Should You Rent Or Buy A Home in Toronto? The Economics Of Homeownership For First Time Buyers

Should You Rent Or Buy A Home in Toronto? The Economics Of Homeownership For First Time Buyers​

You have heard the saying "why waste your money to rent and pay for your landlord's mortgage"? If you purely look at buying versus renting from a net worth point of view, ownership for most people has worked out better over the long run as part of their investment portfolio.

When you rent, you are trading for space to live in for a period of time that has no monetary value. When you buy, not only do you own the space you live in, but each square foot of space is an invested asset that will potentially appreciate over time. When you have a mortgage on a property, the monthly loan payment contributes towards the interest + principal towards your loan. Once you pay off the interest, the amount that goes to the lender will start contributing towards your principal. This amount goes back to the pot. Essentially, you are making your money work for you.

An entry level buyer who has been renting a condo at $1900 in Toronto can own for less, and use home ownership as a means to build up equity. For most purchases, a minimum downpayment of 5 % of the purchase price is needed.

For a $285,000.00 mortgage [95% of a $300,000 purchase] with monthly payments $1371, assuming maintenance fee of $350.00 and property taxes of $1800 [150/mth] = $1871 LESS than a $1900.00 lease. If you put down 20% initially, you won't be subject to the CMHC insurance, which will also bring down the monthly payment amount.

The best part is after 5 years , you would have paid down $40,000 towards the principal based on the chart below. This is the savings building in your real estate portfolio. If you are a renter, this amount will be going towards rent.

Whether it makes more sense for you to rent or buy a home really depends on your circumstance. Here are a few factors to consider before you jump into buying:

1. Are you planning to stay in one place for more than 2 years?

2. Can you come up with the downpayment for a purchase?

3. Can you carry the monthly expenses on top of a mortgage payment?

4. Can you come up with the upfront costs for the transaction?

I generally advise purchasers to put aside 3% towards upfront closing cost, but this is typically what the breakdown will be at closing aside from your downpayment:

Provincial Land Transfer Tax

Municipal Land Transfer Tax

[LTT Rebate for first time purchaser]

PST on CMHC Insurance

Legal Fees

Title Insurance

Home Inspection [+/- $300]

Home Appraisal

If you are a first time buyer thinking of entering the real estate market, book a buyer consultation so I can walk you through the steps.

You can register for my online home search app to follow new listings with a built-in mortgage calculator for each property to help your budget.

Related posts:

Make One Park Place Condos in master planned Regent Park your next home.

Toronto Real Estate Market Report June 2016

#homebuying #torontorealestate #HomesforsaleinToronto #rentorbuyahome

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287 Davenport Road Unit 1 | Toronto ON M5R 1J9

416-799-9632 | 416-504-6133


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