Why rent when you can buy?
Although it varies widely from city to city, the upfront cost of buying a home is only a little more than renting in some areas of the country.
Which means, with interest rates still relatively low, this might be the time to seriously evaluate the decision of whether to rent or own, say realtors.
Let's say you’re renting now for $1,300 per month. Assuming a mortgage rate of $5.25%, $1,300 will be equivalent to a monthly payment on a mortgage of $218,000, based on a 25-year amortization.
If you chose the 30-year or 35-year amortization, the $1,300 would be equivalent to monthly payments on mortgages of $236,000 and $251,000, respectively – the cost of a modest place in markets like Halifax or Gatineau, Ottawa’s sister city, for instance.
Wait a minute, though. The true cost of home ownership is often around 40% higher than your mortgage payment alone.
When you add on all the extras like property taxes, condo fees, utilities, insurance and normal maintenance and repairs you can easily be looking at an actual monthly housing payment that’s closer to half as much again as your mortgage payment alone.
On the other hand, while you can’t do much about taxes, a big portion of your condo fees goes towards expenses that you may already be paying in addition to your rent, such as heating, water, etc. And then there’s the potential growth.
Fair enough, but your home needs to grow in value by at least 15% to break even from transaction and maintenance costs, maintains the Money Mechanics blog.
Need a visual? Use this quickie graphic to give you a rough comparison, keeping in my mind that US homeowners get a tax break on mortgage costs that Canadians don't enjoy.
What do you think? If you live in an area where all this might be a viable option, are you better off stretching to buy or opting for the care-free rental choice?By Gordon Powers, MSN Money
Posted by: Zionist media control | Jul 27, 2021 10:04:16 AM
Too bad the government thinks it's a good idea to keep raising interest rates. I guess they have to keep their rich constituents that are landlords happy. Let's get Harper out of office.
Posted by: Grrrr | Jul 27, 2021 10:10:52 AM
A fairly complete cost comparison is:
Rent + renter's insurance - income from invested downpayment
Interest portion of mortgage + mortgage insurance (if app) + property taxes + owner's insurance + maintenance
With the long amortizations (30, 35 years), the majority of your mortgage payment will be interest. Better to rent and save money until have a large downpayment. This can allow you to avoid the mortgage insurance (which protects your lender, not you) and shorten your amortization. I didn't include appreciation/depreciation of housing prices in the equation, as that is difficult to predict.
Posted by: Grrrr | Jul 27, 2021 10:14:09 AM
Personally I want interest rates to go up. Interest rates going up helps savers and pushes the price of houses down to a more reasonable level. The real mistake was forcing rates down in the first place, as it entices people to go too far into debt and bid up asset prices.
Posted by: J | Jul 27, 2021 10:58:43 AM
Renovations, maintenance and home owner's insurance are totally skewing the calculation.
Posted by: Ron | Jul 27, 2021 1:23:33 PM
Better to rent right now. If your only paying interest on a long term mortgage who benefits? The whole system is designed to benefit the lenders and the agents. Until this system changes, I'll be renting and saving until I can buy where its most affordable and not being in House and mortgage debt to a lender.
Posted by: don | Jul 27, 2021 1:30:01 PM
I agree with Grrr but it is such a sad situation that the consumer cant catch a break. Interest rates dropped and it should have been more affordable to get into a home but someone saw an opportunity to increase their profit. There is never any break for the consumer. I really dont know how much longer this can go on.Who does this country belong to...the people or business? I have never been a advocate of price controls or strict regulations but I am starting to think that is what we will need to do if we want the younger generation to be able to have a future in this country that does not consist of slaving just to survive.
Posted by: Albertan | Jul 27, 2021 2:22:05 PM
Ok to respond to the above
1. AMC - Harper doesn't set the interest rate, the Bank of Canada does.It iis independant from Harper so he has no influence. Your lack of a grasp of Canadian politics and economics is staggering.
2. Renting is safer while home owning is more lucrative. Historical averages (I know it doesn't indicate the current trends but it is the best measure available) over the last 40 years show housing increasesing an average of around 3%-5% a year (depending on area). If you buy with say 5% down (lets say $10,000 down to buy a $200,000 condo) in the first year you should get a 3%-5% growth on the entire $200,000, not just the $10,000 you invested. Over the years this will lead to a huge jump in your net worth compared to a renters.
3. I'm a landlord with several units. I personally hope lots of people rent as it drives up the rental price. Right now I have 2 four year old units where the rent I receive covers the mortgage, all monthly costs, and puts about $200 a month into my pocket. Not even considering the mortgage that is going down on each unit ($4,000 drop a year each right now) or the increase in value (around $50,000 on each in the last 4 years) I am still pocketing $2,400 each year from them. What has this cost me, $0 as they were both bought with zero down mortgages (yes mortgage insurance had to be paid but that was only around $4,500 on each unit so I basically broke even the fist year and have had profit ever since).
Always remember that if you are renting a place that somebody (the landlord) owns it and he wouldn't be in the rental business if he wasn't making money so you likely are not doing as well renting as if you were the homeowner.
Also remember that yes in the short term rental can look appealing in the long-term it rarely is. In the 1980's rent and houses were generally cheap. Rent was $600 a month and mortgages $700-800 a month. Now those same units rent for $1,300 a month while the people that bought have finished the mortgage and now only pay property taxes at $100 a month and have $200,000 paid for homes. Rent vs. buy is a long-run calculation. So remember that while renting now seems cheaper in the nesxt 25 years your rent costs will probably double while the homeowner is finishing paying for their property (which the cost of will pretty much be fixed for the next 25-30 years and then very low after that).
Short term variances can make renting, over a short term, a better idea however over the long-run ownership will pay much better. If they had the forum space I could provide a host of excel calculations that show it to be a real no-brainer over the long run.
Posted by: Low Interest | Jul 27, 2021 2:57:27 PM
Interest rates going up does not help savers, that is far to simplistic a view. The spread between inflation and the interest rate is what matters, not the actual interest rate itself. Which is better for a saver 4% interest with 2% inflation or 10% interest with 20% inflation? In case A saved money will be worth 2% more each year while in case B saved money will be worth 10% less.
Financial Lesson 2:
Inflation is good in moderation (Banana Republic inflation is bad). Inlfation ensures that money stays in circulation and people are willing to spend and invest as there is a general knowledge that things will cost more in the future. It allows people without capital (those starting out) to gain capital as they can invest with the knowledge that inflation will increase their real holdings value. Also it drives job creation caused by the steadily created demand
Deflation is typically very bad. If the general public believes that there is deflation then they know things will cost less in the future than they do now. This causes them to wait to make purchases which slows the economy and causes unemployment which spirals into more deflation and more unemployment. In a deflationary cycle if you don't have money it is really hard to get any as taking debt to buy something is almost counterintuitive as that item (be it a home, a business whatever) will be worth less than the debt against it as time goes on. This really messes up an economy. The 5% of people who are pensioners on fixed incomes do well and everybody else suffers.
So for those callnig for high interest and deflation have every expectation that it could easily lead to huge unemployment (check of Spain right now at over 20% unemployed) and an economy where those with money keep it and those without never get any.
Posted by: SYED | Jul 27, 2021 4:28:19 PM
BASED ON THE INFORMATION HERE , IF YOU ARE RENTING A CONDO FOR $1,300, APPROXIMATE AFFORDABILITY WILL BE CALCULATED AS : ARRANGING THE DOWN PAYMENT OF 20% + CLOSING COSTS (DEPENDING WHERE YOU ARE BUYING) OF AVG. $ 5,000+, SO UPFRONT TOTAL ( APPROX.) $ 45,000 + THE CONDO COST (IF ITS CONDO/TOWN OR ROW HOUSE ETC) APPROX. $ 250 + TAXES PER MONTH $ 150 + MAINTENANCE $ 100, SO ALL TOTAL $ 1,300+250+150+100 = $ 1,800 - NOW YOU CAN DECIDE IF YOU WISH TO RENT OR BUY - NOT TO TALK ABOUT THE COST OF FUNDS YOU ARE PUTTING UPFRONT AS DOWN ETC.
Posted by: Kuldep | Jul 27, 2021 4:54:14 PM
I would like to know which is more profitable. Buy a house cash and use as prime residence.Or buy a house that costs 100000 dollars more and rent portion of the house to generate 8000dollars per year.no mortgage on property.
Posted by: Ron | Jul 27, 2021 5:59:32 PM
Inflation..........the biggest ripoff to the average Joe, all planned and co-ordinated......and the biggest hidden tax!
Posted by: Albertan | Jul 27, 2021 7:12:50 PM
SYED your math is crazy. Why are you adding all the costs of home ownership on top of the cost of renting? Home ownership will often cost less then renting, not more. I'll give you a real life example to ponder below.
I currenlty do rent out a condo for $1,300 a month so lets check the numbers on that one. It cost 139K to buy 6 years ago. I put 5% down (not 20%) which cost (with closing) about 11K (it was new so there were low closing costs and I saved a bunch by using free RRSP withdrawal so cost really ended up about 9K after tax savings). Mortgage and tax is $735 fixed 5 year on a 25 year term. Of that amount roughly $325 each month (includes all utilities) reduces the principle so mortgage interest and taxes are only $410. Condo fees are $325 and my yearly maintenance runs about $300 ($25 a month). So my cash cost is $1,085 but my actual expenses are only $760 (again when you factor the mortgage reducing $325 each month). I have it rented for $1,300 a month right now. This doesn't even count the 61K in value it has gone up in the last 6 years (well up 86 and then down 25). So my monthly profit from my renter is $540 or$6,500 a year on an initial investment of about $9,000.
Even if the renters bought a similar unit (now valued at 200K) their expense each month would be only $350 higher than my costs (based on a mortgage on 200K instead of 139K) so it would cost them $1,100 to own instead of $1,300 to rent. So renting, for them, is actually more expensive then owning and in 25 years I'll own the unit outright and somebody foolish like yourself will still be renting.
Ownership allows leverage of up to 20X. Being leveraged in an increasing market can quickly make huge amounts of money on investments (with the obvious risk of losing in a decreasing market).
My guess is that renters typically aren't bright enough to understand compound interest because I have made an absolute killing financially off them and will continue to do so.
Posted by: JP | Jul 27, 2021 8:34:52 PM
Albertan - have you bought an over priced property recently...? Enjoy the risk when your asset deflates and you end up with less than you think due to price inflation (i.e. purchasing power declining as time goes by) on certain items (i.e. interest and taxes) and having to reduce your rent as a result of a stagnant economy.
As for Harper being independent of Carney...this is the biggest crock that I have ever heard...are you a realtor?
Posted by: gelfern | Jul 27, 2021 8:43:16 PM
Has anyone ever mentioned that a house costing $25000.00 in 1975 probably is worth about $250000.00 today, anywhete in the country.
That is more than 35% ROI every year for the past 35 years.
For all of you RENTERS, any financial institution does not consider you stable enough for good rate on loans, if you don't own any piece of real estate.
Stay in the poor house......
Anyone with any brain knows the value of Home ownership....
Posted by: brian | Jul 27, 2021 8:52:55 PM
As you save for that down payment, the house prices are still increasing. what if we have a $70,000 jump over 4 years like happened recently in kingston? (TRUE CASE- 2002-BUY plus reno value $197,000, then 2006, value 270,000- actual buy and assessment. 2010 offers on house in 330,000 range.
where are your careful savings now? did you save $20,000 a year from your job and rent? if you had bought and fixed etc then say your cost was 220,000. now the same house is actually $335,000. thats $115,000 i think. did you save that in the 7-1/2 years? if you want a home the best thing to do is buy the worst one you can afford in the best neighbourhoood and slowly fix it. you'll like where you live and the value will be affordable now, but not 5 years from now.
Posted by: pfff | Jul 27, 2021 10:26:12 PM
It has almost always been better to rent and invest your money elsewhere. Real estate returns other than the bubble years barely beat inflation. Problem is people aren't disciplined enough not to spend the extra money so what makes owning the better option for most is simply the fact it is a forced savings acount since you're building equity.
Posted by: Dave | Jul 27, 2021 10:42:19 PM
BETTER TO BUY THAN RENT. Money spent on rent is gone. Money spent on the mortgage eventually eliminates the mortgage thereby lowering the cost of living dramatically.A renter never enjoys equity gain wheras the home purchaser does.
Bought a bungalow in the beaches area of toronto in 98 for$179,000.00Mortgage,taxes,utilities,and maintenance cost approx $1,600.00 per month.With the help of anniversary payments I managed to pay it off in 10 years. Taxes,utilities are approx. $500.00 per month and the property is now worth $450,000.00.
If I were to rent it out I figure the I could get earn $1,600.00 per month after taxes and utilities.
BETTER TO BUY THAN RENT
Posted by: Rob | Jul 28, 2021 8:21:16 AM
Albertan-if those numbers are correct, then you have a horseshoe up your ass...I say that because you are doing very well and have very little idea of what you are talking about and feel like you are an authority simply because of your good fortune.
Don't pretend that everyone who buys will have similar numbers and everyone who claims flat out that long term will be better than renting 100% of the time hasn't spent a lot of time thinking about what this article was stating. Everyone who says that ignores the effect of saving the extra money that was leftover from renting and investing that year in and year out to obtain the effects of compound interest...bluntly stating that renters are too stupid to see this, is narrow and wrong. I'll give numbers of a friend of mine to show this. He purchased an $800,000 luxury condo recently complete with a pool, gym, security etc in a rental market where you could have the same luxuries for approximately 1500/month. His condo fees are $700/month, his taxes are $12,000/year or 1200/month, heating/hydro on average about 200/month, the initial interest portion of his mortgage is high, and he bought in a saturated neighbourhood where condo prices haven't even tracked with inflation.
Do the math, he is hemhorraging money from his purchase year in year out. You always have to run the numbers...while buying will usually be the best option long term, it is blatantly false to say that it will be 100% of the time.
Posted by: Albertan | Jul 29, 2021 2:17:35 PM
Of course the numbers are correct and no, I'm not a real estate agent. Also as is typical rental people like to compare apples to oranges. My friend bought an $800,000 condo and you can rent the a comparable unit for $1,500 month when taxes and condo fees are $1,700 a month ? Even you rent fans must see how ridiculus that above claim is claiming he can rent for less than the cost of condo fees and taxes?
My rental case is typical and isn't a standout by any measure. Want to see a truly good one. A company I worked for in 1995 bought several hundred units at around $50,000 each (10% down only and they reinvested all profit towards the mortgage). Currently they rent them out for $2,000 a month each and the condo fees and utilities only run $600 a month (mortgage was paid off in 2000) and they are worth $220,000+ conservatively (similar units selling upwards of $280,000). Thats hitting it good in the real estate market.
I ask renters out there to find out what the unit they rent cost 5 years ago to buy (not the luxury penthouse down the street) and figure out what the mortgage and monthly costs would be and compare it to their rent. In a very large majority it will be less than their current costs.
Typically renters haven't truly sat down and crunched the numbers while I spent years looking and figuring to come to my conclusions (notice above how I include all costs while others simply make unsupported statements). Ownership won't always pay in the short term but in the long-term (and especially if well timed) it can be exceedingly profitable. Look at the financials of rental companies and note the profits, those come from gullible renters.
And to the guy worried I'm going to get crunched it is quite unlikely (I"ll admit not impossible). Inflation actually helps me by making my debt cheaper (I have it fixed) while increasing my unit values and the rent I can charge so I am actually hoping for higher inflation to hit.
Lastly I never said 100% of the time, I said over the long-term it is highly likely (think 30-40 years). Exceptions exist but are rare and primarily deal with owning property where a town ceases to exist etc.
Posted by: Saskabush | Jul 30, 2021 9:31:26 AM
Buying is better than renting. Period. I don't have numbers or a calculation to back it up.....but I do have this statement. Take $1,000 a month and give it to someone. Thats rent. At the end of 25 years, what do you have to show for it? Besides 300 rent receipts? Nothing. Even if a mortgage was 1.5 times as expensive, at the end of 25 years you at least have something to show for your payments in the way of equity and a house that has value instead of your rent receipts. When you factor in that after you are done paying off your house, the only expenses you have are up keep, utilities, and property tax and in some cases condo fees (which sometimes covers utilities).
If you want to rent, keep paying your rent. I'll buy a house and then once that is paid off, i'll buy another one with the equity. I'll then rent it out to you, then you can pay for my retirement.