# Rent vs buy a condo in North York



## Darin_CS (Jan 18, 2011)

Hello, I am a first time home buyer looking to buy a condo in North York and having a tough time deciding my buy vs rent argument.
Currently I am splitting a condo rental with a roommate at $1700/month ($850 each). I have made the decision that I am ready to get my own place. I am prepared now to buy a condo around $300,000 with a 5% down payment. I am trying to decide if it is worth it for me to wait a few years and save up a 20% down payment. With my current living situation it is an easy decision, but if I don't buy I will still want to get my own place which will run me about $1400/month in my area.

I have heard so many arguments and I have a hard time deciding what option is the best options. My biggest concern is with the increased rent, saving would take far too long to make it worth it to wait.

Any help?

Thanks for the time!


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## Potato (Apr 3, 2009)

Darin_CS said:


> I am prepared now to buy a condo around $300,000 [...] but if I don't buy I will still want to get my own place which will run me about $1400/month in my area.



That price is 214X the rent. 

Rent.


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## Jungle (Feb 17, 2010)

Sounds like you are looking at a 2 bedroom. I think getting your own place is great, but you only have 5% down. The other thing is, this market is expensive. 

I would say, try to save more money for a down payment. CHMC will eat up your 5% down payment, leaving you with little equity. Plus, the largest amortization you can go with now is 30 years, this might make your payments higher. Don't forget maintenance fees too. On a two bedroom, they're probably like $400+/per month. Most buildings have additional billing for heat and electricity.


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## I'm Howard (Oct 13, 2010)

My Son is at Y&E, I have done the math many times and if you want to stay in that area, keep renting.

This area will be very hard hit when rates go up, so many of those places are owned by people who are fully leveraged, plus the HST now applies to condo fees.

We can buy that $300k place with 50% down, but right now it is better to get that 5% return on the money and wait a few years.

My Son has a one bedroom, $1,350, splits rent with his lady friend.


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## kcowan (Jul 1, 2010)

You want to increase your costs of accommodation from $850/mo to $1400/mo? Can you supply other reasons why you would consider this step? Do you and your roommate get along? Is there someone else you would like to share your place with?

There must be some driver that you have not stated for wanting to spend more money?


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## NotMe (Jan 10, 2011)

kcowan said:


> You want to increase your costs of accommodation from $850/mo to $1400/mo? Can you supply other reasons why you would consider this step? Do you and your roommate get along? Is there someone else you would like to share your place with?
> 
> There must be some driver that you have not stated for wanting to spend more money?


Well to be fair, at some point it's nice to live on your own by yourself. It's not all about the money. Plus it's a lot easier/cooler to bring a date home if you know your roommate won't be drinking beer on the couch when you get in.


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## Darin_CS (Jan 18, 2011)

Last comment had it right. I am a grown man now and I want my own space. It is that simple. I was content with renting when my rent was only $850/month. With the prospect of rent going up to $1400, I am considering that buying is the better option.


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## Darin_CS (Jan 18, 2011)

I'm Howard said:


> My Son is at Y&E, I have done the math many times and if you want to stay in that area, keep renting.
> 
> This area will be very hard hit when rates go up, so many of those places are owned by people who are fully leveraged, plus the HST now applies to condo fees.
> 
> ...


Can you be a more more specific on what math you have done? The main issue is if I move out on my own, it will be much harder to save.


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## Wealthy1Day (Aug 30, 2009)

Darin_CS said:


> Last comment had it right. I am a grown man now and I want my own space. It is that simple. I was content with renting when my rent was only $850/month. With the prospect of rent going up to $1400, I am considering that buying is the better option.


From a lifestyle perspective, completely understandable and I can certainly relate.

However, with only 5% down, from a financial perspective I don't recommend it. I recommend that you forego luxury and find a bachelor apartment for $800-900 and (automatically) save $500-600 per month in a high interest savings account. You will have your own place and be increasing your net worth at the same time thereby having greater affordability for a home as you save more. The automatic savings will build your confidence to enter the RE market as you see your ability to make a larger downpayment increase.

If you're only going to put 5% down today then I suggest what I recommended above and consider a pre-construction condo. If you budget so that you put 5% down in the near future and maintain savings as mentioned above and can meet the 20% deposit structure by the builder then you'll have your own place without increasing your rent and have the ability to put 20% down on a home over time. You'll have to do some research and budgeting, but the fact that the final 5% down is usually not required until closing could make this an easier option. 

In the meantime, you'll be able to live the lifestyle you want without increasing your rent while saving for a larger downpayment with a new home to make your own in the not too distant future.


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## Potato (Apr 3, 2009)

Darin_CS said:


> Can you be a more more specific on what math you have done? The main issue is if I move out on my own, it will be much harder to save.


See the link in my previous post for a discussion on the math.

TLDR version:

Rent is $1400/mo.

Owning will cost you prop tax + condo fee + maint budget/insurance + interest = 200 + 350 + 75 + 1000 = $1625/mo. (and that's at 4%, and not including transaction fees, either)

Owning costs more. Therefore, rent, unless you wish to engage in speculation.


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## I'm Howard (Oct 13, 2010)

Math is as above, plus to sell you must make at least 8% profit to cover costs.

Totally agree about losing roommates, but you can get a one bedroom for $1,000.

Many condos in that area are owned by speculators and kids with 5% down, when rates go back to 10%, and they will, Condos could drop as much as 20%. 

History has the habit of repeating itself.


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## NotMe (Jan 10, 2011)

I'm Howard said:


> Math is as above, plus to sell you must make at least 8% profit to cover costs.
> 
> Totally agree about losing roommates, but you can get a one bedroom for $1,000.
> 
> ...


Where can you get a one bedroom for $1000 at yonge/eg or yonge/shep? Maybe Don Mills and Finch but I don't think downgrading his living experience is on the table.

I don't advise buying preconstruction. All the upgrades you want are required to be paid in advance, and also there's all sorts of bad things about buying preconstruction regarding what you're told you get vs. what you get. Recommend renting nice 1 bedroom for a while until you can swing it, and then buying a full condo when you have 10% down at least. At least buying existing units you know what you get.


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## Berubeland (Sep 6, 2009)

Change locations and save money. You are young and it sounds like you can't have your cake and eat it. You have choices...

Stay where you are and save money but you can't bring ladies home...

Move to another location and save money and live on your own you could even rent in a building and you can find 1 bedrooms for under a thousand in perfectly acceptable but not premium locations....

Move to an apartment in a premium location and be unable to save and buy. 

Buy at the peak of the market and lose money, certainly we will see another buying frenzy this spring before March 18th. Earlier this year buyers rushed in and prices went up 17% from January to July all these 0% down buyers are probably underwater by at least 10% 

It's up to you...


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## Plugging Along (Jan 3, 2011)

I think this one becomes a little bit about lifestyle vs finances.

Strictly from a financial standpoint, I would say, continue renting and stay with your roommate and save as much as you can to get more than the 5%. One way to look at it, is it will be about $550 more per month you could save by doing this. In a 3 years, you will have more than 10% down. You could always implement the sock on the door policy . 

If you really want to live on your own, then there's not much that can be argued. I would still rent. I would try and downgrade to a cheaper rent then. Why pay someone else to live in a nice place, when you can save up. 

Also are you sure you can handle the extra costs of owning your own place.
If you buy now at a $285000 mortgage, your looking at ~$1675 just for the mortgage plus all the condo fees, taxes, maintenance, insurance, etc. How does your budget work for this amount?


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## Darin_CS (Jan 18, 2011)

Plugging Along said:


> I think this one becomes a little bit about lifestyle vs finances.
> 
> Strictly from a financial standpoint, I would say, continue renting and stay with your roommate and save as much as you can to get more than the 5%. One way to look at it, is it will be about $550 more per month you could save by doing this. In a 3 years, you will have more than 10% down. You could always implement the sock on the door policy .
> 
> ...


I can afford cost of living over at $1700 fairly comfortably. Though I would prefer not. I think waiting to buy might be the best option especially since it is such a minimal down payment.


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## Plugging Along (Jan 3, 2011)

The $1700 was just for the mortgage, that didn't account for condo fees, tax, insurance, maintenance, so closer to $2500.

I don't know your market area, but I think over the next few years in most places across Canada, there won't be huge yearly increases in RE. It's probably safe to save as much as you can, and just wait until the right opportunity comes.


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## Darin_CS (Jan 18, 2011)

Plugging Along said:


> The $1700 was just for the mortgage, that didn't account for condo fees, tax, insurance, maintenance, so closer to $2500.
> 
> I don't know your market area, but I think over the next few years in most places across Canada, there won't be huge yearly increases in RE. It's probably safe to save as much as you can, and just wait until the right opportunity comes.


I dont think that is correct then. My mortgage payment would be under $1100 with the current variable rate mortgage rates.


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## MoneyGal (Apr 24, 2009)

Darin_CS said:


> My mortgage payment would be under $1100 with the current variable rate mortgage rates.


So how long do you expect those rates to prevail? Here is a PDF of 5-year mortgage rates from 1951 to 1985. Take a look at the dispersion:

http://www.bankofcanada.ca/pdf/annual_page57_page58.pdf


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## K-133 (Apr 30, 2010)

I'm Howard said:


> plus the HST now applies to condo fees..


Just to clarify...

HST is not applied to the condo fee directly. The HST applies to services which condo fees are used to pay.

My condo board, for example, had managed to create efficiencies in order to make up for the lost funds to HST. i.e. Our condo fee remained unchanged - for now...

With 5% down, I think it would be wise to save more - else you will lose your 5% to the cost of the CMHC premium. Each step up in 5% down, saves significantly on your CMHC costs.

When you have more saved, don't take anybody's opinion for it, weigh the risks, and your tolerance to them. There is a risk that the market could crash (bad if you buy beforehand), and there is a risk that the market could soar (bad if you buy afterward).


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## K-133 (Apr 30, 2010)

MoneyGal said:


> So how long do you expect those rates to prevail? Here is a PDF of 5-year mortgage rates from 1951 to 1985. Take a look at the dispersion:
> 
> http://www.bankofcanada.ca/pdf/annual_page57_page58.pdf


FYI - The average is 8.88% (1951 to Present).

I believe a similar report shows the average prime rate to be around 6.5%. I ran the numbers on that report months ago (I was curious). If someone wants to post it, I'll compile the result.


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## I'm Howard (Oct 13, 2010)

Ask yourself, will interest rates be higher five years from now, or lower?

The fact that they are at historic lows probably means there is a pretty good chance they will be higher.

I went in to renew my 10 1/2 % Mortgage, the new rates were 21%, I will never go through that again, when many of these mortgages renew at 8%++ in a few years, people will walk away.

I am in Florida, what sold for $350,000 a few years ago can be bought for less than $200,000.

The only people buying are Canadians.


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## marina628 (Dec 14, 2010)

You can pay for a few nights in a nice hotel for that extra rent money lol.
You also need to qualify for 5 year posted rates.Have you gone to a bank to see what you can get approved for?I think you need to budget for 5% interest rates to be safe.My daughter is going to Humber North in September and we have looked at this rent vs buy with 20% down and felt in the end we are better to rent for now.


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## Sherlock (Apr 18, 2010)

Hi Darin I'm in a similar situation to you. I'm currently renting in the Don Mills/Sheppard area. It's a nice area with not much crime that I've seen, and it's right by Fairview Mall. $1000/month all-inclusive for a large 1 bedroom in a fairly nice building. My rent actually went down this year, got a letter in the mail from the city informing me that since my building's property taxes are being lowered, my landlord is required to lower my rent. I could afford to buy a condo but only have 10% to put down and I did some calculations and decided it's just not worth it. If those 1 bedroom condos in the Bayview/Sheppard area dip down to about 170-180k I'd consider buying but now they're going for 250+.


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## andrewf (Mar 1, 2010)

K-133 said:


> FYI - The average is 8.88% (1951 to Present).
> 
> I believe a similar report shows the average prime rate to be around 6.5%. I ran the numbers on that report months ago (I was curious). If someone wants to post it, I'll compile the result.


It's important to point out that the real rate is what is relevant here. Inflation (core CPI) was 3.63% per annum over that time frame, giving a real rate of a bit over 5%. Given that we have a very credible inflation targeting scheme in place now, we should be using a 2% expectation of inflation going forward, so using historical averages would give us something like 7% average nominal interest. We could easily get back there in a few years.


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