Real estate is a big investment and as a result it’s not for everyone. For those looking to invest or who need a new home, you have the option to buy a property or rent from a landlord. From an investment perspective in today’s real estate market, is it better to rent or buy? This question gets asked a lot because the market changes and it’s confusing to keep up. Interest rates are low, and the value of real estate continues to rise. The answers people provide you will be different depending on whom you consult with.
A real estate consultant will explain when a person or family is renting a property they are paying someone else’s mortgage. When they are buying, they’re investing equity into the home.
No point is wrong, however, the decision largely depends on a lot of factors. There are three big costs associated with home ownership, which are not always considered before signing on the dotted line. As a result, home ownership is often out of reach. Millennials are specifically opting to rent a property as opposed to invest in a home.e
- Land Transfer Tax
The land transfer tax is a huge expense that you need to consider when purchasing a property. You can expect it to be about one and a half percent of the total cost of the home. In some areas, it can be as high as four percent, which is a very large chunk of change. It is also important to realize that you have to pay this after tax.
When it comes time to sell, you will owe about five percent of your home’s sale price in commission. You will also have to pay a lawyer for closing costs, and there are costs associated with the moving process as well. When all is said and done, you will have spent about 10 per cent of the purchase price of your home just in the buying and selling process.
- Ownership Expenses
When you own a home, there are operating costs associated with keeping the property in good condition. However, the biggest cost is one that you can’t see. Buying a home means putting a large majority of your money into one single property. Had it been invested elsewhere, you might see a better return on your investment.
Other costs associated with home ownership include regular maintenance. Should a water pipe burst, it will be your responsibility to fix, as well as any damage that occurs as a result. There is interest on the mortgage paid every week or month, as well as taxes on the property itself. Roof repairs are quite costly as well. Not everyone realizes it, but owning a home comes with very large expenses. One benefit to home ownership is you don’t have to pay rent. However, these large-scale maintenance costs do outweigh the cost of rent depending on the type of property you are renting.
When you purchase a home, you’ll be required to take out a mortgage on the new property. When interest rates are low, it’s easier for property owners to meet their regular payments. Mortgages essentially allow people to purchase homes that they couldn’t afford otherwise. They set up a payment plan, and fifteen or thirty years later, they pay off their home. At this point, the house becomes their most valuable asset.
This process has changed over time. Buyers are trying to leverage their hard-earned dollars and pay back the mortgage long-term.
Most homeowners believe the price of their home will increase overtime. While that is true, the price is in line with inflation.
If you put fifteen percent down on a home, that means you are responsible for 85 per cent of the mortgage. Should the value of the home go down, the equity in your home that formed the down payment is lost. Selling your home after only a few years means you’ve paid off more interest than the mortgage itself.
The decision to buy or rent a property is not an easy decision to make, which is why it’s important to do your research and compare numbers. An online calculator can assist you in the process.
The best way to determine what is right for you to is to assess your finances and identify what your goals are; if your goals are to build equity in a home long-term, then consider purchasing a home as an investment. If you have other goals, renting will make it easier to leverage your hard-earned money on a long-term basis.