Buying vs. Renting – The Conundrum Conquered

March 26, 2013 | By

question-marksLet’s face it. Many people are frightened by the financial implications of buying a home, and the associated responsibility. But there are always two sides to every story. Take a read and see how buying vs. renting could “pay out” for you.


Buy Scenario

Say a townhouse, in the Clayton Heights area of Surrey, rents out for $1,600 per month and is on the market for $325,000. Should you rent or should you buy? Let’s assume you have a 5% down payment …during the first five years of ownership, you will pay down your mortgage by $46,132.56. And by using a very modest yearly appreciation rate of 2%, this property has increased in value by $33,826.26 for a total of $79,958.82 (Note: this calculation is based on your mortgage pay down plus the appreciation).

Rent Scenario

Your aforementioned rent of $1,600 will cost you $100 a month more than if you owned the property outright. If you rented this property over five years – assuming the rent didn’t increase – this extra $100 a month means, renting this same house would cost you an extra $6,000 over your potential mortgage payment.

Keep in mind; you didn’t have to pay $12,742 in property taxes as a renter ($2,400/year with a 3% tax increase per year for a total of five years). So now you’ve gone from $6,000 in the hole to a surplus of $6,742 ($12,742 – $6,000 = $6,742). Add to that the interest you made on your down payment.

If you kept the 5% down payment ($16,250) sitting in savings making 1% per year, after five years you’d have $17,078.91, an increase of $828.91. So now you’re $7,570.91 in the black ($6,742 + $828.91).

Herein lies the conundrum.

The Answer To This Equation

In this example, you are better off to buy. No matter how you calculate it, $79,958.82 is more than $7,570.91. Even if the property were never worth more than you paid for it, after five years you would be $46,000 closer to owning a $325,000 asset.

As a renter, you will always be paying down that debt for a landlord. My suggestion is of course to build your own dreams, not facilitate the dreams of others.

But this is only the financial factor of renting vs. buying, and of course other factors may come into play.

Factors such as…

As a renter, it allows you to make a quick move if need be. If you are not sure how long you will stay in a certain area, the closing costs and listing fees might run you more of a loss than a gain.

As a buyer, there is always the option to rent out the property, also generating potential income while paying down your property.

As a renter, you call your landlord when something breaks and they facilitate the fix.

As a buyer, you cut out the middleman and inconvenience of someone else’s schedule, and deal with the problem directly.

As a renter, you have tenant insurance.

As a buyer, you will have homeowners’ insurance, which will be slightly more expensive.

Can I Afford To Buy vs. Rent?

If you don’t have 5% of the purchase price to use as a down payment, this is where a realtor and their connections to mortgage brokers come into play.

Call me. I have access to an A level lender that works with buyers to create a down payment, and can consolidate your debt while doing so.

With the right people in place, anything is possible!

 

Filed in: Buying and Selling Real Estate, Surrey and White Rock | Tags: ,

About the Author (Author Profile)

Andrew is a West Coast enthusiast through and through. He is a native of the area that you will often find adventuring on one of the many sea to sky activities that abound in the Fraser Valley. Along with being in love with the place he calls home, Andrew is a well known and respected Realtor focusing on helping others to find their own perfect home in Langley, Surrey, White Rock and beyond! Visit www.yourperfecthomebc.ca to find your perfect home.

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