August 14, 2024

Is it better to buy, or to rent and invest?

Buying a home is something many young adults dream about, but is renting or buying a better investment? While some people see buying as a good investment, others prefer renting an apartment for the freedom it allows. Both options have pros and cons, but the best option for you depends on your situation.

In this article, we’ll look at the main factors to consider so you can make an informed decision that works for you. Whether you’re a potential first-time buyer or a long-term tenant, you’ll find key information to determine whether it’s more profitable to rent vs own a home.

What’s the difference between renting and buying a home?

Let’s first take a closer look at the pros and cons of renting a home , and then we’ll look at buying. In addition to the financial aspect, there are several factors that will influence your decision.

Benefits of renting

Renting a home has several underestimated benefits. Renting offers freedom and flexibility which is ideal if you travel or move often. Renting is also generally more affordable and poses less financial risk, allowing you to save up for other projects. There are fewer unexpected costs because repairs and maintenance are the landlord’s responsibility. Finally, renting is an attractive option if you live in a major city or popular area and buying isn’t an option.

	Tips and tricks Rent increases are regulated by the Tribunal administratif du logement , which provides some financial stability. As a result, the rising price of properties generally don’t have a large impact on rental prices.

Disadvantages of renting

A frustrating aspect of being a tenant is you cannot personalize or modify an apartment, condo or house without the landlord’s permission. You also depend on the landlord for maintenance and repairs. Renting doesn’t guarantee stability because the landlord can repossess the home at the end of the lease or increase the rent. Finally, a major disadvantage is that unlike buying, renting is not a long-term investment and does not lead to capital gains.

Advantages of buying

Something that brings a lot of new homeowners satisfaction is no longer having to pay rent every month. Buying a home also offers more stability since you’re no longer depending on a third party to make decisions. You get to decide about renovations and the way you want your home to look.

You will, of course, need to make your mortgage payments and pay interest to your financial institution. However, a portion of each payment repays the capital, which is equivalent to accumulating savings. Buying a home can therefore improve your financial security because you can use its net worth for other projects. Buying is a way to build solid family assets because the value of a home generally increases over time. There are also certain tax benefits and property-related tax credits.

Disadvantages of buying

On the other hand, buying a home also comes with drawbacks. Making a profit isn’t guaranteed and often takes time, because the property value may fluctuate according to the real estate market. In addition, reselling quickly may diminish potential gains.

As the owner, you’re responsible for maintenance and renovations to keep the home in good condition, and these cost money and take time. Finally, buying a home can reduce flexibility and freedom, making moving more complex and costly.

	Tips and tricks To avoid unexpected expenses, create an emergency fund with the equivalent of between three and six months’ worth of salary. This will help you cover the mortgage and unexpected costs.

What does buying or renting a property cost?

Several experts recommend making a five-year plan to determine the most attractive option. The costs related to buying home are often neglected when potential gains are being calculated, so it’s crucial to assess all the costs associated with buying a home.

Costs associated to renting vs owning a home
Costs	Buying	Renting
Initial expenses	Down payment Notary fees Inspection fee Moving expenses Welcome tax	Credit report Moving expenses
Recurring expenses	Mortgage payments Condo fees (if applicable) Home insurance Municipal and school taxes Connection fees Maintenance and renovation costs	Loyer mensuel Assurance habitation Frais de branchement

Whatever option you choose, you also need to consider other expenses like electricity, heating, internet, cable or a subscription to a streaming service. Keep in mind that your housing costs shouldn’t exceed 32% of your gross household income.

	Tips and tricks In some cases, mortgage payments may be lower than monthly rent. While this may seem advantageous, it’s important to calculate all expenses associated with buying a home to make an informed decision.

Is it better to rent or buy a home?

To answer this question, here are two scenarios using the Autorité des marchés financiers tool. It helps to determine whether it is more advantageous to buy a house or to rent an apartment and invest on the stock market. The scenarios are based on a 25-year mortgage amortization at a 4.5% interest rate, and take into account locations both in and outside of Montréal. In both scenarios, after-tax returns on investments are projected at 4.5% and the annual increase of property value is estimated at 3.0%.

Option 1: buying or renting in Montréal

Buying: A single-family home in Montréal's Sud-Ouest borough costs $794,500 . You’ll need to pay a minimum down payment of $54,450 (calculated at 6.85%) and a $29,602 mortgage insurance premium imposed by the Canada Mortgage and Housing Corporation (CMHC). With a 25-year amortization at a 4.5% interest rate, your monthly mortgage payment will be $4,260. There will also be start-up and maintenance costs, home insurance and school and municipal taxes. With a 3% estimated annual increase in property value, the property will be worth roughly $1,663,507 in 25 years.

Renting: Renting a two-bedroom apartment in 2024 costs around $1,950 per month in the Sud-Ouest borough of Montréal,according to data provided by Zipplex.. If you invested your down payment and the difference between monthly rent and mortgage payments into investments with a projected return of 4.5%, then the value of your investments in 25 years would be $1,935,012, which represents a difference of $271,505.

Option 2: buying or renting outside of Montréal

Buying: Buying a single-family home in Drummondville will cost $345,000 You’ll need a $17,250 (5%) minimum down payment and you’ll have to pay a $13,111 mortgage insurance premium. You will therefore have a $340,860 mortgage. With a 25-year amortization at a 4.5% interest rate, your monthly payments will be $1,887 . As with Option 1, you have to add to that amount taxes, maintenance costs, etc. In 25 years, the house could be worth $722,348 if there is a 3% increase in value.

Renting: In contrast, the average rent in Drummondville for the same period is $1,055 per month. If you invested the difference between monthly rent and the costs associated with buying a home as well as your down payment, your investments could be worth $704,487 after 25 years, or $17,861 less than the projected home value of $722,348. In this scenario, buying a home is more advantageous than renting after 15 years.

According to these calculations, if you want to live in a central district of a metropolitan area, renting is more advantageous, while in smaller cities, buying becomes more profitable after a few years. Of course, this estimate depends on several factors, and results may vary.

	Tips and tricks To make your own estimations and learn about the details behind your calculations, use the Autorité des marchés financiers calculator . It will help you create scenarios adapted to your personal situation.

In theory, renting is a better investment

Renting may seem like the better choice in terms of investing, especially if you want to live in an urban area. However, most tenants struggle to invest the difference (of what they pay in rent and what they would pay for a mortgage) on the stock market or to diversify their investments across different economic sectors. This is why experts often come to the conclusion that buying is a form of forced savings that ends up being a better investment.

However, these two options only take the financial aspect into account. When determining whether renting or buying is more profitable, it’s important to think about all the aspects of your daily life, such as your needs and quality of life. For example, are you willing to live as a family in a rented house?

	Tips and tricks Buying a home offers various tax benefits , especially for first-time buyers, such as tax credits, subsidies and specific programs. The above scenarios don't take into account the tax benefits of buying a home. Make sure you include them in your calculations and decision-making process.

5 questions to ask yourself before buying a home

Ask yourself these questions and keep an eye on real estate market trends . This will help you determine whether you’re ready to buy a home, whether via a traditional purchase or by choosing a rent-to-buy option , for example. Here are five questions to ask yourself before buying a house.

1. What’s the minimum salary needed to buy a home?

Before you look into buying a home, it’s crucial to determine whether your current income covers the expenses associated with the home you want. Here are various scenarios to help assess the minimum salary needed to buy a home in different parts of Quebec with a 25-year amortization at a 5% interest rate, based on data from the first quarter of 2024 .

It’s recommended that you allocate approximately one third of your income to housing costs. These calculations are based on the assumption that only 33% of net annual income is allocated to payments, with a 5% or 20% down payment. Remember to include the CMHC premium, if necessary, and property taxes.

Salary needed to buy a house
City	Median price of a single-family home	5% down payment		20% down payment
City	Median price of a single-family home	Monthly payments	Annual income	Monthly payments	Annual income
Montréal	$553,250	$3,057	$111,164	$2,574	$93,600
Québec	$365,000	$2,017	$73,345	$1,698	$61,745
Gatineau	$453,800	$2,507	$91,164	$2,111	$76,764
Sherbrooke	$401,000	$2,216	$80,582	$1,866	$67,855
Drummondville	$345,000	$1,906	$69,309	$1,605	$58,364
Trois-Rivières	$337,650	$1,866	$67,855	$1,571	$57,127
Saguenay	$280,000	$1,547	$56,255	$1,303	$47,382

An initial 5% down payment is required if the selling price is under $500,000. For properties above $500,000, the down payment is 5% on the first $500,000 and 10% on the following portion up to one million dollars, the latter being the maximum amount insurable by the Canada Mortgage and Housing Corporation. If your down payment is 20% or more, you don’t have to pay for CMHC insurance.

	Tips and tricks To make your own estimates, use our mortgage payment calculator to create scenarios adapted to your personal situation.

2. What’s my financial situation?

Future buyers need to ask themselves these questions to assess their financial health. How good does my credit score need to be to get on the property ladder? How do I calculate my debt-to-income ratio ? Consult a financial advisor to come up with a solid plan that will take other debts into account such as credit cards, personal loans, car loans, etc.

3. What is the current real estate market like?

If you’re considering buying a home, keep a close eye on the real estate market and on interest rates. When the market is bullish, prices rise. Even if prices seem high, they can continue to go up. Buying now may be the best option. To make an informed decision, work with a real estate broker who can inform you on the current market and help you choose your future neighbourhood .

4. What will my needs be over the next five years?

It’s important to establish your needs over a five-year period and to take your personal and professional goals into account. Your family situation and marital status are elements you should take into consideration. The same applies if you have to temporarily move for work or school. Buying a house with the intention of selling it in two years would certainly not be financially advantageous because of the costs associated with the transaction itself.

5. Am I ready to become a homeowner?

There are many responsibilities that come with owning a home, including being prepared to deal with unexpected circumstances. Maintenance, minor renovations and large-scale repairs can come with a hefty price tag. If you’re handy and have some savings, repairs can be exciting projects.

The decision to buy or rent depends on your personal situation

In the end, many experts believe that the most important factor in buying or renting a home is the desire to own a home, and the excitement that comes with the prospect of being a homeowner and being able to add your own personal touch. The real question isn’t whether it’s more profitable to be an owner or a tenant, but rather whether the satisfaction of being a homeowner justifies the associated costs and responsibilities.

Ready to take the steps required to rent a property or buy a home ? Work with a real estate broker who will support you every step of the way.

The information provided in this article is for informational purposes only and does not constitute financial, legal, professional or other advice or opinions. As such, we make no warranties, express or implied, as to the accuracy, reliability, integrity or exhaustiveness of this information, which you use at your own risk. In no event shall Centris be held liable for actions made on the basis of the information contained in this article or for any damage or loss, direct or indirect, that may result from, or in connection with, the use thereof. We recommended consulting with industry professionals for personalized advice before making any decisions.