Buy a House or Rent One in Vancouver: Which is the Better Option?
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by Richard Morrison
- July 1, 2022
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Deciding whether to buy a home or rent is a major financial decision and the choice depends on your situation, lifestyle, and long-term goals. Both options have their pros and cons. Take a look at prices in your neighborhood and consider full ownership costs, such as taxes, insurance, and maintenance.
Many renters dream of owning their own home, and home ownership offer many advantages, including control over space and building equity. Drawing from my experience, you should be aware that homeownership is not for everyone.
It is challenging to decide whether you should buy a house. Often time a home buyer may find themselves asking just what are the closing costs of buying a home in BC before going ahead with their purchase. It is certainly a prudent step. Let’s examine the question below:
For 2023, the average price of a single-family detached house is $1,252,350 in Vancouver. This is way more than the average price of similar houses in Canada, which is $531,000, or around that price range. Now the question is, which investment should you go for? Or, which investment is affordable for you? Paying rent for years eventually accumulates to the amount that a house costs right now. But do you have the money to pay the down payment and mortgage payments of your house? That’s where the dilemma starts, so let us discuss which is the better option, to buy a house, or rent one, in Vancouver BC.
Table of Contents showQuick Takeaways
When considering the decision to buy or rent a house in Vancouver, it is important to take into account factors such as unrecoverable costs, property taxes, and individual financial situations.
Though the average mortgage payment for a condo in Vancouver is $3,100, while the average rent for a one-bedroom apartment is $2,700 per month, making buying the more cost-effective option, renting may be the better choice for those with financial constraints.
Each option has its own advantages and disadvantages and there is no clear cut answer as to which is better.
Metro Vancouver, BC: The Rent vs Buy Debate
Buying a home or renting one in Vancouver, as in most cities, is an unending debate. You must have heard at least once in this life someone from your family starting this “buy debate” and what should they do next.
Indeed, it is true that Vancouver can be an expensive city – especially areas like West Vancouver Homes for sale, North Vancouver homes for sale or the West-side, depending on your job and daily needs. In this article, you will find the benefits of owning a home or renting one and the advantages and disadvantages of rent vs buy.
Rent or Buy
The city’s economy has exploded in the past years, making property prices go high, mortgage payments higher, and the decision of home-ownership really questionable and difficult to be made. As in many cases, it is up to everyone’s needs, both financial and personal, if rent or buy is the best option.
Before discussing in this article the prices for renting or buying in Vancouver West, we want to clarify some of the things you should know.
In the following paragraphs, we will try to answer and cover as many considerations as possible to make your choice easier: Rent vs Buy. Let us start with the benefits and downsides of each scenario.
Pros of Buying Your Own Home:
Many people will consider this option for the simple reason of home-ownership and the pride that follows after, the rights reserved, the freedom and independence it offers. It may be considered a measure of success in life, but with this, you should be aware of all the carrying costs a house involves.
Not Dealing With Landlords
Maybe the top priority reason for owning your dream home, is not dealing with landlords. You can redecorate your house as you wish and anytime you want, paint your walls in any color, or own as many pets as you want. You don’t have to give explanations or ask for permissions from anyone.
Good Investment
Secondly, you will see that in the long term; it will be a good investment—no wonder the millionaires invest in the real estate business and Canadian homes. There is, however, only one rule you need to keep in mind. You have to hold onto the bought property for 5 years or more so that you can enjoy all the benefits of how a home appreciates (or increase in value) and the housing market investment.
Stability
Studies have shown that people buying a home will be unlikely to move in the years to follow. However, if such a thing does happen, it is usually because of a job offer or for a bigger space. Having your own home also increases your morale, confidence, and overall general being.
Privacy
The lack of privacy is detrimental to your well being, and even towards your relationships with other people. You’ve probably had to deal or will deal with both neighbors or landlords invading your privacy or complaining about different matters when you don’t own your own space.
Owning a home will bring peace to your family, not having to deal with your noisy neighbors or pushy holders. And you will not have to sign a policy landlord either.
Building Equity
Consider that instead of paying monthly rent, you could buy a place and pay for a monthly mortgage payment. By doing so, the mortgage will help you build equity. Think that each month you pay for a mortgage will take you a step closer to having your own home.
Cons of Buying a House
Some of you might actually consider that buying a home is too much of a commitment. Once the decision is made, you cannot just simply break your home-ownership contract or mortgage payment. It is advised to buy a home if you plan to stick around it for 5 years or more. Over the long term, the stock market always beats the housing market.
More Cost
Once you own the place, all the expenses will be in your charge: property taxes, tax credits, monthly mortgage, or more. You will have to pay for a mortgage broker yourself. If anything breaks, you will need to make the repairs and spend money. All the costs will be upon you now; whether it is replacing a sink or fixing a roof, you will have to pay attention to your cash flow.
Location
Depending on the location, some of the mortgage payments may be higher than monthly rent, and that will make you wonder if buying a home was your best choice. However, it is not always the case.
Stability?
Stability can be both a con and a pro when it comes to owning a home. You may get a better job offer, in a better place, but you can’t leave your house unattended. Or maybe your not the time to settle down yet, and thus, it all comes down to what type of person you are, so don’t be hasty in your decision.
Pros of Renting
It may not be a common decision, but renting can have some good advantages worth considering. One of them is that renting can actually be cheaper and cover the costs of internet, electricity, cable and the like.
Flexibility
In the second place, renting is more flexible. You will not have to stick around for life in a location if you do not want to. It can be established from the first time whether you are looking for short-term rent or long-term rent. If you like to travel and spend more months in different places, renting can work just fine for you.
Your Landlord Will Deal The Expenses
Finally, you will not have to pay for property taxes, mortgage, nor if something breaks. Your landlord is obliged by your renting contract to fix any of your problems, whether it is your kitchen floods or if your toilet explodes. You will be more likely to save money on your credit cards than when owning your place.
What Are Some of The Downsides of Renting a Home?
Indeed, there will not be a necessary extra down payment or mortgage from your side when something breaks in the apartment or house. However, your landlord will be in charge of anything that happens there.
You will not be allowed to decorate the walls or anything in particular when renting. Besides that, the landlord can increase the rent under the local laws and news. Renting will not let you build equity either.
Choosing Between Renting vs Buying: What’s Best for Your Situation?
In our opinion, one of the wisest decisions for you is to consider and analyze your savings account and future goals. If you are looking for short-term plans, then renting can be your best option. Here are some of the common questions we would like to discuss further in this article. Where do I want to live? Will I afford this? Is my job offering me stability? Am I ready for a commitment? How much money should I have in my bank account? And for how long I plan to live in this home?
We will try to answer these questions in this article, keeping in mind the prices there are in Vancouver, BC at the moment.
The 5% Rule
It is often when people talk about renting vs buying a home, that they misunderstand the housing market. The 5% rule will only help the rent vs buy the issue. Let us see how it works.
The 5% cost rule can be translated like this: the annual unrecoverable cost is 5% of the house value. An annual unrecoverable cost is the total amount of money you will end up paying for a place that will not result in residual value.
After calculating how much money this means, you need to check if your rent is lower than that. If so, you should consider keeping the rent. If the rent is higher, you should try buying a property of your own.
The unrecoverable cost when you are renting is the amount of rent you pay. But when you have your own place, this cost consists of three things: cost of credit, maintenance, taxes, or more.
Are There Any Financial Programs Offered by The Government?
As a first-time buyer, you will be happy to know that the Canadian government offers three or more incentives, and these are the:
The Government of Canada First-Time Home Buyer Incentive
This program helps you in sharing 5 to 10 percent of your home’s equity with the government. They will contribute the money to your purchase, and you can repay them the value within 25 years. This will lower the interest on your mortgage principal.
The RRSP Home Buyers’ Plan
With this program, you can ask to withdraw up to $35k tax-free from the RRSP. Taking such a large lump sum can be very tempting, but in this way, you will be helped to purchase your ideal new home. You should be paying back this value within 15 years though.
The Land Transfer Tax
The land transfer tax is simply known as a rebate that the government offers to first-time buyers. You can get a rebate for a partial amount of the tax or for the full tax. That really depends on the location.
The Cost Advantage of Renting Over Buying in Vancouver
Renting in Metro Vancouver is undoubtedly the first choice if you have financial crunches. The rule is simple: if you can’t afford it, don’t plan it now. If you don’t have the money to buy a home, postpone it until you save more money.
And till then, you can always rent a house or apartment in the city. Renting is always the cheaper option, and most importantly, the feasible option for families that earn below $50,000 per year.
In the last 25 years, the Demographia International Housing Affordability Survey reports suggest that Vancouver is the second-most unaffordable city in the world. That answers a lot of questions when it comes to buying a home here. Unless you earn more than $100,000 every year, it’s tough to buy a home in the city soon. And that’s why rent is the best option for many.
However, think about it this way, even though Vancouver is rated as unaffordable, it is also known that this city is among the safest around, filled with opportunities, and the general well being of citizens makes it one of the greatest cities to live in. This naturally attracts a lot of people to come here, seek a rent, and start hunting for their dreams.
It is thus clear, that renting in Vancouver is a good business as the demands are high, and there are few that can provide, since housing is so expensive here, few have the opportunity to buy and later rent their place.
Assessing Housing Affordability Across Canada
Housing affordability in Canada deteriorated for the 14th consecutive quarter. This means buying a house for the low and medium- gross income group is becoming a distant dream. On the other hand, renting is the most sensible thing to do for people of such income groups.
Just consider the following difference to decide whether buying or renting is the ideal option: the average monthly mortgage payment for a new house is $3,127. This is for a two-bedroom condo. And this doesn’t include your down payment. On the other hand, rent for the same type of house costs just $1,913. Vancouver condos for sale are slightly better in pricing, but get steeper if you are talking your money to buy North Vancouver condos or Westside condos.
Do you know that rent in Vancouver is nearly 50.93% lower than in New York? In fact, the cost of living in this city is also lower than in New York by 25.56%. This makes renting a better choice for those who can’t afford to buy a place right now.
The estimated cost of a single person per month is approximately $912.28. That means you still have a chance to save significantly if you live with your partner and hope to buy a place in the near future.
Do Home Prices Always Go Up?
Real estate in Vancouver is on fire right now. The real estate market and interest rates are at a historical point right now. The demand for houses is so high that prices are going up like crazy. This is affecting the rent prices also. While the prices of single-family detached homes won’t come down any time soon, you should also look to find a rented place as soon as possible to pay more later.
RE/MAX rates Vancouver at #16 of 16 Canadian cities when it comes to affordability. The real estate market in Vancouver has been declining in the last five years, and a 10 percent decrease occurred from 2018 to 2019. However, it was toped as Canada’s least affordable housing market because of the city’s high sales prices.
That being said, Vancouver is also one of the most beautiful places to stay in Canada. Investing in a new house will be worth every penny in the long run. But when it comes to affordability for the majority of people, rent still is the ideal choice.
This blog article will present some of the factors that make a purchase price go crazy are:
Limitation of Land Makes the Land More expensive
The sea surrounds Vancouver on three sides, so the land is limited. This is one of the reasons why a downtown condo costs so much money in the first place.
Vancouver is the Top Destination for Foreign Investors
People from foreign countries tend to show their interest in Canadian homes and in the stock market. While it may seem an opportunity cost for them, the British Columbia citizens have complained many times about their investment. 3 in 4 citizens have shown their interest in banning foreign real estate buyers. This is bad news for the eventual buyers.
How Many People Own a Home in the City?
Vancouver has more renters than owners. Only 48% of people in the city own a place, comparing with British Columbia’s 70% average. However, renting still has a poor reputation; people often think they’ll be throwing money away or build equity for someone else’s home.
Indeed, rent is still a cheaper option compared to the property market. You don’t have to live under the impression that rent is affordable. The prices and housing markets are likely to rise in time.
Comparing Prices: The Rent vs Buy Dilemma
In this article, we’ve come along with many reasons for the rent or buy debate. But it is time to see some real facts and some value. Let us assume the following scenario:
You found a rent of $2000 for one bed, one bath (this is the average rent for such characteristics). For you to purchase a home with similar rooms, you’ll have to take from your credit cards around $560 k. But for buying this home, you’ll need to save money to gain a mortgage pre-approval with RBC. (to be approved, you will probably need to own at least 20% of the purchase price – in this case, $113k). The RBC will offer you a 2.9% rate for a mortgage for 25 years.
If deciding to buy the home, you will have to pay around $1,660 in property taxes, $1000 for your home insurance, and about $5,7k for repairs and maintenance or mortgage fees annually. The closing costs will value around $11k. The price will increase in value by 2% annually.
Now, let us compare these two situations. If buying a home, you will see that you will end up paying a total of $73k for a mortgage or other costs over the next three years. If renting, you will be paying around $72k.
The conclusion is easy if choosing to stay in the city longer than 3 to five years, your best option would be to buy. However, if you do hope to move to the UK for example, in the next 2 years, you should consider renting.
Understanding Rent-To-Own Homes: A Unique Alternative
A rent-to-own house is an option you can have in mind. Simply, you make an agreement with your owner to pay for monthly rent for a determined period of time. In such a scenario, the amount of the rent you paid will reduce the house’s purchasing price. After the determined time (it is usually between one to five years), you can finally buy the home for yourself.
However, there are not many landlords who will agree to this. If they receive an offer on the table, it is unlikely that they will choose your option. Sadly, paying a rent-to-own own won’t allow you to have any sayings in what happens to the home in this predetermined period. The landlord still owns all the rights, so you have to deal with this for a couple of years.
The Pandemy Effect in Real Estate
Despite the pandemic period, the prices in Metro Vancouver have accelerated through 2020. Waiting might actually be your right option. You surely can’t control the pricing, but at least you can save up some cash before making the decision of your life.
When it concludes what is really best for you, there is no clear answer. It is you who should make the final call, given your financial and personal situation, your property goals, or your dream location.
Finals Thoughts
If you decide to buy, keep in mind to look for the best mortgage lender so you can obtain the lowest mortgage rate possible. Can’t afford to buy your dream place? You might consider purchasing a modest property so that you can build equity in time, and you can end up affording the home of your dreams.
When renting, do yourself a favor and save up some cash for future plans. You never know when the time of buying a place will come. Are you currently moving to the city? Your job can’t promise you stability. You don’t know what neighborhood you could feel like home? Renting for the short or long term can be your best option of finding out.
It is obvious that both renting or buying offers have their own benefits and risks. Still, if you managed to elucidate some of our questions above, hopefully, this article helped you in making the right choice for yourself and your family.
If you are still not sure about your option, it can be helpful to talk with a real estate agent. On our web site, you can read more about this topic, what homes are available in Vancouver BC, and much, much more!
Sources:
https://globalnews.ca/news/9438796/rent-increase-tenant-rights-canada/
Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.
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