There are so many articles, blog posts, and discussions out there regarding whether renting vs. owning a home, or whether buying your own place trumps paying to live in someone elses.
I won’t bore you with my take on the whole thing. I’ll just tell you that I’m 120% home ownership and -20% renting, based solely on my experiences, thought processes, and the fact that I’m annoyed incredibly easy and I’m thisclose to filling up my top neighbor’s apartment with a bouncy castle so I don’t have to hear them stomping anymore.
An extremely important consideration in deciding whether or not to purchase a home, is that rent payments are forever. You’ll always need a place to live. Your mortgage can be paid off.
My goal is to buy a house in 2012 or early 2013. I’m 23. If I took on a mortgage now, even at 30 years (the longest possible in Canada at 5% down payment), I would be 53 when I paid off my mortgage if I made no extra payments, prepayments, or increases in payments.
If I plan to live until I’m 85, I would still have over thirty years of life left in me after my mortgage was paid off. If I was renting, then I’d have 30 years of rent payments to pay.
Some might argue that their children will be paying for accommodations, but with children being less and less likely to care for their aging parents, I would never consider that a guarantee of a place to live, or even a likelihood of a place to live.
When you take out a mortgage, you’re paying into something that will eventually become yours and that, with the exception of house insurance, property taxes, and renovations and repairs, you won’t have to pay into after it’s paid off. When you rent, you’ll always have to pay rent.
When I think of my retirement, one of the things that I almost bank on, is that my mortgage by then will be paid off, so my cost of living will decrease thus requiring less in retirement savings and pensions than I require now by way of my income. If I had rent to pay, I wouldn’t be able to assume my cost of living would go down.
I had a co-worker when I worked in retail that struggled with this. She had never owned a home, and had rented her whole life. In her retirement, she had to work part-time because her pension and retirement accounts didn’t cover the cost of her rent. Many people would advise you to then just sock away more cash for retirement, but doing so and paying rent is sometimes hard to stomach. In Canada, home ownership is expensive, but so is renting.
After looking in the real estate market, at the current interest rates, rent and home ownership are about the same cost. For instance, on MLS there is an apartment for $179,000. It’s two bedrooms, one bathroom, and the payment is $851 per month plus strata ($170 for that building). That’s about $1021 per month, not including property taxes. This is with a 4% fixed interest rate (3 year fixed right now is 3.19%) and an amortization period of 30 years. There is a rental about two blocks down with one bedroom, one bathroom, and the rent is $950 per month. The MLS listing is 2 bedrooms, so even with property taxes, this is very comparable (I live in an expensive area).
The only difference is that after 30 years, you own the home for the first apartment. After 30 years in the second one, you still have to make payments. Other than wanting to punch my neighbors in the jugular and hating rental restrictions, this is a big consideration for my and the boy when we considered home ownership.
What’s your take? Put more money away now and be a rental lifer, or own your own home to decrease living costs in the long run?
The only thing I’d add is that you’ll still have neighbors when you own a home. They might not be above you (unless you own a condo), but noise from the side is just as annoying. We moved from our apartment to a rented house because of a downstairs neighbor, but it turned out our next door neighbor in the house let her dog out at 6 a.m. every morning. And every morning we’d have to listen to that yappy mutt bark all day long. (The neighbor died a few months ago, so no more dog.) So… It’s less annoying – or there’s less chance of annoyance – in a house, but the possibility is still there. And if you buy the house, it’s there until the neighbors move or you move. That’s why we want lots of space between us and neighbors when we buy.
I’m like you though. I want to have my home paid off by the time I’m 60 at the latest. I don’t know whether I’ll retire from work completely, but even if I don’t, it’d be awesome to not have a mortgage or rent payment to worry about! Sometimes it freaks me out to think of taking on that much debt for a home (on top of home owner’s insurance, renovations, repairs, decor, etc), but then I think of all the money I pay a landlord and it’s not that scary. Plus, it would be OURS. I’m totally going to be living vicariously through you when you start house shopping because David won’t even consider it until after he graduates (and gets a job, of course).
So true, and somebody might end up buying an apartment so that might not be a factor anyway.
I’ve never had problems with side neighbors except for that one guy that would puke outside his truck at 7:00 AM every Sunday, but we live in a place that have houses alarmingly close together. My main beef is with top and bottom neighbors – I feel like the insulation must be thinner on the ceiling and floor since they’re always worse!
Home ownership is not for everyone. I’m convinced it’s the best way for us to go, but some people might not like the thought. I just feel like this part of it – the retirement part – is something that’s not really looked at often enough.
I agree that home ownership makes sense for many people, and it sounds like it does for you, Daisy. The one thing that is not considered often enough, that I would be cautious about, is rental restrictions on a condo or house you buy.
Krystal (GMBMFB) was saying recently that when she is out of the country in Germany, there are rental restrictions and she cannot rent her place out. This is not a huge problem for her because of her cash flow and the fact that she is probably not going to be gone that long. It just reminded me that this happens with condos — that was the same case with the condo I tried to buy this year. You were not allowed to rent the place out! (It would be my condo, what the eff?!)
This may not be an issue for you at all, but if you found yourself in a situation where you had to relocate or travel long term for any reason, just be sure you could either rent your place out or had enough cash flow to be paying for your mortgage *plus* rent or another mortgage elsewhere.
Maybe this is not a huge point, but it’s one of my big fears being a homeowner at a young age.
Best of luck with this process & I can’t wait to hear more about it!
Ick, rental restrictions.Krystal pointed out how much better it is for the value of the condo or townhome, which is totally true, but I’m personally freaked out by any building that tells me what I can and cannot do with my own peice of real estate. Most do, as far as rental, pet, parking etc restrictions, and that is the main reason why boy & I are looking for a house specifically, followed by a townhouse if we can’t find a house (and it has to be rental, age, and pet restriction free).
I would personally never buy anything with restrictions like that, probably mainly becuase of my age – I’m young. I could travel. I could decide to upgrade but keep my first property as an income property. Perhaps I’ll have kids. So it would just never swing for me.
I can completely understand the value it adds to the building, which is why we’re trying to avoid strata purchases. So you’re definitely right – it’s a huge consideration!
Definitely buying! I totally agree with everything you mentioned but an important consideration is the age of the building. You do not want to be stuck with repairs so early on. UNLESS you get it for a great price and factor in the repairs you will have to make.
Also if you are buying a condo watch out for HOA fees. This is a big thing I look for as I am ready to buy a condo right now as well. Sometimes I find a place with a low price but HOA fees are ridiculously priced at $400 or $500. That price will only go upwards as well.
Age is also certainly a consideration for most people (not really for us – boy & stepdad are carpenters, cousin and brother are plumbers, dad sells building supplies.. can’t go wrong!). There are a whole slew of things that really should be considered, and an inspection should definintely be done. I think that’s where strata property is really great – if you don’t want to do repairs to the building, or take care of a lawn or anything, strata is great for that. You’d mentioned HOA fees (we call them strata fees here), that they can be so outragous! Another reason we’ll be looking to get a house and not a condo or townhome – though we will get a townhome if we find the right one.
My friend bought a condo and the strata (HOA) fee went up by $200/month after two years – which is just crazy.
Long time reader, first time commenter.
Not having to pay rent in your golden years is a solid way to decrease your cost of living, however the upfront costs, property taxes and lock-in cannot be discounted. For certain areas, like San Francisco, renting is quite appealing unless you plan to stay in the same house for over 30 years.
This calculator from the New York Times really lays it all out. http://www.nytimes.com/interactive/business/buy-rent-calculator.html
I haven’t thought about home ownership in a few years now because, well – duh, I’m in debt. But I’m starting to imagine it more and more these days… who knows when I’ll be able to make it a reality but one thing is certain: I will always at least *want* to buy vs. be a renter for life!
I think buying will only make sense for me when I’m older and ready to settle down, and only after careful and thorough research. There are lots of uncertainties in the real estate market, and upfront fees that a person needs to commit to when buying, so it really doesn’t make economic sense to buy only to sell a few years later, the risk of the housing market bubble bursting, and/or losing money in the agent fees would prevent me from doing this.
But money isn’t everything. As I am a single woman focused on my career, renting cuts out the commitment to a place, condo fees, and the extra considerations that have to be made if I were to move for a job, or to a different neighbourhood for personal reasons. Being able to just cut a monthly cheque to my landlord and forgetting the rest makes sense to me now.
I bought a house, and I’m all down for buying instead of renting. Like you said, I just believe you get your moneys worth because you can one day pay off your house and then not have to worry about some sort of home budget (except for property taxes of course).
I don’t know if it’s necessarily an either-or type deal all the time. I am 100% for renting right now — but I definitely don’t intend to be a renter forever. But locking myself into a 30-year mortgage with only 5% down would be by far the stupidest decision I could make right now — and yet, most of my peers go with it because home ownership is worshipped as this ridiculous sort of holy grail of living when it’s absolutely not.
The notion that ownership eliminates housing costs is misguided: houses are more expensive to maintain and generally more for utilities, in addition to property taxes (and possibly condo fees).
I currently rent a 1-bedroom for $750/mo. This is much cheaper than a mortgage payment + condo fees for a comparable unit — but the catch is I probably would never buy a 1-bedroom condo where I live: I’d buy at two-bedroom place, or a small home.
Additionally, I’ve moved 4 times in the past 2 years. That’s not exactly stable enough for home ownership. You can’t just up & go when you have a mortgage (not without headache of either finding a renter while you’re absent or swallowing the mortgage payments even when you’re not there).
People that jump into home ownership don’t do the math. If you’re putting 5% down, you’re going to pay six-figures worth of interest on your mortgage debt. That’s such a shit show. If people just waited 5 more years they could have a six-figure down-payment AND cut the interest down to a quarter of what it would be otherwise. There’s nothing wrong with renting if you’re saving (and investing) the difference.