Living in Toronto? Should you Buy or Rent?
Gone are the days when buying a home in Canada was simply a milestone, as times have evolved: costs have skyrocketed, and housing markets have disrupted, particularly in Vancouver and Toronto, making homeownership challenging and making investment potential of real estate risky. Simultaneously, the swell of remote work situations and the shift to a global economy have made the option of renting an attractive choice. It’s left many Canadians with the rent vs. buy debate.
With so many reasons—personal and financial—in play, whether to rent or buy may well come down to the financial conditions, future goals, and personality.
Before you leap from renting to owning, or vice versa, it’s wise to delve in and analyze your current financial position and short-to-medium-term goals. Here are a few reasons to consider when thinking about renting or buying:
Where do you want to live?
The first and most critical thing to do is compare the cost of rent to mortgage payments in your neighborhood. The housing market will exert a vital influence on your decision-making. If we take a look at the housing markets like Vancouver and Toronto, the cost of a mortgage may be significantly more expensive than the amount you would pay in rent.
For instance, it may be better to rent than buy as the average sold price of homes in the city—Toronto is $1,106,556 vs the Toronto’s downtown area is $901,215. Let’s analyze two similar units in the same high-rise building in Toronto’s C01 (Downtown, Entertainment District, CityPlace, Liberty Village) neighborhood as listed in later half of 2020. The first was a one-bedroom rental with a parking spot pitched for $1,850, and the other was a unit for sale a few floors below with alike specs, listed at $579,900. Here’s how some of the biggest monthly costs for the unit for sale break down with separate down payments:
|Monthly costs with a minimum down payment (5%) on $579,900|
|Mortgage at 1.7% fixed rate; 25-year amortization||$2,327|
|Monthly costs with a 20% down payment on $579,000|
|Mortgage at 1.7% fixed rate; 25-year amortization||$1,898|
In this specific instance, for someone who wanted to live in this building, particularly a person on a shorter time horizon who is was able to make the minimum down payment, the rental may have been more attractive or manageable.
Toronto’s east and west end offer opportunities for first-time buyers
Taking a similar approach, let’s have a look at properties in the east and west end. In the east end in E04 (Dorset Park, Kennedy Park), a good-sized two-bedroom unit with a parking was recently listed for rent at $2,400, with a similar unit listed for sale seven floors below at $449,000.
|Monthly costs with a minimum down payment (5%) on $449,000|
|Mortgage at 1.7% fixed rate; 25 year amortization||$1,815|
|Monthly costs with a 20% down payment on $449,000|
|Mortgage at 1.7% fixed rate; 25 year amortization||$1,470|
In this case, proposed buyers who have saved up a sizable down payment may want to actively consider the unit available for purchase, given that the monthly costs are equivalent even with the inclusion of owner-specific fees and taxes.
Despite the fact, some units sell for higher than the list price, this is a valuable exercise to assist prospective buyers in research and understand they’re carrying costs beyond a few different neighborhoods in the city.
Consider the 40 percent rule
The “40 percent rule” states you should be able to match your housing costs (taxes, principal and interest, and heat), as well as your other registered debts including the likes of car loans and credit cards with no more than 40 percent of your gross income. Not only is this a helpful guideline for your planning, but it’s also a measure implemented by many lenders.
Employment stability & present situation
Without stable employment, you will have trouble persuading a lender to give you a mortgage, but more importantly, you may run into obstacles meeting your obligations. Do a realistic survey of your employment picture before making a decision.
Are you ready for the responsibility?
Homeownership is a big move. It means that you are ready to take the responsibility of maintaining the property and can afford property taxes, home insurance, maintenance, utilities, and a mortgage.
When it reaches to take a side, be it renting vs. buying a house, neither is better than the other. There’s no clear-cut solution to this age-old debate, and it’s going to need some soul-searching and number-crunching on your part. Your present personal and financial circumstances, as well as your goals and location, will mainly determine what’s right for you.
With low-interest rates and soaring market values, buying a home may well be on your radar. But with obstructions like paying down debt and the mortgage stress test, renting may also make a good financial reason for many Canadians, especially since you value financial freedom. Both offer risks and advantages, and working through our checklists and guidelines should help you make an apprised and realistic decision.
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