I wrote an article about this topic a year or two ago, but I thought I’d write another with today’s current market evaluations and with a bit more experience having dealt with over 70 condo & home rentals and purchases this past year. The reasons for people choosing to rent or to own are various but the most common is time & money. I feel like that is the source or all problems, isn’t it? (ha ha ha)
Before I begin however, for those considering a change and need some guidance, read a little of what I’ve gathered and then I highly recommend that you contact your financial advisor to help you make the best decision for you and your financial well-being.
Alright so lets break it down …
It all comes down to a matter of principal and affordability.
Homeowners usually see the value of their property appreciate (usually between 1.5 to 4% annually) and equity increase as mortgage payments gradually reduce the principal amount of the mortgage. Additionally, if payments are made on time, owning property improves your credit score over time. However before you can even consider purchasing, you need to have at least 5% of the overall purchase price to put down as a downpayment – and even then sometimes the banks won’t approve a mortgage . Assume you need to have at least 10% of the purchase price in the bank when you are looking to buy.
Renters on the other hand pay a set monthly amount to someone else instead of building their own equity. Renters however, don’t have to worry about mortgage payments, maintenance costs, taxes, assessments, fluctuating interest rates (if you don’t get a fixed rate mortgage) and market fluctuations. Renters have more flexibility in terms or where they want to live, and can move freely from one area to another as they please once their lease is up. Before you can consider renting, you should have at least the first and last month’s rent in the bank before you start looking to rent + $800 for other upfront fees I will talk about below.
So lets talk numbers:
On average, I would say a one bedroom unit (assuming 500 square feet) that isn’t in the downtown core or along the subway lines is close to $1400, but TREB (Toronto Real Estate Board) reports higher numbers:
This number is most certainly skewed by the high cost of rentals in the downtown core and along the subway lines, from my experience, you can expect an average sized one bedroom unit (500-599 sq ft) to cost around $1700-1800 (without parking). There are exceptions of course and I’ve found many a client units that cost under $1700 in the downtown core.
On the flip side, to buy an average sized one bedroom condo (resale condo – I’ll touch on buying resale vs pre construction condos in the future) in Toronto is roughly just over $300,000 and a two bedroom just over $400,000. These costs are significantly higher however if you are looking at buying in the downtown core, roughly $370,000 for a one bedroom (up almost 30k in three years) and $550,000 for a two bedroom.
Keep in mind there are additional costs that you need to take care of in addition to your monthly rental cheques or mortgage payments. So what are these other costs to keep in mind?
When renting …
Key deposits – most landlords will ask for a $150 (or more) key deposit for each set of keys. This amount, if all keys returned, will also be returned to you at the end of the lease
First and Last month rent – this big chunk of money is your deposit once the landlord accepts your offer to lease.
Tenants insurance – most landlords will ask you to get tenants insurance with a minimum of $1,000,000 liability – and if they don’t you should get it anyways – this will cost you on average $25/month
Hydro/Heat pump rentals – most condo buildings do not have hydro included in the maintenance fees therefore your usage will be payed by you and not the landlord. You can expect a hydro bill of roughly $40/month for an average sized condo. If your building also has a rental heat pump (many new buildings too) this is an additional flat fee you have to pay per month in addition to your hydro usage (between $35-45 a month)
Elevator deposit – when you are moving, the condo management will likely ask for a security deposit of $500 for any damages that may come to the elevator during your move.
Day to day repair costs – many leases will stipulate that you the tenant are responsible for the first $50-100 in repair costs. Light bulb burns out? You replace it. Dishwasher broken? You pay the first $50-100 (depending on what your contract stipulated) and the landlord pays the rest.
Parking not included in your lease? You can expect at least $150/month, and in the downtown core upwards to $200-250/month.
When buying …
Lawyer costs – you will want a lawyer to review the Agreement of Purchase and Sale docs as well as the condo’s Status Certificate (document that reviews important info about the condo and its stability, spending etc). This will likely cost you between $800-1200.
Home inspection – you may opt to not do this but if you are a new home buyer it may be a good choice to book a home inspection with someone who can explain to you what the ins and outs are of your condo, what to look out for etc. This will cost you around $400
Moving costs – mover fees (maybe $300?), elevator deposit etc.
Maintenance fees – on average Toronto condo maintenance fees range from $0.60-0.70/ square foot so you can expect a 550 square foot unit to pay at the very least $335/month.
Mortgage insurance – any mortgages that are granted to down payments made less than 20% of purchase price (monthly payments can range vastly depending on your rate, mortgage type, amortization period and down payment) will require monthly mortgage insurance to be payed in addition to you mortgage payments.
Land Transfer Tax – (provincial 2% and municipal 2% – first time home buyers can get a rebate)
Property tax – a yearly cost that will likely be near $2000 (for a one bedroom) but fluctuates depending on your area and size of your property.
Hydro/Heat pump rental – same as above.
No parking spot? You can expect to rent a spot at least $150/month, and in the downtown core upwards to $200-250/month subject the building availability. If you are looking to buy, you need to have at least $40k in hand … and the closer to downtown the more that parking spot is going to cost!
So lets talk time:
When looking to buy or to rent you are looking at two very different timelines. The rental market moves about 1.5 months in advance so if you were looking to rent starting May 1st for example, you should be starting your search mid March and signing a lease hopefully around that time as well (some exceptions apply for vacant units where you can move in in two days if you really wanted to). Also in terms of longevity, when renting you have the freedom of picking up and moving to a new area if you so wish after your one year lease is up (of course this accrues moving costs) but you have that freedom!
When buying, the market is a bit more competitive, a well priced unit may sell within a week or two of it being on the market. However, you may not actually be able to move in to that unit for up to 90 days (this can be negotiated, on average 30-60 days is normal for possession). You need to be a bit more flexible when buying because you could be moving in a month or up to three months from the time you’ve put in your offer and deposit. Again, in terms of longevity, when you buy, if you choose a mortgage with a fixed rate and want to sell your property before the end of term (could be 3, 4, 5 years) you will be forced to pay a large penalty to your mortgage providers. As an alternative, you may want to look into variable mortgage rates if your intent is to sell your property after a few years (variable rates risk the chance that mortgage rates increase).
Anyhow, thats my little (haha relative to the amount of information I could give) guide to renting vs. buying for anyone who is thinking of making a change or taking that step. Let me know what you think and of any challenges you may have encountered with either experience! Would love to hear them!
Founder of Views Of Toronto
Toronto Real Estate Board: Condo Market Report, Fourth Quarter 2015 (July, 2014)
National Post: To buy or rent? Condos might be the answer to Toronto’s intense home-buying market (March 7, 2013)