Why rent when you can "afford" to buy?
In cities like Toronto, Calgary, Vancouver or any of the other "hot" housing markets in Canada, buying a home, if you can afford one, is usually a good investment. However, in cities where the housing market is not so dynamic and prices are not rising exponentially, you might want to look more closely at the relative merits of buying vs. renting.
When you buy a home, whether it is freehold or condominium, in addition to the purchase price, you also have to pay legal fees, land transfer tax, and other closing costs which add to your initial investment. If you don't have a down payment equal to 25% of the purchase price, you will require mortgage default insurance, which adds up to 2.75% to the amount of the mortgage. In addition, you have to pay GST on a new home and, you'll have to purchase appliances, if you don't already have your own.
While you are living in your home, you have to pay all the costs associated with maintenance and repairs to both the home and your major appliances. In addition to the mortgage payments, insurance and utilities, you have to pay property taxes, which, as we all know, tend to go UP every year. And, if it's a condominium, you have to pay the condominium fees.
When you want to sell your home, you don't always find a buyer quickly. You rarely get your original asking price and then you have to deduct the real estate commission and legal fees from the final sale price.
If you rent in one of our buildings, not only will you enjoy carefree living in a beautiful apartment or townhome, with features you simply won't find anywhere else in the city; if you decide to move after a year, 60 days notice is all that's required.
We are confident there isn't an apartment, townhome or even a detached house in Thunder Bay which can match the superior quality of either the apartments at 325 Van Norman or the Fifth Avenue Townhomes. However, to illustrate that buying isn't always better than renting, we've compared buying a $135,000 condominium with renting an apartment at 325 Van Norman; buying a $180,000 condominium with renting a Fifth Avenue townhome; and buying a $200,000 detached house with renting a Fifth Avenue townhome.
We invested the down payment in a five year GIC and deposited the difference between the monthly cost of renting and owning in a simple savings account. Your financial advisor could probably recommend a much better investment strategy. And, while you are living in one of our apartments or townhomes, you won't have to worry about the cost of maintenance or repairs, nor the cost of purchasing or repairing your major appliances.
In our first example, the condominium would have to sell for 25% more than the purchase price after five years to realize the same return on investment. We haven't included any maintenance or repair costs nor have we provided for any increase in property taxes. Ask your Real Estate Agent if a condominium apartment in Thunder Bay is likely to increase in value by more than 25% in the next five years.
If the condominium's value increases only 5% to 10% in five years, renting is definitely smarter than owning. With a 25% down payment, the condominium's value would have to increase by more than 20% in five years to realize the same return on investment. Even with a 25% down payment and a 10 year amortization, the condominium's value would have to increase by almost 18% in five years. And remember, we haven't included maintenance costs, increases in property taxes, or the purchase and maintenance of your major appliances.
We've used an on-line mortgage calculator (your bank's web site will have one) and an on-line investment calculator (make sure it's a Canadian web site) to make our calculations. If you have a larger down payment and/or a better interest rate and/or a shorter amortization period, you can do the math yourself.
You will see, buying isn't always better than renting.
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