Owning real estate is a dream come true for many and in our opinion, always the best option when possible, but in today’s market it comes with a high cost of high interest rates and a shifting economy. The answer to the complex buy-or-rent question is not black and white, considering the many variables at play. Perhaps, a better question to ask would be “Should you buy or rent RIGHT NOW?” To paint a better picture and make an informed decision, let’s break this down into a series of questions you should ask yourself before deciding.
Can I Afford the Down Payment and Closing Costs?
Determine your ability to make a down payment and cover the upfront costs of buying a home. How is your credit? How long have you been at your current job?
What Is My Budget?
A detailed budget should include your mortgage payments, property taxes, insurance, maintenance, and utilities. Compare this to your current rent.
How Prepared Am I for Unexpected Expenses?
Do you have an emergency fund? Homeownership more often than not brings unexpected repairs and maintenance costs.
Do You Know Your Price-to-rent Ratio?
The price-to-rent ratio is a simple calculation to determine if the current market you want to buy in is potentially overvalued, and if you might be better off renting:
1. Take the price of the property you are thinking of buying.
2. Divide that number by the total annual rent amount of that same property.
If the number you get is between 1 and 15, it’s suggested that it is much better to buy than rent. If it’s between 16 and 20, it’s a tougher call, but it’s typically better to rent than buy. If it’s above 21, then it is strongly suggested that you rent instead of buying.
Lifestyle and Personal Goals.
What Are My Long-Term Financial Goals?
Consider how homeownership aligns with your broader financial objectives and retirement planning.
What Are the Market Conditions Like in My Area?
Research local real estate market conditions with your real estate professional, including property values and rent prices.
What Type of Property Suits My Needs?
Establish your current and future needs in terms of space, location, and amenities based on your lifestyle.
Have I Explored All Financing Options with a Mortgage Broker?
Learn about various mortgage options with a mortgage professional, such as fixed-rate, adjustable-rate, or loans.
Have I Consulted with a Real Estate Professional?
Seek guidance from a real estate agent specific to your situation. Realtors are trained professionals with expertise and experience in the real estate market and they understand the complexities of the buying and selling process, local market trends, pricing strategies, and legal requirements.
Do I Understand the Full Cost of Homeownership?
Be aware of all expenses, including property taxes, insurance, and fees associated with homeownership.
What Are the Tax Implications?
Consult with your accountant or your tax advisor to understand the tax benefits and implications of homeownership.
Types of Real Estate Investments.
The fact is when it comes to investing, British Columbia real estate has steadily increased in value over time and has been proven to be a safe and stable investment vehicle that outperforms most other types of investments. If you can’t afford a mortgage where you want to live right now or in a home that is suitable for your personal needs, suburban properties are often more affordable than those in major cities. Buying a property in another area, or a more affordable option in your desired location that can be rented out and then leasing in an area you can afford, can generate constant cash flow, provide long-term capital growth and will allow you to live and rent anywhere you choose.
Co-ownership is another avenue to get into the real estate market while allowing you to share the financial burden and responsibilities of purchasing and maintaining a property. This can make homeownership more affordable and accessible. Co-owning enables you to pool resources and potentially afford a larger, more desirable property than you might be able to purchase individually. Whether it means investing with a friend or purchasing a property with family allowing for multi-generational living, there are many options available.
Alternatively, investing in a pre-sale property offers many benefits for homebuyers and investors. Often available at lower prices compared to completed properties in the same area, they are another great investment with many advantages. They usually require a sieable deposit early on, but do not need to be paid in full until the build is complete, often years in the future. For those who need time to save for the property, this could be particularly beneficial.
In conclusion, you should seriously consider owning a property when:
• You have chosen your ideal location to live and want to own a home there
• You can take on the costs of owning a home
• You are interested in making an investment with a proven track record like real estate in British Columbia
You should consider renting instead of investing in real estate when:
• You are still saving for your down payment
• You are new to your career and need more time to qualify for a mortgage
• You want to invest your money elsewhere.
Ultimately, owning real estate over the long term has proven to be one of the strongest sources of financial security and financial freedom for those fortunate enough to be in the market. When it comes to renting vs. owning a property today, there is no one right answer for everyone. It requires taking an honest look at your personal and financial goals. If you choose to rent, at least for now, take the opportunity to set up an automatic saving plan. Buying, however, in today’s market of high rates would put you ahead of buyers that will be bidding on properties when mortgage rates drop, and home prices rise again.
At Stilhavn, we understand the unique opportunities and challenges that our markets have to offer, and will be our pleasure to talk you through any questions or concerns you may have. Reach out to one of our market-leading Realtors® today.