Renting vs Owning

[Neko]

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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?

[Henry17]

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.

[PokerPaul]

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.

[Henry17]

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.

[RedJoker]

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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.

[Henry17]

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?

[john voight]

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.

[gwhiz_612]

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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.

[spider]

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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...

[Henry17]

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.