Historically, young people have bought houses after getting married. These days, though, many newlyweds have no choice but to rent in expensive cities, while affluent singles are buying larger homes in suburbs and exurbs.

Read: Housing affordability not a problem for most families

That means deciding whether to rent or buy is more complicated than it was a generation ago. To find out what’s best for your clients, ask these three questions.

  1. How long do you plan to live in this home?

    If clients don’t know, they shouldn’t be buying.

    My friend purchased her first condo at the age of 24. She planned to sell it once its value appreciated, but her mortgage was a five-year fixed at 5%, and her payments soon became overwhelming.

    Meanwhile, she grew dissatisfied with her job but couldn’t quit because her monthly payments were so high. She had the travel bug, but couldn’t save enough for vacations, so she financed trips with plastic and racked up more debt.

    Another friend in his mid-30s bought a two-bedroom townhouse a few years ago. While it seemed like plenty of room at the time, he found after two children that his family had already grown out of it. Unfortunately, prices softened and selling would mean losing much of his equity. So he’ll stay put until it becomes too small to bear.

  2. The lessons?

    Explain to clients they shouldn’t buy homes until they’re ready to settle down. Buying means committing to working in a set geographic area and to bringing in a certain amount of money each month, regardless of whether or not they’re working in dream jobs. Clients should also put off buying until they know what they need in a home.

  3. Why to rent

    Can you afford it?

    Most first-time buyers focus solely on the mortgage, but that’s only a component of the total cost.

    Property taxes, insurance, utilities and maintenance fees add up quickly. Many young people run into forced renovations if they’re the second or third buyers of townhouses or condos. For serious problems, such renos can cost between $30,000 and $100,000.

    If your client plans on renting out some or all of the property, make it clear that being a landlord means making the property compliant with tenant codes, performing regular maintenance and quickly responding to emergencies. Plus, tenants don’t always pay on time or in full. Keep a copy of the municipal or provincial landlord-tenant legislation handy to show them what they’re signing up for.

    What’s more, rental income is taxable and claiming expenses can be an administrative headache.

  4. What does a home really mean?

    This is the most important question. Within a financial plan, homes are classified as shelter only, since clients can’t access home equity during emergencies. And even if they manage to sell the place on short notice, people don’t always get the amount they expect.

    Discourage clients from viewing the house as an asset. It’s shelter, and a lifestyle choice that can provide a source of fulfillment—provided they can afford it and are prepared for all the unanticipated costs.

Also read:

15 tips to protect your client’s home

No housing bubble, says Scotia

Caroline Hanna, CIM, is an investment advisor with National Bank Financial Wealth Management.