Renters vs. buyers: devil's advocate for renters

Ginger Dean

January 27, 2015

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

Most people see buying a home as a part of the "American Dream," but for most it's become a nightmare. A lot of would-be homeowners can no longer afford to buy, and others simply have been turned off of home ownership after watching the real estate market crash. That leaves them as renters. And renters, it turn out, may be getting the better end of the deal. Why? Let's take a look at some of the reasons it might pay to not own a home:

You never truly own the home. Even after paying off the mortgage, there's still property taxes, HOA fees, home insurance, and other mandatory costs which make buying a home a veritable money pit. You must consider every single penny that you spend in direct or indirect relation to the home. Five years ago, real estate investors would only consider the purchase price and subsequent sales price to determine the profit made. Nowadays with reduced and nonexistent equity, investors are looking at every penny to determine whether or not the deal is worth it.

Renters only rent. No HOA fees, property taxes, home insurance, home repairs, or any other cost usually handled by the landlord. The counter argument here is that the landlord rolls all of these fees into the rent. However, consider that while this may be true of some rentals, it is not of all rentals. In some cases, doing this drives up the rental rate which makes it unattractive to most renters. Consequently, there are many landlords who eat the cost of extraneous fees as it is better to have someone in the unit than have it empty.

There is no guarantee of a "permanent home" with home ownership. As we've seen with the recession, should you lose your job and exhaust all reserve funds, you are out of luck and that home will be sold to the highest bidder.

Renters can usually rent for as long as the landlord will allow or needs a renter in the home. And if worse comes to worst, and a renter has to leave due to financial concerns, they can find a cheaper rental until things get better. When you own a home, even if your financial situation changes, you must continue to pay the mortgage payment as agreed upon during closing.

Buying a home locks you in for as long as you own the home. Think you'll just sell it should you find yourself in dire straits? Given that most homeowners who bought their homes in the last 10 years are underwater, that's not a given. Though it isn't impossible, sometimes the only chance of getting out is to strategically default or sell via short sale if you're underwater. Both options trash your credit since the originally agreed upon balance isn't what the bank receives in the end.

Renters, on the other hand, are free to go at the end of the lease, which can be month to month or even upwards of 2 years. There's also the option to break the lease with a fee paid, and even that may be waived if the renter or landlord is able to find someone to replace the renter.

Today's economic conditions require a 20% down payment. In some areas, this can be as much or more than $100k for a starter home. Once you sink the money into the home, you don't see it again unless you're lucky enough to sell at a profit. This is a gamble, and unfortunately, many homeowners come out on the losing end.

Renters only need to put down the 1st month's rent and security deposit. The latter is returned at the end of the lease term assuming everything is in good shape.

Home ownership is no longer an investment. With the recession, this became a daunting reality for many homeowners. Home equity became non-existent which meant kissing goodbye the good ole "forced savings" theory. For this reason alone, renters come out on top since the lack of an investment potential makes the argument "buying is more advantageous" a moot point.

Renters in this case, just pay rent with no expectation of long term investment potential.

If you're still convinced that buying a home is the right thing for you, there is a new housing rebate you could take advantage of. Homeowners can obtain the HST New Housing rebates you're entitled to from government agencies. Take a look and see if it makes sense for your situation!

What's your perspective on renting vs buying? This is an age old debate that's certainly changed course over the last few years. Which side of the fence are you on? Renting or buying?

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