Renting vs Owning
 

I really want to buy but I can't justify it finacially. I don't think I'm missing anything but just in case.

Appreciation - property taxes - condo fees + rent saved - opportunity cost on capital tied up - interest costs on any mortgage.

If the number is negative then that is how much I'd lose by owning vs renting.

Is there something I've neglected?

Re: Renting vs Owning
 

- closing/transaction costs, which often shift the balance in favor of renting if you're staying for a short time, or in favor of buying for longer periods... It really depends on the length of your stay.

Re: Renting vs Owning
 

Looking at 8-10 years so transaction costs would be negligible when amortized over that many years. Still I'll add them just for the sake of being complete.

That though increases the renting position. I'm really hoping I missed something that would increase the buying argument.

Re: Renting vs Owning
 

Some things that probably aren't applicable to your situation but I'll throw out there for the sake of the argument: renting out part of the property and making improvements to the property that increase value more than the cost of the improvements.

One that might be applicable is that you get a tax break when you're a home owner. I'm not exactly sure how it works but I think you can write off the house as depreciating or something.

Re: Renting vs Owning
 

Mortgage interest & property taxes are deductible so if you itemize, you can assume after tax costs of those items are around 30% less (depending obv on your marginal rate, state tax rate, etc.).

But hey, I'm not trying to talk you into buying. Prices have come down a little bit, but are still high in general IMO. Renting is a better financial option for a lot of people nowadays.

Re: Renting vs Owning
 

cost of lack of diversification among your assets (not necessarily true if you have a big portfolio but RE represents 100% of some peoples wealth allocation)

Re: Renting vs Owning
 

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Some things that probably aren't applicable to your situation but I'll throw out there for the sake of the argument: renting out part of the property and making improvements to the property that increase value more than the cost of the improvements.

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I believe there was a lengthy discussion here not too long ago about buy vs. rent. One of the arguments for renting was that very few home repairs/remodels will increase the value of the home more than you put into them.

I'm pulling numbers out of my ass here, but I believe claims were made that the value added by most home repairs was 50-90% of the cost of the work.

Re: Renting vs Owning
 

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Mortgage interest & property taxes are deductible so if you itemize, you can assume after tax costs of those items are around 30% less (depending obv on your marginal rate, state tax rate, etc.).

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I should have mentioned I'm Canadian so no tax deductions. In fact I'd lose the tax credit I currently get for paying too much rent.

Roommates are not something I'd consider and the place I'm looking at is new and quite nice so any improvements would be more for personal taste and a negative finacially.

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But hey, I'm not trying to talk you into buying. Prices have come down a little bit, but are still high in general IMO. Renting is a better financial option for a lot of people nowadays.

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I use to own but I've been renting for 8 years. I've paid out $259k in rent and if I stay another 8 years that will be another 1/4 million plus. It seems counterintuitive that the correct decision is to pay out 1/2 million and have nothing to show for it at the end. The math says I should keep renting.

Re: Renting vs Owning
 

[ QUOTE ]
I really want to buy but I can't justify it finacially. I don't think I'm missing anything but just in case.

Appreciation - property taxes - condo fees + rent saved - opportunity cost on capital tied up - interest costs on any mortgage.

If the number is negative then that is how much I'd lose by owning vs renting.

Is there something I've neglected?

[/ QUOTE ]


You forgot insurance, which is a not-insignificant expense. You also forgot that it is possible to buy properties for less than fair market value, giving you immediate equity. Or you could buy a property for FMV and then improve it to create additional value - zoning changes are your most likely candidates for this in your situation. Tien, I believe is Canadian, and a RE investor that might be able to help you find a cheap decent property, or otherwise have some good Canadian advice.

Re: Renting vs Owning
 

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It seems counterintuitive that the correct decision is to pay out 1/2 million and have nothing to show for it at the end. The math says I should keep renting.

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Hopefully, you won't have nothing to show for it; you should have a portfolio of assets which you invested instead of paying a higher mortgage....

Some people lack discipline wrt to investing the difference between rent and mortgage, and so the mortgage can be seen as forced saving. This "benefit" to buying should only be considered if you are applicably lazy, which it probably isnt if you're actually going through the trouble of comparing costs.

Re: Renting vs Owning
 

There is more to buying a home than just the finances of it. The quality of living is usually several times better than renting. No more paper thin walls and floors, decorating/modifying as you see fit to create the space what you want, etc. If you are a lazy person with no wife and kids, then the upkeep may be a bit much, it depends on whether you're looking at a house or condo.

Re: Renting vs Owning
 

Henry,

$259k is quite a lot of money. What is the difference that your calculation is showing?

Re: Renting vs Owning
 

I am fairly lazy but based on my calculations I'd only need to generate a 2-3% return to make renting preferable. A bank account would give me that.

The problem is with appreciation. I don't expect there to be any. In the last 3-4 years there have been 3 projects that match what I'm looking for and all of them still have never lived in units. That implies to me that appreciation will be next to nil. Real estate though is not my strong point so maybe that is normal but I doubt it. To me it implies a lack of demand.

Re: Renting vs Owning
 

[ QUOTE ]
There is more to buying a home than just the finances of it. The quality of living is usually several times better than renting. No more paper thin walls and floors, decorating/modifying as you see fit to create the space what you want, etc. If you are a lazy person with no wife and kids, then the upkeep may be a bit much, it depends on whether you're looking at a house or condo.

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It is actually the same place. There are units for rent and for sale. Owning would give me the option to customize but like I said the place is brand new and nice so it would be minimal stuff that I'd improve.

Re: Renting vs Owning
 

[ QUOTE ]
Henry,

$259k is quite a lot of money. What is the difference that your calculation is showing?

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Assuming a very conservative return on tied up capital (5%) I'd lose ~$25k a year owning.

Re: Renting vs Owning
 

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Henry,

$259k is quite a lot of money. What is the difference that your calculation is showing?

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Assuming a very conservative return on tied up capital (5%) I'd lose ~$25k a year owning.

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I have ONE question Henry17:

You seem to be a very astute investor/financially educated poster on this forum...how/why did you choose to rent vs. owning a home the last eight years ,in the BIGGEST real estate bull market in history?

I am very curious,and in no way trying to question your decision,but spending $250k+ in rent,and now deciding to make another decison whether to spend ANOTHER $250k is perplexing?

I truly would like to hear your perspective over this time frame?

Thanks,
~stephen [img]/images/graemlins/confused.gif[/img]

Re: Renting vs Owning
 

[ QUOTE ]
You seem to be a very astute investor/financially educated poster on this forum...how/why did you choose to rent vs. owning a home the last eight years ,in the BIGGEST real estate bull market in history?

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Originally I wasn't sure how long I was going to stay so renting was the correct choice.

But even if I knew I was going to stay for 8 years I still would have rented. The area is a major tech hub so when I got here real estate was over priced. When tech crashed I started to look into buying. There was nothing that matched what I was looking for. 2004 they finally built a building that matches my criteria (mostly). The units though have not appreciated at all despite the biggest real estate bull market in history.

[ QUOTE ]
I am very curious,and in no way trying to question your decision,but spending $250k+ in rent,and now deciding to make another decison whether to spend ANOTHER $250k is perplexing?

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I don't see much upside to $800-1.2M condos in my city. Of the 3 projects that have units in that price range all of them have units that have never been lived in despite being on the market for 3-4 years. With a 4th upmarket building in the works I can't see enough demand for this particular type of real estate in this specific location. I figure if it meets inflation that would be the best I could expect.

Re: Renting vs Owning
 

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[ QUOTE ]
[ QUOTE ]
Henry,

$259k is quite a lot of money. What is the difference that your calculation is showing?

[/ QUOTE ]

Assuming a very conservative return on tied up capital (5%) I'd lose ~$25k a year owning.

[/ QUOTE ]

I have ONE question Henry17:

You seem to be a very astute investor/financially educated poster on this forum...how/why did you choose to rent vs. owning a home the last eight years ,in the BIGGEST real estate bull market in history?

I am very curious,and in no way trying to question your decision,but spending $250k+ in rent,and now deciding to make another decison whether to spend ANOTHER $250k is perplexing?

I truly would like to hear your perspective over this time frame?

Thanks,
~stephen [img]/images/graemlins/confused.gif[/img]

[/ QUOTE ]

agreed. what's your location?

google: dinkytown rent vs. buy calc
and be honest with yourself when estimating the input variables.

Re: Renting vs Owning
 

It sounds like he already "knows" his answer.

The only thing I could suggest is finding a different city or place to live thats close but cheaper. $2500/mon is a lot to pay just for rent.

Re: Renting vs Owning
 

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agreed. what's your location?

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Ottawa. The only building I'm willing to live in is 700 Sussex.

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It sounds like he already "knows" his answer.

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I really doubted that I had missed anything but I was hoping I had. I really would prefer to own. Tried the Dinkytown calculator and it also suggests I continue to rent.

Re: Renting vs Owning
 

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Ottawa. The only building I'm willing to live in is 700 Sussex.


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v. nice location. Are you willing to share what rent is there? That's got to be one of the most sought after condos in Ottawa isn't it?

Re: Renting vs Owning
 

Rent is about $3300. I'm paying $2700 to live in a different building but now that I'm looking at another 7-10 years I want to move in the spring.

It is the most prestigious address outside of Rockcliffe but surprisingly there has never been much demand. As of a few months ago there were still 4 units that had never been lived in.

Re: Renting vs Owning
 

I myself am renting at the moment as well. Probably will for the next 2-3 years and then might buy something exactly to my tastes.

Anyways, it was a no brainer for me.

I am now living in a nice penthouse condo, with ample space, and many nice amenities. The condo building is about 20 years old, so its not as 'new' and shiny as the newest fancy condo units that are popping up everywhere these days, but its still a very nice place to live.

Face value on my 2 bedroom unit is about $365k i'd say.

As such, i estimate the following MONTHLY costs if i were to buy it instead:

$1300-$1500 Mortgage interest
$900 Condo Maintenance Fee
$300 Property tax
$90 Insurance

So roughly $2800, before actual mortgage principle payment, which then would also bring my monthly payment to around $3200 - 3400 depending on how you want to structure your mortgage.

Instead, i negotiated a monthly rent of $1950. They had initially asked $2400, then reduced it to $2250. I came in and lo balled them on feb 24, saying i could move in mar 1, and offered $1900. I fully expected them send a counter offer in the $2100 - $2150 range, which i likely would have taken. However, they were desperate to unload is ASAP, and the fact that i was willing to take it for a week later, thus allowing them to cash in a full month extra rent, made them sign back to me at $1950...which i gladly took.

So compare:

Owning i'd be paying well over $3k per month, renting i am paying under $2k, for the exact same unit.

Of course, if i stay ten years, if i own i would have equity in the house AND the aprreciation it yields.

But i think i am way better off pocketing an extra $1000 a month, and investing $700 of it in stock market, and using the extra $300 maybe for fun money, or for additional lease $$ for my car, which can easily be the difference between a regular acura or a nice 4 year old porsche.

Sounds like a much better deal for me.

Re: Renting vs Owning
 

If I was in Toronto I'd buy. The appreciation would make it worth while. Plus there are at least 4 buildings I really like. The only thing that worries me about Toronto is the mayor and his insanity with taxes.

Re: Renting vs Owning
 

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[ QUOTE ]
I am very curious,and in no way trying to question your decision,but spending $250k+ in rent,and now deciding to make another decison whether to spend ANOTHER $250k is perplexing?

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I don't see much upside to $800-1.2M condos in my city. Of the 3 projects that have units in that price range all of them have units that have never been lived in despite being on the market for 3-4 years. With a 4th upmarket building in the works I can't see enough demand for this particular type of real estate in this specific location. I figure if it meets inflation that would be the best I could expect.

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This should mean that you can get a good price on buying.

Real estate usually booms in a 10 year cycle, if the last boom was particularly big then it might take a little longer but if your planning to stay there 10 years and there's nothing moving in the last 3-4 years your odds are good.

Re: Renting vs Owning
 

I plan to stay 8-10 years but I might also leave before that. I don't like Ottawa. I much rather be in Toronto.

Real Estate is not something I really understand well. My only real estate deal was buying a bunch of rental units so far below what they were worth that there was really no way not to make money. I'm having trouble understanding why cycles would be relevant in this case. If the price has basically stayed flat for 3-5 years, while other housing prices have been increasing, why would I expect the price to increase over the next 5 years?

Re: Renting vs Owning
 

Pros (IMO):

Satisfaction - owning a home is a big achievement. Elevated social status, etc...

HELOC - if you ever need to borrow money, you can tap into your home's equity.

Refinancing - how much owning a house will cost you pretty much depends on how you are paying off the mortgage. Often times, you can adjust the plan in order to save money.

Minimal Expenses - after house is paid off, you are freerolling more or less.

Cons:

Stock market might be better longterm investment. Lets you invest that $20,000 down payment @ like 6%, and you put in $200 monthly (mortgage - rent), for 20 years (length of mortgage). You end up w/ $157,725.25

Tweak the numbers to less conservative estimate, ($30,000 down @ 7.7%, $350/ month, 25 years) now you have over half a million. Yet you invested less than $140k. IMO you would not get these returns from RE.

Bottom line is: if you are not investing in the stock market even though you can afford to, owning a home is prolly by far the best way to go.

However if you were to aggressively invest, all things being equal, renting could be the way to go.

Personally I feel home ownership is a great investment if you rent out. IE: make someone else pay for your equity build up. Also if you are looking to start a family, or want to feel proud of yourself, home ownership is good.

IMO there is no correct answer.

Re: Renting vs Owning
 

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I plan to stay 8-10 years but I might also leave before that. I don't like Ottawa. I much rather be in Toronto.

Real Estate is not something I really understand well. My only real estate deal was buying a bunch of rental units so far below what they were worth that there was really no way not to make money. I'm having trouble understanding why cycles would be relevant in this case. If the price has basically stayed flat for 3-5 years, while other housing prices have been increasing, why would I expect the price to increase over the next 5 years?

[/ QUOTE ] Once all the units are owned they may increase in value. Pay close attention to the activities in the area. Are their any business's moving in or out? Is there a nearby commercial area that may grow and cause an increase in the local employment base? If you're serious about research you can check with the zoning dept. to see if there are any permits for new construction, and where.

Re: Renting vs Owning
 

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It seems counterintuitive that the correct decision is to pay out 1/2 million and have nothing to show for it at the end. The math says I should keep renting.

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Maybe, but when you own, the only part that you actually keep is the fraction of mortgage going to principal. Absolutely everything else is money down the toilet just the same as rent. And in the first couple of years of a 30 year mortgage, the part going to principal is pretty small...

Re: Renting vs Owning
 

The mortgage would be minimal and pretty short. I'd be borrowing less then 30% and only for 2 years. My concern is having all that capital tied up earning nothing.

Re: Renting vs Owning
 

well, putting down 70%+ is not wise. One of the best benifits of RE is being able to leverage your money 5x or 10x. So if you put down 10%, and the property appreciates 5%, u just made a 50% return on your invested capital.

Re: Renting vs Owning
 

well it could be earning if you lived in it for 2 years till the loan was paid off, and then buy a new house using the rental income from the first house.

I think.

Re: Renting vs Owning
 

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The mortgage would be minimal and pretty short. I'd be borrowing less then 30% and only for 2 years. My concern is having all that capital tied up earning nothing.

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Hey Henry,

My FIRST real estate buy was a condo,back in the early/mid eighties.
When things went belly up in the real estate downturn after the 1987 stock market crash around 1990-92....the toughest sell was a condo or co-op.

With the R/E market in the shape it is now.... I would be VERY leary spending the bucks you are talking about, buying a condo in that price range

I am sure you know the common charges,higher taxes per sq. ft,and the lack of any true LAND ownership(again in sq. footage terms) ,make them on the bottom of the buy list IMO.

But when I was younger at that time it not only was in vogue,a great bachelor pad,but "maintainance free" as I was led to believe.....NOT when selling though!

Obviously if you are doing your home work,and a steal comes along then thats a diff story

But my ONLY loss selling a piece of property ...was selling that condo at that time around 1993-94(it obviously rose in price afterwards,but in a shorter time frame as you are reffering to,I would be very careful)

Just a heads up

Stephen [img]/images/graemlins/cool.gif[/img]

BTW I have NO idea if the markets in Canada(i assume that is where you are thinking of buying)are the same as the US

Re: Renting vs Owning
 

I live in Canada to .. in Vancouver to be specific. Bought a house for 351k in February and it's now worth 400k. Sick thing is 2 1/2 yrs ago when I had the $ to buy my house I could have bought it for 230-240k. Instead I bought a quad ... makes me sick :@

Re: Renting vs Owning
 

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well, putting down 70%+ is not wise. One of the best benifits of RE is being able to leverage your money 5x or 10x. So if you put down 10%, and the property appreciates 5%, u just made a 50% return on your invested capital.

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Not really, you are still paying more than 5% interest on the 90% you borrow. If the property only appreciates by 5%, you would definitely be better off putting the money in the stock market instead. The real estate boom is over, and the gains of the last few years are far gone. Real estate is going to remain relatively flat for the next several years (In most U.S. markets -- I can't speak for Canada or other countries).

Also, it does not sound like OP can deduct the mortgage interest from his taxes in Canada. Correct me if I am wrong.

For a good article on renting vs. owning, please read: Smartmoney.com article - Why I rent

Re: Renting vs Owning
 

[ QUOTE ]
well, putting down 70%+ is not wise. One of the best benifits of RE is being able to leverage your money 5x or 10x. So if you put down 10%, and the property appreciates 5%, u just made a 50% return on your invested capital.

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Except my concern is that the property has very little potential to appreciate.

Re: Renting vs Owning
 

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But when I was younger at that time it not only was in vogue,a great bachelor pad,but "maintainance free" as I was led to believe.....NOT when selling though!

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That is basically where I am. I have to live downtown and the place has to be impressive. I've basically limited myself to an 8 block by 14 block area.

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Obviously if you are doing your home work,and a steal comes along then thats a diff story

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The research was pretty easy it is just the result that seems counterintuitive. The one thing I don't know is how to estimate appreciation but I think that is more of an art then anything else.


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BTW I have NO idea if the markets in Canada(i assume that is where you are thinking of buying)are the same as the US

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We really don't have much of a sub-prime market so none of that has entered here. The RE market though is regional. If I was in Vancouver or Toronto I'd have no concern but Ottawa is basically full of public servants and what is left of tech. All these high end projects were started when tech was making everyone rich. After the bubble burst these type of condos became orphans.

Re: Renting vs Owning
 

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Also, it does not sound like OP can deduct the mortgage interest from his taxes in Canada. Correct me if I am wrong.

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You are correct. It is not deductible in Canada. But we also don't pay any capital gains on the appreciation of the primary residence.

Re: Renting vs Owning
 

Henry, is that true in all of canada (read: quebec) or just ontario? I wonder what works out better: No cap gains, or mortgage payements are tax deduc. Of course, our rules are probably the reason why we dont seem to have the saem speculative bubble as the states.

Re: Renting vs Owning
 

ITA is federal legislation so I would assume it is all of Canada. I can say with certainty that it is true for everywhere except Quebec. I'd say it is probably true for QC but I never feel comfortable giving legal opinions for QC. Quebec is civil law while the rest of Canada is common law and on top of that QC is just odd. It should be true but I'd double check.