Renting or owning a place to live both have their own advantages. It’s important to compare the two to know whether buying a home is the right choice for you.
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What are the differences between renting and owning a home?
Everyone’s financial situation is different. The cost of owning a home can be high depending on where you live. Sometimes renting can make more sense.
Renting and owning each have advantages and disadvantages. It can be useful to compare differences between renting and owning a home to determine what’s right for you.
Renting
| Advantages | Disadvantages |
|---|---|
| • Lower initial costs (rental deposit, moving costs) • Your landlord is usually responsible for repairs and maintenance • You have more flexibility to move on short notice • You pay no property taxes | • Your monthly rent goes towards the landlord – you won’t build any equity • Your rental payments may not contribute to your credit history • You may not be able to rent out rooms or sublet to generate income • Rental prices may be higher in more convenient locations • It may be harder to find a rental property depending on family size |
Owning
| Advantages | Disadvantages |
|---|---|
| • You build home equity as you pay off your mortgage • Your home is an investment that also gives you a place to live • Your home value can increase over time • You can create income by renting out your home • Your mortgage payments contribute to your credit history | • Saving for a down payment can be challenging, may need help from family • Affordable properties may be located in a different neighbourhood or city than where you work • Housing costs include property taxes, maintenance fees (for condos) • You are responsible for repairs or unexpected maintenance costs • Home prices can fluctuate, meaning there is no guarantee how much your home will be worth in the future • It can be harder to move on short notice, as it can take time to sell and find another place to live |
Housing prices can fluctuate significantly from year to year. If you’re not sure what’s realistic in your area, try looking up rent prices where you live. This can give you a baseline to work with when planning your budget.
How do you determine how much you can afford?
Whether you’re renting or planning to buy a home, you’ll need to know how much you can afford to spend each month on housing. Your housing costs may include:
- Rent or mortgage payments
- Utilities (heat, water, electricity)
- Condo fees (if owning a condo) and property taxes (if owning any property)
- Insurance
One method to determine what you can afford is the 50/30/20 rule. This formula allocates 50% of your take-home pay (the amount you earn after tax is deducted from your pay) for needs, 30% for wants, and 20% for saving and repaying debt. In this method, your needs would include housing costs as well as groceries. Find out more about needs versus wants.
The 50/30/20 rule is a good place to start, but it may not be a realistic rule for everyone. Depending on the city you live in, half of your after-tax income may not be enough to cover minimum living costs. But it can be a starting point to determine the calculation that’s realistic for you.
It’s also good to have a sense of how much you can spend on housing costs without jeopardizing your other basic needs, like groceries, utilities, transportation costs, and debt repayments. You should ideally be able to keep making savings and investment contributions each month, even if it’s small amounts.
Try the affordability calculator to estimate how much rent or mortgage you could afford each month.
What else should you consider when deciding where to live?
The choice to rent or buy can have a big impact on how much you’ll spend each month on housing costs. But location is also important. Make sure to also consider important lifestyle variables such as:
- How long do you expect to live in your home?
- What type of home do you ideally want to live in – i.e., a house, townhome or condo?
- What neighbourhood features are important to you – i.e., transit, schools, being close to family?
- What type of commute will you expect to have? Will your commute be longer or shorter in the area you might be likely to rent or buy?
Location considerations can make a difference to other aspects of your budget, such as transit costs, the local price of groceries or other everyday items, and the type of amenities nearby. It may be less expensive to live in a neighbourhood with a longer commute, which means transportation costs would be higher.
Overall, if owing a home feels within reach, it may be helpful to talk with your family about how much you expect to need for a down payment, and where you want to live. Check out these steps to buying your first home.
If renting a home is more realistic for you, then this also gives you some clarity. You can focus on other long-term goals such as saving for retirement, running a business, or saving for your children’s education.
The cash flow calculator can give you a snapshot of where your money is going. And try setting a budget to keep your spending on track.
Summary
When it comes to where you live, the choice to rent or buy can be difficult. To help you decide, consider how much you can afford to spend each month on housing, and how this affects your other financial goals. Renting and buying each have different advantages:
- If you rent, you may have more flexibility to move when you need to, and fewer costs associated with repairs or maintenance.
- If you plan to own your home, you’ll have a place to live as well as an investment that may be of higher value later on.
- Make sure to consider the other potential costs associated with where you live, such as transit, local amenities, and groceries.
