While paying rent can often feel like an investment in someone else’s future rather than your own, there are ways to make those monthly payments more rewarding.
“Our parents’ generation is always talking about the benefits of buying because when they bought, real estate was nothing like it is now and they have done fairly well,” explained Kevin Langman, a fee-based financial planner based in Calgary who works with many millennial clients and is the co-founder of Finovo.
“I just don’t think that kind of growth … is really that likely for our generation. It’s a different discussion.”
Langman, 33, opted to sell his town home in a Calgary suburb and rent in the city instead because it provided flexibility and a better lifestyle.
But he says there’s also a business case for renting.
“When you run the actual numbers, because real estate is so expensive, renting can make more financial sense,” he said.
“Look at what it would cost to buy that place that you’re renting, subtract what the rent is, and whatever that difference is, save that every month.
That strategy achieves two goals: it helps you save money so that you have a down payment ready when you do want to buy, and it gives you a sense of what it would be like to own, without being locked in to a mortgage, he added.
Some renters also opt to pay their rent by credit card in hopes that their rewards points will offset some of the cost of rent.
“If you’re using a card where there’s potential to earn higher returns than (the average fee charged to pay with your credit card) …that’s where you’d want to do it, otherwise you’re going to be paying to earn those points and miles,” said Patrick Sojka founder of Rewards Canada, a popular website for credit card rewards information.
If you have a service with a lower fee, however, or can get a travel rewards credit card when they offer a no-annual fee deal, the math can be enticing.
For a monthly rent of $2,200, for instance, a rewards travel card like RBC Rewards Avion, which gets you one point per dollar, will allow you to rack up 26,400 points in a year – that’s almost enough for two tickets anywhere in North America.
A more basic card, like the RBC Rewards Visa, gives you one point for every dollar spent on groceries, gas and drug store purchases, and one point for every $2 spent on other purchases, but it comes with no annual fee – and would still get you 13,200 points in a year to play with on that monthly rent of $2,200. That would get you one of those plane tickets, or at least two kitchen appliances.
You just have to make sure that you pay off the balance for the credit card on time, or the interest will offset the points benefit, noted Laurie Campbell, CEO of Credit Canada Debt Solutions, a non-profit that offers free confidential counselling to help people manage their finances and get out of debt.
“If you can get some added benefits out of renting, such as some extra points and that sort of thing, absolutely (as long as) you’re very, very wise with your money and you know how to manage it and you know how to deal with unexpected issues that come up,” she said.
Renting also means you don’t have to pay property taxes, interest, maintenance or unexpected repairs.
“We see clients in here that are very house poor – they have home ownership but they can’t really live, so they use credit for their everyday purchases,” said Campbell.
“If you don’t have the means to purchase a home and do it without straining yourself, you shouldn’t be doing it.”