# Rent vs Buy?



## marina628 (Dec 14, 2010)

My friend moved here from Israel a month ago.She needs to be in Richmond Hill and her choices is rent a house for $1900 + a month or she can buy a $500,000 house with $150,000 cash down.She has a contract job from Israel which she can do remotely from home but her husband has no job yet.She will be making $55,000 a year maximum so counting on their other savings as backup.She bought a used car for cash last week and has total of about $240,000 from sale of property in Israel.I guess what she wants to know is what she will make a month on her savings to offset her high rent vs just buying a house and paying the $1900 a month to the bank.
I told her she should not buy now and sit on her cash until her husband gets a job.I promise guys next friend asking money questions I will not tell them about this forum lol.


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## jamesbe (May 8, 2010)

$55k a year, 350k mortgage, I don't think they would even get the loan to buy and it sounds like a really bad idea. There are less expensive homes, if they really want to buy. But this seems like the classic you should be renting story.


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## marina628 (Dec 14, 2010)

Her husband was making $110,000 a year in Israel and probably will get similar pay when he gets hired here in Canada .They have been approved already based on the cash down...shocked me too lol


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## Jon_Snow (May 20, 2009)

There couldn't be a worse time to be shopping for a new home in Canada.

I would urge anyone to wait... once interest rates start rising, listings will flood the market and prices will start dropping. 

I laugh when I hear realtors spout the line "buy now or be priced out forever!". Anyone buying now is very likely to suffer a crippling loss of home equity in a matter of a few years...


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## MikeT (Feb 16, 2010)

marina628 said:


> Her husband was making $110,000 a year in Israel and probably will get similar pay when he gets hired here in Canada .They have been approved already based on the cash down...shocked me too lol


. Ya, we don't have a subprime crisis here.


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## slacker (Mar 8, 2010)

I also think houses are overpriced. But it can remain overpriced for a very very long time, because of government meddling.


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## Plugging Along (Jan 3, 2011)

I agree with everyone. They should wait. They just moved to Canada, there are many unknowns, and uncertainties. The cost of setting up in a new country from scratch is high. Even though her husband is highly employable, he doesn't havea job yet. My spouse is very employable, and it took a year when he was laid off to find a job in our city. 

Her mortgage, plus tax, insurance etc will be higher than $1900 a month. 

What's the rush of waiting until he at least gets a job.


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## Potato (Apr 3, 2009)

marina628 said:


> her choices is rent a house for $1900 + a month or she can buy a $500,000 house


Are those comparable houses? If so, it's pretty easy to say to rent.




> I guess what she wants to know is what she will make a month on her savings


That's a whole other thread, having to take into account time horizon, risk tolerance, tax situation, etc., etc. But at those prices it doesn't take much to come out on top vs buying!


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## brad (May 22, 2009)

If they will rent, do they really need to rent a house, or would a smaller apartment do the job? When I first moved to Canada eight years ago, we spent the first five years living in a cheap ($550 for three bedrooms!) apartment in a commercial-industrial part of town. I know there are no deals like that in the Vancouver area, but an apartment is still probably cheaper to rent than a house. In my experience, you can live just about anywhere for a few years if there's an end in sight.


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## the-royal-mail (Dec 11, 2009)

What's with all the middle class people lately thinking they have to move into $500K houses? That's madness, and EXACTLY what lead to a meltdown in the US. Haven't we learned anything from that?

I think your friend needs to lower her standards. With her salary I doubt the bank would give a mortgage for more than about $180K if she needed one. That should say something right there.


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## brad (May 22, 2009)

Haha, for some reason I was thinking "Richmond," not "Richmond Hill," so I assumed you were talking Vancouver. I didn't know there was a Richmond Hill in Ontario!


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## Four Pillars (Apr 5, 2009)

Just to add to the chorus - they should wait. 

What's the rush? Just more hassle to buy a house now.

Let the hubby find a job, figure out where everyone's office is located, look around and then they can make a decision.


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## MikeT (Feb 16, 2010)

the-royal-mail said:


> What's with all the middle class people lately thinking they have to move into $500K houses? That's madness, and EXACTLY what lead to a meltdown in the US. Haven't we learned anything from that?
> 
> I think your friend needs to lower her standards. With her salary I doubt the bank would give a mortgage for more than about $180K if she needed one. That should say something right there.


See, according to the OP, they apparently already have approved her for a 350k mortgage. She's not unique. I have a friend with over 900k of mortgage with a 90k salary. Several others with bad but not quite as extreme situations. Nope, no subprime crisis here, we're totally immune up here in Canada. <head in sand>


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## Jungle (Feb 17, 2010)

MikeT said:


> I have a friend with over 900k of mortgage with a 90k salary. Several others with bad but not quite as extreme situations. Nope, no subprime crisis here, we're totally immune up here in Canada. <head in sand>


Huh? 

How is that possible? That would exceed TDS ratios. I find that hard to believe a bank will mortgage $900k on a 90K income. Sounds a little off.


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## Berubeland (Sep 6, 2009)

Yesterday I posted my Condo or Airport ? post. Examining the relative lack of value in the Toronto Real Estate market  

http://landlordrescue.ca/condo-airport/

There are very good reasons to rent for the first year in Canada. The first reason is that as other people have pointed out she doesn't know where her husband is going to end up working. It's not hard to end up with a several hour commute in Richmond Hill. Not really nice... to spend 4 hours in transit or stuck on the Don Valley parking lot.

Next she needs a year just to get the lay of the land and figure out the best place to buy, and areas she likes. Or she can trust herself to the tender mercies of her local real estate agent. 

FOr both these reason she should rent for a little while...


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## MikeT (Feb 16, 2010)

Jungle said:


> Huh?
> 
> How is that possible? That would exceed TDS ratios. I find that hard to believe a bank will mortgage $900k on a 90K income. Sounds a little off.


Three properties, two rented out, roommate for the third. They use the rental income count it as his income, bango... Approved. Welcome to the world of Vancouver real-estate. These are the reasons for the recent rule changes. Otherwise people could have just kept buying infinitely many properties, using rental income to cover each. The madness has to stop somewhere.


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## Sampson (Apr 3, 2009)

MikeT said:


> Three properties, two rented out, roommate for the third. They use the rental income count it as his income, bango... Approved.


Presumably the $90k annual income does not include any rental receipts. Are you suggesting rental income should not be used in loan calculations? Also, your friend may have sizeable equity within the properties themselves. So the banks could take your friends equity AND resell the how after they repo it. 

Risk isn't that significant because I assume the prevalence of this type of scenario is not that high.


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## MikeT (Feb 16, 2010)

Not sure on the equity, but I know the third one was bought just before the rule changes in order to qualify.

The problem was that there were virtually no limits. Every time you saved 5% you could buy another property. You could get a variable rate, long mortgage amortization to lower the monthly payments, find a renter to cover... Done, next property, repeat ad infinitum. 

No regard to future interest rates, trouble finding renters, housing price declines etc... You could even borrow the 5% technically. If you don't see the ponzi scheme yet let me know and I'll continue.


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## Berubeland (Sep 6, 2009)

Much more prevalent then you think Sampson


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## marina628 (Dec 14, 2010)

She is originally from Richmond Hill but has lived in Israel 18 years so she got her mind made up to live there near her family.Banks will accept 50% of rent if you have a lease and I am sure many out there have family members/friends signing leases for them to get mortgages approved.My last investment property closed Jan ,2010 and you could get it for 5% down then.In that area she will have to pay $1900+ to get a 4 bedroom detached home to rent.They are both in their early 50's and have zero pension ,the cash from sale of house overseas is all they have.


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## Cal (Jun 17, 2009)

I say rent.

Wait and see where hubby gets a job...then figure out where in RH to purchase....


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## Berubeland (Sep 6, 2009)

marina628 said:


> She is originally from Richmond Hill but has lived in Israel 18 years so she got her mind made up to live there near her family.Banks will accept 50% of rent if you have a lease and I am sure many out there have family members/friends signing leases for them to get mortgages approved.My last investment property closed Jan ,2010 and you could get it for 5% down then.In that area she will have to pay $1900+ to get a 4 bedroom detached home to rent.They are both in their early 50's and have zero pension ,the cash from sale of house overseas is all they have.


Not to be rude but if all the money she has is the downpayment and her husband has no job and she has no income, what the hell does she need a 4 bedroom detached house for? She can't afford it, at this point she needs to preserve her capital and be extremely frugal. Frankly it can take a lot longer than 1 year for a new immigrant to get a job as application after application gets turned down because the husband "has no Canadian experience" Driven in any downtown cabs lately? We have the most overqualified cab drivers ever. Dr's Engineers, Architects and so on, none of whom can get a job in their field without spending 3-4 years going back to school to qualify for Canadian credentials. 

Far as I'm concerned she needs to get a grip and rent a cheap one bedroom really crappy apartment that will accept her with no income and no Canadian credit. (Not easy) Once the husband gets a job she can buy whatever house she wants. 

Why do I feel like such a jerk?


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## marina628 (Dec 14, 2010)

She has between $250,000 and $300,000 cash .She has income $55,000 a year from her job in Israel as she can do it remotely.They have kids and all are Canadian citizens , moved back to Canada after living in Israel for 18 years.


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## Addy (Mar 12, 2010)

MikeT said:


> Three properties, two rented out, roommate for the third. They use the rental income count it as his income, bango... Approved. Welcome to the world of Vancouver real-estate. These are the reasons for the recent rule changes. Otherwise people could have just kept buying infinitely many properties, using rental income to cover each. The madness has to stop somewhere.



They actually counted roomates share as income? As in they count a rented room as income? I was not aware FI's did that.


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## hystat (Jun 18, 2010)

It's a personal decision, not a financial one. It has more to do with job security and personal choice.

If they can afford a $500K house, they can afford to lose or gain some equity in it depending on market fluctuations.

People can try to predict and time the market, but it all boils down to being able to choose your own floor coverings and countertops someday.
Most home owners want that sort of thing.
Southern Ontario real estate values will go up or down... but they won't ever be worthless, and they won't ever be unattainable.


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## Jon_Snow (May 20, 2009)

hystat said:


> It's a personal decision, not a financial one. It has more to do with job security and personal choice.
> 
> If they can afford a $500K house, they can afford to lose or gain some equity in it depending on market fluctuations.
> 
> ...


Are you by any chance a realtor?


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## atrp2biz (Sep 22, 2010)

Addy said:


> They actually counted roomates share as income? As in they count a rented room as income? I was not aware FI's did that.


Yes--but they can only use half of the rental income in the application.


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## hystat (Jun 18, 2010)

If you're going to stay in a home 10+ years, and not get itchy feet, you are not likely to go wrong with a purchase in the GTA. 

If there is a 25% or better chance you'll be moving in the next 5 years, then rent.


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## hystat (Jun 18, 2010)

Jon_Snow said:


> Are you by any chance a realtor?


 hardly...

I just think people over analyze housing markets. 
It's naive to think any market related home ownership crises won't ripple down to renters. Landlords own homes. _Somebody _owns where we all live.


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## kcowan (Jul 1, 2010)

hystat said:


> If you're going to stay in a home 10+ years, and not get itchy feet, you are not likely to go wrong with a purchase in the GTA.
> 
> If there is a 25% or better chance you'll be moving in the next 5 years, then rent.


That is true. Even people who bought at the last peak in 1990 were close to whole on house prices by 2000.

Of course, the people that waited until 1997 to purchase could be accused of timing the market!

Renting is always safer but safe costs money. Taking the risk of leverage and interest rates should always produce higher returns when things go well!


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## MikeT (Feb 16, 2010)

Real-estate prices in tokyo japan decreased for 17 straight years from mid 89-2006.

Some properties were selling for $93,000 per square foot at the peak mind you, so I don't think we're quite there. But real-estate can decline, like anything else. Look at the US. People can go bankrupt and or lose their homes because of too much leverage.

We are not immune simply because we are in Canada. Sometimes risks pay off, and sometimes they don't. Real estate isn't a sure thing, just as no other investment is a sure thing.


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## MikeT (Feb 16, 2010)

hystat said:


> hardly...
> 
> I just think people over analyze housing markets.
> It's naive to think any market related home ownership crises won't ripple down to renters. Landlords own homes. _Somebody _owns where we all live.


Actually renters have been basically fine in areas if the states hit by foreclosures. Vacancy rates are much higher in alot of areas hit hard by the market problems. So this point is just completely incorrect.


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