Buying vs Renting in Calgary

"To do an apples-to-apples comparison of renting vs. owning, look at the non-recoverable costs in each case. The non-recoverable cost of renting is easy: it's your rent. The annual non-recoverable cost of home ownership is roughly 5% of the market value: 1% for property tax, 1% for repairs and maintenance, 3% for cost of capital." - A great point and valid argument, but it does get a lot deeper than this! There are a few more scenarios (for both sides to consider). 

The 5% rule though isn't that easy, there is much more to consider:

The cost of capital is pre tax, anything you make on stocks and investments will be taxable, if you do decide to invest the money and the market dips you could be out a significant amount, and most importantly the increase in prices for homes. 

Consider this, in 2015 Port Coquitlam was under $600,000 for benchmark prices on homes. Today, it's over double that and is trending towards the $1.3 Million dollar mark. Townhouses went from under $400,000 to over $750,000 in that same time frame, and apartments saw an increase from under $250,000 to just above $500,000 - Economists at the mortgage sandbox predict that the Vancouver market will continue to increase. If Calgary sees growth similar to what it saw in the early 2000's, or anything similar to the HOT Ontario and B.C. markets, renters could find themselves in a position to be unable to purchase for even longer as we're continuing to see new mortgage rules from the Government of Canada that will ultimately make it tougher for buyers to purchase making the benchmark minimum of 5.25% from 4.79% previously. 

Increases in the Market = Increase in Equity

When you own a home that doubles in value, moving to another home is pretty simple and in some situations (Moving from a hot market to a more typical market) gives you the opportunity to really get ahead. If you owned and your properties price effectively doubled, a move to a cheaper market could land you in a position where you could outright buy a new home with cash proceeds received from the sale of your property. Alternatively, if a market spikes and you aren't holding, you'll be at the mercy of that market until it comes back, or you're able to catch up to it.  

We had clients who recently moved from Ontario to Calgary, they had purchased a townhouse just over 5 years ago for around $500,000 and when they sold a couple months ago in the beginning of 2021, they sold it for just under $1,000,000, when they moved here, they were able to purchase a $750,000  with over $500,000 in cash in hand, had they rented since 2015 while living in Toronto they would have paid roughly $150,000 in rent that they would never have seen. During that time, they were able to not only build equity but also were able to achieve quite a bit of financial freedom by holding and owning real estate. Something a renter could not have achieved. 

With all that said, we're going to break it down further with a list of different pros and cons of renting and buying.

Pros of Buying a home 

• Payments build equity 
• Stability. If you've ever rented, you know the nature and unpredictability it can bring. While some renters may stay in a place for 10+ years with no issues, others are required to move yearly due to landlord issues, sale of the property, rent increases, etc. 
• Could easily be cheaper than renting, especially in markets where rental demand skyrockets 
• Privacy - Depending on your landlord situation, you could be seeing visits monthly or bi-monthly visits from a property maintenance company or your landlord, in fact, some insurance companies require that a landlord visit a home every 30-60-90 days to ensure it's in good condition. 
• Historically is a good investment 
• More pride in ownership and stronger community ties 
• Market increases provide flexibility and equity growth 

Pros of Renting a home 

• No tax or maintenance costs 
• No down payment required
• Lower upfront costs  
• Easier to move
• Fewer expenses, utilities may be built into rent
• Opportunity to put difference of rent vs home ownership into investments 

Cons of Owning a Home

• Bigger upfront costs - Down payment, maintenance, repairs, etc. 
• Less mobility. Selling costs are much higher than rental costs when it comes to moving, a job offer you can't refuse out of town that's given one year after moving in could cost you significantly when you factor in selling costs, legal fees, and mortgage breaking costs if necessary 
• Property values could fall
• Typically a long term commitment 
• Foreclosure is a possibility 

Cons of Renting a Home

• Rent never stops. If you're able to pay off your mortgage in 20 years, that's it, you can stay there and start utilizing the mortgage payment money elsewhere. There's no rent relief when retirement comes around. 
• No creation of wealth
• No credit score improvement 
• Less Stability - You could be evicted with as little as 90 days notice in most normal instances 
• No fixed costs - You could lock in a mortgage today on a 7 year fixed rate for under 2.5%  
• More rules and restrictions. This can include limited to no pets, no remodeling / decor / painting etc 
• Nothing to pass along. While younger buyers may not consider this, it's important to consider how difficult it is for millennials and younger generations in today's market to purchase in most major cities. As prices continue to climb, more and more sacrifices and money is required to be able to own a home, in 35 - 50 years it may be more important for you to have a property that you can pass along or will to your family