# GTA Rent or Buy - How to decide what's best?



## loggedout (Dec 30, 2009)

What factors would you consider in choosing between renting and owning your living quarters?

How would you go about analyzing the financial pros & cons? In particular, how would you run the numbers?

My situation is I'm 30, single, no dependents, have enough money for a DP, work and live in the southwestern part of the GTA, currently de-facto renting from my parents, no set plan/dream of staying in a spot for more than 5 years.

Just curious to what other people's thinking process is on the issue of whether to rent or buy.


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## Spidey (May 11, 2009)

_"no set plan/dream of staying in a spot for more than 5 years."_


Based on that information I would rent. If I planned to be in a location for at least 10 years, I would buy.


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## Jungle (Feb 17, 2010)

Rent until you get a girlfriend/wife. Then you buy. This way you don't get caught buying a bachelor pad, wasting all that money on closing fees then meet someone who wants to up size.


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## K-133 (Apr 30, 2010)

There is a good discussion on home ownership versus renting here:

http://www.tvo.org/cfmx/tvoorg/theagenda/index.cfm?page_id=7&bpn=779887&ts=2010-11-02 20:00:00.0

I think you'll have to apply to the podcast to listen in (free of course).

They go into some high level detail about the variance in costs and benefits - as well as the future of home ownership (though I listened to another podcast earlier today which demonstrated through scientific experiment that the average 'expert' is no better a prediction than flipping a coin). 

Personally, I feel that if you can own a home similar to what you would rent for only a couple of hundred dollars more, then it makes financial sense. Because, if you think about it, that couple of hundred extra is primarily mortgage principle. HOWEVER, the above is a very valid point about timing. 

One of the lady's in the debate made a statement that she rents a place for $2000/month but it would cost her $4000 to own. I think that's a heck of a stretch of reality, but she presents some good points otherwise.

There's no rush to owning a home, though I also feel that there is a risk to waiting too long to take the plunge. My first was a 2 bedroom condo, keeping in mind future growth of a family/wife I didn't have. It wasn't necessarily value to me at the time (though I did enjoy the extra space), but in the end, buying in that range did increase my return when I later sold.

What do I think about it? I think there is something about owning your own space. And contrary to what one of the debaters stated, I think that there is a valid stereotype to the average group of home owners and renters. The most important being that those who own, are more likely to take better care of the asset. This cascades into a better overall environment for the neighbours.


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

The trouble with the GTA is many of the apartments are dumps. I searched hi and low for decent tower apartments that were close to my job on highway 10 and found nothing. Finding NICE condos wasn't easy either, but it was much easier than finding a decent apartment.

Living with your parents is not good if you ever want to bring home a woman. Better to have your own place with a place to park your car and a visitor's parking lot as well. And you need to be as close to work as possible. Getting to/from work in the GTA is a huge hassle. Live as close as possible. I ended up 2KM from work. Perfect. No car. Walk. Saved a ton of money.


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## Potato (Apr 3, 2009)

loggedout said:


> What factors would you consider in choosing between renting and owning your living quarters?
> 
> How would you go about analyzing the financial pros & cons? In particular, how would you run the numbers?



Here's a post of mine on one way to look at it.

I don't have time now to go into a full-on rant, but some bullet points of what to consider:

- What you want to live in (there are detached houses out there for rent, but are rarer than condos/apartments, which are plenty available).
- Your financial discipline (I consider the "forced savings" of paying off a mortgage to be the worst reason for buying a house, but if you need to be threatened with homelessness to end up with money left in your bank account at the end of the month, then there it is).
- Whether you extract joy from home maintenance, or would you rather call your landlord to deal with issues.
- How mobile you want to be.
- Whether you want to be a real estate speculator.
- Whether you need a highly-customized space (you can always paint and decorate a rental, but if you need a sound-insulated recording room for your band to jam in...)

I look at rent multiple in the blog post as a shortcut for analyzing the financial pros & cons. If you want to work it out long-hand, I recommend adding up all the costs of living somewhere for the term you're thinking of living there (e.g., 5 years).

Rent side costs:
Rent, tenant's insurance, utilities if appl. Rent will go up over time, likely less than 2%/yr though.

Buy side costs:
Mortgage interest, opportunity cost of down payment (as a shortcut, I like to use the same %age for both, and then just apply that % to the whole purchase price of the house). Note that I'm not counting the principal repayment part of the mortgage as an expense, but it will be a cash flow issue.
Property taxes, homeowner's insurance (will be much more than tenant's insurance), maintenance/repairs, utilities, condo fees if appl., and finally, transaction costs (land transfer taxes, broker fees, lawyer fees, etc).

Then you can get into the creating different scenarios to look at your risk tolerance. What happens if interest rates go up/down? What happens if property prices go up/down? With that last question in particular, you get to decide if you feel like being a speculator: all other costs aside, if real estate is skyrocketing upwards at 10%/yr, then you almost certainly want to be an owner for a few years and get on that gravy train. Vice-versa, if the market is heading down, then the rent will look pretty cheap.


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## peterk (May 16, 2010)

http://www.dinkytown.net/java/CAMortgageRentvsBuy.html

I find this calculator quite useful. You can play around with the numbers a fair bit. In the end I find it shows that generally 3-6 years is the crossover period for buy/rent in most situations. Of course, as all calculators do, volatility has been removed from the equation....


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## hystat (Jun 18, 2010)

#1 factor for me would be "future sales commission"

nice to see that calculator factors it in.

If you move in the first 3-5 years of home ownership, the commission feels painful....

I wonder if there are any stats on how long Canadians usually stay in their first home purchase. I'll bet a lot resell in the initial 5 years. 
I stayed in my first house 3 years... should have rented.

There is opportunity cost for a down payment to think about too

could be getting some income on the downpayment whether it is just plunked in a high interest savings account or TFSA, or in equities...


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## sprocket1200 (Aug 21, 2009)

8 yrs now for us, we will NEVER sell or buy another house. it is just accommodation, not an investment...


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## GeniusBoy27 (Jun 11, 2010)

In your circumstances, with movability and the hassle associated with that. No brainer for me, rent.


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## loggedout (Dec 30, 2009)

I can't foresee a time in the future where I will know for sure that I will be in a place for more than 5 years, due to the way the economy and job market is these days. This makes me think that I'll likely never own a home, which is okay with me.


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

loggedout said:


> I can't foresee a time in the future where I will know for sure that I will be in a place for more than 5 years, due to the way the economy and job market is these days. This makes me think that I'll likely never own a home, which is okay with me.


I completely agree. Besides, if you buy a condo now and sell it 5 years from now, in 6 years you will really be no further ahead than you are now in the psychological aspect of "having your own" home. I think this is somewhat overrated and doesn't apply to all demographics.


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## Sherlock (Apr 18, 2010)

Does owning really inhibit your mobility that much? Doesn't a condo/house in the GTA typically sell very quickly? When you rent you must give 2 months notice to move out, a home priced fairly will sell faster than that.


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## loggedout (Dec 30, 2009)

Sherlock said:


> Does owning really inhibit your mobility that much? Doesn't a condo/house in the GTA typically sell very quickly? When you rent you must give 2 months notice to move out, a home priced fairly will sell faster than that.


I have no idea. I suspect that the housing market is softening as the economy here in the GTA continues to tank.


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

Sherlock said:


> Doesn't a condo/house in the GTA typically sell very quickly? When you rent you must give 2 months notice to move out, a home priced fairly will sell faster than that.


No. It took me a year to sell my condo, unit less than 5 years old, priced in midpoint, well maintained, good condition, good photos etc etc. In that year I had to continue to pay everything on it, while paying for my new home elsewhere (I moved before I sold). This among other things left me financially devastated. I could have saved myself a boatload of money had I of been lucky enough to be able to leave with a mere 2 months notice. That would have been a breeze.


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## kcowan (Jul 1, 2010)

The average selling times vary with the economy but typically take 4 to 6 months in a normal market. Remember that possession usually take a couple of months after the sale too.

Other frictional costs like sale commissions, lawyers fees and land transfer taxes serve to increase the cost of moving, making such decisions onerous in all the the hottest markets. And if you are moving within the hot market, you are paying a premium for the new house too.


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## james720 (Nov 11, 2010)

Rent until you get a girlfriend/wife. Then you buy. This way you don't get caught buying a bachelor pad, wasting all that money on closing fees then meet someone who wants to up size.


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