Firstly, thank you Andrew for sharing the article on your website and asking your thoughts on the topic.
I do agree with the article from Rob Carrick on the short term option that renting could be less of a financial strain than owning a property. But, his model is flawed.
The challenge with this article and what Rob put forward is ‘short term’. Real Estate should not be looked at on a short term basis. You need to look at 5 to 7 years minimum to factor all expenses and possible market value increases.
To answer Andrew’s question specifically - “…does it actually cost less to rent something than the equivalent property to purchase? Do you get your pick and choose of rental terms and property quality?”
Well, the short of it is yes, it is cheaper to rent a property than purchase based on 5% down payment. However, in the long run - you are much better off purchasing than renting regardless of the expenses that go along with owning a property. And, not all properties have loads of upkeep. Some more than others. As for Andrew’s second portion of that question - No, renters typically do not get to pick and choose the rental terms, though can choose property quality.
Calgary’s rental market is tight - landlords don’t typically deviate from their lease agreements - they don’t have too. As for quality - well - the renter can shop around.
Let’s add this up (keep in mind loose figures).
Even after one year of renting - say you’re paying $1400 per month for rent (based on a $300,000 starter home in the NE quadrant of Calgary). After one year, you’ve paid $16,800. That money is gone. Let’s do two years now - and assuming your rent did not increase, you’ve now paid $33,600.
Again, that money is gone. So, you have now paid out almost $34,000 - and how much have you saved?
Let’s say you’re really good and you’ve saved $500 per month so you have $12,000 in savings. Well, you still don’t have enough for your down payment on the $300,000 home so you still need one more year.
Now you’ve paid $50,400 in rent (still no increases) and you’ve saved up $18,000. Yay! After 3 years you can buy your starter home and yes, you would have saved a little bit of money by not paying property taxes etc.
However - if you would have already owned that same property, that $50,400 would have been paid towards your mortgage. That would be YOUR money - not the landlords. Granted - there is interest. So what - you’re now three years ahead. You also can factor market value increases.
I understand you need to rent before you can buy. You do need to save a down payment. Basically - my thoughts are - as soon as you can afford the 5% down payment, you buy a home. Regardless of CMHC fees, home maintenance, property taxes or whatever. In the long term, you are FAR better off.
So ultimately, Rob is correct in the very short term and I would recommend avoiding what he has put forward unless you absolutely have too.
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Dan Welyk has been a Licensed Real Estate Professional since 1999 and has grown up in the Real Estate Industry. FindNewDigs.com brings home buyer's and home owners together to find useful information, tools and ideas.
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