If Your Gonna Rent for more then 5 years, then Better to Buy!!

[Willy Wong]

Folks,

Why rent in this market? The market is flooded and inventory is high! Its a buyers market!

Its better to buy a place, if your planning on renting for more then 5 years!

Let me help you put your money into your own place rather then to the landlord!

PM'd me or reply to this thread.

Willy

 

[simuls]

Considering property prices will be dropping or at best, remaining stagnant for exactly the reasons you stated, it actually makes much more sense to rent right now. When a one bedroom costs $320 000 = about $2100 month for mortgage, taxes, condo fees (assuming 20% down), why would I buy? Of that $2000 I'll never see $1700 of it ever again. I can rent the same for $13-1400, giving me a monthly gain of $3-400 (plus no expenses in maintaining or fixing anything in the property that breaks because the landlord is responsible). Now in three years when the supply glut has worked it's way out and prices are stable, then I take that extra $15 000 I've saved over those 3 years and put it against the property. THAT makes sense.

 

[Tuscani01]

Considering property prices will be dropping or at best, remaining stagnant for exactly the reasons you stated, it actually makes much more sense to rent right now. When a one bedroom costs $320 000 = about $2100 month for mortgage, taxes, condo fees (assuming 20% down), why would I buy? Of that $2000 I'll never see $1700 of it ever again. I can rent the same for $13-1400, giving me a monthly gain of $3-400 (plus no expenses in maintaining or fixing anything in the property that breaks because the landlord is responsible). Now in three years when the supply glut has worked it's way out and prices are stable, then I take that extra $15 000 I've saved over those 3 years and put it against the property. THAT makes sense.

Um no,

A $320,000 mortgage would run you $16,000 a year (5 year, variable rate) Of that $16,000, only $6000 would be interest (vs. $12,000 that would be lost in rent). That means you are building $10,000 worth of equity every year. In the 3 years where you could be renting, you could have also paid off $30,000 worth of your mortgage. As the years go on, you are also paying less toward interest and paying down more of the mortgage.

$10,000 x 3 years = $30,000

$30,000 vs. $15,000

Owning is definitely the better option, especially with the low interest rates we have today.

 

[cdr108]

Um no,

A $320,000 mortgage would run you $16,000 a year (5 year, variable rate) Of that $16,000, only $6000 would be interest (vs. $12,000 that would be lost in rent). That means you are building $10,000 worth of equity every year. In the 3 years where you could be renting, you could have also paid off $30,000 worth of your mortgage. As the years go on, you are also paying less toward interest and paying down more of the mortgage.

$10,000 x 3 years = $30,000

$30,000 vs. $15,000

Owning is definitely the better option, especially with the low interest rates we have today.

sorry but you're incorrect also.

assuming $256,000 mortgage for 3-year term/25-year amortization @ 4.89% fixed:
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

total mortgage payments (not including maintenance fees, property taxes, etc): $53,025
total principal repayment: $17,018
total interest paid: $36,007

------


back to the original thread, if we assume $256,000 mortgage for 5-year term/25-year amortization @ 4.89% fixed (3 and 5 year rates seem to be the same as most FI are offering discounts on 5-year terms):

http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

total mortgage payments (not including maintenance fees, property taxes, etc): $88,375
total principal repayment: $29,814
total interest paid: $58,561

so during those 5 years, one has 'paid themselves' $29,814 (ie. principal repayment) while almost $59K has gone to interest paid ... just like paying a landlord but the landlord is the bank, to which you have a contractual liability/obligation of $256,000.


the main issue for the debate of whether it's better to buy now, or to rent and wait has to do with one's assumption of where they see RE prices will be:

if there is a 10% decrease in 5 years, well one has LOST ALL of the principal repayments and you're no better off but there is still the initial $64,000 DP ... still have ~20% equity;

if there is a 20% drop in 5 years, one has LOST ALL of their $64,000 DP but still have paid down $29,814 ... ~10% equity but will that be sufficient to qualify for mortgage renewal ?!?;

if there is a 30% plunge in 5 years, one has lost $96,000 which means ALL of the $64,000 DP and $29,814 in principal repayments are GONE + NEGATIVE EQUITY ! ! !

 

[Tuscani01]

sorry but you're incorrect also.

assuming $256,000 mortgage for 3-year term/25-year amortization @ 4.89% fixed:
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

total mortgage payments (not including maintenance fees, property taxes, etc): $53,025
total principal repayment: $17,018
total interest paid: $36,007

------


back to the original thread, if we assume $256,000 mortgage for 5-year term/25-year amortization @ 4.89% fixed (3 and 5 year rates seem to be the same as most FI are offering discounts on 5-year terms):

http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

total mortgage payments (not including maintenance fees, property taxes, etc): $88,375
total principal repayment: $29,814
total interest paid: $58,561

so during those 5 years, one has 'paid themselves' $29,814 (ie. principal repayment) while almost $59K has gone to interest paid ... just like paying a landlord but the landlord is the bank, to which you have a contractual liability/obligation of $256,000.


the main issue for the debate of whether it's better to buy now, or to rent and wait has to do with one's assumption of where they see RE prices will be:

if there is a 10% decrease in 5 years, well one has LOST ALL of the principal repayments and you're no better off but there is still the initial $64,000 DP ... still have ~20% equity;

if there is a 20% drop in 5 years, one has LOST ALL of their $64,000 DP but still have paid down $29,814 ... ~10% equity but will that be sufficient to qualify for mortgage renewal ?!?;

if there is a 30% plunge in 5 years, one has lost $96,000 which means ALL of the $64,000 DP and $29,814 in principal repayments are GONE + NEGATIVE EQUITY ! ! !

Actually, my figures are all correct. Its a $320,000 mortgage we are comparing, not a $256,000 mortgage. All my figures come from ING's mortgage calculator.

 

[cdr108]

Actually, my figures are all correct. Its a $320,000 mortgage we are comparing, not a $256,000 mortgage. All my figures come from ING's mortgage calculator.

the scenario simuls proposed is a one bedroom unit costing $320,000 with 20% downpayment.

Considering property prices will be dropping or at best, remaining stagnant for exactly the reasons you stated, it actually makes much more sense to rent right now. When a one bedroom costs $320 000 = about $2100 month for mortgage, taxes, condo fees (assuming 20% down), why would I buy? Of that $2000 I'll never see $1700 of it ever again. I can rent the same for $13-1400, giving me a monthly gain of $3-400 (plus no expenses in maintaining or fixing anything in the property that breaks because the landlord is responsible). Now in three years when the supply glut has worked it's way out and prices are stable, then I take that extra $15 000 I've saved over those 3 years and put it against the property. THAT makes sense.

 

[urbandreamer]

What if you rent a TCHC rent geared to income apartment? A girl I met recently pays just $95/month for a large two bedroom apartment in a decent location. Great if you're into cash jobs.... (Stick cash you earn in an offshore account, never pay a penny in taxes, then save enough to buy a home. I love that plan!)

 

[cdr108]

What if you rent a TCHC rent geared to income apartment? A girl I met recently pays just $95/month for a large two bedroom apartment in a decent location. Great if you're into cash jobs.... (Stick cash you earn in an offshore account, never pay a penny in taxes, then save enough to buy a home. I love that plan!)

$95 or 950 ?!?!?
i hear $950 for large 2 bed TCHC apts all the time, but never $95 !?!?

 

[simuls]

Um no,

A $320,000 mortgage would run you $16,000 a year (5 year, variable rate) Of that $16,000, only $6000 would be interest (vs. $12,000 that would be lost in rent). That means you are building $10,000 worth of equity every year. In the 3 years where you could be renting, you could have also paid off $30,000 worth of your mortgage. As the years go on, you are also paying less toward interest and paying down more of the mortgage.

$10,000 x 3 years = $30,000

$30,000 vs. $15,000

Owning is definitely the better option, especially with the low interest rates we have today.

To expand upon CDR108's numbers, you're not factoring in condo fees which, on a 1 bed run around $3-350/month (and increase every year) or property taxes which run around $210/month for this value (and will increase in each of the 5 years). It also doesn't include Land Transfer Tax (Toronto and Provincial), GST, lawyers, etc. which would all add approximately $16 000 to your purchase price at a minimum.

A conservative estimate would mean that with these two factored in, your total costs - NEVER TO BE RECOVERED - are:

Mortgage Interest: $58561.00
Taxes: $15000.00
Condo Fees: $23000.00
Closing Costs: $16 000
Total unrecoverable cost to owner: $112561.00

vs.

Rent: $85000.00 (assuming $1400/month)

Since the above only includes the interest charges, this means that in addition to the $29 814 you could save by not having to pay the principal (and which you could instead invest or at a minimum stick in a bank and earn 4% interest - ALLY 5year GIC) , you would gain an additional $27 561 by renting. Again, this doesn't include any maintenance that would need to be done on the condo which you would be liable for if you were an owner.

So, under this scenario, in order to come out even, if you bought right now, your property would need to increase in value by 10% over the next 5 years to cover the approximately $28 000 in additional money you would save by renting.

When property prices will drop by 10 - 20% over the next couple years, this scenario is almost completely unlikely.

 

[Willy Wong]

I see I have "sparked" quite a debate! LOL.

There are pro's and con's and every1 personal scenario is different. Maybe this article will shed some light on the matter even though its a US based article it still is very similiar to the Canadian Market.

http://www.moolanomy.com/infographic-the-true-cost-of-homeownership/

 

[simuls]

It's very true and that's a good link. For me the key is that they're comparing a $223 000 condo with $1500/rent. In this market, $1500 in rent gets you at least a $320 000 condo and probably closer to a $350 000 condo. That's a lot of extra cost that's not included in the figures.

All of this goes back to the initial reason I purchased my first condo in 2003. Rents were the same - or a little bit higher than today because vacancies were so low, but I bought a 630 sq ft, 1Bed+ at DNA, including parking and locker for $190000.00. In that scenario, you make your money back by year 3 and it made sense - it's what started the entire condo boom. Low prices, high rent, low vacancy. With prices where they are today, in order to feel confident, I think you need a timeline of 7+ years and that's a lot for a small condo. If prices correct to where I think they will and that same condo I bought, which in today's market is worth about $350000.00 drops back down to $280000.00 then jump in. I think it will correct because we now have high prices, low rent and high vacancy (and HUGE amounts of inventory still to come over the next 12 months).

For investment purposes, places like Winnipeg/Regina/Saskatoon are great for ROI as their rents/prices are much closer than ours.

 

[urbandreamer]

I was shocked as well when I heard the rent she's paying, but indeed it's only $95 a month. Not $950. $95. Crazy. Now, it may be a rundown building, the area is close to a trendy area but most definitely on the "wrong side of the tracks" and the building, as many public housing buildings can be, has a reputation.... As she told me, if you stay within your "gang" they protect you....

 

[cdr108]

I see I have "sparked" quite a debate! LOL.

There are pro's and con's and every1 personal scenario is different. Maybe this article will shed some light on the matter even though its a US based article it still is very similiar to the Canadian Market.

http://www.moolanomy.com/infographic-the-true-cost-of-homeownership/

For the specific reason that the article is US based, the figures supplied CANNOT apply to the Canadian market.
I found the article poorly written too as alot of the parameters were not properly disclosed.

How long is the amortization to which the mortgage is calculated?
It appears 30 years if the graph is to be believed; however, the mortgage amortization calculator does not provide the same figures as presented by the author of the article.

US mortgage interest deductability must have been used in the figures too, so that lowers their "interest" paid for the calculations.

I recommend everyone to do their own calculations whenever "articles" like these are being used as pro reasons to buy as the figures i got do not match the ones in the column ... perhaps they are different b/c of US vs. Canadian "interest" tax treatment.

Using their example of a $223,000 property with 10% down payment, I calculated their mortgage of $200,700 at the quoted 5.5% rate with the assumption of a 5-year term and 25-year amortization:
total mortgage payments: $73,503
total principal repayment: $21,701
total interest paid: $51,803
balance: $178,999
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp



Using their assumption of a $223,000 property with 10% down payment, I calculated their mortgage at the quoted 5.5% rate with the assumption of a 5-year term and 30-year amortization:
total mortgage payments: $67,906
total principal repayment: $15,285
total interest paid: $52,621
balance: $185,415
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp


Using their assumption of a $223,000 property with 10% down payment, I calculated their mortgage at the quoted 5.5% rate with the assumption of a 5-year term and 35-year amortization:
total mortgage payments: $64,179
total principal repayment: $11,013
total interest paid: $53,166
balance: $189,687
http://www.mackenziefinancial.com/calc/jsp/MortgLoanAmortScheduler/mortgloanscheduler.jsp

 

[cdr108]

interesting ... no rebuttals with proper calculations, etc ???

 

[Bayer]

If I bought my 730 sq. ft. rental condo at current market prices, I would have to provide a $250,000 down payment so I wouldn't pay more than my rent, and I wouldn't have much hope of a large appreciation in value over the coming years. At some point it is a choice between being house poor or having a life.