Yes I did math, our mortgage at 2% interest is $1700, to rent this condo from a landlord would be $3500. In 5 years the property value has gone up $200K. So our equity is now close to $300k after 5 years.
I could sell this year and have 300k cash. What would you have at 3500 a month to a landlord?
I’ll have to trust you that you live in a place with bizarre market dynamics where mortgage is cheaper than rent for the same unit, or maybe you’re the king of real estate deals or got lucky with a panic seller. Even in that situation, there’s a whole lot of numbers missing from that calculation. Property taxes, maintenance, opportunity cost of investing the downpayment, insurance, whether your investments would be taxable or tax sheltered, expected RE growth, a time horizon of 20 to 60 years etc. You will be better off using a proper calculator made by a CFP.
If you’re talking about a mortgage that was signed years ago, that’s definitely feasible. If you’re talking about a mortgage that would be starting right now, that would be abnormal. I don’t know what “most markets” mean to you but I doubt you can show the numbers for any major Canadian city.
I do understand. Our property tax is cheap here, mine is $100 a month. Insurance is $50. Ontario and British Columbia have very high real estate market, people get stuck renting because the 5% down payment is hard to save (for some) a 1 bedroom basement suite can be $1500-$1800 to rent. My friend pays $1200 to rent a single room in somebody’s house.
Mortgage is the way to go if you can have enough income to qualify for it and have the down payment.
However back in early 2000 before Toronto prices spread to rest of Southern Ontario my mortgage was around $800 a month and the same house across the street was being rented for $400 a month. I agree in that scenario it would make sense to rent…but only for a time…eventually you have to retire and don’t want to be paying rent that has increased year over year. I.e. here rent can go up 3-4% y over year.
Mortgage is the way to go if you can have enough income to qualify for it and have the down payment.
This is simply not true in the general case, and stating something simplistic like this is a disservice to people’s financial literacy. The highest variable in this accounting isn’t even market dynamics, it’s the investment habits of the counterfactual renter.
There are situations in which buying is more appropriate than renting, due to personal circumstances and specific market conditions of where a person wants to live. But it’s not at all a clearcut decision without those specific conditions.
I agree in that scenario it would make sense to rent…but only for a time…eventually you have to retire and don’t want to be paying rent that has increased year over year. I.e. here rent can go up 3-4% y over year.
No, it’s not “only for a time”. Mortgage is leverage at a low rate, so as soon as it’s done, the cost of ownership for the home makes ownership worser in comparison to renting. The reason this isn’t obvious is that you’re not doing the comparison to the counterfactual renter investing the downpayment amount plus the cashflow surplus during the entire lifecycle of the mortgage.
There is no cash flow surplus in BC and Ontario though, housing market is too high, rent is way too high, that people spend majority of income on housing.
The person working and paying the amounts I quoted you is working to live. The old days of cheap rent where the metric make sense are gone out here.
So you’re saying that in BC and Ontario the monthly mortgage payment is lower than the cost of rent for a comparable unit? Maybe you misunderstood what I meant with cash flow because that’s wildly out of base. My rent is $1000 less than the monthly mortgage for the same unit
Not sure where you live but as I mentioned my friend pays $1200 for a room in a house. A another lady pays $2200 for a coach house above a garage. My place could rent for $3500 While a mortgage is way less.
Out here at least landlords charge way more than their mortgage coat plus maintenance because they are income properties and the scarcity.
My place could rent for $3500 While a mortgage is way less.
If you’re talking about a mortgage that was signed years ago, that’s definitely feasible. If you’re talking about a mortgage that would be starting right now, that would be abnormal. A property costing ~ 1MM starting on todays 4.5% rate means a monthly mortgage above 4.8k but will go for rent for about 3.7k
It’s fun when people allude to having knowledge they don’t display or share. Makes them look like they’re feeling smugly superior while also contributing absolutely nothing to anyone.
There’s a certain threshold at which I won’t bother. Saying that renting is loosing money instead of equity building is the real estate equivalent of being a flat earther.
Even if you assume the price of the property doesn’t change, it comes down to whether the interest on the mortgage plus property taxes and other fees is more or less than the rental amount (plus any other fees).
Though if the price goes up, even that might not matter. That said, I do hope the housing situation improves, which would realistically involve prices going down instead of up.
it comes down to whether the interest on the mortgage plus property taxes and other fees is more or less than the rental amount (plus any other fees)
Not it doesn’t. Debt (and its associated interest) is not the bad part of the mortgage, it’s the good part. The bad part is tying your financial future to land speculation and a depreciating asset on top of it. It comes down a bunch of things, including the opportunity cost of the cashflow difference plus the subpar expected returns on real estate equity, and the investment profile of the person to which this advice is being given. Maybe the average person should buy? I guess that can be true, because the average person apparently can’t use an online calculator and stick to a long term investment strategy.
This meme has to die, there’s so much knowledge out there on how to properly do the math on this
Yes I did math, our mortgage at 2% interest is $1700, to rent this condo from a landlord would be $3500. In 5 years the property value has gone up $200K. So our equity is now close to $300k after 5 years. I could sell this year and have 300k cash. What would you have at 3500 a month to a landlord?
I’ll have to trust you that you live in a place with bizarre market dynamics where mortgage is cheaper than rent for the same unit, or maybe you’re the king of real estate deals or got lucky with a panic seller. Even in that situation, there’s a whole lot of numbers missing from that calculation. Property taxes, maintenance, opportunity cost of investing the downpayment, insurance, whether your investments would be taxable or tax sheltered, expected RE growth, a time horizon of 20 to 60 years etc. You will be better off using a proper calculator made by a CFP.
Mortgages are less than rent in most markets.
If you’re talking about a mortgage that was signed years ago, that’s definitely feasible. If you’re talking about a mortgage that would be starting right now, that would be abnormal. I don’t know what “most markets” mean to you but I doubt you can show the numbers for any major Canadian city.
A property costing ~ 1MM starting on todays 4.5% rate means a monthly mortgage above 4.8k but will go for rent for about 3.7k
I do understand. Our property tax is cheap here, mine is $100 a month. Insurance is $50. Ontario and British Columbia have very high real estate market, people get stuck renting because the 5% down payment is hard to save (for some) a 1 bedroom basement suite can be $1500-$1800 to rent. My friend pays $1200 to rent a single room in somebody’s house.
Mortgage is the way to go if you can have enough income to qualify for it and have the down payment. However back in early 2000 before Toronto prices spread to rest of Southern Ontario my mortgage was around $800 a month and the same house across the street was being rented for $400 a month. I agree in that scenario it would make sense to rent…but only for a time…eventually you have to retire and don’t want to be paying rent that has increased year over year. I.e. here rent can go up 3-4% y over year.
This is simply not true in the general case, and stating something simplistic like this is a disservice to people’s financial literacy. The highest variable in this accounting isn’t even market dynamics, it’s the investment habits of the counterfactual renter.
There are situations in which buying is more appropriate than renting, due to personal circumstances and specific market conditions of where a person wants to live. But it’s not at all a clearcut decision without those specific conditions.
No, it’s not “only for a time”. Mortgage is leverage at a low rate, so as soon as it’s done, the cost of ownership for the home makes ownership worser in comparison to renting. The reason this isn’t obvious is that you’re not doing the comparison to the counterfactual renter investing the downpayment amount plus the cashflow surplus during the entire lifecycle of the mortgage.
There is no cash flow surplus in BC and Ontario though, housing market is too high, rent is way too high, that people spend majority of income on housing. The person working and paying the amounts I quoted you is working to live. The old days of cheap rent where the metric make sense are gone out here.
So you’re saying that in BC and Ontario the monthly mortgage payment is lower than the cost of rent for a comparable unit? Maybe you misunderstood what I meant with cash flow because that’s wildly out of base. My rent is $1000 less than the monthly mortgage for the same unit
Not sure where you live but as I mentioned my friend pays $1200 for a room in a house. A another lady pays $2200 for a coach house above a garage. My place could rent for $3500 While a mortgage is way less.
Out here at least landlords charge way more than their mortgage coat plus maintenance because they are income properties and the scarcity.
If you’re talking about a mortgage that was signed years ago, that’s definitely feasible. If you’re talking about a mortgage that would be starting right now, that would be abnormal. A property costing ~ 1MM starting on todays 4.5% rate means a monthly mortgage above 4.8k but will go for rent for about 3.7k
It’s fun when people allude to having knowledge they don’t display or share. Makes them look like they’re feeling smugly superior while also contributing absolutely nothing to anyone.
It’s the daddy’s money of social media.
There’s a certain threshold at which I won’t bother. Saying that renting is loosing money instead of equity building is the real estate equivalent of being a flat earther.
That threshold is apparently “reality and facts”
Even if you assume the price of the property doesn’t change, it comes down to whether the interest on the mortgage plus property taxes and other fees is more or less than the rental amount (plus any other fees).
Though if the price goes up, even that might not matter. That said, I do hope the housing situation improves, which would realistically involve prices going down instead of up.
Not it doesn’t. Debt (and its associated interest) is not the bad part of the mortgage, it’s the good part. The bad part is tying your financial future to land speculation and a depreciating asset on top of it. It comes down a bunch of things, including the opportunity cost of the cashflow difference plus the subpar expected returns on real estate equity, and the investment profile of the person to which this advice is being given. Maybe the average person should buy? I guess that can be true, because the average person apparently can’t use an online calculator and stick to a long term investment strategy.