To help settle the perpetual debate of whether one should rent versus buy in Toronto, we demonstrate why buying is the more lucrative option, despite how high Toronto Real Estate prices may seem.
Even more so recently many have argued that in today’s high-priced market, renting is the better choice for Torontonians purely on the basis of affordability. However, with one-bedroom condo rent prices increasing at 8.8% and two-bedroom at 5.5% annually, there is a strong case that, for those who are financially able to do so, buying a condo is actually the better choice in the long run.
Let’s take a high-level look at the numbers…
Based on the current, average condo purchase prices in downtown Toronto*, with a 10% down payment and 2.95% variable mortgage rate, buyers of one-bedroom units can expect to make back nearly all of their annual living costs, while buyers of two-bedroom units can actually see a slight profit. When combining the 2019 forecasted Toronto property value increase of 4.2% with the annual amount of mortgage principle paid, a one bedroom condo purchase would amount to $35,000 back in the buyer’s pocket; while an average two-bedroom would result in $48,000. Comparatively, based on the Q1 2019 TREB Market Rental Report, those who rent would spend over $26,000 a year for a one bedroom and over $36,000 for two bedrooms. (If you are interested in delving deeper into this and curious about your specific options, please contact us for an analysis.)
Although we used typical condos in Toronto as our examples, similar principles apply to a freehold home, especially if it’s an owner-occupied home with one or more rental units where tenants provide additional revenue!
Naturally, renting versus buying depends on your specific situation and long-term goals - and of course your appetite for commitment. The examples and figures presented rely on buyers having not only the sufficient down payment amount but also the cash flow to cover the additional monthly costs; however, buying a condo in Toronto even in today’s climate can certainly provide a much greater financial return for those who are able.
As with any real estate transaction, whether renting or buying, there are numerous considerations and having a trusted guide to help you navigate makes the difference between making the right decision vs. the wrong one. Financial stability and market changes are at the top of these considerations, which can be the major reason why some still opt to rent. Additionally, those who are grandfathered into cheaper rental rates, particularly from tenancies that began more than five years ago, may find themselves better to continue renting. However, that shouldn’t stop a potential buyer from considering entering the market in other ways. For instance, we’ve had clients maintain their rental in the city and look to an income property or vacation home outside of the city limits to get into the market and build equity for the future. See our previous blog Priced Out Of The Market? Rent vs. Buy? Can You Do Both?!
While renting may seem more affordable on a monthly cash flow basis, it comes with no long-term financial gains or rewards. The bottom line: do your homework, sit down with a professional who can look at your particular situation and make an informed decision. If you are looking for help on whether renting or buying is better for you, give us a call and we can model out your options based on your short and lot term goals.
*Average condo figures gathered from Toronto MLS from a period of January 30, 2019 to April 5, 2019, 1 bedroom, or 2 bedroom, no den, no parking in “Central Toronto” only – C1 and C8 districts