Your parents, your friends, maybe even your financial advisor – if you rent, you’ve probably heard people talk about you ‘throwing your money away’ as though you were folding $100 bills into paper airplanes… and then lighting them on fire without even throwing them. The reality is, buying a property is making an investment, and not all investments are good ones. Overpriced homes in heated markets (are we past that yet?) don’t necessarily appreciate in value and on top of it there are maintenance costs, bank interest, real estate and legal fees, and so on. On the other hand, renting isn’t an investment at all, it’s paying for a space to live! There are much more wasteful ways to spend your money! You’re also relieved of a lot of the headaches and expenses of owning, or at least renting brings its own headaches but usually much less expensive than, say, replacing a roof.
Of course what those well-meaning associates are getting at is that your rent isn’t an investment, where at least the non-interest part of your mortgage is. We experienced something unusual in Saskatchewan over the last 15 or so years where artificially low prices suddenly caught up with demand. People with $80,000 homes they’d bought in 1990 could turn around and sell those home for about double that only 5 years later. That sort of investment return is hard to forget and may be part of the reason for what might be considered a bit of excess enthusiasm. If you’re renting, you’re paying someone else’s mortgage, or at least part of it, but if you, for example, go to a restaurant and have a meal, you’re paying part of that restaurant owner’s mortgage on their home or business, not to mention the servers, cooks, and others that the restaurant pays to provide you with that meal and somewhere to eat it. If you pay for a service, in this case, a roof over your head, what the service provider uses the money for is irrelevant and ultimately, a large business expense that if it wasn’t paid for, would mean you’d have to find a new place to rent.
All this is really preamble for a great comparison of renting vs buying by the Globe & Mail that is worth a watch for anyone making a financial plan for their future: