Buying Vs Renting A House

by Mr. Cheap


As much as I like real estate, I also like saving money, so I always perk up when I come across articles or postings comparing buying vs renting.  The real estate people in the crowd will say that buying real estate has numerous advantages (I’ve discussed many of them in previous posts) and that when you rent “you’re throwing money down the drain”.  It’s quite arguable that keeping a roof over your head is “money down the drain” so lets start there.

I’m currently paying $500 / month for a room in a house (which I share with two other tenants).  This covers all utilities and everything.  This $500 is gone, but it’s purchasing me some of the necessities of life.

Buying vs renting

Say I bought a 1 bedroom condo in Crescent Town (one of the cheaper areas in Toronto, Keifer Sutherland grew up there – it’s pretty depressing these days).  Right off the top condo fees will run me $376, which cover utilities, ground and common area maintenance and whatnot.  This is “money down the drain” just as surely as my rent is.  I’d be paying about $70 / month in property taxes, which pays for things like schools, transit and mayor David Miller’s golf club membership.  This is money down the drain too.  Of my $683.65 monthly mortgage payment (say $110k at 5.69%), $515.51 is going to interest rather then equity (money down the drain again).

If you’re saying to yourself (“well, those condo fees are outrageous”) please keep in mind that apparently for a single family home, you’ll typically spend 2.5% of the house value on maintenance annually.  Plus you’re paying all the utilities and property taxes.

The rent advocates will talk about how you could rent, then invest the difference in the stock market, average a 10% return and be better off.  This is all true for what it is.  If someone tells you after renting for 10 years you have nothing to show for it, you can smile and show them your stock portfolio and say “this is what I have to show for it”.  Or you can show them pictures from your last 10 trips to Hawaii and say this is what you have to show for it.

The big question ultimately is where do you want to live and what are you willing to pay to live there.  If it’s going to drive you nuts having to get the landlord’s permission to paint your bedroom purple, or getting a rent increase every year, you might be better off as a homeowner.  If you like to move every 2 years or want to live in a bare-bones ultra-cheap accommodation, renting might be better for you.

For me I could live where I am for $500 / month, or I could be living in a 1 bedroom in Crescent Town for ~$950 / month (I’d have to pay more than this, but the extra would be going into equity).  Right now the flexibility and low-price makes this preferable (but if my roommates piss me off, I’d quickly switch into condo hunting mode).  It’s not as simple as saying that the condo costs $450 / month more as I’d be getting appreciation from the condo, as well as protection from rent increases (although I’d be exposing myself to increases in the condo fees and the property tax).

Just make sure not to buy into the absolute of one is better then the other, it is highly dependent on who you are and what you want.

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