There are all kinds of reasons why people rent. Finances, short-term jobs or plans to move elsewhere in the near future are all motivations to rent instead of buy. However, one common reason many people prefer not to rent is a universal myth: renting is throwing your money away.
Sure, it can seem as though you’re setting those hard-earned dollar bills on fire by renting a home rather than investing in your own. But with higher real estate costs, inventory issues and complicated mortgage rules, that’s no longer the case.
According to the latest census report in 2021, one-third of Canadians rent. Of those, 63 per cent feel they’re destined to be life-long renters. The good news is that renting can benefit your portfolio and your lifestyle, depending on where you choose to live, your age and your overall goals.
Related: These Are the Hottest Canadian Cities for Renters
Why Renting Can Save You Big
Have you ever heard the term “house poor?” It occurs when you purchase a home, only to have so much of your income go towards housing bills that there’s not much left — for savings, other financial needs or fun. Many homeowners who believe it’s important to own their property fall into that trap. But sometimes, it’s smarter to spend less on rent and save more.
Work with a financial planner or other experts to see if you can procure a savings rate that will outperform the house appreciation and mortgage fees in your chosen area. In some cases, you can earn more than the value of a house by avoiding a large mortgage payment and putting that extra money into an interest-generating account.
However, it’s important to remember that basic bank savings accounts won’t necessarily make you money. They typically offer very low rates (an annual percentage yield of 1 to 2.5 per cent). Canada’s average household savings rate is much higher, at an average of 6.1 per cent, at the end of 2024. So, if you want to increase your portfolio with money saved by renting, ensure you work with the proper professionals to max out your rates.
Hidden Savings of Renting
When you purchase property, you’re also responsible for paying a slew of expenses that go with it. That includes property taxes, land transfer taxes, maintenance and upkeep, and any renovations or redesigns. That’s all on top of the hefty down payment. When you own a home, you are also responsible for fixing everything and anything that goes wrong; and if you aren’t saving for a rainy day on top of sky-high mortgage rates, you could find yourself in trouble.
Maintenance fees are also a consideration for those who purchase a condo or townhouse. Plus, insurance tends to be lower for renters than owners.
Related: Top Renter-Friendly Cities That May Surprise You
The Lifestyle Benefits of Renting
One of the biggest benefits of renting is that you generally have predictable expenses, which makes planning for the future much easier. But there are several lifestyle factors to consider, too. If you’re not ready to settle down in one place or commit to a specific city, renting can be an ideal way to get a feel for a place. It’s also great if you’re looking for flexibility and the ability to relocate quickly with fewer upfront costs. If you’re renting a condo, they usually offer you many desirable amenities, like a gym, party room and other convenient extras.
One of the best benefits of renting is that you aren’t responsible for maintenance and repairs, which saves money. Of course, depending on the person you’re renting from, relying on someone else to fix things up in a timely and efficient manner can be a bit of a gamble. That’s why you should always ask about the repair procedure and set up a potential meet-and-greet with the maintenance person during a rental home viewing.
Factors to Consider Before Renting
Renting isn’t always the best solution for every situation, but it’s also not the same as throwing your money away. If you are thinking about renting over buying a home, think big picture. Be honest about your financial situation and how you can save the most money in the foreseeable future. Market conditions, the mortgage rate you can secure and job security all factor into that.
It’s equally important to be honest about your lifestyle factors and know what you want from your home. Is it more important to live closer to work and rent than to commute two hours a day from the suburbs? And what kind of flexibility do you need in your life? Will you need a bigger space in the next few years, or can you stay put for a while?
Before you sign a lease or a mortgage, ask yourself these critical questions. By covering your bases and planning for your needs, you’ll find a situation that works for you and keeps as much money as possible in your wallet.
