Personal Finance

Renting vs owning a home

“Understand that the right to choose your own path is a sacred privilege. Use it. Dwell in possibility” – Oprah Winfrey

It seems to me, that every time life doesn’t go quite according to plan there is an opportunity to learn from the detour. Over the past couple of weeks I’ve written about the lessons I’ve learned from buying my first home and this week, as I’m re-working my money management plan, I’ve been thinking a lot about the advantages and disadvantages of renting vs owning.

There is plenty of research and anecdotal evidence to suggest that people who rent tend to have a lower net worth than those who own their homes and this leads many people to assume that owning a home will lead to a higher net worth and greater financial success. However, an article in the Globe and Mail featuring research by McMaster University students suggests that disciplined renters could actually finish ahead of homeowners over the 25 years that it takes to pay off a mortgage.

Renting vs owning a home

Every year Frank Tristani assigns his McMaster finance students the task of showing whether investing $100,000 at 6% and renting for 25 years at $1500/month (indexed at 1.5%) or buying a $400,000 home with a $100,000 (25%) down payment and a mortgage rate of 3.99% makes you wealthier. Although the majority of students expect that the homeownership option will come out on top, Tristani says that, surprisingly, “over six years, no-one has been able to substantiate buying as creating more wealth over the long term.”

Renting and investing requires discipline

Now, while there is definitely room to argue with Tristani’s numbers (as there is with any hypothetical scenario) his students’ research also raises some interesting points. It makes perfect sense to me, based on the calculations I’ve done over the past few months, that renting combined with a solid investment strategy could leave you further ahead than buying a home over 25 years. However, the challenge with this theory lies in the fact that sticking to the investment plan that will make it a reality 25 years down the road (and resisting the temptation along the way to divert some of those hard-earned funds towards more enjoyable things) requires a much greater amount of discipline than it does to simply make your mortgage payments every month.

As human beings, we are hard-wired for pleasure and delayed gratification doesn’t usually rank too highly on our scale of pleasurable things. We like the instant reward of a splurge or the day to day pleasure of living in a beautiful house surrounded by lovely things. We like “stuff” and we also like the certainty and status that goes along with home-ownership. Homeownership is often a goal that we’ reencouraged to aspire to from an early age and it can take a certain amount of confidence to stand behind your decision to rent in the face of all the “you’re wasting your money” arguments that come flying your way from homeowners, many of whom seem to take your choice as a criticism of their own decision to buy.

The good of homeownership

It’s not that I think homeownership is a bad choice. There are plenty of examples of homeowners who have seen the value of their homes increase at a rate that dramatically exceeds the returns seen in the stock market over the same period of time. There is also something to be said for the stability and security that comes from owning your own home. As a home-owner, you are in control of how long you stay in the house, how well it is maintained and you have the ability to make changes to the layout and the décor whenever you choose to. As a renter, your monthly living expenses are lower but you are also at the mercy of your landlord when it comes to the amount of rent you pay, how well your home is maintained and how long you are able to continue living there.

For me, right now, the benefits of renting outweigh the benefits of homeownership. I like the idea of being in a situation where I can limit unexpected expenses and my plan when it comes to renting is to keep my living expenses as low as possible in order to invest as much as I possibly can each month. I’ve mentioned before that I have some really big financial goals that I’m committed to achieving by the end of 2014 and I’m confident that my decision to start over as a renter will have a significant impact on my ability to hit those goals. I’ll keep you updated on my progress but in the meantime, I’d love to hear your experiences and what you think of renting vs owning.


  1. Julien @ cashsnail

    I’m also renting for now, not really to keep expenses in control but to have the freedom to change flat faster in case my wife find a new job… But every few months I’m checking prices of flat, rate of credit & ranting about the “waste” of the rent.

  2. Linda

    I think the days of big ROI on owning a home are over. There is a chance that, in some markets, you could lose money. There are also the unexpected expenses of home ownership like a $8,000 furnace or new roof.

    Home owners can also be lured into home equity loans that deplete their forced “savings”. I think it is really a lifestyle issue. You can rant about your hard earned money going to the landlord or going to the banker. Either way, it costs to be housed, whether as a renter or an owner.

  3. Jim Yih

    Hey Sarah!

    Great post. I will always be an advocate for home ownership. When I look at my personal wealth, I believe home ownership was a big part of my success.

    I also beleive that home ownership for sake of home ownership is not enough. You should still make sure you buy the right home, have a decent down payment, keep your amortization appropriate and pay off the mortgage as fast as you can. It’s easier said than done but also not impossible to do.


  4. Trevor Wright

    Great insight Sarah. It is the same sort of argument (although not as much money involved) as leasing over renting a car or term vs permanent insurance. It all depends on the situation. As with leasing a car, term insurance and renting a home, at the end there is nothing, whereas with owning a home, permanent insurance and purchasing a car, at the end you still have what you bought.

    This will be a discussion that will last forever, just like RRSP or TFSA, Active or passive management. It will go on forever with each person having their own opinion.

    That’s why I like the post, it will keep the conversation going.


  5. Cathy Leahy

    Hi Sarah,
    Interesting post, I believe just like planning for a client everyones situation is different. For many families a home is a very important part of their net worth and lifestyle.
    A lot depends on the location you are living as well. I too have chosen to rent rather than own. After my divorce, I have had to re-build my retirement assets, then fell upon a long period of time where I had many problems with a rogue company that was a former employer which prevented me from having much cash flow. Buying at the height of the market in Alberta was out of the question for me. Last year I almost purchased a home again but after many conversations with a close friend, whom is also single, about all her spare money going into repairs and maintenance of her home changed my mind. I like my freedom to travel at the last minute and the freedom to move to a new area if I so choose. As well my retirement account likes the spare money I am able to add to it. It may be different in the future if I am with a partner again and have two incomes to support the expenses but currently this works well for me and gives me more control of my cash flow.

  6. Judy Naimo

    This article is refreshing because it’s such a different perspective than the usual. It makes sense that if one were looking at homeownership basically as an investment, a step to creating wealth, you should consider other options that may require discipline, research and the ability to delay gratification. Thank you.

  7. Charles

    Look .If you intend to stay in the area you live for at least the next ten years or so. And if you have a decent down payment( 10% at least) so as you can carry a mortgage for around or a little more than you are going to have to pay Rent…It is in my opinion a NO BRAINER that you stop renting and BUY…Renting you walk away with Zilch Renting is making someone else Rich…Owning you walk away with a Lot of cash compared to renting….Renting V Buying ?..Staying 10 years plus? .BUY Of COURSE

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