When looking at buying vs renting, let’s take an example of a property on Bay Street in Toronto. A junior one- bedroom with locker and no parking on is sold for $270,000 in July of 2012; or it can be rented for $1600. Buyer put down 5% ($13,500) and has a five year fixed rate mortgage of $256,500 at 3.09%.

So why do the experts recommend renting over buying right now? That’s because renting does have a lower monthly cash outlay. In order to own this property, it requires a mortgage payment of $1259 which includes mortgage insurance + condo fees of $375 (higher than most because all utilities are included) + property taxes of $121, which equals to $1755/month; or $155 more per month than if you were to rent!

Now let’s study what happens after five years. The Renter invests the difference (they never do, but let’s believe they will) every month and earns an interest rate of 2% after tax (probably high). After five years, the Renter would have accumulated just under $10,000!

Now let’s look at what happens to the Buyer? After five years, the home Buyer would have repaid $30,850 of principal on the mortgage. If you assume that the property increased in value by 3% per year (the historical average for real estate), the property would then be worth $313,000. The Buyer would then have increased their net worth by $73,850. If in case the Buyer had borrowed the down payment of $13,500 from family and repaid it, the net gain would still be $60,350. Even if the property never increases in value, the Home Buyer is still the clear winner!

The buying vs renting answer is thus answered! Where would YOU want to be? Have a possible saving of $10,000 from being the Renter or a ‘tax free’ $60,000 in assets from being the Home Buyer !!

Calculator : Do your easy math here to find out whether to Buy or Rent in Toronto – Mississauga area market.