BUYING vs. RENTING: WHAT THE MEDIA DOES NOT TELL YOU

The Property: a junior one- bedroom with locker and no parking on Bay St. It sold for $270,000 in July of 2012; or it can be rented for $1600. Buyer puts 5% down ($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. To own this property 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 = $1755/month; or $155 more per month than to rent! Now let’s consider 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! What happens to the Buyer? After five years, the 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 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 Buyer is still the clear winner! So where do you want to be? A possible savings of $10,000 from being the Renter or a ‘tax free’ $60,000 in assets from being the Buyer!!

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