Editorial: To Buy or to Rent? That is the Question

What’s more expensive than buying into Vancouver real estate? Not buying into Vancouver real estate

Buy-vs-Rent-weighing.jpgAh, the age-old debate of buy vs rent. It never gets tiresome, and there are countless opinions on the topic. So I thought it was time to add mine.

There has been a big media hoo-ha on the topic this week, following the release of RentSeeker.ca’s list of rental versus purchase prices across Canada. Huffington Post followed it up with an article on whether it’s generally better to buy or to rent, based on these figures. The article seemed to come down in favour of generally renting, which I suppose is meant to appeal to its hip young readership. Or something. I was even invited into the Roundhouse Radio 98.3FM studios, on which I host a Saturday morning call-in real estate show, to be a guest and discuss this very topic, and I’ll be addressing it myself this Saturday morning on air. So there’s been a lot of debate this week on what’s right and what’s wrong.

But to me, it’s a no-brainer. At least, usually.

Here’s the thing: we all know that when we rent a home in the long term, we’re paying off a landlord’s mortgage when we could be paying off our own – that you’re essentially flushing money down the can. But obviously, buying a home in one’s chosen area is not an option for a lot of people, so many people feel that there’s no choice in that. However, they’re wrong.

Vancouver is a really expensive city, for a lot of reasons I won’t go into now, and there are an awful lot of people that choose to live in a really great area of this really expensive city. And they don’t earn enough to buy a home in that neighbourhood, so they rent their homes. And they get used to that great lifestyle and never end up buying a property – which is fine... for a while. But eventually, one of five bad things is going to happen. I guarantee it.

  • Here’s possible scenario one: they get evicted and, with the rental vacancies in Vancouver at less than one per cent and rents skyrocketing, it’s really hard to find another place. So they have to either pay increasingly high rent or otherwise move to increasingly cheap neighbourhoods.

  • Or two: their rents are jacked up, and ditto, it’s either pay more or move further out or to a smaller home.

  • Three: neither happens and they rent happily for decades. But eventually they retire and can’t afford the rent into their old age on their pension.

  • Or four: even if they can pay their rent in their retirement, they’ve no home to sell in order to pay for huge care home bills at end of life.

  • Or, finally, five: they die in their rental homes with nothing to bequeath their own family, so the younger generations can’t afford to buy either and any one of those scenarios happens to them.

It can be a pretty bleak reality for permanent renters.

And, yes, it may be initially more expensive to buy a home, and you might have to save a long time for a down payment, and you might have to initially live in a slightly lower grade of home or area to afford it (I know I did). But financially it’s like taking one step back in order to end up 10 steps forward. Never mind the additional joy, contentment and sense of pride that one can enjoy by owning their own home.

So then, people ask me, what about if you just can’t bear to live in an area that you could afford to buy in, or it’s just not possible for your commute, or your kids’ schools? Here’s a solution for you.

If you get into a position where you have enough cash for a down payment, you can buy an investment property that you don’t even need to live in yourself – rent it out to someone else and continue living in a rented place in your chosen area. (Full article on this approach here.) That way you still get to live where you want, but now you are one of those landlords making stacks of cash from this mad rental market. There’s the added bonus that you have no risk if you ever get evicted and can’t find another rental place, as you’ve got your own home you can move into, at least temporarily. That’s especially important for families who are long-term renting – unless you fancy couch-surfing with your partner and kids.

To me there’s only one demographic group that can get away with renting long-term without it damaging them financially, and that’s those people who are wealthy enough to buy if they wanted to, they just choose not to because of convenience and flexibility. If you are renting a home that enables you to invest for your future all the money that you could’ve spent on buying a home, including higher monthly payments, maintenance, taxes and everything, it can be just as financially stable as actually buying a house. As long as you’re doing that, you’ll have a great retirement income and then you can afford to still pay rent in retirement and support your family. And you’ve got a financial buffer if you get evicted or rents rise.

But the problem is that most long-term renters aren’t doing that. Most of them are paying a rental price because they simply don’t have the money for the purchase price. If that’s you, then you need to consider that you are living in an area that is too expensive for your income, and you need to take responsibility for your financial wellbeing. The lifestyle and convenience that you are paying for now is great for a while, but as rents rise and vacancies tighten further, it’s going to come back to haunt you eventually. Move somewhere cheaper, and start investing in your future.

When I hear people tell me they can’t afford to buy a home, I do hear them, but I have to say, “Sure, but what you really can’t afford is not to buy.” If that’s you, speak to a mortgage professional and a real estate agent about what your options are. It’ll be free advice and you might be pleasantly surprised with what you could do.

You can catch Joannah Connolly dispensing advice as the Real Estate Therapist every Saturday morning from 9am-10am on Roundhouse Radio 983.FM and streaming live on roundhouseradio.com