Should You Rent or Buy?

Nov 13, 2024

Buying a home means more control and the ability to build equity. Renting is more flexible and might be cheaper. The best option depends on your personal circumstance and goals.

Written by Kurt Woock

Lead Writer & Content Strategist

Edited by Beth Buczynski

Head of Content, New Markets

Written by Kurt Woock

Lead Writer & Content Strategist

+ 1 more

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Almost 2 in 5 (39%) Canadians say owning their own home is a priority because it is a good investment, while 23% say it allows them to put their monthly housing payments toward equity rather than rent, according to NerdWallet’s 2024 Canadian Home Buyer Report.

Other reasons buying a home is a priority for Canadians include wanting more space (24%), the ability to pass the home onto their children (23%) and establishing roots (16%), the report found. Fifteen percent of Canadians also prioritize homeownership because it frees them from dealing with a landlord.

Whether it’s best for you to rent or buy a home will ultimately come down to your personal goals and financial readiness. Here are some things you can weigh while making the decision.

The pros and cons of buying a home

Buying a home is a significant decision that requires a commitment and some level of financial independence. While it’s tempting to jump into the real estate market since prices have steadily increased in Canada, you still need to consider the pros and cons of buying a home.

Pros of buying a home

You build equity. With every mortgage payment, your home equity will increase.
Stability. You don’t need to worry about any increases in rent or being forced to move because the owner wants to sell.
Full control. You get to decide how your home looks since you’re the owner.

Cons of buying a home

High upfront costs. Not only do you need to come up with a down payment, but there will also be closing costs required.
Less mobility. You can’t easily pick up everything and move when you own a home.
Variable interest rates. Depending on the type of mortgage rate you choose, your monthly payments could increase in the future.
You’re responsible for all maintenance. You have to take care of all the maintenance, including the costs.
Building equity can be slow. Rising real estate prices are not a guarantee. It can take many years before the value of your home increases.

» MORE: Compare the best mortgage rates in Canada

The pros and cons of renting a home

Many people choose to rent for lifestyle or financial reasons. While others may not agree with this choice, there’s no denying that renting does come with plenty of benefits. If you’re not sure if renting is for you, consider the advantages and disadvantages.

Pros of renting a home

Flexibility. You have much more flexibility compared to owning. You can pack up your things and move whenever your lease is up.
It may be cheaper. You don’t need to worry about maintenance costs, property taxes or mortgage payments.
Less maintenance. Your landlord is responsible for most of the maintenance and repairs.
Increased cash flow. The money you save from renting can be used for other things, such as investments, saving for your child’s education or vacations.

Cons of renting a home

No equity built. Your rent payments don’t build equity or help grow your net worth.
Your costs could rise. Landlords can increase the amount you pay in rent every year.
Nothing is guaranteed. Even though your landlord is responsible for maintenance, they may be slow to address any issues that you bring up.
You could be evicted. There’s always a chance that your lease won’t be renewed, or you’re evicted for another reason.

The cost of buying vs. the cost of renting

Many people who debate the cost of buying vs. renting will often look at a mortgage vs. rent. The argument is that if your monthly mortgage is similar to renting, you’re better off buying so you can start building equity. While that’s a quick way of looking at things, there are other factors to consider.

Rent is an unrecoverable cost, but owning a home also has expenses that don’t build you equity. For example, property taxes and maintenance will typically run you about 1 per cent of the value of your home each year. There’s also mortgage interest and the cost of long-term repairs that need to be factored in. As an owner, you may have less discretionary funds available than renters, which is an opportunity cost. Renters can invest the money they’ve saved and potentially get higher gains compared to owning real estate.

For many people, the decision comes down to affordability. As a general rule, no more than 39% of your gross annual income should go towards housing-related expenses. This is known as your gross debt service (GDS) ratio. Another ratio used is the total debt service (TDS) ratio, where your housing expenses and any other outstanding debt shouldn’t exceed 44% of your gross annual income.

» MORE: How much mortgage can I afford?