To buy or to rent? It's one of the most hotly debated questions in any city - and nowhere more so than the Lower Mainland. Here, expensive housing means that buying is often a big trade-off between your money and your lifestyle.

While many believe that the benefits of owning your home far outweigh being beholden to a landlord, others argue that more money can be made over the long term by investing the savings made from renting.

So what are the pros and cons of renting versus buying - and which choice is ultimately going to offer the best long-term financial outcome for you?


Check the Vancity Mortgage Calculators and Investor Education Fund Buy-Rent Calculator

Why Rent?

1) Live where you want.

When you find a neighbourhood you love, you can probably afford to live there as a renter, even though buying there might be out of the question.

And if you're new to town, renting is a terrific way to test-drive a neighbourhood. Decide you don't like the local shops, length of the commute to work, traffic noise, or view? No sweat at least, it's no more sweat than packing your stuff and moving somewhere else.


2) Stay flexible.

Let's face it, if your job or your round-the-world travel plans mean you'll only be in town for a couple of months or even a year, it makes sense not to be tied into a mortgage. Renting is also far more cost-effective than living in hotel even when you pay the extra for a fully furnished suite plus you get the convenience of extra space.


3) Maintenance? Not your problem.

When you're a tenant and something breaks, help should be no more than a phone call away, with no cost to you to fix it. Consider the expense associated with a leaky roof, water damage from a burst water pipe during a cold snap, or even replacing the shrubbery that expired in an heat wave while your were on vacation.

These are the kinds of sudden expenses home owners face and renters don't. And owners also have to factor the ongoing costs of maintenance into their budget, on top of their mortgage payments. Those are all included in your rent.


4) Avoid the extra costs of buying.

Aside from maintenance costs, buying a home involves a host of extra expenses that add thousands of dollars onto the purchase. These include legal fees, property transfer tax, inspections, sometimes GST and more. Renters escape these up-front costs entirely. (See our infographic on the extra costs of buying.)

5) Know what you'll pay.

And there's the stability of knowing exactly what your monthly outlay will be. In BC, 2014 rent increases are limited to 2.2% by law. Mortgage rates aren't. Although we've enjoyed historic low interest rates for a number of years, there's nothing to protect home owners from a return to higher rates in the future a particularly scary thought for anyone who's paid only a minimal down payment.


6) Invest the difference.


Many owners are stretched and have no room for savings. Smart renters invest the money they save by renting, and make sure their RRSP and TFSA savings are at the maximum so they take full advantage of tax refunds and tax-free growth. It requires discipline and attention (and a trustworthy financial advisor), but the returns over the long term are very close for owning a home and investing in the stock market. John Andrew of the Queen's University Real Estate Roundtable did a study that found TSX annual returns from 1981 to 2012 were 5.45 per cent, excluding dividends, compared to 6.43 per cent for Vancouver housing over the same 30 years. Another study, quoted by Rob Carrick in the Globe and Mail cited stock exchange gains of 8.5 per cent over thirty years.

Why Own?

1) Enjoy the fact it's all yours.

It's a cultural thing with Canadians to want to buy a home about 70 per cent of us do. Pride of ownership, the ability to decorate how you like (even if your favourite wall colour is purple), and the stability of knowing no landlord can force you to move are big motivators.


2) Put your money to work.


Typically the biggest motivator is dollars and cents. Renting means every penny of your monthly payment is spent gone for good period. On the other hand, a portion of each month's mortgage payment goes to reducing your principal it's like putting cash into your own savings account rather than someone else's.

And with time your home's value will probably go up. Historically, housing values continue to rise steadily over time, thus creating a solid investment in your future. As they say in real estate, it's not timing the market, it's time spent in the market.

Then there's the leverage factor. Let's consider a hypothetical $400,000 apartment. A 20% down payment would mean an actual investment of $80,000. As your property value increases, however, you reap the benefit on the entire $400,000 so an annual increase of just 2.5% in property value translates to $10,000 or a whopping 12.5% return on your initial investment. Of course, you could always settle for something closer to the current return of 3% or less on a term note.

Most insiders agree that today's historic low mortgage rates show no sign of bumping up any time soon. And while a 25-year amortization on a mortgage may sound like a long time, it goes by fast and suddenly you're mortgage free with only property tax and maintenance to pay. Rent, on the other hand, never ends it only increases.

3) Benefit from competition for your dollar.


In today's competitive market, developers are offering increasingly innovative incentives for buyers considering a brand-new home. No strata fees for a year or more, legal expenses, exotic vacations, upgrade packages, custom vintage wines, even cars have made appearances as no-cost buyer incentives.

4) Make tax-free profits.


Final thought to ponder. Although an RRSP should be part of every retirement plan, you will always need a roof over your head. You're also forced to convert an RRSP at age 71 and begin withdrawing funds and paying tax on them. But only you choose when to sell your home. Best of all, when you do sell, that profit is tax free on your primary residence and after all, who doesn't like to get a tax-free windfall? 


Vancity Mortgage Calculators

Investor Education Fund Buy or Rent Calculator

Let's do a sample calculation from the Investor Education Fund website, taking the example of a person trying to decide between purchasing a two-bedroom West End condo for $500,000 or renting a similar condo for $2,000 a month.

We plugged in the buying scenario of:


  • $500,000 purchase price;

  • a 20 per cent down payment;

  • buying costs of $7,500 (waived Property Transfer Tax as the assumption is this would be a first-time buyer);

  • a $400,000 25-year mortgage at 5 per cent (monthly payment would be $2,326, according to the Vancity calculator);

  • strata fees of $5,000 a year;

  • property taxes at $5,000 a year;

  • home insurance at $1,200 a year; and

  • various other standard parameters such as price growth and inflation.

Then we compared this with renting the same apartment:

  • $2,000 a month rent;

  • 2 per cent annual rent increase; and

  • the renter investing all the savings (money not spent up front and on monthly fees such as strata fees and taxes, as well as the difference between rent and mortgage payments) into a 3 per cent return investment.

The graphic results below indicate that after 19 years, this particular person could be better off buying than renting.

Buy vs Rent 2 

However, this calculation makes some huge assumptions - such as a mortgage rate that averages 5 per cent over 25 years, and this person being a first-time buyer. A few adjustments in down payment, mortgage rate, strata fees, taxes, investment return and so on can make massive differences to the results. It is essential to work out what is best for you based on your individual factors.


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Source:, by Susan M. Boyce

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By: Ken Davidson

I was recently asked by a real estate investor group to speak at one of their meetings. The topic of real estate is a broad one, so I asked if there was something specific they were interested in learning more about.

Not surprisingly, the topic they wanted to focus on was what to look for when finding the perfect community to invest in, i.e. what are the signs that identify the communities with the best investment potential?

I don't look at major cities. These markets are watched intensely by many in the industry who buy using different parameters and who are okay with a smaller ROI. Personally, I look at regional centers -- the smaller cities that form the hub for many outlying communities.

The following are important factors in determining if an area is a regional centre:

1. It is highly accessible. Access is key, and that usually comes along with a regional centre, but I look for good highways and airport access. How easy is it to get in and out of the community? This is important.

2. Investment from the private sector. If newer big box retailers are entering a community, the odds are that they have access to much better research on the community than I do. They want to be in a community that is growing and vibrant, and this is the same type of community I prefer to invest in.

3. Re-development of public infrastructure. I look for upgrades occurring in public buildings and other public assets in the community itself. If school districts are growing, hospitals are expanding and recreation centres are being constructed, the federal, provincial and municipal governments are probably investing money into the area.

4. The purchase price works. It might be obvious, but the purchase price always has to work. I make sure that the purchase price of properties in the community is going to give me my required ROI based on normalized market finance terms and conditions. We can all negotiate low interest, short-term, vendor-take-back financing, but when you’ve overpaid and it comes time to refinance, be prepared to open your wallet. Fantastic short-term financing is a bonus, not a plan.

5. Strong employment. I am in real estate for the long-term so I prefer middle class, working communities over boom-and-bust areas or tourist towns. I search the city’s economic page on their website and read local papers for news of new industries coming to town, transportation hubs, medical centres or other places where people are employed in large numbers.

6. Stable increase in population. If you are looking at investing in a community and the population is declining, you really have to determine what your exit strategies will be. Who is actually going to buy your property if the population is going down? Population growth is usually linked closely to new industry employment.

7. Talk with property managers in the area. When I go into a community I always interview local property managers. You need a great property manager on the ground to solve issues as they arise, quickly and efficiently, especially if you don’t live in that community yourself. You need a property manager who is willing to give you all the information you feel you need to be comfortable managing from afar.

During the interview ask for a list of the properties currently under their management and do a drive by. Find out what they feel about the local rental market and what they charge for rent. Inquire about what type of vacancies they have with their current projects and just get to know them in general.

8. Is the area large enough to create inventory? As a real estate investor, the areas I look at need to be large enough that I can buy enough inventory to justify the management and travel expenses created by it.
Are there enough properties that are going to become available over the next few years that will allow me to have more than one property in the community? If you only have one property in a community, the percentage of revenue allocated to managing it is significantly increased.

9. Expanding a remote market. When looking to expand outside of a market that is already a plane ride away from where I live, I try to stay within a one-hour drive from my hub city. This allows for ease and efficiency of business travel.

For instance, when I selected my target city in Ontario I tried to keep all properties within an hour’s drive in any direction. I then copied this model in Nova Scotia, British Columbia and parts of the US. I fly in, rent a car, drive to inspect my properties, meet with the necessary people, then return to the airport and fly on to my next hub community.

10. Speak with an advisor. There is always the chance that a community you are considering is experiencing the downward part of a cycle. If this is the case, and it’s a good vibrant community that has come out of similar cycles in the past and you believe it will in the future, there is a potential opportunity there as well. Speak with a trusted advisor and seek sage counsel before investing in a situation like this. 

Ken Davidson is an investor and partner at BDO

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Owning an investment property can be a great way to create financial security for you and your family. Buying a condo, townhome, house or small multi-unit building has lots of advantages, including monthly rental income, property value appreciation, tax deductions and the ability to use the bank’s money to make more money for yourself.


However, you have to invest in an investment property with your eyes wide open. Here are some potentially expensive mistakes to avoid:


  • Treating the property purely as an investment and not as a business. Owning an investment property is like owning a business. People think the only thing they have to do is buy it, rent it and forget it.  Decisions will need to be made from time to time regarding maintenance and upgrades, rent reviews, new leases, etc. Even if you hire a property manager that will do the work, they can only do what is instructed.
  • Unwittingly breaking a law. Before you buy, do some research. Make sure you understand landlord laws, your responsibilities and liabilities, and the ins and outs of leases.
  • Not getting pre-approved first. Talk to a mortgage expert before you start your search so you know how much you can qualify for and you know what you are going to require.
  • Not factoring in running costs. The price of the home is only the first of a series of home ownership expenses. Before you rush off at buying consider some of the costs such as property taxes and strata fees if applicable.
  • Working with a buyer’s agent. Work with a trusted real estate agent that has experience and knowledge on buying investment properties. Buying an investment property is about numbers while buying your own home is about an emotional purchase.
  • Buying a property sight unseen. This could be a recipe for disaster. Unless you do a site inspection yourself or have your real estate agent who knows exactly what you want. This is a big investment surely you can take the time to inspect it.
  • Not checking out the property adequately. Having the property professionally inspected can help avoid unexpected expenses. There are many potential problems with any home that you are not likely to pick up yourself.
  • Not having enough funds to cover unexpected expenses. What if your property sits vacant for a few months? Will you have enough to cover your mortgage payments? What if you suddenly need a new roof or furnace? It’s wise, if possible, to keep an emergency fund of about 10% of the value of the property to carry you through the tough times.
  • Not having a proper and efficient maintenance schedule in place. All properties, their fixtures and fittings wear out! Damage does occur. It is important to keep maintenance up and have it done on time.
  • Expecting too much. If you expect to get rich quick, you may be tempted to set the rent too high and lose your tenants. Research comparable and be reasonable.
  • Becoming a slave to the property. Decide how much your time means to you. If your investment property becomes a second full time job, is it really worth it? Factor in the cost of a property management company, if necessary.
  • Not checking out tenants adequately. Ask for references (especially their past landlords) and follow them up. Run credit checks. If applicable, drive by the prospect’s current property and see how well it’s cared for.
  • Not doing regular (at least annually) financial analysis. Remember, this is a business. All business owners regularly review their financials. Your property manager should provide you with monthly and annual statements of receipts and expenditures. Consider doing an annual market appraisal to see how the value of the property is going. Sometimes it is strategic to sell of some assets and purchase new ones. 

One way to help make things go more smoothly is to join your local landlord association. These groups can update you on laws, supply sample lease agreements, recommend suppliers, etc.


These mistakes to avoid are not intended to discourage you from buy an investment property but to assist you to proceed with open eyes and know what you are getting into. Buying an investment property means work but it is a great way to create wealth and financial security for you and your family.


If you would like some help to analyze your financial ability to invest in an investment property give us a call.


Source:, credit Jorge & Alisa Aragon

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