Family

Financial Affairs

Paves Ath ic ny " ;
reel AO A AE ES RRS ath SON eis,

Page 59, February 4,.1979.- Sunday News

To buy or not to buy: that’s the question

By WILLIAM HUNT

Is it better to rent or buy?
Well, I feel like the
politician who, when asked
his opinion on a con-
troversial topic replied, “In
answer to that question I
would like to give a definite

and unequivocal ‘perhaps’.”

There are obvious ad-
vantages to renting. It leaves
you with a much larger
disposable income to spend
or invest as you prefer. And
given the existence of rent
controls in many jurisdic-
tions, rental accommodation
can be quite an attractive
alternative.

The consumer has
assurance that rents will not
escalate rapidly in
future. And, of course,

tenant also possesses all
those other benefits which
are very ecasy for the
homeowner to appreciate on
Saturday mornings:
mobility, freedom from
maintenance and repair
work, gardening and
snowshovelling.

Then again, there are
significant advantages to
homcowning. Expenses and
mortgage payments may
take a hefty chunk of your
monthly salary, but at least
you know you are building a
tangible invest-
ment/untaxable capital
gain tn return. There is also
the psychological value of
privacy, space and security
which homcowning
provides.

we have to
that the

The fallacy
avoid is

homepurchaser is always
better off because he is
investing every month in a
home which he will even-
tually sell at a profit while
the renter, on the other
hand, is throwing away
moncy. As the song from
Porgy and Bess goes, “It ain’t
necessarily so.”

Let’s compare the costs of
renting to home ownership
in one major urban centre.

According to CMHC, the

median rent for ai two-
bedroom apartment” in
downtown Edmonton is

$400. Now, assume that rent
on the $400 apartment will
increase ata rate of about six
percent a year over the next
five years. That means that
over a five year period, the
renter would = shell out
$27,058 in rent.

That is a lot of money. But
assume at the same time that
the renter has invested the
difference between his
rental cost and the amount
he would pay if he'd pur-
chased an average-priced
home in Edmonton.

The ‘difference is about
$4,400 a year. If that $4,400
is invested every year in
Guaranteed = Investment
Certificates at 10 per cent, it
will carn $7,546 in interest
over a five-year period. His
rental costs over the five

year period -are now
$19,512.08.

\
Take a look at the
homebuyer. He has just

purchased an average-priced
home in Edmonton,.
(367,000, say, with a $60,000

tong

mortgage) which he plans to
sell in about five years.

Over the five year term of
his mortgage he will pay
$32,950 in interest alone. His
total tax and maintenance
costs are estimated at
around $10,000. When he
sells his home in five years,
he will pay an agent's
commission of about $5,400.
So far that brings his
homeownership costs to
$48,350.

However, this person can
expect to make a profit on
the sale of his home. Let's
assume that his home ap-
preciates at a rate of cight
per cent per year. He would
then make a profit of
$31,445 when he sells after
five years. That lowers his
total owning costs to

As you Can see, the owner
would be further ahead. In
fact, $2,500 further ahead.

But, this example is little
more than a conjuring trick.
You can construct realistic
cases to demonstrate that
either renting or buying is
financially preferable.

Obviously, the answer to
the dilemma depends on
your personal taste and
financial position. Once
again, there's no absolute
answer to the  buy-rent
question: cach individual
should price out the cost of
his options before he
commits himself to anything

Mr. Hunt Is Vice-
President-—-Western’ Canada
ot The Metropolitana Trust
Company.