Real Estate Issues: Buying Versus Renting
The real estate brokers and bankers say a home is a terrific investment, and it is—for them. They collect commissions on every sale and interest payments on every mortgage. Home ownership, however, may or may not be the best investment for you.
The net cost of buying versus renting can be calculated with seven numbers, two sums and two assumptions. Use this handy worksheet to determine your best option:
| Included in the Total Annual Cost of Home Ownership | |
| Mortgage payments including principle and interest | $___________ |
| Property taxes | $___________ |
| Maintenance costs or condominium fees | $___________ |
| Utilities including gas, electric, water etc | $___________ |
| Sum of the above: | $___________ |
| Maintenance costs or condominium fees | $___________ |
| Included in the Total Annual Cost of Home Rental | |
| Rent | $___________ |
| Tenant (contents) insurance | $___________ |
| Sum of the above: | $___________ |
Assumption 1. Should the rental cost be less than the ownership cost, you invest every dollar saved.
Assumption 2. You will earn exactly as much each year on your investments as your home would appreciate in value.
This exercise can be a real eye-opener because people rarely consider those two assumptions. Also note that, if the costs of owning a home would prevent you from maximizing your RRSP contribution, you should definitely consider renting.