# Renting Cheap vs Buying Cheap- What should I do???



## Ubergame (Jul 6, 2013)

I am currently living in a nice sized basement suite that we (Wife and I) are comfortable with. We pay $500 rent and thats it so I know we have it good here.

I would like to eventually move out to a house that is around 450-500k but would like to know whats the best way to do that. Should I stay at this place and pay low rent and save up my downpayment? Or should I move out to a place thats around 200k with strata (townhome) and build equity in my home by paying off my mortgage?

I would love to hear what you all think! Thanks!


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## andrewf (Mar 1, 2010)

If you can afford a $500k house, you should be able to save up a large enough downpayment for that house in a few years living in a $500/month basement apt (wow, that's cheap!). Consider that just selling your $200k townhouse will cost you 2 years worth of rent in your basement apartment. You'd be better off renting the townhouse while saving for your 'forever' house.


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## Ubergame (Jul 6, 2013)

I've thought about that too, I would love to have someone else pay my mortgage. What are important things to take into account if I wanted to do such a thing?


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## none (Jan 15, 2013)

You will never beat $500 a month rent - even by owning, that's crazy.

Stay in the $500 and stash that cash son! Best financial decision you'll likely every make.


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## andrewf (Mar 1, 2010)

Options:

1 Stay in basement at $500. Best financial decision--but is it acceptable from a lifestyle perspective? Failing that,
2 Rent a townhouse for >$500. It will take you longer to save for the $500K house you plan to buy.
3 Buy the townhouse, wait even longer to get your $500k house, have expense of selling the property in a couple of years.

I don't recommend owning two houses highly levered. You should not have 1000% exposure in net worth terms to real estate. That's just insane, and how families get destroyed if things go against them.


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## Chris L (Nov 16, 2011)

Rent for as long as you can and set aside all the extra money you would have been paying for your house. Factor in heating, taxes, insurance, principle and interest. Everything. Do this as long as you can bear it. When you outgrow your basement apartment, buy the smallest house you can bear to buy that will accommodate a child or two if that's in the plan. Grin and bear this situation for as long as you can still setting aside that extra money you'd need to pay for that larger house. 

Seeing that money grow in your account will be incentive enough to live below your means. When you move up, your cash should stay more or less the same and you'll have some extra possibly when you move as you'll have a larger downpayment making your lifestyle consistent.

Just because you live in a nice house, does not mean your standard of living will improve. Having a big house, but not enough money to go out and eat, or take a vacation is not a better life, despite what some of your friends think. Having no stress from money issues is "priceless." 

I'm living in a triplex (own) that we planned to keep as a rental and move to another place. Bills are all paid, no money worries, surprised by how nice our neighbourhood is, our tenants change every couple of years, but we get better at picking them.

At $500, you're living a dream situation if you are content. Don't assume you'll be much happier at a Mcmansion. If you're miserable, by all means seek to improve your situation...otherwise bid your time as it will come.


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## KrissyFair (Jul 8, 2013)

No answers here but a couple of thoughts - 

It's important to remember that although buying a house (especially your first) is free, selling it isn't. So if you go the route of the starter house then you also need to factor in savings for the exit strategy (figure about 10% of the home's value) because you really can't count on the home price going up enough in a handful of years to cover it. 

Also remember that even with a 20% dp it will take 4ish years before you hit the tipping point where more than half of your monthly rent cheque to the bank will go to your equity, so if you're using the starter home to roll it into the bigger home, it still needs to be something you can live in comfortably for several years.


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## blin10 (Jun 27, 2011)

Chris L said:


> At $500, you're living a dream situation if you are content. *Don't assume you'll be much happier at a Mcmansion.* If you're miserable, by all means seek to improve your situation...otherwise bid your time as it will come.


none sense, that's what people who can't afford decent house need to tell them selves to feel better...you would feel a lot better being in your own house versus living in a basement like a 20 year old student...


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## blin10 (Jun 27, 2011)

none said:


> You will never beat $500 a month rent - even by owning, that's crazy.
> 
> Stay in the $500 and stash that cash son! Best financial decision you'll likely every make.


you can't compare apple to an orange... you need to compare owning a house to renting a house, owning a townhouse to renting a town house, you can't compare owning a house to renting a basement and say "you will never beat $500 a month rent", that's just wrong thinking


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## none (Jan 15, 2013)

blin10 said:


> you can't compare apple to an orange... you need to compare owning a house to renting a house, owning a townhouse to renting a town house, you can't compare owning a house to renting a basement and say "you will never beat $500 a month rent", that's just wrong thinking


It is possible to compare apple and oranges BTW.

From a financial standpoint I find it extremely hard to imagine beating $500 rent, unless you are buying a house for less than 100K.

He said he was happy in his apartment so sounds like he's doing awesome. I sold my house and I now rent. I much prefer renting. No stupid trips to home depot on Friday and if anything breaks it not my problem. Plus in the last 2 years I've saved about $100,000 is under valued rent plus housing decline. For people debating whether to buy or rent right now, generally in Canada the smart money is renting.


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## brad (May 22, 2009)

Right, I think in this case comparing an apple to an orange is perfectly appropriate. It's not a hypothetical rent vs. buy comparison, it's a very specific comparison with real places and real numbers.

We did almost exactly this: we were lucky enough to find a three-bedroom apartment in my city for $500/month, which eventually climbed to $550 but no higher because we had a deal with the landlord that we would shovel his walk and driveway in winter in exchange for no increase in rent. We stayed there for five years. I had a high income and during that time was able to buy a new car with cash AND save $75K for a 25% downpayment on a three-bedroom house.

We went from paying $500/month in rent for a 3-bedroom apartment to paying $2,600/month in mortgage and interest for a 3-bedroom house (we got a 15-year mortgage because we're in our 50s and want to be out of debt before we retire). Staying in that cheap apartment for five years was definitely the right thing for us.


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

Ubergame said:


> I would love to have someone else pay my mortgage.


Anyone who says that should not be blowing half a million dollars on a house.


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## My Own Advisor (Sep 24, 2012)

Definitely stay in basement, that's an amazing rental rate. 

Save as much money as you can and when you're ready, use all money saved as downpayment. I've never heard of anyone saying they put too much money down on a house.


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## Chris L (Nov 16, 2011)

blin10 said:


> none sense, that's what people who can't afford decent house need to tell them selves to feel better...you would feel a lot better being in your own house versus living in a basement like a 20 year old student...


Sounds like you are projecting. OP said they were happy. Life is not about buying as much as you can, it's about being contented.

My house is paid for and we continue to collect rent after 10 years. Why? Because the house now pays us to live there. We did this twice - two rentals. So you tell me that the 10 year end game is not worthwhile. With 100% certainty, I would do it again, and again and again. I can always, always, always opt out and buy a mcmansion, anytime, any day. Once you buy a Mcmansion, getting out is not so easy. 

We don't live inside our house because it's not a trap, it's a freedom machine.

When you get your first place, try to find something that you can rent the basement for 50% or more of the total cost. I bought 10 years ago and I covered 100% (hard to do now). Do this for as long as you can bear, choose your tenants wisely. Look at the long game.

Choose wisely.


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## MoneyGal (Apr 24, 2009)

Chris L said:


> Sounds like you are projecting. OP said they were happy. Life is not about buying as much as you can, it's about being contented.
> 
> My house is paid for and we continue to collect rent after 10 years. Why? Because the house now pays us to live there. We did this twice - two rentals. So you tell me that the 10 year end game is not worthwhile. With 100% certainty, I would do it again, and again and again. I can always, always, always opt out and buy a mcmansion, anytime, any day. Once you buy a Mcmansion, getting out is not so easy.
> 
> ...


I like this SO much.


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## none (Jan 15, 2013)

Chris L said:


> Sounds like you are projecting. OP said they were happy. Life is not about buying as much as you can, it's about being contented.
> 
> My house is paid for and we continue to collect rent after 10 years. Why? Because the house now pays us to live there. We did this twice - two rentals. So you tell me that the 10 year end game is not worthwhile. With 100% certainty, I would do it again, and again and again. I can always, always, always opt out and buy a mcmansion, anytime, any day. Once you buy a Mcmansion, getting out is not so easy.
> 
> ...


This is flat out wrong. 10 years ago was a different RE world. Buying now is tying a financial noose around your neck. No thanks.

True freedom (to me at least) is renting. I can move whenever I want, I'm not tied down to a bunch of brick and mortar. THAT'S freedom.

Why buy a house with a suite so you can rent out the suite for less than it costs you to own it? No thanks.


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## Ubergame (Jul 6, 2013)

Thanks for all the insight. 

I am happy with my living situation right now. I just want to do what's best with my money. It sounds like owning and living in it isn't a good option right now but someone mentioned owning and then renting it out. If I could do that and then sell when I want to move into a bigger place would that be a wise option? What type of fees would I pay to do such a thing?


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## Spudd (Oct 11, 2011)

Realtor fees must be paid when you sell the house, and are 6% of the price you sell the house for, usually. When buying the house you don't pay realtor fees but you will pay closing fees (lawyer, land transfer tax, etc).


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## Ubergame (Jul 6, 2013)

So is buying a place now and then renting it out something I should look into? I have about 20k in savings to use as a down payment.


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## none (Jan 15, 2013)

Ubergame said:


> Thanks for all the insight.
> 
> I am happy with my living situation right now. I just want to do what's best with my money. It sounds like owning and living in it isn't a good option right now but someone mentioned owning and then renting it out. If I could do that and then sell when I want to move into a bigger place would that be a wise option? What type of fees would I pay to do such a thing?


If you are happy where you live and you are paying $500 a month there is no practical way on the planet you can beat that through RE (and with the risks involved). You are an extremely good situation. A heuristic is the rule of 15 - a house of equivalent rental value should be about 15 times the annual rent. If you could buy a house for about 90K you would be breaking even. I really doubt you can find that.

You are living in a cash cow. Love it.


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## Chris L (Nov 16, 2011)

none said:


> This is flat out wrong. 10 years ago was a different RE world. Buying now is tying a financial noose around your neck. No thanks.
> 
> True freedom (to me at least) is renting. I can move whenever I want, I'm not tied down to a bunch of brick and mortar. THAT'S freedom.
> 
> Why buy a house with a suite so you can rent out the suite for less than it costs you to own it? No thanks.


That's the point I was trying to make, so you did a bit of a leap of faith there. If the option was to buy or not buy, I would certainly not buy. It's part of, though, not the entire, reason we haven't moved. Prices looking forward very much SHOULD decline moving forward. On a pure cost basis, it makes no sense to buy right now if you are content to rent, not in a million years. Keep your eye on MLS and when you find something that pays nearly all of your costs through a basement apartment, then buy it and pile your savings into it.

Your cost to sell with be 5% commission to an agent and 2% closing costs. I would not count on prices going up moving forward. They should decline - there are simply too many down forces right now and if you can wait 2-5 years you'll be a very happy person. But this is just a guess as no one knows what's going to happen in the future. 

If you're happy, then rent, because it's the correct financial decision right now. If prices keep going up, then fine, you'll have a big downpayment and will be able to afford what you buy instead of paying a bunch of interest to the bank. 

Ignore all the other people. I paid off my mortgage on a rental, what people call "good debt", ignored them right to financial freedom. Following what other people do FEELS safe, but feelings don't pay bills.


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## brad (May 22, 2009)

There are also the costs associated with owning a home, many of which you don't have to cover as a renter, especially things like renovations and repairs. If you're in a building right now, maintenance costs may be factored into your rent but they're divided up among the tenants. When you buy a house, you have to cover all those expenses. When I was renting, our maintenance and repairs budget was a tiny fraction of what it is now that we own. So you have to factor that into the equation as well.

Another thing to consider is that when you buy, the amortization schedule on a mortgage is such that you pay more in interest than toward your principal for the first few years, depending on the length of your mortgage. It takes a while to start building up equity, especially if you take out a longer-term mortgage.


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## Cal (Jun 17, 2009)

If you like it there, stay. There may come a time when you know it is time to mvoe to a larger space, what that space happens to be is a decision for then.

Your family may grow, or your job will change location, needing to move.

For now if you are happy, stay and save.


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