Whenever the subject of buying a property comes up between me and the HB, we always get stumped by one big question: “Which one is actually cheaper in the long run: buying or renting?” Although we’re not looking to buy anything anytime soon, I thought it would be a good idea to finally crunch some numbers and put that question to bed once and for all.
The first thing I did was go onto MLS and check to see if there were any condos listed in our Toronto neighbourhood.
As luck would have it there was a condo listed that is not only walking distance from our apartment but also the same square footage.
It’s actually still under construction, I walk by it almost every day, and from the outside it’s quite nice (not to mention just one block from the subway).
To find out how much we would have to pay per month to own this property, I used Rate Hub’s mortgage payment calculator to get some estimates.
For your reference, the property costs $319,900 (1 bedroom, 1 bath), we’d be putting 25% down ($79,975), and the mortgage is amortized for 20 years at 3.04%.
Also make note that I am not taking into consideration inflation or the rise of the property’s value or mortgage rates over the years.
Here’s what the monthly numbers look like:
As you can see, buying this place would cost us $920 more per month than renting our current apartment. And that’s not including all the extra costs associated with buying a place.
That’s a fair chunk of change, especially for a young couple like us who aren’t making anything close to 6 figure salaries. But looking at just these costs isn’t exactly showing us the full picture. For instance, after 20 years have lapsed, our mortgage will have been paid off and our monthly costs would look like this:
Moreover, if you consider how much money we’d be spending over 20, 40, 60, and 80 years, and include the value of our property in the mix, then buying would be the cheaper option in the long run.
Renting is cheaper at first, but no matter how long you do it, in the end you won’t ever own anything of value. Moreover, as much as I love only paying $668.50 in rent every month, this building (and most other affordable rentals in the city) are old, need a lot of TLC, and don’t have any niceties like dishwashers or built-in laundry. I mean our bathroom doesn’t even have a fan, and there are at least 12 layers of paint on the walls making it increasingly difficult to close our closet doors properly!
There’s also something to be said about living in a building with a bunch of homeowners compared to living with other renters. Homeowners in general take better care of their units since it’s not just a home for them, but also an investment. I can’t tell you how many times I’ve walked into my apartment’s elevator only to find trash on the floor or spit on the mirrors. Maybe it’s just the apartment I live in, but I just can’t see that happening in a building where everyone pays a mortgage to live there.
So there you have it, buying is cheaper than renting in the long run. That being said, renting is still the better option if you have a lot of personal debt to pay off, are just starting to build a savings nest egg, or just don’t feel comfortable having a $300,000 mortgage to pay off for the next 20 years. I’m hoping me and the HB will be ready to make the leap into homeownership in the next 2 – 3 years. Now the next question is will we be buying in Toronto or Vancouver? I guess we’ll just have to wait and see.
What are your thoughts? Do you think buying or renting is the better option? I’d love to hear any stories from ex-renters/new homeowners!
Download my free checklist
Make sure to download my free mortgage prep checklist to help you find the right mortgage for you!