It’s time for another comparison of rent vs buy. It’s not that I condone buying a house, but in ultra expensive cities in Canada like Vancouver and Toronto, all the arguments of buying over renting have become myths. The popular saying that you are throwing your money away renting is getting harder and harder to justify as prices go to the stratosphere in places like Toronto. With prices looking like they won’t abate any time soon, it’s time to compare just how much better buying is versus renting.
Holy S*#! It’s Expensive
Unless you’ve been living under a rock, it’s going to be very apparent to anyone living in Toronto or Vancouver that prices for any type of housing is extremely high. So high in fact that it will take about 10x salary just to get into any “starter” dwelling.
The situation doesn’t seem to be improving with the rising cost of money. In fact, higher mortgage rates have only caused a slowing in the purchases of high end homes. If you actually look at the real estate activity at the lower end, it’s still stronger than ever. Condo sales are booming and there doesn’t seem to be a shortage of buyers even at sky high prices.
Just take a look at this listing.
For a cool $575,000 you can get a pie in the sky. Gone are the days where a townhouse can be bought for over half a million dollars in Toronto. Nowadays the young kids are going after bachelor pads with that kind of money.
So what does a mortgage look like for a place that’s 700 square feet?
With a 20% down payment, coming most likely from the Bank of Mom, a cool Millennial can get this place for a mere $2,357.76 a month. Doesn’t sound so bad when rents are so high in the Center of the Universe, also known as Toronto. But let’s look closely at the numbers.
For the first year of payments, of the $2,357.76 dollars paid towards the mortgage, over $1,400 on average is just interest payments. Looking at the maintenance fee of that unit at $754/month and the property taxes of $173/month and we’re looking at a grand total of $2,327 being “thrown away” per month. Yes, boys and girls, that’s over $2,327 being flushed down the toilet for owning a condo.
Looking over the 5 year term mortgage, buying the condo will incur just over $80,000 in interest being paid. Over $10,000 in property taxes paid. And a whopping $45,000 in maintenance fees. That’s a lot of cash getting flushed down the toilet just to own.
Oops… I guess the realtor forgot to teach you how to do math when she told you to buy it.
I Like Wasting Money
Now let’s look at the other side of things. Just how much does it cost to rent a similar unit in the heart of Toronto? That’s easy, there’s also a unit that’s up for rent in the same building.
Wait, wait a second. Is that a typo up there? Only $2,250? How can that be? My agent and mom always said it would make no sense to rent because you would just be throwing money away. The truth is in the numbers. It’s no longer a guarantee that you will be paying less to rent than buying. In fact, in this example, it’s actually $70 a month cheaper to rent than buy because of all the other taxes and fees associated with owning. Let’s not even talk about the opportunity lost on the $115,000 down payment.
It’s a Lifestyle
Buying a home in expensive cities like Vancouver and Toronto shouldn’t be about investing money or trying to make money. It should really be about a lifestyle. Given the above cost figures, it shows that a home owner and renter is “throwing” away just as much money on a monthly basis. At the end of the day, the home owner will own the home, a renter won’t own anything.
Given the higher cash flow requirements per month of owning ($3,284) versus renting ($2,250) it all comes down to what you want to do with your money. Do you feel it’s more important to have the security and pride of home ownership. Or would the extra $1,000 in your pocket every month provide you with a better comfort level? This isn’t something that this blog can tell you. It’s hard to put a value on emotions.
If home ownership is affordable, and won’t take up too much of your monthly cash flow, then it can still be very advantageous. It forces you to save, it takes care of an important need in shelter, it also provides you pride. Renting will also provide you with flexibility and mobility. It doesn’t tie you down to one city. It gives you the ability to look for better employment in other cities or countries.
What’s good for you? Only you can decide.