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2016_01_26

Leasing vs. Buying: When Does it Make Sense?

Whether to lease or buy is a question most people will eventually have. Life changes continue to move you in different directions and there are many paths that can lead you to either home ownership or leasing. If you are fresh out of college and looking for your first place, or you have a growing family and are looking for a larger home, there are some standard questions to consider when making your decision to lease or buy.

Is the Price Right?

When you lease a home your initial payment will be first and last month’s rent. From then onwards you will need to be able to make the monthly payments to fulfill your lease agreement, as well as any utilities not covered by the landlord. Once the agreement reaches its end you will not own anything. When you purchase a property you are responsible for the costs of closing including legal fees and land transfer tax, if applicable, and your down payment. Each month you will then pay a mortgage payment to fulfill the agreement with the lender, and when it is complete, you will own the property. You must also take into consideration property taxes, monthly maintenance fees, utilities and any home repair costs.

Is There Investment or Income Potential?

As a tenant, all of the money you spend on rent goes to your landlord and your landlord’s investment. If you are a homeowner your monthly mortgage payment helps you build equity in your home and property. The only income potential from leasing may be subletting or renting out part of your rental property. It is important to know if you are allowed to sublet according to your agreement with your landlord. Some property owners may not allow their lease properties to be sublet. The income potential in your home is exponentially higher because you have more options. You can rent out part or all of your home to help pay off your mortgage. You are also able to borrow money against your property to create more income.

How Long Do You Plan to Stay?

It is important to identify the length of time you plan to stay in your new location. If this is temporary, a year or less, then leasing may be ideal. However, if you are planning on staying longer than a year it is a good idea to consider buying. If you are unsure and are taking things year by year then I would still consider purchasing a property because it can be turned into an investment property if you find yourself moving earlier than anticipated. This is also ideal if you travel for work and find yourself out of the city for extended periods of time. If you are the property owner you are able to lease out part or all of the property and while you travel your mortgage is still being paid from the income garnered by tenants.

Is Your Income Stable?

Will you be able to make the rental payments on your lease for the next twelve or twenty four months? Will you be able to make your mortgage payments? These are very important questions to ask. With a rental property you may not have as many options if you suddenly find yourself without a stable income. If your lease does not allow you to sublet you could get stuck with rental payments and no way to supplement. When you own your own home you are able to rent out a room, floor, or even the entire property and use the income to make the payments on your loan.

In Conclusion

Leasing and buying both have their own advantages and disadvantages. The one you choose depends on the lifestyle you want to lead, such as building equity vs. being able to uproot and move with more flexibility. An experienced Realtor will be able to guide you along the right path – both for today and in the future. Do not feel that you must make these decisions on your own: I would be happy to help! Call me at 416-921-1112 to receive the RIGHT answers to life’s most meaningful real estate questions.