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Rent vs Mortgage: Profitability of Long Term Real Estate Investment

Friday Aug 25th, 2017

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When it comes to real estate, you can pretty much split people into one of two categories: people who are happy to pay rent and people who would rather apply for a mortgage. So which is better? Renting is usually quicker and easier, but buying is a better long term real estate investment.

Renting Property

Renting is quick and easy because there’s a lot less paperwork involved, but it does mean that you don’t own the property or the building. Another great thing about renting is that you’re not fully responsible for upkeep and maintenance. Faucet leaking? Just call the landlord to come and fix it!

Temporarily renting a place to live is a good way to get a feel for the housing market, and it makes sense if we’re finding it hard to be approved for a mortgage, but it’s not all sunshine and roses. Long term, we could end up paying more by renting than we would if we had a mortgage.

Buying Property

A mortgage is sort of a middle ground between renting and owning outright. It can be a bit frustrating, finding a lender, getting an approval, and reading all the fine print, but all the hard work can be worth it in the end. Once a mortgage is paid off in full, you own the property.

To be approved for a mortgage, you’ll normally need to show a lender that you have a way of paying them back, such as a regular income or money in the bank. Recent changes to mortgage lending in Canada mean some potential homeowners might also need to pass a ‘stress test,’ which looks at how they would financially cope if mortgage rates increased. It can be a detailed process, but it works to ensure mortgage applicants are in a good position for a loan.

Which is Better?

It’s hard to pick a winner.  For some of us, renting is better because it’s quicker, easier, and cheaper. For others, it makes more sense to apply for a mortgage and pay towards the equity in your own home. But if we’re looking at what’s better as a long term real estate investment, then buying is much better than renting a home.

Now is a really good time to start thinking about buying a home in Canada. Here are some of the way that a good realtor can help:

  • Real estate agents keep up-to-date with the latest housing market news which means they can help buyers become informed.
  • Real estate agents have seen it all before. They’ve been here, they’ve done that, and they’re not emotionally involved. This means they can really be subjective and help you to follow your head, and not just your heart.
  • Real estate agents are experts when it comes to negotiations. They can really help to make sure you are paying a sensible price based on the type of property and the location.

Always decide what’s right for you, rather than be swayed by other people. However, remember that getting a mortgage is much better for a long-term investment than renting.

Source: Harvey Kalles Real Estate Ltd., Brokerage  

 

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