Should I buy or rent my home? It’s a question people have asked for generations. Here I look at the big rent vs buy question to help you decide which option makes the most sense for you.
Buying a Home in Toronto
Typically, buying a home is considered the smart way to live, as it is an investment that builds tax-free capital. According to a recent Will Dunning Inc., study, 91% of those who can afford to put down 20% will find it more financially beneficial to buy a home in Canada than to rent in the long-term.
Typical Costs of Home Ownership in Toronto
Your average costs to own a $1 million home in Toronto break down as follows:
- Required down payment: $200,000
- Mortgage: $3274/month for variable to about $3,822/month for fixed
- Property Taxes: $509.18/month
However, you can also pursue lower priced homes such as condos or townhouses to make home ownership more affordable.
When to Buy a Home In Toronto
Here’s when buying a home in Toronto makes sense based on current housing prices:
- Your job is stable, earning at least $155,000 annually for yourself or between you and your partner
- You can afford the 20% down payment
- You can afford to save 10% to 20% of your income to cover unexpected job loss or costs such as home repairs, vehicle repairs, illness, etc.
- You confirm all costs and expenses to make sure you don’t become house rich and cash poor
- You have financial support when buying the home, i.e., parents or a partner
If you can check off most, if not all of these boxes, home ownership is most likely right for you.
Renting a Home in Toronto
You never have to worry about covering repair costs, rising interest rates, or property taxes when renting. Renters can find lucrative investments without the need to own a home. You also have more flexibility so you can move without the worry of selling. You might also have a better chance of living in your preferred area, although this is not always the case. Unfortunately, your landlord can sell your home out from under you. The Dunning study also showed the net cost of ownership is lower than the cost of renting a similar home by as much as $769 per month.
Typical Costs of Renting in Toronto
The April 2022 Toronto rent report showed one-bedrooms averaging $2,023, and two-bedrooms at $2,776 across all apartment types. If you have your sights set on a condo in a convenient area, they are a bit higher at about $2,145 and $2,867 respectively in the first quarter of 2022.
When to Rent a Home in Toronto
Renting makes more sense when:
- Your income is not very stable
- You don’t have enough savings (yet) for a 20% down payment
- Your income keeps you from passing the mortgage stress test
- You can’t afford to save for rainy day home ownership issues
While these current issues are likely only for the short-term, they make buying for the longer term less realistic.
The PTRR
The Price-to-Rent Ratio (PTRR) allows you to better understand mortgage vs rent costs in specific neighbourhoods. The calculation used is:
Purchase Price / Annual Rent Rate (i.e., Monthly Rent Rate x 12 months)
The lower the ratio, the better the value of buying. So, in areas between 1 and 15, buying makes sense and for ratios over 21, renting is better.
