market will have little time to grow between when you will be buying and selling your house, condo or apartment.
Housing affects just about everything
Whether directly or indirectly, the decision of where we live impacts just about every aspect of our lives, including your career path. If you are looking at buying a house, condo or apartment, once you've committed to paying a certain amount each month, you need to ensure you're able to afford those payments long-term, which can impact career decisions. When you’re renting a condo/apartment, you have a bit more flexibility to more easily move to pursue new career opportunities or downsize in order to switch careers or pursue a lower paying position.
Your home can also impact who you spend your time with, where your children go to school and when you're able to retire, so it's a decision that you’ll want to give a lot of thought.
What can you afford?
When you are buying a home, you are making a major investment. Your home equity can grow over time. Want to get an idea of what the numbers could look like for you? Check out Scotiabank’s Rent or Own Calculator to crunch the numbers and compare rent and mortgage payments.
Budgeting for fees
For renters, budgeting can be simpler as there are usually few additional fees that come with renting. A landlord sets a monthly fee—which sometimes includes utilities, but sometimes not—and that's normally the end of it.
For homeowners, there are additional fees to consider beyond monthly mortgage payments and utilities. Those who live in a building or complex with shared spaces or amenities will likely have to pay maintenance fees. There are also property taxes to consider as well as the cost of the down-payment, homeowners insurance and the cost of maintaining the home. For example, if a pipe bursts or a roof needs to be repaired, those repair costs are the responsibility of the owner. You need to be able to budget for when things go wrong in your home.
What works for you?
At the end of the day, factors like lifestyle, employment and mobility should play a large role in your decision of whether to rent or own, but whether or not you are ready from a financial perspective is key. Make an appointment to talk to your financial advisor about what will work best for you at this stage of your life. They can help you build a plan for whatever your next step looks like.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.