Should I Buy a Home or Rent, Which is Better?

Should I Buy a Home or Rent, Which is Better?
Should I buy or should I rent? This is a perennial question
for those who want to move into a new home. While many
people answer this question with broad generalizations, not
backed up by actual facts and figures; the best way to
determine whether you should buy or rent a home is to
compare all the costs, factors and figures involved. Let's
take a detailed look at the question, comparing rental
costs, mortgage payments, increases in home values and
other factors which determine whether a person who buys a
home gets a better deal than someone who just rents.

As an example, let's compare renting to buying a $250,000
home with 5% ($12,500) down payment. Purchasing this
property in Toronto would require about $6,000 closing
costs and an approximate total of $2,000 per month which
includes mortgage payments ($1,460), property tax ($150)
and maintenance fees ($390). The rent on the same property
is about $1,500 per month, therefore it would seem like it
is easier to just rent the home instead of purchasing and
to invest the $500 extra monthly payment, down payment and
the closing costs.

The total investment growth from renting could be
approximately $ 7,115 after 5 years. This was calculated by
growing the monthly savings from renting ($500.00) plus the
down payment of $12,500 and closing costs of $6,000 at a
standard after-tax rate of 4% per annum. Indeed after five
years, a person who rents could retain $55,615.

Now what about the position of the person who buys a
$250,000 home with 5% down payment? After deducting the
down payment ($12,500) and adding the mortgage insurance
($6,531) to the purchase price, the buyer takes a 25 year
mortgage at 5.3% in the amount of $244,031. What would be
his or her situation after selling his home at the end of
the five year term? If there was an estimated increase in
property value of 5% per year, after five years the
$250,000 home would be worth $319,070. By subtracting the
approximate selling costs ($20,000) and the mortgage
balance at the end of the five year term ($216,990), the
net amount received after a sale would be $82,080.

In this case, the person who bought and then sold the home
after five years would have about $26,465 more than someone
who just rented and invested the $500 extra monthly
payment, down payment and the closing costs.

This is just an example and the figures presented here are
just an estimate. A lot will depend on the trend of the
housing market in your area, interest rates on mortgages
and the interests earned on investments. Check with the
real estate and financial experts in your area and seek
professional advice to make a wise decision.

So, if you are not sure whether to buy or rent, do not make
the decision only by looking at how much you would pay per
month as a homeowner or a tenant. With a help of a
qualified professional, calculate all the costs and
investment growths and compare your probable position as
either a home owner or a renter at the end of a certain
time period, then make your choice.

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Hamed Mahmood Salehi is a Toronto Real Estate Broker. His
website http://www.FindYourHomeValue.ca/ offers great tips
for home buyers and sellers, free home evaluation, real
estate news and information about Toronto home values.