53 – Rent or Buy a Home: Which Is Right For You?

Wayne Kay 00:04
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay, and coming up in today’s show, we’re going to talk about renting or buying, buying a home and which one might be right for you. 

A lot has happened in the real estate market over the last couple of years, so we’re going to talk about how each one might be better for you and your situation. Maybe it’s better to rent, maybe it is better to buy. We’re going to talk about your credit rating and what that means and how it will affect renting or buying as well.

We’re going to talk about – a lot of people say that renting is just throwing away your money, but is it? And how does that work into all the extra costs these days when it comes to buying a home? We’re going to talk about all those things and learn what might be some options for you. 

My guest today, Francyne Myers from Allan Marshall and Associates, Licensed Insolvency Trustee. They have office locations in Alberta, New Brunswick, Nova Scotia and Prince Edward Island. 

Francyne, thanks very much for being here.

Francyne Myers 01:07
Oh, it’s a pleasure to be here, Wayne.

Wayne Kay 01:09
We’ve got a great topic, and this is absolutely timely right now. Buying or renting a home, which is right for you, especially when we look at what’s happened in real estate over the last couple of years.

Francyne Myers 01:24
You know what, Wayne, I think if you spoke with me two years ago on this topic, my answers would be so very different. So much has happened in the past two years which has basically turned conventional wisdom really upside down, right?

We had a pandemic, we had a lockdown, and people were stuck at home. This was, “okay” – well, I’m going to use that and say that kind of with air quotes. If you had lots of land and a house – we saw on Facebook families playing games. But you know what? If you were stuck in an apartment in the middle of the city, that was another thing.

So that’s one thing. People were thinking, I don’t want this to happen again. And then you started to be able to work from home. So the work from home’s phenomena leapt ahead by years within a matter of weeks.

So when you put those things together – realizing you don’t want to be stuck in an apartment and being able to work from home. And then also people realizing they didn’t have to always be in an office downtown. You got a mad rush for housing everywhere in the country. Particularly in the areas where you get so much value for your money.

Such as in the Maritimes, in the more rural areas. So it caused the real estate market to just go crazy. Everybody jumping on the bandwagon to sell their house, even if they hadn’t been ready to do so because they thought they’d get so much money for them, and they did. This left a lot of renters scrambling to find somewhere to live because the houses they were renting were being sold.

I got a lot of calls from renters saying, I don’t know where to live anymore because my house is being sold. And now the rents have gone up because so many people are looking for an apartment. That really changed the whole market. You had a perfect example of supply and demand fueled by a total shift in how we do business.

Wayne Kay 03:31
Right. My son is in a small market, desirable, where everybody moved to, and they all sold their houses for extremely high numbers and he’s been looking for two months to try to find a rental. No luck, cannot find anything. So now he’s looking at buying, which I’m saying the prices are high. They’re starting to come down around the country, or we’re starting to see reduced prices for the first time on our real estate signs. Is that happening in your area?

Francyne Myers 04:05
Well, it is and It isn’t. So here’s what’s happening. You’re seeing it come down a little bit, but more likely what’s happening here is that rather than having 20 offers on a house, you have five offers on a house. But you’re still having offers, and houses are still selling for higher than you would expect. So it hasn’t been easy for the first time home buyer to find something affordable yet.

Wayne Kay 04:38
Okay. And we’re going to look into the crystal ball. What are the predictions looking at for the next couple of years?

Francyne Myers 04:46
Yes. Well, I have to tell you, it’s very hard to predict right now.

Wayne Kay 04:53
Right.

Francyne Myers 04:54
So what do you do if you’re a first time home buyer and you want to own a home or what have you? I always say, first of all, decide if home ownership is for you. Is it something that you want to do because you think that this is what you’re supposed to do?

Wayne Kay 05:16
Right.

Francyne Myers 05:18
Or maybe you should be renting for a little bit longer. I don’t really see a decrease in anything. And this is not just my crystal ball, but it’s also the Bank of Montreal and TD and trying to look – everybody’s trying to figure it out, of course. But you’re really not thinking you’re going to see a decrease until really probably for a couple of years. So my best advice to somebody right now is to try and save money unless they find a really great deal – try and save money because housing prices will probably come down.

And I mean, hopefully they will, but interest rates will probably see a decrease as well. So don’t get stuck in that high interest rate just because you want to buy a house right now.

Wayne Kay 06:09
Right. Okay, good advice. Well, now, talking about that – credit rating, what if your credit is not the best? What do you do at that point? Is it renting or buying? Is it going to be an issue?

Francyne Myers 06:22
Yes, here’s the thing again, that my answer would have been very different a couple of years ago. Now you just mentioned that your son is going through the same thing. You have more renters chasing fewer rental places and really fewer suitable rental places because there are still places where you probably wouldn’t want to live these days. But they just seem to be the more affordable ones. You still have a lot of people looking for one unit. I’ve seen things go through on Facebook Marketplace for little houses where they say, we’re going to take applications for two days and then that’s it.Then we’ll make a decision. 

So difficult for people to find somewhere to rent, especially if they have a large dog or even animals in particular. But yes, it is going to get hard. And I always hate to be a Debbie Downer, but because your credit may not be the best, you’re going to be competing with people who have better credit.

Wayne Kay 07:27
Okay. And is credit an option? Is this important when it comes to renting?

Francyne Myers 07:32
It is, because a landlord, most landlords – If you’re renting from a private individual, chances are that they will get some references from you. So if you have maybe a bad credit score, but you do make your, at least minimum payments, and you are going to make these rental payments. If you can find a few references or even previous landlords who can vouch that you are going to pay the rent, they probably won’t actually do a credit report to see what’s on there. 

So if you’re renting from a private individual, you may actually have a better chance of getting a place than going to a larger landlord who will, hands down, probably do a credit check on you.

Wayne Kay 08:21
Okay. And that obviously plays a factor, it always has been.

Francyne Myers 08:26
And I think it’s getting to be more of a factor now because you have more people going for these rentals and the rental prices, although they haven’t skyrocketed, they are going up. And the newer units that they’re building have a very high rent. So a lot of people are having a hard time qualifying or even affording them.

Wayne Kay 08:48
Yeah, well, I’m looking at the prices of rent as I’m kind of working with him, and I’m thinking, I’ve owned a home for years, so it’s not something I’ve ever thought of. But it would be like a full paycheque or more going just to your rent. Yes, that’s absolutely right. So I don’t know how this is all going to play out. And then there’s the other side of things – paying that much money if you’re going to be paying $2,000 for rent.

Isn’t that kind of like just throwing money away? Why not maybe dive into getting that mortgage?

Francyne Myers 09:29
Now my answer on that one will always be the same. And I hear that a lot. Well, I could buy a house for cheaper. My mortgage would be cheaper than my rent. And that might actually be very true these days because as you just pointed out, rent is very high.

I think what people sometimes forget to consider is the extra cost that comes with home ownership and costs really which I think are going to go up. Just look at the cost of lumber for instance. In lumber everything is going up. So I think you have to consider all the costs, not just looking at rent versus mortgage payments.

Wayne Kay 10:12
Right. So those extra costs burst the bubble for us. Francyne, what do those look like?

Francyne Myers 10:19
Oh my gracious. Things like – people don’t think of house insurance and then you’ve got your property taxes. Then you’ve got to know that, you can’t just call the superintendent at 03:00 a.m. when you have a leak.

You’ve got to actually call a plumber and you’ve got to replace appliances, you’ve got snow removal. If you’re out in the country you’ve got to deal with things like wells and septics. The other thing that sometimes comes up, especially if you are in the country, is the municipality can levy all sorts of different taxes, property taxes. If they do improvements like bring water in or pave a road then you don’t have any choice, you have to pay for that. So people don’t seem to really sometimes think of all that.

It certainly creeps up. The other thing is that, again, interest rates are on the rise. So the interest rate that you would be locked into right now is higher than it would have been six months ago and they are expecting interest rates to still go up.

Wayne Kay 11:29
Right.

Francyne Myers 11:29
And a lot of times, Wayne, first time homeowners don’t get what’s called conventional mortgage. A conventional mortgage is when you finance 75% and you have a 25% down payment. That’s called a conventional mortgage. Now most people don’t have that much money, especially considering the cost of real estate these days. So they’ll finance 95% of the cost of the home, which they can do. But what happens is it’s going to cost you even more because the bank is a little bit nervous of you financing that much.

So you will have to have mortgage insurance through what’s called the Canada Mortgage and Housing Corporation. And those lovely people will charge you a fee for putting on that insurance on that mortgage because it’s called a highly leveraged mortgage. The bank will lend you the money but they do want to make sure that they’re not going to lose any money. And if you only have 5% down on a house, you don’t have as much skin in the game as they say as someone else who would have 25% down. So it’s going to cost you a lot more just buying the house without even considering the other expenses.

Wayne Kay 12:51
Right. And if you put all of that money in that you’ve saved, because it takes a lot to save a down payment, and then all of a sudden you move in, and this happens all the time, and the furnace goes. Well, that’s eight grand, right? And all of a sudden, the roof starts to leak, and you need a new roof. Well, there’s $10,000. And that’s not even doing any renovating or anything like that. Just simply things happen.

And I don’t know about you. Look at appliances. You mentioned that as well. I don’t know. They seem to only last a few years, and they’re passing away.

Francyne Myers 13:30
It’s very true. Years ago, the lonely Maytag man. Years ago, appliances used to last. It wasn’t unheard of that you’d have a washer for 15 – 20 years. You don’t get that anymore.

And appliances are very expensive. And one thing that I always, when I have people come in to have me help them with their finances –  I say, always make sure you do what I call an appliance audit. What could possibly go next?

Wayne Kay 14:02
Right.

Francyne Myers 14:03
And start to keep that in mind, because if your washer goes and you really do need a washer, there’s at least $1,000.

Wayne Kay 14:11
Exactly.

Francyne Myers 14:12
Keep that in mind.

Wayne Kay 14:13
Right.

Wayne Kay 14:14
All right. So here you are, you’re in your 20s, you’re a renter, and one of the goals is to one day own a home. What do you do at this point?

Francyne Myers 14:24
Yes, and that’s the thing, like I mentioned a bit before, and when I have this conversation, when I’m doing a lot of debt counseling with people, and I said, what’s one of your goals? Well, my goal is to buy a house. And I always say to them, why?

Wayne Kay 14:41
Right.

Francyne Myers 14:42
Is it because this is what you’re supposed to do? Is it actually a smart financial move? And then we talk about the expenses and the ones we kind of talked about as compared to rental costs. So write down as many as you can think of, and there are a lot of really good calculators online – which kind of say okay, this is what you can expect to pay for your average house over, let’s say, the next five years or the next ten years. So that would be a little bit of research doing that – a way to figure exactly what the costs are as compared to your rental costs.

So once you kind of look at it and see what those two figures are, you have to decide, is it worth owning a home for the added cost over the years? Because you know what? Let’s say a house is going to cost you – with everything you have to pay, the property taxes, your insurance, your mortgage, everything else, let’s say it’s going to cost you maybe, on average $3,000 a month – which is not unheard of when you’re thinking of the interest rates and the mortgages and appliances or amortizing a roof having a leak. So let’s say it costs $3,000 a month and a rental is $2,000, so there’s $1,000 difference a month. Wayne, that’s a big chunk.

Wayne Kay 16:07
Yes.

Francyne Myers 16:12
What would you do with that money if you had that extra thousand? I use that in quotes because to me, there’s no such thing as extra money these days. And you invested that.

Wayne Kay 16:23
Right.

Francyne Myers 16:24
Would you be better off 10 or 20 years down the road if you had actually taken that extra money that you would have had to put into a home and invested it? There’s different things to really look at. What if you put it into an investment that was tax sheltered, like an RRSP, so you were not only saving for your retirement, but you also saved your taxes. You can’t do that with a house. 

So there’s a lot of things you have to look at and really make a decision as to the cost benefit. Then home ownership ties you down. You can’t just go and leave your home if you want to take an extended vacation or what have you, even for a couple of weeks in the winter. 

You have to make sure you keep the heat on and what have you, and you have to have somebody check on it and the lights and everything else. So it’s a lot of a commitment when you have a home. It doesn’t even fit into your lifestyle at this point because insurance companies don’t like homes that are vacant for periods of time.

Wayne Kay 17:31
Right.

Francyne Myers 17:32
So you always have to think of that. If somebody’s gone for a period of time and the pipes break and you haven’t told your insurance company, there’s a very good chance they’re not going to cover you.

Wayne Kay 17:42
Right.

Francyne Myers 17:43
So there’s a lot of things to think of with home ownership and the extra money you have to put into it. Would it actually be better to stay in an apartment, not have all the trappings of a home, and then invest that money or save it for something else?

Wayne Kay 17:59
Right. Okay.

Francyne Myers 18:01
So it all depends on a lot of what you want to do. So if you owned a home, that money would not be available to you. So I always suggest, if you think you do want a home, live as if you have those expenses right away, even though you’re just renting. Take that money and then put it in a savings account, maybe a tax free savings account.

Wayne Kay 18:25
Right.

Francyne Myers 18:26
Or even RSP, because you can withdraw from an RRSP and you are allowed to put it towards your home and then pay back over a number of ten years. So it’s actually a good deal to do it that way if you wanted to do that.

Wayne Kay 18:45
Yes.

Francyne Myers 18:46
So make sure you are prepared. Put the money away as if you’re already paying it and then decide if this is something you want to do. So not only will you know if it’s something you can afford, number one, you’ll already have money saved towards a down payment. And the higher down payment you have, the less you’re going to pay for the house and the better off you’re going to be all round.

Wayne Kay 19:07
What a great topic. I think we covered a lot of information here. Do you have some final words of wisdom for us?

Francyne Myers 19:13
I do think that this is not the time – if you can put off buying a house, I think it’s a sit back and just wait to see what the market’s going to do for at least a couple of years. There are a lot of people caught in very high mortgages right now who may live to regret it. Don’t be one of those people.

Wayne Kay 19:36
Francyne, thank you very much for all the information today.

Francyne Myers 19:40
Oh, you’re welcome, Wayne.

Wayne Kay 19:41
Well, my guest today, Francyne Myers. You can learn more or schedule a free consultation with Allan Marshall and Associates, Licensed Insolvency Trustees by going to their website, wecanhelp.ca. So that’s it for today’s Debt Matters podcast.

Make sure you subscribe wherever you get your favorite podcast from. And of course, if you want more information, you can always check out debtmatters.ca. And if you know of somebody who needs help with this kind of information, please pass along our podcast to them. Thank you very much for listening.