My take on the rent vs. buy debate

Posted by Janine Rogan on March 19, 2014 in My Pennies | 9 Comments

I’m finally chiming in on the rent vs. buy debate. I’m graduating in a couple months and so are many of my peers. Everyone seems to have the I-need-to-buy-a-property-right-now bug and it’s really starting to get on my nerves. It enrages me when people stay at home till they can “save up” to buy a house (sorry friends) because they think renting is a waste of money. I’m really just not sure why people don’t think they should have to pay for their living expenses as an adult.

Anyways…. in my opinion, buying a home doesn’t make sense for a few reasons:

a) At 23 how do you know where you are going to be in 2 years, 5 years, or 10 years. This is the period of time where most young-professionals move around and try out new jobs and cities

b) You likely don’t have the money to pay down your mortgage fast enough for it to actually worth it

c) It is more expensive to buy

I could probably write you 1,000 word post making my case, and don’t get me wrong one day I will buy a home, however, this video explains it much better than I ever could. I encourage you to watch it and leave your thoughts in the comments below.

  • The video is good as far as cash flow is concerned. However, it ends with:

    “And then people a couple of years ago said houses appreciate and that’s what makes it up, but now we know that this is not the case”!

    Do we know that this is not the case? I would argue against that!

    Even if house prices only increase with inflation, in 10 years time, using their example, I would have spend an extra $155k (($41.5k – $26k) * 10 years). This ignores the fact that the rents would increase in line with inflation and actually make this “extra spending” less. However, in 10 years time (assuming 5% per annum inflation) to buy that $1m house would now cost $1.62m. So I’ve saved $155k in that time, but I need $620k more to buy the house.

    Whilst I don’t believe that home ownership is right for everyone, in the long-run (as long as you can ALWAYS afford to make the repayments) it is a better investment than renting.

    I’m not arguing with your personal circumstances though and, if you intend on moving house in the next 3-5 years, maybe its better to rent. However, even then (depending on real estate agent fees), I think the numbers would be close.

    • Thank for your comment. I would argue that while house do increase in value the amount you are putting into the house in terms of maintenance and upgrades could be capitalized and as such would increase the cost of your home. I can’t remember what the source was for the article in a class I took but it stated that over the past 50 years houses have really only increase 1.8% in value. You also have to take into account the cost you are adding to home home when you pay interest. Your house doesn’t just cost the original value, you have to include all the other things you pay for it.

  • I’m a renter, and plan to be for a while. I’ve had SO MANY people comment that what we pay in rent is more than a mortgage would be – but these people don’t consider all the other expenses associated with home ownership that renters don’t have to deal with: property tax, home owners insurance, renovations, repair, etc. I like that when I have an issue, I make a phone call and someone else comes and deals with it (and pays for it).

    Even though we’re not quite so young, my boyfriend and I have no idea where we’ll be in 2 years from now. Maybe we’ll want to move to another city. Maybe we’ll need more space.

    Regardless of these reasons, the fact is – we don’t have the money for a down-payment. We likely wouldn’t get approved for a mortgage if we tried, so why bother?

    • 100% agree all of those expenses add up and cost a fortune. My parents just redid the windows and roof in their house and let me tell you, it wasn’t cheap! I think that if you can’t pay off your mortgage in a timely fashion (ideally 10-15 years) than it isn’t worth it because of all the interest you will pay.

  • A lot of people are really against paying for rent and I’m not quite sure why. One of the many reasons I chose to buy a condo is that at the time, I could see myself living in my apartment for the subsequent 5 years. It’s now been almost two years and I feel like I will probably live in my condo for the next 5 years. Combined with the fact that it is decently cheaper to buy than to rent and prices have gone up a lot since I bought (as has rent), I think it’ll probably work out alright for me. That said, I generally don’t recommend buying a place in your twenties unless you really think you’ll stay in not only the city you’re buying in, but also the area and the type of dwelling. I DO still think it’s valuable to save up for a down payment though, assuming you will buy a place some day. That tends to catch people later on when they life-wise want to buy, but don’t have the down payment ready.

    • I agree with you and I think it’s unbelievable how quickly you have been able to pay off your mortgage. I think that if you are able to repay quickly buying makes sense. However people who drag out their payments really do end up paying a lot more for their homes in the long run.

  • aislin

    we have a few friends struggling with the rent-or-buy decision. there are so many factors to consider.
    my one piece of advice, regardless of renting or buying (AT ANY PRICE TAG), is this:
    there are few things worse than being house poor.

    that isn’t a warning to shy away from the housing market. i see the real estate market as a complete goldmine, when approached correctly. and i wholeheartedly believe there is a time & place to buy a home. however, for most that time is not directly after university, for a large variety of reasons already mentioned. taking a gamble on a few stocks is one thing. taking a ‘gamble’ on $25G of your hard earned savings (perhaps all of your savings) as a down payment is another. maybe it doesn’t make much of a dent, hey, lucky you. but maybe it means no vacations for a few year, or postponing a wedding, or deciding between fixing the furnace or paying your already late phone bill. maybe it means turning down a dream job offer because the $7500 penalty for ending your mortgage preterm is too much to afford after forking out all your savings on a down payment.
    all prime examples of house poor, friends.

    side note: when it comes to saving up to buy a house i don’t find anything wrong with living at home as an adult. i am thankful for the challenges & lessons i learned after moving out at 18 but if i could go back, i would’ve waited a few more years (and yes, probably saved quite a significant amount of money). you have to remember, living at home as an adult without a single expense is more a reflection on that individual’s parents rather than of that individual. i will have no problem charging my ‘child’ rent one day, in hopes that the money they pay will one day go to a down payment on a house or grad school.

    • I definitely agree with you, there are many things to consider when deciding to buy a house. I think the thing that frustrates me is people who are finished their schooling, making a decent salary and continuing to live at home for years because they can and don’t want to pay for rent. I think the housing market can be a good investment if done correctly but you’re right bing house poor is not something that would be fun at all.

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