To Rent versus to Own

[kuju]

So, I'm curious about people's opinions. I've been considering buying a condo in Toronto for a few months now. I don't know much about the process, and would certainly do my research first. But friends of mine have advised against buying altogether, saying that the renter's lifestyle is perfectly fine and you don't have to worry about property taxes and condo fees and such. I argue back that at least if you own, you're putting money into something that you can SELL down the line. At least you have an asset.

Often my friends throw at me that what with mortgage rates, you pay so little to the actual principle of the loan that it's not worth it. but what if you make a significant down payment in the first place? What if you can put 70% down? And could pay off a mortgage in less than five years? Is it worth it then? And mortgage rates are at a significant low. Getting a fixed rate now would be better than waiting a few years.

I'm wondering if my personal life experience affects my opinion on the matter. For example, my family has always OWNED. My parents and then just my mother own the family home. My father then owned his own condo, and then his own house. Is the idea of OWNING just a result of having lived an upper-middle-class life?


or am I just spewing at 3am because I can't sleep? seriously... who THINKS about this stuff in the middle of the night. Answer: someone who worked night shifts for 1.5 years, and still does half the time!

[Deidre]

I argue back that at least if you own, you're putting money into something that you can SELL down the line. At least you have an asset.
If it's not making you money now it's not an asset.

You may (may!!) be able to sell it at a higher price later on, but until then it's only losing you money and the money you "make" when you sell is part inflation and part increased property costs overall that will make buying a new similar place as expensive as your home has "increased" in value.

Often my friends throw at me that what with mortgage rates, you pay so little to the actual principle of the loan that it's not worth it. but what if you make a significant down payment in the first place? What if you can put 70% down? And could pay off a mortgage in less than five years? Is it worth it then? And mortgage rates are at a significant low. Getting a fixed rate now would be better than waiting a few years.
From an economic standpoint, tying so much (70%) money into something that isn't making you money is poor leverage and you'd probably get a lot more out of investing that money somewhere else, e.g. real estate that you let to someone else. :p

However, yes, as you mention mortgage rates are very low right now. It could be worth checking out what overall living expenses would be buy vs. let. With very low mortgage costs and the right place you might be looking at owning cheaper than letting. We do. We pay about €90 per month + utilities, whereas renting at a similar size would cost 7-10 times as much depending on where we lived.


Remember too, that there are many advantages (and occasional disadvantages) to owning that you don't get with leasing. It's not all about the money.

[kuju]

I'm not thinking of owning a place as in investment, or necessarily selling it for MORe than I bought it for, just that it CAN be sold, period. Some of the money I put into it... I get back. Whereas and apartment, you just keep putting money into it, and get nothing at the end

[Tootsie Pop]

I bought my own place last year. As Emma said, it can not technically be listed as an asset. I bought a little place on the beach when prices bottomed out. Around here they are already starting to go back up. In a few years I can parlay the profit into a larger home (away from the expensive coast). If you have 70% to put down... I would highly suggest that you hold onto most of that. I put down 20%. It is better to have it gaining interest in an account that to own your house faster... it is unwise to drain your funds for a piece of paper that says "I own this property."

Yes, there are pros and cons of owning as well as renting. When I was doing the research before I bought, it was widely agreed upon that over the course of 30 years, it is less of a financial burden to own versus rent for the simple fact that you will be able to sell the place. Yes, I put 20% down and pay a monthly mortgage. But that is not a loss because historically you will get that back when you sell (as long as you buy smart and sell smart). This does not take into account the cost of upkeep.... but that was actually a pro for me. I wanted to buy the appliances that I wanted. I wanted to paint my house the colors that I liked. I wanted to buy my own lighting fixtures.

It boils down to what is best suited for the buyer. I love owning and I wouldn't change that.

[kuju]

But mortgages are what sucks the money out of owing. If you only put down 20%, by the time you pay off the load you'll actually have paid three times it, or more, depending on how quickly you can pay back the loan. How does that make more sense than putting in more money to begin with? With interest rates so low, you make very little on money in the bank. In the short term you're not MAKING as much on your money, but in the long term, you're SPENDING much less, and thus saving more.

[Mel]

If you don't mind loud people then go ahead a get one, but you will most likely hear loud music, people walking, and it seems like they are moving around their thngs all the time. A condo is like an apt, but you own it than renting it. If you have lived in an apt before and can't stand other people there, I would look into buying something else. If this don't bother you, then go for it. Good luck !

[Tootsie Pop]

But mortgages are what sucks the money out of owing. If you only put down 20%, by the time you pay off the load you'll actually have paid three times it, or more, depending on how quickly you can pay back the loan. How does that make more sense than putting in more money to begin with? With interest rates so low, you make very little on money in the bank. In the short term you're not MAKING as much on your money, but in the long term, you're SPENDING much less, and thus saving more.

You can always pay more than you owe. That's what I have been doing. But, when I need a new fridge or a new car, I have the money in the bank to be able to do that. Correct, currently I am not making a lot on interest, but yesterday when I bought new bathroom tiles, vanity, etc, I was happy that I didn't have to put it on credit. God forbid you (or me) were to lose your job. The bank doesn't care how much you put down, or how much you have left to pay... they care whether you made the payment THIS month. Foreclosure is a scary word when you own. Talk to a financial advisor. It served me well.

As far as condos being loud... I disagree. A friend of mine bought into a really nice complex where the walls are pretty darn sound proof. He has been there a year and has not heard a peep. I noticed that the floor plans were cleverly planned so your bedroom does not share a wall with a loud family room (occupational habit to notice). Avoid shitty run down places and you'll be golden. Most condos also have a book of rules regarding loud music and and other courteous things like "not running your dryer after 10 PM." For other questions about condos, well, that's what your realtor is for.

Anyway, Julia, if you have the means to put down a hefty percentage while still maintaining a comfy cushion in the bank, it may just be the plan best suited for you. As I mentioned, when and if you decide to buy, find yourself a qualified and highly recommended financial advisor as well as a good mortgage broker. They would be able to look at what you have, and what you make and show you line by line what your payments would look like. I thought I had it figured out until I saw the numbers on the paper. It's a process but I feel like I came out clean on the other end when I was able to understand all of the facts about buying a home.

[Deidre]

But mortgages are what sucks the money out of owing. If you only put down 20%, by the time you pay off the load you'll actually have paid three times it, or more, depending on how quickly you can pay back the loan. How does that make more sense than putting in more money to begin with?
If you put 20% into your house and save the other 50% you were considering putting in there, and invest it wisely in something that has a cashflow, your additional 50% investment can be used to pay off your house quickly (if that's what you want to do) and once your house is paid for, it was paid for with 'free' money and you keep getting money out of that investment... whereas your house would be sucking more money out of that money. ;)

[Deidre]

Personally, though, we're not paying off anything. We never intended to live here forever (good thing too, or moving to France in a few months would be tough), so we're just paying interest. Money just sitting in a house is just sitting there. It's not doing anything. It's about as useful to me in a house as it is in a safe deposit box that I can't touch until I'm 45.

[kuju]

you think it's better to have your bedroom facing someone else's bedroom? then you have to listen to them having sex. though hey... whatever floats your boat!

I'm always wary of investment. is it really safe to have your payments rely on something that is not a guarantee? I'll never have trouble getting work, but if an investment fails and doesn't produce capital, or even worse, loses principle, then that's far worse.

[moonangel]

As an Ostrayun, in a country where home ownership is the "great Aussie dream", my opinions may be skewed: but I would rather own than pay "dead money" on someone else's property. The whole property market probably works differently in the US, I don't know. It's certainly not easy buying your own house in Oz, but it's definitely possible if you're smart with your money, and government grants help ease the financial burden.

That said, I'm a renter, and unless I hook up with a rich fellow, I'll probably be renting for most of my adult life. This is just because I can't imagine being tied down to something I'm financially bound to right now. I'm a drifter; I want to travel and be able to live freely without having mortgages and stuff. If I had a husband and kids, or there was the possibility of kids, or even if I was in a job I knew I wanted to stick with for life, I might think differently. But right now I don't care. I would love to own property, but if I don't, I'll be fine about it.

But property is a great investment. You are always going to make money off a property, as long as you do it right. Also, I would just LOVE that feeling of wandering through a house and knowing it's yours. Knowing you can paint it whatever colour you like. You can plant a beautiful garden and know it's there to stay. You can put your own stamp on it, make it yours. That's pretty cool.

[Deidre]

I'm always wary of investment. is it really safe to have your payments rely on something that is not a guarantee? I'll never have trouble getting work, but if an investment fails and doesn't produce capital, or even worse, loses principle, then that's far worse.
Nursing is fairly safe, but it isn't always in demand. You're currently talking about relying on something fairly safe but without guarantees.

That's the same as an educated investment. No one's saying "throw your money on the stock market" if you don't know anything about the stock market. That's plain stupid. If you make an educated investment, and one in the right sector at that, you can even insure your investment the same you can your job. Only with an investment your money works. With your job, you work.

[Tootsie Pop]

you think it's better to have your bedroom facing someone else's bedroom? then you have to listen to them having sex. though hey... whatever floats your boat!


No no! Haha! The person I was referring to has a bedroom against someone else's kitchen. I would say it is pretty fool proof.

[Bravehearter]

I don't know. It really is a toss up.

Personally? After renting and seeing someone make money of me paying rent, ill never do it again.

Right now I own my own home and pay about the same amount of money as my friends do for rent. They will never see that money ever again. Will I? Hard to say, but at least there is a hope of it.

I bought a brand new house and already a house the same model as mine, (minus the 60k in upgrades I got put in mine.) sold for 80 thousand more then I paid. Wow! thats exciting.

Plus, one thing with owning a home is, if you make any improvements to your home, you can really make some money doing that too.

I recently finished the lower level in my house, (I have a raised bungalow.) and built a deck. The renovations set me back about 10,500.

I recently had a realtor come over and said the improvements increased the value of my home by almost 40 thousand. Basically i added almost 1200 sq feet to the house.

Now I wouldn't have had that opportunity to invest that money into my home if I didn't own it.

It really does depend on your lifestyle and what you want to do with your money, but anyone who I have talked to who rented for years and then bought for themselves has never had the desire to go back to renting.

[Looking for Balance]

I am all for owning whenever possible, any time you are paying into something you own is far better than paying someone else’s’ mortgage IMHO. I would be cautious of purchasing a home in an over inflated market though, but at this point, in many regions (in Canada), the housing market seems to have stabilized.

There are many different borrowing options available to purchasers now. My husband and I have a home equity line of credit, it allows for us to pay off much more principal monthly than a traditional mortgage allows, I am unsure however, what the criteria are for borrowing in such a manner; financial portfolio wise. I do know that a HELOC will only fund up to 80% of the appraised home value or purchase price (whichever is lower).

I'm not sure what the market is like in Toronto, but I work for a builder just outside Vancouver, and we are offering a 1% mortgage for the first 2 years (then up to 3%), on a 1500 square foot town home with upper range finishing (granite countertops, slate and hardwood flooring, stainless appliances, etc...). I would imagine many builders would be offering similar deals. I think it works out to a payment of around $700 a month, plus strata fees ($100) on a $340,000 property. I think after the 2 years are up the payment goes up to around $950 or something. But at 1% (or even 3 or 4%) you would be hammering down the principal and would be certain to have future equity. I have been a homeowner for several years now but, while I was renting, I was paying a lot more for rent and getting a lot less perks at the time.

At the very least you might want to consider sitting down with a banker and research rates and different bank's lending policies. It also wouldn't hurt to talk to a realtor, you are not committed to actually purchase anything from them, but you could at least take a look at a few places to see how your rent compares to what you can afford for a mortgage payment, you might end up paying less of a mortgage payment for something similar to what you rent now.

Hope this helps. Good Luck with your decision! :)