Although some may view renting as throwing away money each month, it does have its advantages, including something money can’t buy – freedom.
 
 “Advantages of renting from the tenant prospective is that you have the freedom to move at will with 60 days’ notice,” says Garrett. “You are not tied to a mortgage, town or province by a home. Renting also allows you the flexibility to upgrade your perks by just moving, and the rental selection right now is great as landlords compete for tenants and offer lots of incentives.”

One area where incentives are the norm is Hamilton, Ont., where Garrett is offering free Internet, pizza for a year, movie passes and various other perks. Another is Windsor, Ont., where the vacancy rate is a staggering 15.5 per cent. Here Garrett pays the utilities for her apartment suites, along with free parking and Internet access.

Be wary though, as often rental-based incentives are tied in with signing a longer-term lease. Moreover, break the terms of the rental lease contract – for example, indulge in some regular late night revelries - and it’s possible for the landlord to move you on. So the freedom is limited to the terms of the lease.

The second advantage of renting is often less expensive than the cost of home ownership.

“Renting provides people who cannot afford to buy or do not have enough down payment to purchase a home, the option to rent in an interim period,” says Kluge.

And what some may not know, adds Kluge, is that renters can actually build-up equity while renting.

“With Home Owner Soon, through our rent-to-own program, our client is actually building up a substantial piece of equity in their home during the rental period,” says Kluge. On the flip side, traditional renting does usually not promote home ownership.

“All they’re paying for is the roof over their head for one month to the next,” says Kluge.

This can be especially taxing if the renter has rented for a long time and has essentially handed that money over to the landlord without building up any equity for themselves.

“Your landlord would have benefited by having his property being paid for at your expense,” says Santoso. “Also you have no control over the rents, which can increase each year. As a renter, you could end up paying tens of thousands of dollars over the years without anything to call your own.”

On the other hand, purchasing a home is a huge investment.

“You may be required to live more modestly in order to afford a home,” says Santoso.
And affordability goes way beyond the monthly mortgage payment. Homeowners also have to shell out additional cash for things like homeowners’ insurance, maintenance, utility bills, property taxes and unexpected repairs.

“If you have to put on a new roof or your basement floods, it is the owners’ responsibility to pay,” says Garrett. “It can get very expensive to own a home and if you don’t have the cash set aside, it can be dangerous.”

Despite all of its perils, many can argue that home ownership has more benefits than not.

 “Home owners are 70 times more wealthy than people who rent (from David Back, author of The Automatic Millionaire),” says Kluge. “The purchase of a home is the biggest investment most of us will ever make in our life and the value of the equity you build through the purchase of a home over the long term is great.”

In addition to providing financial security, owning a home can also lead to more money-earning potential if owners decide to rent out a portion or the entirety of their property.

Becoming investors or landlords has many benefits – the biggest being the tenant is helping pay down your mortgage. In addition, renting out your home comes with tax benefits because as your home becomes an investment property, many of your expenses, such as home repairs, maintenance, depreciation costs and interest, become tax-deductible. And over time, as you increase the rent for your property, your cash flow will also rise. “Imagine owning a rental property that has its mortgage paid off,” says Santoso. “It would provide passive income for your retirement.”

Where will you be in 10 years?
When trying to decide whether to rent or buy, it’s always good to look down the road. Imagine yourself in 10 years – will you be better off renting or buying? Quintin Johnstone, a Toronto-based real estate broker, crunches the numbers.

“In the renting versus ownership challenge, the bottom line is how much does it costs and at the end of the day, what is your equity position.  The answer is always clear,” says Johnstone.
Following is a comparison between renting and buying, based on Johnstone’s own detailed calculations.  

 Renting
Johnstone estimated a 1.5 per cent increase in rents based on a cost of living increase, which is allowed by law in Ontario and realistic over the past several years. This assumes, of course, that 1.5 per cent is the cost of living each and every year. “We are not talking about market value rents, which are tied to vacancy rates (supply and demand) versus cost of living,” says Johnstone.

“Market value occurs when a unit is vacant and a landlord can get whatever rent the market allows.  Cost of living allowable increases occur when rental properties are occupied thereby the landlord is limited by law to what increases are allowed.”
 
 
Rent over 10 years
(Assuming a compounded increase of 1.5% annually)
(Not including taxable benefits)
 
Year
Monthly Rent
Annual Rent
Accumulated Total Rent
(compounded)
 
1
1,093
13,116
13,116
 
2
1,109
13,313
26,429
 
3
1,126
13,512
39,941
 
4
1,143
13,715
53,656
 
5
1,160
13,921
67,577
 
6
1,177
14,130
81,707
 
7
1,195
14,342
96,048
 
8
1,213
14,557
110,605
 
9
1,231
14,775
125,380
 
10
1,250
14,997
140,377
 
Equity Position = $ 0
 
 
VS
Owning
Here is a breakdown on owning a property, assuming you purchased a condo (one bedroom + den - 800 sq ft unit) for $180,000. It is based on a 25 per cent down payment of $45,000, a mortgage amount of $135,000, and monthly payments of $674.01 (3.5 per cent interest rate, 25-year amortization).
After 10 years of owning this property:
Balance of mortgage
$94,448
 
Interest paid
$40,329
 
Part of mortgage payments that the owner has effectively “recaptured”
$40,552
 
Maintenance fees ($0.55 per sq.ft and based on an increase of 1.5% compounded annually ($440 monthly)
$56,510
 
Property taxes (Toronto used in this example) - $1,538.61 over 10 years with an increase of 1.5% compounded annually
$16,467
 
Total costs
Mortgage costs = $40,329; Maintenance costs = $56,510; Tax costs = $16,467
TOTAL: $113,306
 
Market value escalation – assuming a 1.5% increase in market value compounded over ten years = $205,810. Less original cost of property ($180,000) =
$ 25,810 (conservative)
 
 
Assumptions
In making this comparison, please factor in the following:
·         Not assuming down payment as “a cost”
·         Not assuming down payment invested elsewhere with a return (eg. Investing this money in a bank account or on the stock market)
·         Assuming 1.5 per cent cost of living increase in rent, maintenance and taxes (all compounded annually)
·         Assuming a (modest) market value increase per year of 1.5 per cent
·         Closing costs may vary depending on location of property - not included but assume at least two per cent of purchase price
Final analysis
·         Renting costs $ 140,377 and provides a home but no equity position
·         Owning costs $ 113,306 but provides an equity position of $ 111,362.
·         With an aggressive mortgage payment schedule (e.g. weekly payments) an owner can realize full payout of a mortgage within 17 - 19 years.

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