If you search “Should I rent or buy a house”, you’ll find 1.66 billion results. We all have the same question. What’s the best way to use my money today?

We’re told by everyone from the banks to our parents and the government, that it’s always better to buy than rent. There is a misconception that if your mortgage payment is equal or less than the amount you’d be paying in rent, you’re better off buying.

Look, there’s no question, owning real estate still makes sense, but becoming a homeowner before you’re ready can have costly consequences. There was a time when buying a home was the benchmark for financial success, but since the 2008 mortgage crisis, there’s been a shift.

Renting and buying aren’t fundamentally good or bad. If you’re on the fence, consider these four factors you should consider when it comes to making your decision.

How much have I saved?

In Canada, depending on the value of the home, you’ll need a 5-20% down payment. That’s a significant amount to have saved and it’s worth asking yourself, “how much of a return could I get if I invested this lump sum instead?”.

Keep in mind, outside of your down payment, there are restrictions around qualifying for a mortgage, and while there are exceptions, the guidelines state that your gross debt service (GDS) should be no more than 32% of your income. The other ceiling is the total debt service ratio (TDS), which cannot exceed 40% of your gross household income.

Along with the down payment and closing costs, the real challenge may actually come from the monthly mortgage payments and carrying costs of a home; the true cost of home ownership is much more than your monthly mortgage payment alone–you can’t forget property taxes, utilities, insurance and maintenance.

What are the unrecoverable costs of renting vs. buying?

Weigh the unrecoverable costs for both options. There is rent on one side of the equation, and then the unrecoverable costs as a homeowner such as property taxes, maintenance and the cost of capital (the cost of debt and the cost of equity) on the other.

Ben Felix explains the concept of unrecoverable costs of renting and buying well in the following video.

 

How long do I plan on living here?

In 2020, we’re living much more mobile lives. It’s not uncommon for people to move cities frequently for a job. Renting makes it easier to move–if you’d like to relocate, it’s as simple as giving 60 days notice.

Bottom line: your career trajectory has a huge impact on your renting or buying decision.

If you’re leaning towards buying, generally speaking, the longer you plan on keeping the home, the better.

How is my monthly cash flow?

There is no doubt that renting in top tier cities is expensive (we’re looking at you Toronto and Vancouver), but it’s still more affordable than buying. Not to mention repairs and maintenance! As a homeowner, you’re on the hook for those surprise expenses, be prepared to set aside 2-4% of your home’s value every year towards repairs and maintenance each year.

At Key, we think there needs to be a third option.

We’re creating a new economic model for homeownership that makes urban living possible again. Where you can start building equity in residential real estate without needing a significant down payment, and without being locked into a long term lease or mortgage. In our model, you’ll also benefit from frictionless moving and no surprise maintenance costs.

Think of it as the best of both worlds; the benefits of owning with the freedoms of renting.