Encouraging someone to rent instead of buy goes against my business model and it’s not something I usually encourage. However, despite my belief in the power of real estate investing, I recognize that there are times when renting is the smarter decision. Read on for six scenarios where you should rent over buying real estate.
Scott McGillivray is a real estate expert and host of HGTV Canada’s Income Property and Moving the McGillivrays.
Published February 14, 2018, Updated February 9, 2020
You Have No Savings
Buying a house takes a lot more than a down payment. There are closing costs, insurance, property taxes, maintenance, repairs and more. So not only do you need money for the upfront costs, you also need an emergency fund for dealing with the unexpected. An appliance could break down, the roof could leak or the furnace could cause problems. If something happens there’s no landlord to come and fix it for you. If you don’t have any savings, you might have to either borrow money or use credit, which can make it cost even more in the long run.
Related: Scott McGillivray’s Tips for Surviving a Bad Real Estate Buy
The Housing Market is Overpriced
This is a tricky one, because regardless of how overpriced the market is, I still believe there are ways to find deals and create equity through value-added renovations. However, in some cities (Toronto and Vancouver I’m looking at you), buying a home is just too far out of reach for a lot of people. Coming up with a down payment on an $800,000 home is a lot different than on a $300,000 home and if you’re just starting out or have a low income, it’s virtually impossible. If you can’t comfortably afford a down payment, mortgage costs, maintenance and potential repairs, you may be better off holding out and waiting to see if prices go down. While you’re waiting, you can keep putting money aside and increase the amount of your future down payment.
You Have Bad Credit
Having less than stellar credit can make buying a house difficult, as you’ll likely have to pay a higher interest rate. Since your lender is going to look at your credit score to determine how likely it is that you’ll make your payments on time, a bad score will make you seem like a pretty undesirable candidate. It doesn’t mean you won’t get a mortgage, but it may mean you have to go with a private lender and pay a higher interest rate. In this case it might be a wise idea to keep renting while you build up your credit score. Once you’ve got your financial health back in order, you can then look into getting approved for a mortgage at a better rate.
You’re Relocating Soon
If you plan on moving again in the next couple of years, it might be smarter to continue renting for the time being. The costs of purchasing a home can add up and it takes a few years before you get things evened out and start building real equity. Rather than paying the costs associated with buying and selling, consider staying put in your rental and building up funds for that future purchase.
You’re Retired and Need the Equity
As you get on in years, particularly if you’re retired and no longer have a regular income, it might be wise to sell whatever property you have and look into renting instead. That way the money you may need to live on will no longer be tied up in a house, but you’ll also be free of things like maintenance and repair issues. That said, it can be a tough adjustment after owning your own home for many years and for people who have paid off their mortgages, it may seem counterproductive to start paying rent again. In the case of retirees, it all comes down to your financial goals and objectives.
You Have an Expensive Commute
A lot of people who live in expensive cities end up moving out to the suburbs where housing is more affordable. This is great if it suits your lifestyle, but don’t forget to take the cost of commuting into account. Aside from the fact that you’ll be spending more time in the car or on the train, you’ve also got to figure out how much it will add to your monthly budget – whether it’s a straight-up train ticket cost or if it’s gas, insurance and wear and tear on your vehicle. Depending on your location and the potential travel costs, it may make more financial sense to stay put and keep renting for a while.
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