“Should I buy a home, or would it be better to rent?”
This question is asked so often and everyone seems to have their own opinion. Several things can impact this decision: monthly cash flow, real estate investment returns, emotional attachment to a particular property, the control you have when you own your home outright, and being the only person who can decide if you will move or not? Let’s look at each of these factors than can determine the right path for you.
Monthly cash flows are even more important if you have a mortgage that is variable versus fixed. When you own a home with a variable mortgage, your monthly payment is made up of both principal repayment and interest. When the Bank of Canada raises interest rates to combat inflation, your monthly payment to the financial institution rises.
My clients have seen their monthly mortgage payments increase by $500 to $1,000. If you enrol in a fixed mortgage, then your monthly payment does not change and you can rest assured that your cash flow will not be impacted by interest rate hikes during the 5-year term. Rents in the same time period have increased by up to 14 per cent if you are signing a new lease, but if you are in a current lease by law it can only be increased by the Ontario Consumer Price Index—which for 2023 will be 2.5 per cent.
Investment returns (residential and condominiums) for real estate in Ottawa averaged 5.85 per cent per annum between 1980 and 2021, while the TSX returned 5.41 per cent respectively. The longer the time horizon, the better stocks will do. As they say with compounded interest, you must start early, invest a little every month for dollar cost averaging and hold for a long time to reap the rewards. Home ownership in Ottawa has proven to reward homeowners, allowing them to hedge their investment assets with real estate. I like to say that real estate is a hard asset that you can see and touch; it is easy to understand if it is a good or bad investment—it’s bricks and mortar. As your mortgage gets paid off, you will have the opportunity to leverage that equity to purchase another property or investment property.
When you purchase your home you can paint, decorate, landscape, and renovate to your heart’s desire. When renting, you are subject to many restrictions and are at risk of the owner selling, moving back in, or moving in their child or parent back into the home. You are given only 60 days to move out and then are subject to finding another property at an affordable price, packing, perhaps hiring a moving company, etc. Will you be able to afford the same size of home or condo if rental rates increase, or will you have to downgrade, move to another neighbourhood, and switch schools for your children, as well as many other considerations? These can all add stress to individuals and families.
66.5 per cent of Canadians own their home and that has declined since the peak of 69.5 per cent in 2011 due to rising average home prices—the average sale price in Ottawa is now at $707,712 as of August 2022. The average 1-bedroom apartment for rent in Ottawa is $1,692, which is up 14 per cent from the year before; for a 3-bedroom home it is just over $2,400.
Warren Buffett bought his house in Omaha, Nebraska back in 1958 and even with all of the money he has made with stocks he always loved to say this about owning his home: “I wouldn’t trade it for anything.”
About Eric:
Eric’s career started as an Investment Advisor, where he worked at notable companies such as RBC and Dominion Securities for nine years. His day-to-day responsibilities consisted of managing his clients’ money each at various net worths making him very financially savvy and dependable. Eric’s real estate career started 11 years ago, in 2010. Since then, he has been successful in the residential and condominium real estate market from Orléans to Stittsville.
Notably, Eric earned the exclusive Real Estate Designation of Master Certified Negotiation Expert, in addition to the Accredited Buyer Representative and Senior Real Estate Specialist designations. With a 95 per cent referral rate, his clients say he is personable, a quintessential professional, and knowledgeable. Every day Eric strives to give his clients the best home buying and selling experience.
