Tim Lemieux always thought he would buy a condo in Toronto. He visited open houses. He plugged various numbers into mortgage calculators.
When his mother died a few years ago, his four siblings sold her home in Bowmanville and Mr. Lemieux had what amounted to a 20% to 30% down payment for a home.
But even with the down payment, he calculated that he would be almost doubling his monthly expenses with the mortgage, condo fees and property taxes; he now rents a one-bedroom apartment on the subway line for $900.
“It seemed like I was tying a lot of money down with not much of a living benefit or quality of life benefit,” says the 40-year-old Toronto resident who works at an insurance company. “I’ve decided I’ll never buy in Toronto. I invest and got a good financial advisor instead.”
People say that when you grow up, you buy a home. Who are these “people?” Your married friends, your parents and other grown-ups who ask: “Don’t you want to own something other than a bike? Aren’t you sick of putting money into your landlord’s pocket?”
But owning doesn’t make sense for everyone and in some cases, it might be more financially beneficial to rent. And with house prices increasing, especially in hot markets such as Toronto, Vancouver and Calgary where the demand for single-family homes outstrips supply, more people may be renting for a longer period of time. Sixty percent of first-time home buyers told a recent BMO survey that their home-buying timeline has been delayed, with a portion blaming rising real estate prices. (In Vancouver, 56% of renters say they rent because of a lack of affordable housing.)
“In most cases when you do the math, including the intangible costs of owning…on an economic level, it is more beneficial to rent than it is to own in most metropolitan areas,” says David Kaufman, president of Westcourt Capital Corp.
“In some geographies, the people who own the property and are renting it to you, are renting it to you on a break-even basis or possibly even a loss; basically someone is subsidizing your living.”
Every time you buy a home, there are associated costs: lawyer fees, land-transfer taxes, moving costs, etc. Mr. Kaufman estimates that the total cost of buying and selling a home approaches 10% of the purchase price. “In my mind, the perfect time to buy is when you’re buying a home you expect to live in for a long time.”
Renting represents mobility. For those with wanderlust or those who plan to move for work, renting suits your nomadic, adventure-seeking lifestyle. Renting also comes with fewer responsibilities. With a home, when something breaks, you have to fix it; you can’t always anticipate the expense either — anyone who’s had water in her basement or raccoons ripping away roof shingles can attest to the headache. You’re also less likely to spend money on sprucing up or upgrading your rental unit.
“It frees up money for living and travel, rather than being sunk into property taxes or maintenance fees,” Mr. Lemieux says.
Coming up with first and last month’s rent is a lot easier than coming up with a down payment for a home. First-time home buyers have increased their budget to an average of $316,100 but 30% expect parents or family to help with the bill (40% in Montreal and Vancouver), says BMO.
You have to sell your house [to retire]. That’s everyone’s plan. If you don’t want to sell your house, it puts you in a bind as well
After the home is purchased, paying down the mortgage is forced savings for some people and offers tax-free growth; but Mr. Lemieux is trying to save monthly what he would’ve spent if he were to own.
“As long as you’re good and set the money aside that you would’ve paid extra toward a mortgage and get it invested well, in the long term it seems in Toronto at least, it would pay off better in the end rather than be left with a paid-off house or condo and no savings,” he says. “You have to sell your house [to retire]. That’s everyone’s plan. If you don’t want to sell your house, it puts you in a bind as well.”
Even from an investment point of view, Mr. Kaufman believes that your money may work better for you elsewhere.
“We have 500 years of reliable real estate data and guess what the annual increase is [in real estate value]? It’s exactly the amount of inflation,” he says. Despite the soaring house prices that we’ve seen over the last several years, you can’t predict the same increases going forward, he says. What you can expect, he says, is that carrying costs will increase because interest rates are expected to rise.
Meanwhile, stocks have returned an average of 7% historically, he adds.
Money aside, home ownership brings psychological benefits. The majority of renters (60%), says BMO, expect to buy a home one day and only 17% prefer renting.
“Most people feel better when they own a home or when they think they own it — the bank owns it, right?” Mr. Kaufman says. “That is a whole intangible non-economic thing that matters to people’s well-being and their livelihood.”