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Before making the decision to purchase one’s first home, most people tend to either live at home or rent a place until they have saved enough money for a down payment on a property. Many people think that this is the best course of action; however, at the rate that homes increase in value, it is becoming more and more evident that buying a house is a better choice, even if you are in university.

Home Ownership is very Expensive, shouldn’t I Rent?

When looking into home ownership, it is easy to consider that your monthly bills will be increasing. Sometimes the increase in your bills can be quite dramatic compared to where you are living right now; however, in order to see the full story, then you should consider looking at all the factors and your net worth.
Let’s look at an example of a one bedroom apartment in Toronto.

Renting a One Bedroom Apartment

Property Value: $200,000
Rent Fees: $1000/month
Annual Rent Costs: $12,000/year

Purchasing the Same One Bedroom Apartment

Property Value: $200,000
Mortgage Payment: $750
Condo Fees: $200
Property Taxes: $140
Utilities: $100
Total Cost of Ownership: $1,190
The increased monthly cost of home ownership is approximately $190/month; however, when we look at what is gained, then it is easy to understand how much home ownership will earn you in the long run.

In this example, let’s use today’s interest rates on a 5 year fixed mortgage rate at 4.5%. In this example, we will also use a low rate on return for the property value, we will only use 3%; however, on the investment savings rate, we will also use an inflated value of 4.5%. These are good numbers that are in favor of renting.

The Results after years of Renting vs. Owning

The following results are accumulated if the assumptions of the example remain constant:
Extra Money Earned by Owning after 5 Years: $28,991.86
Extra Money Earned by Owning after 10 Years: $62,406.34
Extra Money Earned by Owning after 15 Years: $100,904.67
Extra Money Earned by Owning after 30 Years: $255,034.69

It is easy to see that if it is only a few hundred dollars a month to purchase a home, then it is a really good choice to purchase a property instead of continuing to rent. This is because you are paying off your house, while your house is increasing in value. This allows your to increase dramatically; however, at what point is it a good idea to continue renting?

When is it a Better Idea to continue to Rent instead of Owning?

In this example, even if you were living at home with your parents, not paying a cent in rent, then it would still be better to buy your own home.

Why? If you buy for $234,792.68 (the maximum you would qualify for) you will pay down your mortgage of $224,792.68 by $27,432.83 over 5 years with your Principal and Interest payments of $1,244.17 per month, plus your property will increase in value by $37,396.39 for a total investment growth of $64,829.21.
This total is greater than your total investment growth from renting, which is approximately $22,460.30 after 5 years. This was calculated by growing the monthly savings from renting ($1,390) plus your current down payment of $10,000 at a standard after-tax rate of 4% per year.

With these sobering numbers, it is hard to believe that over 50% of people rent. In major cities, like New York, as many as 70% of people are renting properties.
So the question is, why are you still renting?

How can I Stop Renting?

If you have no savings, if you have bad credit, or if you have only been employed for a short period of time, then you can still get a mortgage. If you never thought you would qualify for a mortgage, or if you do not know where to begin, then send me a message, and I will help you get started.