During the summertime when the lease market is in full swing and lease listings get snatched up in 1 to 3 days, I often find myself getting asked this question a lot: Should I buy or should I rent?
Herein Lies Your Answer! It’s an age-old debate and this time around, I promise I won’t give you the cop-out answer of “it depends on your situation” (honestly, it still does depend but I’ll give you some more details!). I’ve done the analysis for you using an entry-level condo unit as an example.
We’re going to look at 25 Lower Simcoe, Infinity Condos, right by Scotiabank Arena. I literally found the perfect example for you! A purchaser just bought this unit and immediately leased it out, very recently. Here are the listings for the purchase and for the lease.
This is a 1-bedroom unit with a full-sized kitchen in the highly sought after area of South Core. So what’s the answer to the age-old question, should I buy or should I rent? Well, as of right now, you should definitely BUY.
From a financial perspective, it only makes sense. Take a look at the numbers below.
Numbers Speak for Themselves – To own the unit, you’re only paying an extra $273.47 per month. That difference is shockingly low right now! Don’t forget, if you went with the purchase option, you’re now in the market and you will benefit from appreciation and mortgage paydown on the property. Remember – Rental rates are going UP but interest rates are going DOWN right now!
Further, this unit is actually worth $2,200 on the rental market right now, based on other similar units – $100 more than what it was listed for. I think the landlord under-priced this unit and that’s why it was leased in less than 1 day. So the difference is actually even less, $173.47.
Of course, if the $125K upfront investment is not at all challenging for you, then the answer to this question is obviously yes, you should definitely buy. Reach out to me now at firstname.lastname@example.org make the move happen!
The Alternative Approach – On the other hand, if saving up for that 20% upfront down payment presents some challenges to you at the moment, then you still have the option of buying with 5% down payment. I went over the benefits and numbers of that strategy in last week’s Insight Article post. If you are in this situation, then you definitely don’t want to miss out on that insight. You can read it here:
So, now let’s compare that 5% down payment to renting. This is what the numbers look like.
With 5% down, the numbers are looking a bit tougher to justify buying the property. The difference is $887.50 per month, which is quite substantial over time.
However, referencing back to the chart that I put up last week (below for your reference), if you cannot save fast enough, then you’re better off getting into the market now even if it means that you’ll have a higher monthly cost (that is, assuming you have the upfront down payment of $43K and can carry almost $900 per month more in costs).
With the average annual income of $60,000 and 10% savings before tax (represented by the yellow line), you simply cannot save for a 20% down payment fast enough (i.e., red line never meets the yellow line) even if the market appreciates at a measly 4% (it’s actually been averaging 7% the last 10 years). However, with a 5% down payment, the purple line does meet the yellow line in 5 years time.
The Wrap – If this is you deliberating between renting and buying, the answer is obvious. Get into the market as quick as you can. Your future self will thank you in 10 years. I definitely thank my former self for getting into the market. To navigate this scenario more personally for you, make sure you reach out to me at 416-436-9436 plan out how we can get you into the market!
Until Next Time, Happy Real estate-ing!
(416) 436 9436