Should you buy or rent? A lot has to do with your financial status and place of purchase. Years ago, I sold a home for a young couple who owed almost as much as the sales price on their house. They needed to take money from savings to pay the closing costs and sales commission. You can bet that they wished they had rented for the couple years they lived there.
Therefore the importance of knowing beforehand how many years you want to stay in the neighborhood. Buying and later selling a home will usually cost about 10% or more of the value of the home. These costs mean that if the home only went up in value 10% or so in the year or two you lived there, you won't be gaining anything (equity gain from principal pay-down is very little in the first years). Ordinarily, the most suitable option for someone that is always changing city is to let.
What about towns with faster rates of appreciation? Have you done some serious homework? If not, to assume appreciation will be more than the rate of inflation is just gambling. In spite of the house's excellent location, it was resold a couple of years later at its initial cost. You can't count on fast appreciation just because it has been that way recently.
To Buy Or Rent - Cost Comparison
Looking at buying versus renting, you have to take into account that in many places it cost much more to buy. In Tucson, Arizona, for example, a small home can cost $200,000. The mortgage payment, taxes, insurance and maintenance will add up to about $1,600 per month, but you can rent the same size home for about $800.
This says what? Many real estate fanatics will say you're at least buying something for your money, and renting is throwing your money away. Of course in this example more than $1,000 of your payment will be going towards interest alone, and that's not buying you anything.
Suppose you can afford the $1600 per month, but instead you rent for $800 and put the other $800 into a decent safe investment that makes you 5%? In three years you'll have over $30,000 in this account. If the home appreciated at 6% per year (it has been more like 25% per year recently, but that can't continue, and assuming so is not planning, but gambling), it would be worth $231,000. The costs of initially buying it and then selling it would be around $13,800 (2% buying and 6% selling), leaving you with a gain of about 19,000 once we include your principal pay-down.
Clearly, renting would have been a more lucrative option. Certainly, no two cases are alike. Compare the total costs of owning versus renting, and then make safe assumptions about the rate of appreciation for homes.
In most cases, it is best to buy than rent, if you don't intend to move for quite some time. In the last example, buying becomes a better bet after about four or five years. Besides owning your own property, you can get a mortagage which allows you to always pay the same amount, as opposed to renting.
To sum up, look at the time you'll be there, the comparison of total monthly costs, whether rents are going up fast, and whether you have good reason to believe home prices will be going up fast. Then look also at all the personal factors. Do you want to be responsible for the maintenance, yard work and unpredictability of ownership problems?
To buy or to rent? In the end, you have to work this one out by yourself.
If you are looking to buy home in Okanagan and looking for a real estate agent Okanagan let me know.
This article was supported by Kent Swig, the team at Toronto condo for sale
