Renting vs Buying

Renting or Buying Toronto 2019: Which Should I Choose? Where to put your money when it comes to real estate is crucial. Being a resident in Toronto in 2019 gives you the option between renting, or buying your property. We’re here to outline the potential benefits and negatives for renting or purchasing your home. As time progresses, it’s become increasingly more evident that buying a home in Toronto is becoming more of a pipedream than a reality. Potential homeowners are trying to know not if, but when the real estate market in Toronto will ultimately crash, as this will allow for prices to drop and become more affordable for the average citizen. Unfortunately, Toronto is home to the highest rental prices in the country. The truth is, with each passing year, prices on homes becoming dramatically more expensive, but truth be told, now may be the best time to invest in either renting or purchasing your property. A General Look The average cost of a one-bedroom rental in downtown Toronto has increased by 23% since the third quarter of 2016, according to data presented by TREB. Essentially, rent costs in this current society can be compared to mortgage costs on a condo. We’ll be taking a deeper dive into the comparison between purchasing, or a renting a condominium in Toronto. A Deeper Dive Preparing a down payment typically is the biggest issue to overcome when looking to buying a condo. Let’s put this in perspective: If a one-bedroom condominium is being sold for $500,000, and the down payment is 5%, the cost will be $25,000. When compared to renting that same property, you would be paying approximately $2,200 per month for rent, which would equate to $26,400 a year. In other words, renting a condo is noticeably more expensive than putting money forward for a down payment. These is why our economy is seeing more individuals over the age of 21 electing to live with their parents, as it helps save for a better down payment. Sadly, everyone is not fortunate enough to live with their parents without paying rent, but we’ll present you with rent vs. buy calculator by RBC. Comparing Prices Being a homeowner comes coupled with it’s own set of challenges. To add greater context, imagine purchasing a condo at the same price ($500,000), with the same 5% down payment ($25,000). Now you will be required to pay for mortgage insurance since the down payment of the property was less than 20%, meaning an additional $19,000 will be applied to your mortgage, totalling $494,000. Don’t fret, as the benefit to paying this insurance fee allows you to starting earning equity in real estate. Now let’s provide some calculations. If you were to take these same prices, and you secured a 5-year fixed rate mortgage at 3.39% over a 25-year amortization period (The amount of time it would take you to pay off your mortgage), then your monthly mortgage payments will be $2,438, as oppose to $2,200 per month for rent. Although owning is slightly more expensive, the benefit you have is the fact that the property is yours, and if properly maintained, will increase in resale value, meaning more money in your pocket. Pros & Cons of Renting & Buying Five Years Later Let’s continue to look at our scenario. After five years of renting, with the current annual increase being 1.8% as a base, five years of rent will total $108,444, and with expenses such as insurance and utilities (Let’s say an additional $4,500), that price may jump to $112,944. Five years after owning, you’ve paid $68,639 towards your mortgage principal, $77,629 in interest, and $52,000 in extra expenses, totalling $198,288. At first glance, this is frightening, but now consider the fact that your property’s value will increase 5% each year, which would look like this: Original Price: $500,000
Year 1: $525,000
Year 2: $551,250
Year 3: $578,813
Year 4: $607,753
Year 5: $638,141 Just so you’re aware, you’ve just earned an additional $138,141 in equity. What Is Your Profit Margin? After five years of staying in your property, you’ve now made a great profit. The remaining price on your mortgage would be $425,361, but if you decided to sell your condo at the estimated value of $638,141, then you will make a profit of $179,373 tax free, as oppose to the $0 you would make from leaving after your rental agreement is over. Renting is generally the more common choice, providing substantially more short-term benefits, but if you’re able to withstand the long stretch, purchasing a condo is significantly more beneficial.

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