To Rent or To Buy?

“Excluding the factors of not having enough money saved or having a high enough annual income, do you think there are any benefits to renting as opposed to taking out a mortgage (assuming that the monthly mortgage payments are more or less the same as if you were renting)?” - Sami S

That’s a great question, one that many people who are considering their living situation are facing. You qualified your question by limiting it to those who are able to afford to take out a mortgage but are struggling with whether or not it would be advisable to hold off for a season and choose to rent temporarily rather than buy. The main reason that some people consider this option is as follows. People hold off on buying a home because they are hesitant to buy into an expensive market where home prices are higher than what they want to pay. They think that by waiting it out a year or two, they’ll see prices drop and be able to get a lower price on a home they want.

This is especially lucrative to those who sold their homes at a high price and have a lot of capital as a result. They feel that rather than pouring it into an even more expensive home and coming out with little to no equity, they’d rather wait and buy something less expensive and end up with a bit of extra cash to spare. In this ideal scenario, rental prices are low and people expect to only have to rent for a year or two, thinking that the market will for sure slow down in their favor. But this isn’t always the case.

Here’s what I’ve seen happen many times, and what I think about the choice of renting vs. buying. Friends and family members who’ve chosen to go this route have found the exact opposite of what they expected. They sold their homes and decided to wait out the market for a year or two, hoping the prices would drop on prospective homes. But what’s happened in Toronto over the past several years is that home prices have seenmonumental increases. Rather than drop, homeowners have seen the value of their properties continue to increase due to high demand in a city where housing is a precious commodity. This has been much to the dismay of those who believed that renting would be a temporary solution.

The people who’ve gone this route have not only lost money on rent (anywhere from $1,500-$2000 per month for a total of $18,000- $48,000 over one to two years), but they’ve lost time and options. They are now finding that there are fewer options to chose from that fit into their price range. Because of the high demand for homes in the GTA and surrounding areas, there are often bidding wars on properties and the homes they had hoped to pay a particular price for, are selling for way over asking price.

I can’t predict the market and obviously, anything could happen that could signal a change. Financial regulations that are beyond the control of anyone could be put in place that could slow things down and cause prices to be lowered. Other events on the world scene could spark upset in the market and impact housing prices negatively. But in my opinion, the Toronto market has gone up steadily and seems to be continually on the rise, if not staying stable where it’s at. This means that for a person who’s considering what to do in terms of renting for a season or buying into a hot housing market, my advice would be to buy now. Yes home prices are expensive, but there’s no guarantee that they’ll go down anytime soon. Rather than loose valuable time and risk losing thousands on renting as well as having to pay more in the future, I’d take the risk of buying now.  If the home or condo you’re thinking of buying is going to be your primary place of residence then you have even more reason to feel confident that regardless of market changes, you will be holding on to a place that will be a long-term investment. Your monthly mortgage payment will be an investment that won’t disappear, as opposed to paying rent and never seeing a return on that money you spent each month for several years.

People are going to do what they think is wisest and best, and like your question mentioned this answer is limited to those who have the option to buy but are considering renting. There are obviously those who don’t have money for a down payment or don’t have enough income to qualify for a mortgage, so renting is the only option. In that case, my advice would be to do what you can to rent for as little as possible and save as much as you can so that you don’t have to continue to rent and your money can be put on to a home that will give you a return for your investment.

Hopefully this advice is helpful and sensible, and those who are in this position make the most informed choice possible.

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Serge Younan

Serge Younan

Real Estate Broker
CENTURY 21 Leading Edge Realty Inc., Brokerage*
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