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Monthly Archives: August 2012

5 Reasons why home ownership is better than renting

Why use your hard-earned cash to pay the landlord’s mortgage when you could be using the rent money to buy a home of your own? Although home ownership is not right for everyone, it does make sense in many cases.

Here are 5 reasons why home ownership is better than renting:

  1. Home ownership is a great investment. Although short term real estate prices may follow similar patterns as an economic cycle with peaks and valleys, there has always been a general upwards trend. Especially with cities such as Toronto, urbanization and gentrification become more predominant over time, and scarcity of land drives prices up. Over the past 40 years, the average Toronto home price increase per year still remains at 7%, even after a couple of recessions!

    1. Leveraging your money. With interest rates at an all time low and with as little of a down payment as 5%, you can still have completely control of your property. Act fast though, because lending rules are becoming more stringent!

 

    1. Home ownership acts as a method of forced savings.By getting into the real estate market early (imagine having your income trying to catch up with a 7% increase a year!), you are able to save for a more expensive home in the future by paying down your mortgage every month and leveraging your current home equity. Monthly costs of owning are often only a little more than what you would pay for an equivalent rental.

 

    1. Pride of ownership and being in full control. Any improvements or decoration changes need no approval from your landlord. Feel free to upgrade as your please! (Amen to that!)

 

  1. Tax benefits. Especially as a first time home buyer, there are many perks from a tax perspective such as RRSP withdrawals and land transfer tax credits. In addition, there are no capital gain taxes on a principal residence. Even for investment properties, there are significant tax deductions which can make property ownership a great investment strategy.

Buy vs. Rent Example


Featured listing: Gorgeous 2 bedroom + den at Yonge/Finch for sale at $299,000

MLS # C2437195

More information on this property: http://www.ashleylo.com/5785yongest202

Comparison

Purchase Price – $299,900
Down Payment 5% 10% 15%
$14,995 $29,990 $44,985
Monthly Expenses
Mortgage Amount (including Mortgage Insurance; Interest at 3% for 5 years)
Property Taxes
Maintenance Fees
Total Monthly Expenses
$1,479
$157
$886
$2,522
$1,367
$157
$886
$2,411
$1,281
$157
$886
$2,324
Annual Cash Spent
Average Annual Savings From Principle (based on 5 year term)
$30,268
$8,278
$28,929
$7,843
$27,890
$7,407
Annual Cost of Ownership
vs.
Annual Cost of Renting at $2,150/month
Savings From Home Ownership
$21,989
$25,800
$3,811
$21,086
$25,800
$4,714
$20,483
$25,800
$5,317

As you can see, even with a down payment of 5% and having to pay mortgage insurance, it would be more beneficial to purchase vs. rent, even without taking into consideration home price appreciation! As GoC bond yields decrease (which is what our fixed-mortgage rates are based on), interest rates will be even lower, allowing an even greater gap between this buy vs. rent scenario. In addition, this example is based on the first 5 years, with additional savings as time passes as you pay down more of your principle and have less interest in your mortgage.

Questions? Feel free to contact me at anytime!