# Should I continue to rent or buy?



## Siwash (Sep 1, 2013)

Here's our scenario/dilemma!

-$120K saved
-almost debt free ($15,000 PLC @7%; no car or credit card debt)
-eyeing a single detached home that'll come in around $700K (+/-) that will need $15,000 in immediate upgrades (paint and hardwood instal) 
-will need to pay CMHC insurance ($10K)
-we'd only put $100K down (almost 15%) so we can have some cash leftover for repairs, legal, moving, etc.. this might still not be enough but by closing (Jan) we'd probably accumulate another $5000K
-wife's income less this year as she's on Mat leave til summer

We'd qualify without a problem. But we'd be paying more monthly - mortgage and insurance around $3000 V $1850 for rent (36K V $22K). BUT, we've been setting aside $1500/month for a house purchase anyway so we won't really feel that difference. 

Our concern is that the market continues to go up. If we wait another year, it appears that best case scenario it will be flat. I just don't see a correction and I don't think waiting for one any longer is sensible. Besides, we are looking at this as a long-term purchase (i.e. 25 years +). On the other hand, we will have about another $15,000 to $18,000 in the bank in 12 months so more for down payment and that may allow us to avoid the CMHC insurance of about $10K (assuming prices don't go up another 4 or 5%)

The property is in the northern GTA and prices have gone up but not as much as city proper or some of the hot suburbs. 5% increase year-over-year is not likely. More like 3% but who knows?!

What would you do??? Thanks!!!!


----------



## Just a Guy (Mar 27, 2012)

What would you do at mortgage renewal time if interest rates are up by 1-2% in 5 years. That would add significantly to your monthly payments. Punch it in and see for yourself.


----------



## Mortgage u/w (Feb 6, 2014)

What is your main concern? Is it property valuations, loan qualification or the whole rent vs buy debacle?

If its rent vs buy and qualification is not the issue, then my opinion is to buy.
If you want to save the insurance fee, then you'll need to come up with 20% DP. 

As for keeping money aside for renos; a suggestion that can be of help is that you can obtain a purchase + reno loan. So example; Purchase price is $700k and renos would amount to $20k, you would be able to get a loan based on a value of $720k where $20k would be held in-trust until the renos are completed. If 15% was your DP, then you would factor 15% of $720k for a loan of $612,000 of which $20k held back.


----------



## Jagt Mirage (Sep 29, 2014)

Siwash said:


> Here's our scenario/dilemma!
> 
> -$120K saved
> -almost debt free ($15,000 PLC @7%; no car or credit card debt)
> ...


3000 vs 1850 isn't a fair comparison. How much of that 3000 is principle and how much is interest? The principal payment you're not losing. You're going to get back when you sell the house. Whereas interest, like rent, is down the drain money. Say it's 50/50. That means you're only flushing 1500 down the drain per month compare to 1850. The rest of the money it's like you put in a long term bond.

Secondly, I would strongly suggest you figure out a way to avoid CMHC. That's money down the drain too. Put more money in, or buy a smaller house. YOu can still get houses for less than 60K in northern GTA.

As for appreciation, that depends. I'm in northern GTA as well (Thornhill) and I'm running at 7%-8% over the last 4+ years, and I'm not in a particularly good neighborhood. Most people are expecting some sort of slowdown in the market in the next few years, but it's highly unlikely that single family detached under a mil will be affected very much, if at all. During the "correction" in 2008 my mid-town house didn't go down at all and actually appreciated. The bulk of the correction, if any, will be bore by condos and townhouses which are much more susceptible to corrections.


----------



## Siwash (Sep 1, 2013)

Just found out that a good chunk of what would have been our downpayment (about 20%) cannot be accessed now b/c it's a non-reedemable GIC (Peoples Trust). I thought I could redeem by paying a penalty. I made a mistake taking out a 2 year GIC when I should have kept it to 1. 

Don't think we can do this now... oh well...


----------



## martin15 (Feb 18, 2014)

Siwash said:


> Just found out that a good chunk of what would have been our downpayment (about 20%) cannot be accessed now b/c it's a non-reedemable GIC (Peoples Trust). I thought I could redeem by paying a penalty. I made a mistake taking out a 2 year GIC when I should have kept it to 1.
> 
> Don't think we can do this now... oh well...



You may thank the bank in the future. 

I wouldn't buy anything in the GTA right now. The housing bubble in most of Canada seems to be popping,
the GTA just needs time to catch up.


----------



## Siwash (Sep 1, 2013)

martin15 said:


> You may thank the bank in the future.
> 
> I wouldn't buy anything in the GTA right now. The housing bubble in most of Canada seems to be popping,
> the GTA just needs time to catch up.


I was convinced that was inevitable... was a Garth Turner disciple for about a year and ate up most everything he predicted - and the opposite seems to have happened (interest rates were about to spike, houses were about to crash, the sky was going to fall)... Chatted with a friend of mine about this - he's someone i respect when it comes to financial and economic matters as he has done VERY well for himself (multi millionaire). He believes it is "different" here. Many places around the world (including former strongholds) are not stable or dependable anymore and Canada (especially the GTA, Vancouver and Calgary) represent stability and a place to park money and investments. A slowdown perhaps, but an outright correction? Not so sure anymore..


----------



## Siwash (Sep 1, 2013)

Besides, most everyone I'v talked to or read say that if you are looking long term, do not let the hope of a correction stop you from buying if you can afford it. It's like waiting for a stock market crash before buying equities... I would agree with you if we're talking about buying to flip, or even rent out....especially condos... but when we're talking about a detached home in a very viable economic region that would be a family home for many, many years, then I'm not so sure...


----------



## Just a Guy (Mar 27, 2012)

You realize, it's in an investor's best interest for the general public to keep buying houses and pushing the prices ever higher...in fact a crash is never wanted...

Why do you think people kept pumping Nortel, BreX, Worldcom, Enron, etc. even as they fell to oblivion? They make money off the fools, or try to recover their money from bigger fools...

I've seen real estate crashes first hand. They do happen, and they can be devastating to personal finances.

In the long run, it may not matter...you may eventually pay it off no matter how much you pay or how low it drops, but that doesn't ensure you'll ever get your money back.


----------



## Pluto (Sep 12, 2013)

I think you should continue to rent. 

http://www.huffingtonpost.ca/2014/04/18/house-prices-toronto_n_5174437.html

You have no idea what it is like to pay 20 to 35% too much for a 700,000 item, and how, once you are in, and prices drop, you get locked in for a long time. Looking at the chart in the article, it took over 10 years to break even. That 10+ year consolidation (1990 onward) is not unusual. Its not an inexplicable anomaly. It will happen again to some degree. I think if you do a historical analysis by dividing average price by average income you get a ratio that shows you the range of possibilities. If you can rent until the ratio is at or below the median, you'd be doing yourself a big financial favour.


----------



## martin15 (Feb 18, 2014)

Siwash said:


> Besides, most everyone I'v talked to or read say that if you are looking long term, do not let the hope of a correction stop you from buying if you can afford it.


so rerun your numbers with a 5 - 8% interest rate, and if it still works, then it should be ok for you.





Just a Guy said:


> You realize, it's in an investor's best interest for the general public to keep buying houses and pushing the prices ever higher...in fact a crash is never wanted...


this ^^

anyone remember the 80's ?


----------



## Just a Guy (Mar 27, 2012)

Of course, once they've sold out of the market, they'll do everything we can to cause a crash so they can get back it at someone else's expense. 

Even buy and hold investors like me get temped to cash out at times like this...but then I look at the tax implications, and how government would waste the money I give them...


----------



## ChrisR (Jul 13, 2009)

Siwash said:


> We'd qualify without a problem. But we'd be paying more monthly - mortgage and insurance around $3000 V $1850 for rent (36K V $22K). BUT, we've been setting aside $1500/month for a house purchase anyway so we won't really feel that difference.


Are you including property taxes and maintenance costs in your budget?

On a $700,000 house, you're looking at $750 property tax and $600 monthly maintenance (and that's at a low-ball 1%). So $1350 in ongoing costs BEFORE you pay your mortgage.

To re-adjust the numbers: $4350 a month to buy (plus tying up a 100K of capital) vs. $1850 a month to rent. 

So the big question is: how much will you improve your standard of living by buying? 

Now I'm conservative by nature, I admit, but I'd suggest that the two years that your money is tied up with the bank is just the right amount of time for "sober second thought" when you're thinking about spending $700,000.


----------



## Siwash (Sep 1, 2013)

Pluto said:


> I think you should continue to rent.
> 
> http://www.huffingtonpost.ca/2014/04/18/house-prices-toronto_n_5174437.html
> 
> You have no idea what it is like to pay 20 to 35% too much for a 700,000 item, and how, once you are in, and prices drop, you get locked in for a long time. Looking at the chart in the article, it took over 10 years to break even. That 10+ year consolidation (1990 onward) is not unusual. Its not an inexplicable anomaly. It will happen again to some degree. I think if you do a historical analysis by dividing average price by average income you get a ratio that shows you the range of possibilities. If you can rent until the ratio is at or below the median, you'd be doing yourself a big financial favour.



This is what I find troubling... The SFH home seems to be going the way of the dodo bird in the GTA. A SFH under $700K seems to be a bargain today.

_*"But in the case of Toronto’s standalone housing market, the recent price spike may just be the result of the increasingly severe shortage of new single-family homes.

Land use policies favouring high density development, growing suburban commute times and other factors are prompting developers to build townhomes and condos rather than single-family homes, and the number of standalone houses being built around the GTA is on a long-term downward trend."*_


----------



## Siwash (Sep 1, 2013)

ChrisR said:


> Are you including property taxes and maintenance costs in your budget?
> 
> On a $700,000 house, you're looking at $750 property tax and $600 monthly maintenance (and that's at a low-ball 1%). So $1350 in ongoing costs BEFORE you pay your mortgage.
> 
> ...


Yes, I included the property tax ($5000/year) and about 8000-10000K in maintenance per year... Our salaries aren't the problem. We can carry. 


All points above are much appreciated... we will consider/weigh the options. 

Thanks!!


----------



## Siwash (Sep 1, 2013)

Curious about one other thing; will my wife be able to use that GIC (it's in an RSP) under the home buyers plan? she never owned before we got married as I bought our first home before meeting her.


----------



## marina628 (Dec 14, 2010)

Siwash said:


> Here's our scenario/dilemma!
> The property is in the northern GTA and prices have gone up but not as much as city proper or some of the hot suburbs. 5% increase year-over-year is not likely. More like 3% but who knows?!
> 
> What would you do??? Thanks!!!!


Do you already live in this area or are you leaving GTA to buy in this area.For me I would pay the $1800 rent and not be buying a $700,000 house with less than 20% down.I believe if the GIC is locked in regardless of using it for a home buyer plan you still can't cash it early.


----------



## gardner (Feb 13, 2014)

Siwash said:


> she never owned before we got married as I bought our first home before meeting her.


No, it doesn't look like it.



> You are not considered a first-time home buyer if, at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the date of withdrawal, you or your spouse or common-law partner owned a home that you occupied as your principal place of residence.


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/frst-eng.html


----------



## Siwash (Sep 1, 2013)

gardner said:


> No, it doesn't look like it.
> 
> 
> 
> http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/frst-eng.html




Well, we'll jus pay the taxes when we use the RSP then! Oh well, you live and learn.


----------



## Siwash (Sep 1, 2013)

marina628 said:


> Do you already live in this area or are you leaving GTA to buy in this area.For me I would pay the $1800 rent and not be buying a $700,000 house with less than 20% down.I believe if the GIC is locked in regardless of using it for a home buyer plan you still can't cash it early.


We rent 10 min from this house... Everyone's going on about $700K ! You can't get a town for 700K.... this is a 2400 SQFT home on a 200 x 100 lot...with new windows, furnace, AC and roof (all done in the last 4 years)... the value is good, folks... In the GTA, a good hood cost that much 3 years ago... I appreciate the advice, but the more I think about it, the more I think we're gonna do it. 

Thanks...


----------



## Just a Guy (Mar 27, 2012)

From your responses, I figured that out a while ago. Sometimes you just need to talk it out to realize you've already made the choice.


----------



## marina628 (Dec 14, 2010)

Siwash said:


> We rent 10 min from this house... Everyone's going on about $700K ! You can't get a town for 700K.... this is a 2400 SQFT home on a 200 x 100 lot...with new windows, furnace, AC and roof (all done in the last 4 years)... the value is good, folks... In the GTA, a good hood cost that much 3 years ago... I appreciate the advice, but the more I think about it, the more I think we're gonna do it.
> 
> Thanks...


I know all about house prices there ,I can pay cash for a house there and I have a problem with the prices LOL .Been looking at real estate in Toronto Parkdale /Roncevalles for last couple months.


----------



## Siwash (Sep 1, 2013)

Just a Guy said:


> From your responses, I figured that out a while ago. Sometimes you just need to talk it out to realize you've already made the choice.


I'm not sure if it will end up happening ultimately... it's complicated situation. And it's not because we cannot afford to carry.. The GIC maturity threw a wrench into the plan... but there is also the matter of timing. We need to inform the landlord by Nov 30 if we are going to move on that house. We're running out of time and I think my wife is hesitating... But in terms of whether we should buy or if it's economically feasible, your responses make plenty of sense. But when you find a home you really like (great street, hood, lot, layout, etc...) you really need to consider such a purchase. What I didn't tell you is that this is the neighbourhood we want and we aren't really looking at many (if any) other places. There aren't that many homes in this neighbourhood. So there is a chance that if we wait til next year, we won't find one at that time and we will either have to keep renting or buy in a n area that will cost more and won't be our first choice. Not sure if this is a rational reason to buy, but it sure makes it tempting. 

thanks for your input


----------



## marina628 (Dec 14, 2010)

That's a tough one and I understand as I am putting close to $200,000 into a home in Newfoundland that will likely never sell for $200,000 but it is a family home.We plan to spend half the year there in 5 or so years and pass it to our kids when we are gone.


----------



## Sixth_Circle (Nov 22, 2010)

We also go back and forth on whether or not to buy. Sure, buying can be a great long-term investment and offer stability (and satisfy that annoying emotional itch to "own", even if it is really just debt). But what if you or your spouse gets sick, dies, or if a job disappears or moves elsewhere? You might have to sell, and if the market is in a slump or correction, you could either be stuck carrying or have to take a substantial loss. 

It's not always the price of a house that scares me off, but the thought of how illiquid and punitive they can be if circumstances change unexpectedly. That and mowing.


----------



## banjopete (Feb 4, 2014)

I say continue to rent, and why carry a PLC @7% while you have cash for a downpayment?

Does is seem fair to liquidate your financial assets to go to a single asset in a house in a very uncertain time in real estate? I assume you're pulling at all you can given your need for end of term GIC's and "we'll just pay the tax" rrsp withdrawals. I understand the desire of the home purchase but you're kind of doing all the things you spent a year reading about with mr garth t. 

I read your comments and it seems you're emotionally involved in this decision, lust for this one house of your dreams, lots of fear about never finding another one like it, scarcity concerns, what if the prices never come down, it's different here. As an uninvolved outsider I'd suggest cooling the jets and play it cool, rent and observe, I think times are changing.


----------



## lonewolf (Jun 12, 2012)

Siwash

You could buy & home prices could continue to rise pushing your taxes through the roof. Pay high taxes for x amount of years then real estate market crash & you paid not only high cost for home but high taxes to boot with a house not worth near as much as you paid for it.


----------



## Just a Guy (Mar 27, 2012)

People are missing the point, which is the clear distinction between an investment and a home. Good investments are made using numbers only, will it make money yes or no.

Homes, on the other hand, are clouded with emotions. This is one of the main reasons a home is seldom a good investment. Of course, you always have a good chance of selling it to another emotionally clouded individual and making a profit...


----------



## Mortgage u/w (Feb 6, 2014)

^^^^ +1 - exactly!

You can go through a lifetime trying to buy a 'home' at the lower end of the spectrum....you'll one day look back and regret you never bought a place you can call your own. Investment is one thing.....your home is another.


----------



## Jagt Mirage (Sep 29, 2014)

The math is pretty simple IMHO. Even if we're going to very conservative and use 3% appreciation (which is way too conservative in the GTA), that's over 21K in capital gain a year on a 700K house. Minus the net outflows from mortagage interest, property tax, insurance, utilities. What are you at? I would bet you're pretty much break even or even positive. Whereas with 1850/mo rents, you're out more than 20K a year. Yes the equity isn't very liquid, but so what? you're still making money or breaking even, versus net negative. Ofcourse, if you have to include CMHC that could change the equation a bit and run you into the negative, which is why I strongly advise you to avoid if at all possible.

As for correction? I think there's a tendency for the media to blow it out of proportion. During the great correction around 2000 what did it correct by? what 20-25% over 3 years? which was essentially erased in 5. Bottom line is, over the long term, you're always going to gain, versus renting you're always going to be hemorraging money.


----------



## none (Jan 15, 2013)

Many would say that 3% appreciation over the long term is not conservative at all but actually delusional. 

From 1989 to 2010 there was a net zero percent increase in house value once corrected for inflation.

http://4.bp.blogspot.com/-5KZiucNMEbk/UVYAmDc121I/AAAAAAAAApk/HLDN69ZFiLM/s1600/gta+21+years.jpg

Anyway, not to get into the correction debate I just found the VERY CONSERVATIVE claim a little redonkulous.


----------



## Just a Guy (Mar 27, 2012)

Jagt Mirage said:


> The math is pretty simple IMHO. Even if we're going to very conservative and use 3% appreciation (which is way too conservative in the GTA), that's over 21K in capital gain a year on a 700K house. Minus the net outflows from mortagage interest, property tax, insurance, utilities. What are you at? I would bet you're pretty much break even or even positive. Whereas with 1850/mo rents, you're out more than 20K a year. Yes the equity isn't very liquid, but so what? you're still making money or breaking even, versus net negative. Ofcourse, if you have to include CMHC that could change the equation a bit and run you into the negative, which is why I strongly advise you to avoid if at all possible.


By the original post's own numbers, the cost of owning ($3000/month) vs. renting ($1850/month).

If the difference of $1150/month were invested elsewhere there is s very good chance they'd be further ahead in the long term. 

When you add all the maintenance, upgrades, taxes, fees, etc. on a home, plus the fact that it's paid in after tax dollars (vs the fact that money earned on the invested $1150 difference can be tax deferred) it is rare that homes make a very good return on investment. Home ownership is better thought of as a forced savings plan for people...and it's usually the only savings most people have the discipline to do but, you can do much better in most cases by investing the difference, plus have more freedom to move.


----------



## none (Jan 15, 2013)

Careful or this will fall into:

1) But people have made SO MUCH money in houses in the last decade! (True, about 2 generations of gains has been extracted from the market);
2) But renters don't actually save! (which may be true but if you're on this site it likely is not);

And when all that fails... 
3) The math doesn't actually matter because it's not a house it's a HOME!!!
\


----------



## banjopete (Feb 4, 2014)

I guess once you don't worry about the finances of it all you can join the owner class. It does seem like a hefty premium given your stated numbers though for all the additional headaches that also come with home ownership despite the possible upsides.


----------



## OurBigFatWallet (Jan 20, 2014)

I'd wait until you could save up more to avoid the CMHC insurance. The market direction is not known but your savings from avoiding the CMHC insurance is. However I just read the comment above that said most of the down payment can't be accessed - which sort of seals the deal (for now anyways). Here in Calgary I know how frustrating it can be sitting on the sidelines when the market is rising that fast. But overall as long as your rate of savings is higher than market appreciation you can rent and still come out on top when you do eventually decide to buy. If its long term as you mentioned (25+ years) the short term market fluctuations don't matter


----------



## marina628 (Dec 14, 2010)

The OP indicates this house is where he wants to live and feels attached so if there is a slim chance he will get another house to buy there in next year or so while he saves extra cash he really is committed to buy.We want to buy a house on one particular street in our town ,been waiting almost 2 years now for somebody to die or divorce because there is exactly 28 homes on the 1-2 acre lots,I know the emotional struggle OP is feeling.


----------



## Jagt Mirage (Sep 29, 2014)

Just a Guy said:


> By the original post's own numbers, the cost of owning ($3000/month) vs. renting ($1850/month).
> 
> If the difference of $1150/month were invested elsewhere there is s very good chance they'd be further ahead in the long term.
> 
> When you add all the maintenance, upgrades, taxes, fees, etc. on a home, plus the fact that it's paid in after tax dollars (vs the fact that money earned on the invested $1150 difference can be tax deferred) it is rare that homes make a very good return on investment. Home ownership is better thought of as a forced savings plan for people...and it's usually the only savings most people have the discipline to do but, you can do much better in most cases by investing the difference, plus have more freedom to move.


not likely. $1150 a month gets you not even $700 a year return if we're taking 5% ROI, which is quite optimistic as not many investment will get you that much these days with prime at 3% unless you're talking high risk investments like stock market. This is a pittance compared to the 20K capital gain which you could easily get in a 700K house. One thing people forget is the appreciation is on the ENTIRE VALUE OF THE HOUSE, not just the portion you're putting in a year. At $3000 a month you put in 36K a year, with a 20K capital gain. What kind of investment will get you anywhere near that kind of return?

My current house I bought 4 1/2 years ago for 430K, is now easily worth 600 (very conservatively). Taking into consideration the 30K I put in renos over the period that still leaves me 140K up in 4 1/2 years, which is about 7% appreciation and like I said I'm not in a particularly good neighborhood. But the 7% is not ROI. The I in the ROI is only a portion of the 430K that I put in over the 4 1/2 years. So the actual ROI is well over 50%. Don't know any low risk investment that can get anywhere near that.

oh.. and taxes. Yes, let's not forget about taxes. You pay taxes on the $700 you made from the investment. The $20K in capital gains you pay ZERO tax if it's your principle residence.


----------



## Jagt Mirage (Sep 29, 2014)

none said:


> Many would say that 3% appreciation over the long term is not conservative at all but actually delusional.
> 
> From 1989 to 2010 there was a net zero percent increase in house value once corrected for inflation.
> 
> ...


I disagree, and I find these claims of no increase extremely bizarre when very clearly there's been tremendous growth particularly in some markets over the last two decades. As recent CREA report indicates, everything is not equal in Canada and any national aggregate measures need to be taken with a huge grain of salt. Trends in your local area are much more important. In the GTA where the OP is indicated, there has been tremendous growth in the last few decades in single family detached with nary a correction in sight. 3% is laughably low. City of Toronto proper average well over that each and every year according to data from TREB. with appreciation well into the double digits in some neighborhoods. So yeah, where I'm standing 3% is extremely conservative


----------



## My Own Advisor (Sep 24, 2012)

Wages are not going up 3%+ per year, every year. House prices cannot keep climbing (as much) as well. It's just not sustainable IMO. I'm not saying house prices won't rise, they will, just not as fast as they did over the last decade or so. 

Eventually there will be a big supply for little demand in another 20+ years when all the boomers are well into their 70s if not 80s. 

Nursing homes and related stocks will be where it's at.

If you want "a home" then buy all means buy. If you want an investment, I wouldn't treat a house like one. A home is a place to live first and foremost. If it appreciates greatly in value, that's just a bonus in my book.


----------



## doctrine (Sep 30, 2011)

Whatever people predict, is probably going to be wrong. People have been predicting slower house prices for at least 4 years, meanwhile house price appreciation is accelerating. No one is predicting further rises, yet rise it goes. I see people predicting crashes, and stable prices, or perhaps a "slow decline". Why not predict 10%+ gains for the next 5 years? No one is doing that - it just might happen.


----------



## banjopete (Feb 4, 2014)

Investing or real estate, what's the difference really, I mean so many ways of doing it right or wrong in both scenarios. It's hard to convince non-believers either way, and being a condo owner who hasn't seen the always plump fruitbasket Jagt speaks of I'm a non-believer but I have seen great returns from investments elsewhere so I believe more strongly in that vehicle plus I enjoy the liquidity of it. For either side of the fence we have to assume future returns so it's all a matter of speculation to some degree. I'd rather bet on people needing gas, food, electricity etc over new houses though is the way I see it.

My lady and I are in a similar boat to the op too as we're expecting a baby and thinking that may be the end of our 1bdrm life so I'm hoping prices here in Edmonton at least continue to soften and demand to decrease as we're seeing. I mean who really cares about house hunting at -20 anyways.


----------



## mathisbenjamin (Nov 25, 2014)

*Buy*

It is better that you buy a home soon. Do not go for big once you can go for a semi-detached home. You can get mortgages as well. But see to it you don't sacrifice on your requirements . Before buying a home check out the places nearby. I would recommend you to hire a real estate agent, so that things would be very easy. They will help you with your budget and with your paperwork regarding mortgages. So instead of renting, go for buying a home.


----------



## Jagt Mirage (Sep 29, 2014)

banjopete said:


> Investing or real estate, what's the difference really, I mean so many ways of doing it right or wrong in both scenarios. It's hard to convince non-believers either way, and being a condo owner who hasn't seen the always plump fruitbasket Jagt speaks of I'm a non-believer but I have seen great returns from investments elsewhere so I believe more strongly in that vehicle plus I enjoy the liquidity of it. For either side of the fence we have to assume future returns so it's all a matter of speculation to some degree. I'd rather bet on people needing gas, food, electricity etc over new houses though is the way I see it.
> 
> My lady and I are in a similar boat to the op too as we're expecting a baby and thinking that may be the end of our 1bdrm life so I'm hoping prices here in Edmonton at least continue to soften and demand to decrease as we're seeing. I mean who really cares about house hunting at -20 anyways.


The difference between all investments essentially comes down to a couple of factors: rate of return, risk, liquidity, and cost of entrance. If you put your money in a savings account in a bank, you get almost zero risk, zero cost of entrance, very liquid, but crappy rate of return. For me, liquidity doesn't matter that much for long term investing, which is primary what I care about. Real estate has super high rate of return, low-moderate risk, but high rate of entrance and low liquidity. It's up to each individual person what they're looking for.


----------



## Deborahkabbo (Nov 28, 2014)

*Property Management Geelong*

Should I buy a home or continue renting http://www.360financialliteracy.org...-Home/Should-I-buy-a-home-or-continue-renting





................................................
*Property Management Geelong*


----------



## Deborahkabbo (Nov 28, 2014)

*Property Management Geelong*

Should I buy a home or continue renting http://www.360financialliteracy.org...-Home/Should-I-buy-a-home-or-continue-renting





................................................
*Property Management Geelong*


----------



## banjopete (Feb 4, 2014)

Jagt Mirage said:


> The difference between all investments essentially comes down to a couple of factors: rate of return, risk, liquidity, and cost of entrance. If you put your money in a savings account in a bank, you get almost zero risk, zero cost of entrance, very liquid, but crappy rate of return. For me, liquidity doesn't matter that much for long term investing, which is primary what I care about. Real estate has super high rate of return, low-moderate risk, but high rate of entrance and low liquidity. It's up to each individual person what they're looking for.


I'd be more cautious with the superlatives. "Super high rate of return, low-moderate risk" this sounds like a no-brainer









S&P 500 over the same period averages around 7.7%

Your results might vary significantly of course as real estate is highly local.


----------



## carverman (Nov 8, 2010)

banjopete said:


> I'd be more cautious with the superlatives. "Super high rate of return, low-moderate risk" this sounds like a no-brainer
> 
> Your results might vary significantly of course as real estate is highly local.


 I agree..it's interesting to see from the link , that the real rate of return for Ottawa is about 2.2 %. Nice to know.


----------



## Jagt Mirage (Sep 29, 2014)

banjopete said:


> I'd be more cautious with the superlatives. "Super high rate of return, low-moderate risk" this sounds like a no-brainer
> 
> View attachment 2689
> 
> ...


And the point that I keep raising is the 3% is not the rate of return, even if it is 3% which I don't agree with, atleast not in my neck of the woods. It's apples to oranges. You spend 20K on an S&P 500 index fund, and at the end of year you get.. 21500, 20K of your original principle, plus 1500 in return, using your 7.7%.

You put 20K into a mortgage on a 500K house, and let say it's 50/50 principle/interest split. You're still got the 10K in principle, but you've made 15000 in capital gain even assuming the 3% appreciation. That gets you 25K and the end of the year. So comparing ROI on your principle versus appreciation on a captial property, which is on the ENTIRE VALUE is apples to oranges.


----------



## Woz (Sep 5, 2013)

If you’re using the leveraged rate of return then you also need to consider the leveraged risk. The peak to trough drop in the S&P500 was -56% from 2007 to 2009. The peak to trough drop on Toronto real estate from 1987 to 1996 was -28%. If you made a 20% down payment then that’s a -138% return. 

I agree it’s best to calculate your rate or return on your principle, but your calculation isn’t close to accurate and is highly misleading. The way you presented your comparison makes it seem like you can buy real estate, leave it empty, and make a 25% annual return. You didn’t include any down payment in your comparison, so if you owe $500k on a mortgage and make a $20k payment then at a 3% mortgage rate you’d owe $495k at the end of the year. Your property appreciates to $515k so you’ve now spent $20k and have $20k in equity which is a ROI of 0%. There are other income and expenses which would shift the ROI to positive, but you never included them in your compariosn.


----------



## Woz (Sep 5, 2013)

Here’s a more accurate calculation for the RoR on principle for the OP:

Cost: $715k ($700k purchase + $15k reno (assumes he gets full value from reno))
Downpayment: $115k ($100k downpayment + $15k reno cost)
Buying Fees: $24,075 ($10.5k land transfer tax + $12.6k CMHC fees + $1k lawyer and inspection)

Mortgage Rate: 3%
Rental Income: $1850
Property Tax: $308
Mortgage Payment: $2,839
Annual Property Appreciation Rate: 3%
Years: 25

Monthly Income: $1850-$308-$2839 = -$1,298
Final Property Value: 715k*(1+3%)^25 = $1,497k
Selling Fees: $1,497*0.05 = $74.9k (5% realtor fees)

Final Value = $1,497k-$74.9k = $1,422k (property value minus selling fees)
Starting Value = $115k + $24k = $139k (downpayment + buying fees)
Monthly Income = -$1,298
Monthly RoR = RATE(25*12, $1298, $139075, -$1422199) = 0.4710%
Yearly RoR = (1+0.4710%)^12 = 5.80%

For the OP, his yearly rate of return on his principle would be 5.8%. That doesn’t account for increases in rent, property tax, or mortgage rates. It also doesn’t include anything for maintenance.


----------



## Jagt Mirage (Sep 29, 2014)

Woz said:


> If you’re using the leveraged rate of return then you also need to consider the leveraged risk. The peak to trough drop in the S&P500 was -56% from 2007 to 2009. The peak to trough drop on Toronto real estate from 1987 to 1996 was -28%. If you made a 20% down payment then that’s a -138% return.
> 
> I agree it’s best to calculate your rate or return on your principle, but your calculation isn’t close to accurate and is highly misleading. The way you presented your comparison makes it seem like you can buy real estate, leave it empty, and make a 25% annual return. You didn’t include any down payment in your comparison, so if you owe $500k on a mortgage and make a $20k payment then at a 3% mortgage rate you’d owe $495k at the end of the year. Your property appreciates to $515k so you’ve now spent $20k and have $20k in equity which is a ROI of 0%. There are other income and expenses which would shift the ROI to positive, but you never included them in your compariosn.


oh I agree I didn't include the downpayment, but I'm trying to refute the original assertion that 7.7% for S&P is comparable to 3% capital appreciation in the house. It's not the same thing. I was using a simplified 50/50 scenario where at the end of the year you owe 490, and yet has a house value at 515, giving you 25K of equity on 20K that you spent this year. This doesn't even take into consideration rental income.


----------



## Jagt Mirage (Sep 29, 2014)

Woz said:


> Here’s a more accurate calculation for the RoR on principle for the OP:
> 
> Cost: $715k ($700k purchase + $15k reno (assumes he gets full value from reno))
> Downpayment: $115k ($100k downpayment + $15k reno cost)
> ...


why are you use a constant mortgage payment of $2,839 over the entire 25 years? as you pay more principle your mortgage payment decreases. Also, 5% fees is about double what I'm seeing. But otherwise, it's a good analysis.


----------



## Woz (Sep 5, 2013)

Your mortgage payment stays the same throughout the life of the mortgage (assuming mortgage rates don't change). It’s just how much goes towards interest vs principal that shifts. You shell out $139k at the start. You contribute an extra $1,298 per month for 25 years, and you end up with a fully paid off house worth $1,497k minus selling costs.

Using a 2.5% selling fee boosts your rate of return to 5.9%. Using a 6% annual appreciation would increase it to 9.7%. Using 5% mortgage rates would decrease your rate of return to 4.3%.


----------



## My Own Advisor (Sep 24, 2012)

Have you figured out the renter's dividend?

Mortgage + insurance around $3000 Vs $1850 for rent? That's saving $14,000 per year or let's say almost $1,200 per month.

$1,200 per month over 20 years (w/o mortgage) at 7% gets you a nest egg of over $625,000.

Just saying.


----------



## Woz (Sep 5, 2013)

Using the same numbers, a renter investing the down payment and saving the difference earning a steady 7% return would end up with $1.771M vs $1.422M for the owner. Total owner's premium $349k.


----------



## Jagt Mirage (Sep 29, 2014)

Woz said:


> Your mortgage payment stays the same throughout the life of the mortgage (assuming mortgage rates don't change). It’s just how much goes towards interest vs principal that shifts. You shell out $139k at the start. You contribute an extra $1,298 per month for 25 years, and you end up with a fully paid off house worth $1,497k minus selling costs.
> 
> Using a 2.5% selling fee boosts your rate of return to 5.9%. Using a 6% annual appreciation would increase it to 9.7%. Using 5% mortgage rates would decrease your rate of return to 4.3%.


oh I see you're assuming 25 years paid off. That makes sense then. I think the biggest contributor to the equation is the appreciation rate. I know there are plenty of communities, like rural Northern Ontario for example where appreciation is negligible, but then there are other markets like Calgary, Vancouver and here in the GTA where you can easily get double digit appreciation. Still, 6% return of relatively low risk investment is nothing to sneeze at in this environment of P=3%.


----------



## Jagt Mirage (Sep 29, 2014)

Woz said:


> Using the same numbers, a renter investing the down payment and saving the difference earning a steady 7% return would end up with $1.771M vs $1.422M for the owner. Total owner's premium $349k.


what kind of investment earns steady (ie: low risk) 7% these days. I don't know too many.


----------



## banjopete (Feb 4, 2014)

Woz said:


> If you’re using the leveraged rate of return then you also need to consider the leveraged risk. The peak to trough drop in the S&P500 was -56% from 2007 to 2009. The peak to trough drop on Toronto real estate from 1987 to 1996 was -28%. If you made a 20% down payment then that’s a -138% return.
> 
> I agree it’s best to calculate your rate or return on your principle, but your calculation isn’t close to accurate and is highly misleading. The way you presented your comparison makes it seem like you can buy real estate, leave it empty, and make a 25% annual return. You didn’t include any down payment in your comparison, so if you owe $500k on a mortgage and make a $20k payment then at a 3% mortgage rate you’d owe $495k at the end of the year. Your property appreciates to $515k so you’ve now spent $20k and have $20k in equity which is a ROI of 0%. There are other income and expenses which would shift the ROI to positive, but you never included them in your compariosn.


Thank you. I'm not getting googley eyed trying to explain my side solo now . Let's also not forget of course there's the ever present real estate professional that wants their piece a year later, not to mention you need to find a buyer. vs wake up in the morning, drink coffee, clickityclickity, $10 trade commission, index etf sold, off to work.


----------



## banjopete (Feb 4, 2014)

Jagt Mirage said:


> what kind of investment earns steady (ie: low risk) 7% these days. I don't know too many.


But I see now that this never ends. I think most folks are just trying to suggest a bigger picture approach with the comparison JagtMirage, or at least one that shines the spotlight in the dark corners of both scenarios. Risk vs risk, cost vs cost, not just cherry picking the positives of one side vs the negatives of the other. 

I'm glad we can't all agree, it's interesting to see other viewpoints than my own.


----------



## carverman (Nov 8, 2010)

My Own Advisor said:


> Have you figured out the renter's dividend?
> 
> Mortgage + insurance around $3000 Vs $1850 for rent? That's saving $14,000 per year or let's say almost $1,200 per month.
> *
> ...


I beg to differ, but I think your math maybe fundamentally flawed MyOwnAdvisor. You are making the assumption that the renter's rent (even if it's a lease), stays the same at $1850 for 20 years? 

The rents on most properties will need to be increased as the taxes, insurance and other maintenance costs rise on the rental property over 20 years,
plus the landlord should have some kind of return on investment..not have to dig into their own pocket to subsidize repairs.


----------



## marina628 (Dec 14, 2010)

Based on 2015 rental increase in Ontario of 1.6 ,if you applied that rate over the 20 year the rent in 2034 will be $2541.24.


----------



## Woz (Sep 5, 2013)

carverman said:


> I beg to differ, but I think your math maybe fundamentally flawed MyOwnAdvisor. You are making the assumption that the renter's rent (even if it's a lease), stays the same at $1850 for 20 years?
> 
> The rents on most properties will need to be increased as the taxes, insurance and other maintenance costs rise on the rental property over 20 years,
> plus the landlord should have some kind of return on investment..not have to dig into their own pocket to subsidize repairs.


We can account for rising rental rates. If we assume 2% annual rent increases then the owners premium is reduced to $28k.

I generally omit rent increases because with the current low interest rates expenses are more likely to outpace rental increases. If in 10 years, mortgage rates are 5% then your mortgage payments would increase by $405/month which is enough to account for 2% per year rental increase and still not include any increases in property tax, or any maintenance.


----------



## Woz (Sep 5, 2013)

Also, the property we’re discussing has a price to rent of 32 which is quite high, even for Toronto. The cap rate is 2.6%. It’s not surprising that even with using, 3% mortgage rates for 25 years, no maintenance, relying on capital appreciation for a profit, that the property still only comes out with a moderate return. There has to be some price point where real estate is no longer a positive investment, doesn't there?


----------



## Underworld (Aug 26, 2009)

I bought my home in Calgary 6 years ago for 450k. 6 years later it is worth not much more. Maybe appreciated max 30k 
HIGH FIVES


----------



## Jagt Mirage (Sep 29, 2014)

something else to consider is tax. I believe only 50% of capital gain on RE is taxed compare to 100% for most investments. Which, if you're in a high tax bracket, can be substantial. Also, you don't pay the tax on RE until you sell, so you have some control over when you cash out to minimize tax. eg: you can wait for a year where you have 0 or low income to minimize the tax hit. With a perpetual investment, the CRA is taking a cut of your gains each and every year.


----------



## Spudd (Oct 11, 2011)

Jagt Mirage said:


> I believe only 50% of capital gain on RE is taxed compare to 100% for most investments. Which, if you're in a high tax bracket, can be substantial. Also, you don't pay the tax on RE until you sell, so you have some control over when you cash out to minimize tax. eg: you can wait for a year where you have 0 or low income to minimize the tax hit. With a perpetual investment, the CRA is taking a cut of your gains each and every year.


This is not the case. Only 50% of any type of capital gain is taxed, including investments. And with investments, you can also decide when you want to sell, you don't pay capital gains if you haven't sold.


----------



## Jagt Mirage (Sep 29, 2014)

Spudd said:


> This is not the case. Only 50% of any type of capital gain is taxed, including investments. And with investments, you can also decide when you want to sell, you don't pay capital gains if you haven't sold.


don't think all investments. Pretty sure my T5 at the end of the year is on the full interest earned.

Also, I forgot that this thread is about buying vs renting, ie: it's the owner's principle residence, which means he pays ZERO tax.


----------



## Beaver101 (Nov 14, 2011)

Underworld said:


> I bought *my home *in Calgary 6 years ago for 450k. 6 years later it is worth not much more. Maybe appreciated max 30k
> HIGH FIVES


 ... you bought it for a home-sweet-home, not an investment ... so here's a high-5! each:


----------



## Jagt Mirage (Sep 29, 2014)

Underworld said:


> I bought my home in Calgary 6 years ago for 450k. 6 years later it is worth not much more. Maybe appreciated max 30k
> HIGH FIVES


Wow.. who would've thought Calgary with all the press about it's crazy appreciation with a measly 1% appreciation. My mom's Scarborough house, which anyone in the GTA will tell you is pretty far from a "hot" area, is doing about 5%.


----------



## Spudd (Oct 11, 2011)

Jagt Mirage said:


> don't think all investments. Pretty sure my T5 at the end of the year is on the full interest earned.
> 
> Also, I forgot that this thread is about buying vs renting, ie: it's the owner's principle residence, which means he pays ZERO tax.


Well, interest isn't the same as capital gains. If you're talking about capital gains it's still 50%. I agree, interest is 100%. And yes, for a PR, there's no tax. So you do have a point there.


----------



## jwsclark19 (Nov 24, 2014)

I'm in a somewhat similar situation - In that I want to buy a house eventually. In Winnipeg, housing prices are not as crazy as the GTA, but still expensive enough. I own an apartment condo (which is significantly cheaper than owning a house, and I can still build equity....I also really like the condo), and I got locked in to a 2.89% mortgage for the next 3.5 years. The reason I'm not buying a house is mostly due to the fact that interest rates are going to go up, and housing prices right now are so expensive. There are a lot of other people who think like me, which in combination with higher interest rates coming, is why I think housing prices will go down a bit. If I use the equity from my condo to make a ~10% downpayment on a $250 000 bungalow right now, and rates go up even 2%, my mortgage payment would change by $375/month just in interest. Ouch! Imagine what that's going to be on a $700 000 house....10% downpayment, means you need to borrow $630 000. Mortgage rates go up 2% at renewal time, and lets say even if you have 250k of the mortgage paid off by then.....2% of $380k is $635/month extra, just in interest. Double ouch!


----------



## mertij (Jan 9, 2015)

*Buy*

if you continue to rent you will have nothing later on if you buy you will pay for a mortgage a lot like paying for rent except after 20ish years you will have a house that is your own and paid off 
no dealing with land lords or wondering if you will be kicked out when they want to sell 
it also gives you a nice amount of money if in the future you want to sell and you can use the money for retirement


----------



## none (Jan 15, 2013)

^ your point #1 is wrong.

If you rent and put the additional equity that would go towards the equity of your house in a balanced fund you will likely be farther ahead financially in 20ish years compared to buying a house (particularly now).


----------



## banjopete (Feb 4, 2014)

mertij said:


> if you continue to rent you will have nothing later on if you buy you will pay for a mortgage a lot like paying for rent except after 20ish years you will have a house that is your own and paid off
> no dealing with land lords or wondering if you will be kicked out when they want to sell
> it also gives you a nice amount of money if in the future you want to sell and you can use the money for retirement


[email protected]! This simple logic is frustrating and potentially wrong. As discussed to death around here and in this thread, renting isn't necessarily throwing money away, just like paying mortgages isn't guaranteed to make you rich. 

If the total cost of A is more expensive than the total cost of B, then option B will net you more money in the end, simple as that. If renting costs more than owning, than yes potentially at some point in the future that would be the "something at the end" you're talking about. If renting were cheaper than owning, and we assume this smart person invested the difference this "lowly renter" would also "have something" to show for all the years of toil and shame... This is simple yet often is misconstrued by this wives tale of throwing away money on rent while someone else gets rich.


----------



## Just a Guy (Mar 27, 2012)

The average Canadian moves every 7 years. It is pretty well known that, without significant appreciation, it takes about that long just to break even on the costs to purchase a home (when you factor in realtor fees, lawyer fees, bank fees and interest). If the home prices decrease, and prices do decrease, you can be on the hook for a big loss.

Renting, in general, is usually slightly cheaper than a mortgage, though you generally get less. If you invest the difference, you could come out ahead. Of course, if the market tanks you may not be better off, but you won't be negative like you could if house prices drop. 

There is no right answer, but there also is no wrong answer.


----------



## none (Jan 15, 2013)

Just a Guy said:


> There is no right answer, but there also is no wrong answer.


You had me until that. That makes no sense.


----------



## Just a Guy (Mar 27, 2012)

Well, if the housing market takes off again, buying would be a better solution, if the market tanks then renting would be better...if the market's tank, or you don't invest the difference...if interest rates don't rise, etc. there are too many variables involved and no one can predict the future, so no one can answer this question definately, either answer could be right. Each could, of course, also be wrong.

Either way, you'll still need somewhere to live.


----------



## none (Jan 15, 2013)

I guess I don't really see it that way. There are outcomes who end point have a outcome associated with a distribution of uncertainty. Answers do not have to be black and white.


----------



## Just a Guy (Mar 27, 2012)

Yes, and then there are black swans like oil dropping to under $50 in a few months....


----------



## none (Jan 15, 2013)

Huh? again you lost me.


----------



## banjopete (Feb 4, 2014)

Unpredictable things that affect both decisions. Without future certainty no future answer can be certain I think is the gist of it.


----------



## sags (May 15, 2010)

There are also some people who just don't want to own a home. They don't want the responsibility or the cost. 

Maybe they aren't even interested in investing the "savings" from renting............and just want to be able to afford a better lifestyle day to day.

Lots of reasons that people own homes...........and lots of reasons why people rent.

One reason for renting that is seldom mentioned...........is that renters in luxury apartment buildings enjoy the use of multi-million dollar facilities.

Another, is that some people feel safer in closer proximately to other people, or enjoy the social activities in the building.

Retired folks living in retired folks buildings, for example.

Owning is great for people who want to own..........but home ownership comes with a cost financially and with your time.

To each their own.


----------



## Jagt Mirage (Sep 29, 2014)

well if we go by Woz's calculations as correct earlier in the thread, if the houses in your area has an appreciation of 3% that gives you a ROI of around 6% per year tax free. Adjust your calculations accordingly for different appreciation rates and if you wish to make a decision from a solely investment perspective, decide for yourself if that's a good investment or not.


----------



## Pluto (Sep 12, 2013)

I've known two types of home owners. One is the type who is happy to have their own home and happy because their net worth was rising substantially due to home price increases after they bought. this type bought in or near an economic recession. The second type of home owner was in a panic because they bought when economic times were really good, and then a recession came and one of them lost their job. They realized then, if they sold, the wouldn't get their down payment out of it, and would actually even owe money still. Some bit the bullet and sold, while another very quickly did some minor renovations to create a rental suite to tide them over until times got better. 

I guess my view is that if people buy now just consider the worst case scenario and what you would do to protect yourself if the worst happened. The last thing you want is to be forced to sell.


----------



## none (Jan 15, 2013)

I can't imagine not being able to sell. yeash, that would be like living in a prison. being forced to live in a place for years when you don't want to and would rather move would really really suck


----------



## john3322 (Nov 24, 2014)

*Regarding Rent*

i think you should continue your property rent. its not a big issue. but many points you should to remember in mind before rent to property like renters legal document copy, rent agreement, security advance deposit , specify time limit of rent. and many more.


----------

