Renting Vs Buying a House

Renting Vs Buying a House

There are a ton of arguments about whether renting a house or buying a house is the best option, both definitely have their benefits but here is why I think renting a house is the better option.

Buying

When you buy a house you have to save up a large down payment, along with the closing costs. I live in Niagara Falls and the average home price here is around $730,000, to buy the average priced house you have to come up with a down payment of $176,000 on top of that paying $11,000 in land transfer tax as well as about $2,000 for lawyers fees.

In today's day and age it takes the average person a ton of time to save up that large down payment, even if you’re able to find financing that will allow you to do 5% down, it’s still a large chunk of money and increases your monthly expenses. Let’s also suggest you are an average income earner which is $52,000 per year, that means you make $4,333 per month. Let's also suggest your partner makes the same and you split the bills. On a purchase price of $730,000 your monthly payments are going to be $3,200 a month. Not only that, you have taxes, utilities, insurance, etc. So your monthly living expenses are about $4,000 which is $2,000 each.

This means that almost 50% of your monthly income goes to living expenses. So not only did you take years to save up the $189,000 to buy this property, you’re also spending $4,000 a month.

Renting

Now let's compare it to renting, let's say you take the average 2 bed in my area which is around $1700 a month. You’ve now just cut your living costs by $2,300 plus you didn't have to come up with such a large down payment. Let’s assume all the money that you were going to spend on buying a house you decided to invest that into an index fund that returns an average of 9%. In 25 years your investment would be worth $4,060,000.

Let's compare that to the house, let's say in 25 years you completely pay off the house, and it has appreciated 2% over the last 25 years your house would be worth $1,220,000. That's a difference of $2,840,000. This also doesn’t account for repairs that come up. When you’re renting, the landlord pays for all the repairs, when you own, you’re responsible for it.

Conclusion

In my opinion most people are not going to take every dollar they were going to invest in the property and invest it into an index fund, I don’t think most people have that discipline. I think neither of the options are the best way. In my opinion I think using the house hacking strategy is the best way to build wealth but also not have a monthly payment every month. It's when you buy a 2-4 unit property, live in one unit and rent the rest out and if you do it right your monthly income of the property surpasses the expenses. Then the money you would’ve spent on rent could be invested.

Key takeaways

There are benefits to renting and buying

When people own a house they don’t account for repairs over time

House hacking is a great way to take advantage of owning without paying anything