Adulting Guides

How To Understand Buying vs Renting Real Estate

Real Estate

Buying real estate is a very daunting task that at some point comes across the minds of every single person. For the average person, buying a home is the most expensive and largest purchase you will ever make, and no matter if your buying or renting every single person is paying that cost. Ironically we don’t get educated about mortgages, contracts, taxes & loans. In this post I’m going to dive into the importance of understanding the difference between renting and owning and how owning can help you travel more than renting!

My Real Estate Story

When my fiancé (who is 6 years older than me) started talking about buying a condo rather than renting within the first year we were together; the thought seemed completely unfathomable to my 21 yr. old self (who had just spent all her savings on a trip to California with her younger sister and created about $1000 in credit card debt through various shopping sprees, nights out at bars and random girls trips). But oh my… am I grateful for my fiancé self teaching real estate and always wanting to own.

Breaking it Down

In my last post “How to Save a Downpayment & Travel” I explained why $2400 would make a huge difference. When were looking at buying our first home we automatically compare to what we grew up in and how much that would cost. In reality all you need to start is a studio or 1 bedroom apartment and 5% of the total purchase price down. We bought our condo in March 2013 and sold it November 2017 for just under double its value. We invested $10,000 & 4 years later we walked with $225,000. $10,000 may seem like a lot, but what I do is work with that number backwards….

$10,000/ 12 months $10,000/24 months $10,000/36months
=$835/ month OR $415 bi-weekly =$420/month OR $210 bi-weekly =$280/month OR $140 bi-weekly

Suddenly $10,000 doesn’t seem that hard to achieve, does it? To save $10,000 in one year may be a bit far fetched, but 2 years isn’t and is still a short amount of time as well.

So now that I’ve intrigued you with the money lets take it back a bit here.

Unique Markets

The Vancouver real estate market is unique compared to most others, where our property values have been sky rocketing for the past couple years where that is not the case in most other markets in Canada and the United States. If you’re in one of those area’s you may be asking yourself how buying property can help you if you’re in a market where its not increasing in value as fast.

To help understand I’m going to break down two scenarios for you:

Renting:

Say your rent is $800/mo and you live there for 2 years then one day your landlord comes knocking on your door with a realtor and tells you they are selling the property and you will have to find a new place to live. So you start the hunt for places to rent and find a unit almost exactly the same in the same building but rent is $950/mo. because rent increased along with property value. After two years you paid just under $20,000 in rent. As soon as your landlord sells; that $20,000 ends up right in their pocket and you end up with higher rent.

Owning:

In the second scenario, you started saving money to purchase your first home when you started working full time at the age of 19. Your 23 now and  have enough money to put down and buy your first home but don’t have enough to pay the monthly mortgage fees (rent). So you decide to buy a 1 bedroom condo with the downpayment you’ve saved but decided to rent it out rather than live it in yourself. Two years later, you’re 25 and ready to move out of your parents house, you have two options. You can sell your condo and even if it hasn’t increased in value, you will get your downpayment back, along with roughly $20,000 of equity that has been paid into it by your renter. Or you can keep your condo and start living in it on your own. Either way, even if you can’t afford to moveout but you have the downpayment you can get some else to start paying off your property.

Essentially as a renter your just helping someone else save money – so why not be that person that people are saving money for. Remember, I said you saved from age 19-23… that’s not a long time and it’s easy to do if you’re living at home. Once you have someone living in your condo, you don’t even have to save anymore money for your downpayment if you don’t want to and just use the equity saved up to upgrade or for a large purchase.

Hopefully by reading this you can better understand the importance of buying your first home and how it can benefit you in the long run. You can travel the world or continue your education, all while you’re saving money without having to sacrifice your other goals.

Come back to see the next post that dives into the things you need to know before starting your search for your first home!

 

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