**Updated with answer to: In 2013, would you BUY or would you RENT?

[Shwa Girl]

In 2013, would you be better off buying a home or paying rent where you live?

Scenario:
The house costs $400,000 or the rent is $1500/month.
The mortgage rate is 3.9% and the down payment is $100,000.

The renter pays utilities and renter's insurance.

Question: Who will be "richer" by age 65 – the 25 year old renter or the 25 year old home owner?

Answer (from the "experts" ) later…

[lizzie bargain]

I am really not sure of the correct answer-but I do know there are other factors besides financial to take into account- for eg some people don't like the worry or responsibility of maintaining a home they own whereas others would prefer to own so that they don't run the risk of having to move on short notice if the landlord sells the property etc. I know we are in the latter group that prefers to own if possible and even if it cost us more in the end to own, the peace of mind is worth it.

[Zonny]

I guess part of the answer depends on the age of the buyer. If I'm 60 now, the scenario is a lot different than if I'm 20.

[Shwa Girl]

I guess part of the answer depends on the age of the buyer. If I'm 60 now, the scenario is a lot different than if I'm 20.

You are right.
So, let's say you are buying a house or renting a place and you are in your 20s. So by retirement, who would be better off - renter or owner?

[Shwa Girl]

I am really not sure of the correct answer-but I do know there are other factors besides financial to take into account- for eg some people don't like the worry or responsibility of maintaining a home they own whereas others would prefer to own so that they don't run the risk of having to move on short notice if the landlord sells the property etc. I know we are in the latter group that prefers to own if possible and even if it cost us more in the end to own, the peace of mind is worth it.

Yes, renters can be left out in the cold if the landlord sells the property. In the Scenario, the rent was $1500, so, hopefully the landlord would be happy for a while.


You were right on the money, when you said "maintain a home".

This is a hint as to who is better off at 65. The maintain part is the key.

[Minou]

But will the renter save the money he/she would have put toward maintenance had he/she been a homeowner? For a lot of people, a house becomes a good part of the "retirement savings" because few are disciplined enough to save as much as they should!

A person could sell the house at 65 and get a good chunk of money; an undisciplined renter could have similar monthly income but not the savings or the house to sell! If the owner has money for their expenses, they can live in their home rent and mortgage free once the house is paid off. My dad has a large, paid-off house, and he doesn't want to sell and move, as he figures he really couldn't live more cheaply anywhere else.

[Retiree]

A couple of years ago, I read an article in my Good Times magazine that said if you rent for 10 years or pay a mortgage for 10 years, you'll come out about the same. If you rent or pay a mortgage for 20 years, you'll come out a little bit ahead if you are buying. All of this took into account the maintenance on a house and returns on investment.

Personally, we purchased our first home at ages 23 and 29. We kept it for 25 years and had been mortgage-free for 15 years. We purchased our 2nd house, using the equity from our first house plus a $100,000 mortgage when we were 48 and 54. We kept it 12 years and when we sold it we had been mortgage-free for a couple of years so most of the equity, after paying legal and closing fees was available to invest to help support us in retirement.

We are happy, at this stage in our lives, not to have the responsibility of home ownership but if we weren't disciplined not to blow through our savings, we think we would have been better off to hang onto the house. If you can invest the proceeds from your home sale, wisely, and live off it modestly, I think you can have the best of both worlds, i.e. financial security and a care-free lifestyle.

[Shwa Girl]

But will the renter save the money he/she would have put toward maintenance had he/she been a homeowner? For a lot of people, a house becomes a good part of the "retirement savings" because few are disciplined enough to save as much as they should!

A person could sell the house at 65 and get a good chunk of money; an undisciplined renter could have similar monthly income but not the savings or the house to sell! If the owner has money for their expenses, they can live in their home rent and mortgage free once the house is paid off. My dad has a large, paid-off house, and he doesn't want to sell and move, as he figures he really couldn't live more cheaply anywhere else.

Yup. Both the renter AND the owner has to save money.
I think you got the answer -- saving money too.

[Shwa Girl]

A couple of years ago, I read an article in my Good Times magazine that said if you rent for 10 years or pay a mortgage for 10 years, you'll come out about the same. If you rent or pay a mortgage for 20 years, you'll come out a little bit ahead if you are buying. All of this took into account the maintenance on a house and returns on investment.

Personally, we purchased our first home at ages 23 and 29. We kept it for 25 years and had been mortgage-free for 15 years. We purchased our 2nd house, using the equity from our first house plus a $100,000 mortgage when we were 48 and 54. We kept it 12 years and when we sold it we had been mortgage-free for a couple of years so most of the equity, after paying legal and closing fees was available to invest to help support us in retirement.

We are happy, at this stage in our lives, not to have the responsibility of home ownership but if we weren't disciplined not to blow through our savings, we think we would have been better off to hang onto the house. If you can invest the proceeds from your home sale, wisely, and live off it modestly, I think you can have the best of both worlds, i.e. financial security and a care-free lifestyle.

Thanks for your success story.
Good Times Magazine sounds like a good publication.

I read about this challenge -rent versus own in the Toronto Star.
I will give the answer from "the expert", later today

[Minou]

And I guess if you consider the market in the last ten-twelve years, housing costs have gone up substantially. We bought a starter home in 2004 and sold it for $120,000 more than we originally paid when we sold it in 2011. If we were renters and had to "save" $120,000 it would have been a lot of extra money to have to put away over those 7 years -- and we really did very little to the house in terms of maintenance or renovations in the time we lived there, as it turned out. Replaced a water heater, put in a new front door,put in new linoleum and kitchen counters/tile backsplash, and replaced the bathroom counters with ready-made granite from Home Depot. Maybe $10,000 in renovations/repairs over 7 years, and a few of those things probably increased the house's value when we sold it.

I'm amazed how many apartment buildings and condo/townhouse units are going up in Winnipeg. For a long time, it seemed like most of Winnipeg's apartment buildings had gone up in the 1970s-early 1980's. Now, there's construction everywhere, probably as a result of a lot of apartments having been turned into condos in the last ten years.

[Shwa Girl]

We bought a starter home in 2004 and sold it for $120,000 more than we originally paid when we sold it in 2011. If we were renters and had to "save" $120,000 it would have been a lot of extra money to have to put away over those 7 years -- and we really did very little to the house in terms of maintenance or renovations in the time we lived there, as it turned out. Replaced a water heater, put in a new front door,put in new linoleum and kitchen counters/tile backsplash, and replaced the bathroom counters with ready-made granite from Home Depot. Maybe $10,000 in renovations/repairs over 7 years, and a few of those things probably increased the house's value when we sold it.

This is a key point that you made about renting versus buying. Renovations and repairs need to be made on the home. It probably helped in your resale process.

[Granger]

Subscribed. Outside of what has already been said I have nothing to add. I personally am a home owner who is not mortgage free.

[Shwa Girl]

Subscribed. Outside of what has already been said I have nothing to add. I personally am a home owner who is not mortgage free.

Thanks for your post.

[Shwa Girl]

The Answer

It turns out that renting is better than buying, for the following reasons:

• Down payment: Assuming the person buying a $400,000 home has a good down payment of $100,000, they are missing out on investing that money and growing their assets.
• Maintenance and property taxes: The renter does not have to pay for the roof, windows, upkeep of the house and property taxes. The renter has more money to invest.
• Job changes: In 2013, most 25 year olds will change jobs, change provinces and may even change countries where they work, over their lifetime. Changing housing (owning) frequently affect the rate of return.
• Rate of return on house = 6%. Some people think that they have earned more than that, but with house prices going up and down over the last 25 years, the rate of return from renters who bought stock in the big 5 Canadian banks, can be higher.

So, according to Professor Tristani of McMaster University, renting is a better investment than owning where you live. It also works out the same in other countries too.
Who knew?!
http://www.theglobeandmail.com/globe...ticle11952313/

[Granger]

Cool. I think since my mortgage is significantly less than that it will work to our benefit, BUT I love the info. Different view points are how we learn.