The Opportunity Costs Of Rent vs. Buy In Canada

Should you rent or should you buy? This is always a big decision. The key thing to consider is the opportunity cost, the price of what you are missing out on as you choose one decision over the other.

Remove Other Costs From The Equation

Not accounting for other costs is like comparing apples to oranges. Other costs are the costs that you already spent which will never be recovered. Since it is gone either way, removing them will help you make better informed decisions about what actually matters— the future. 

For renters, the cost is straight forward. It is just the rent itself. For homeowners, it is a bit trickier. Other costs include mortgage interest, property taxes, condo fees, and maintenance fees.

How does this apply to the argument of “comparing apples to oranges”? It is unfair to compare the full mortgage payment to rent because it includes the equity-building principal along with interest. 

Primary Differences Between Owning Vs Renting

Let’s take a look at the major differences between owning and renting a property. Buying a property requires locking up a massive chunk of liquidity in a single illiquid asset— your home.

Renting works differently. Your down payment doesn’t just sit there, you can invest that money into your TFSA and RRSP, keeping it liquid and growing. This all comes down to opportunity cost—the price of what you miss out on. When you purchase, the opportunity cost is the growth you give up by locking your down payment in your home. When you rent, your opportunity cost is the tax-free housing profit when you sell the home, often under the Principal Residence Exemption.

Generally speaking, the principal residence exemption allows for a completely tax-free capital gain when you sell your home.

Psychological advantage of owning

An underrated advantage when owning a home is that it acts like a forced savings plan. Every month that you pay your mortgage it directly decreases your principal while building your equity, often without you even thinking about it. 

Renting and investing the difference can achieve a similar result, but only if you have the discipline to actually invest the extra cash instead of spending it. 

Building a Strategy That Works for You 

Whether renting or buying makes sense depends entirely on your local market, cash flow and personal financial habits. At Merrick Financial, we work with business owners to coordinate investment strategies, navigating insurance options, estate planning, risk management and more. If you're ready to experience what completely uncompromised financial planning feels like, book your complimentary initial consultation with Merrick Financial, and let's start building a plan that works strictly for you.