Who have you met, especially in our generation, that has paid 150k TOTAL on a mortgage on a place that is paid off and now worth 400k? You are talking about a one in a million scenario.

somewhere earlier in this or another thread, someone provided an excelled calculation showing how much money you spend on mortgage+maintenance+bills compared to renting.

It's really simple to figure out, if you take your time to actually think, before listening to people who are already in the marker/realtors/mortgage brokers. All those people have a financial interest in the market and want you to be in it too.

I'll do the calculation using some recent sales

1 Bedroom apartment in Burnaby, 655 sq feet, purchased for $340,000
20% down payment = $68,000
3.0% interest rate locked in for 5 years.
Mortgage payment is $1,287.14
Strata maintenance fee is $202.30
Bills for hydro, water, TV, internet = $200/month roughly
Property tax $1,500/year or about $125/month
Total cost for the apartment per month is $1,814.44 give or take a few $

Now that same exact type of 1 bedroom 650 sq ft apartment can be currently found on craigslist for $1200/month, including utilities, tv, internet.

So right there, you are saving $600/month by "paying some assholes mortgage"

Now lets look at the actual cost of your mortgage

Here's a breakdown of the first 5 years


So, in 5 years, you paid $37,724.61 in interest, $1,500*5 for property tax, assuming it doesn't increase = $7,500, $12,138 in strata fees, assuming those don't increase, $12,000 in utilities cost, for a total of $69,362.61 . Let's compare that to the total amount you spent for rent in 5 years, even if it was increased every year by 3%


So, already you have saved $7,767.77 by paying "some assholes mortgage" over 5 years.

Now, lets say you took that $68,000 down payment, and purchased some GIC's... current 5 year rate is 2.750%, paid on maturity. That would make you $1870 per year * 5 years = $9,350

So, after 5 years, you are $17,117.77 further ahead.

Also, let's say you could actually comfortably afford to pay the mortgage + utilities + strata fees + prop taxes. You pay your $1,200 rent and put the rest of your savings from paying rent into a saving's account. $600/month * 12 months * 5 years = $36,000 in savings, without any interest.

Now, some will say, "well that's great, but after 5 years, I'm in the same spot as before I rented, I have no equity."

well let's see. In 5 years you paid $39,509.19 toward your principal. You still owe $232,490.81 for your 1 bedroom 650 sq ft apartment.

You decide to sell your apartment. As per a comment earlier, chances that the value of your apartment actually increased at all, are very slim, but let's say you got lucky and it went up by 5%. Now your apartment is worth $357,000. You magically sell it at full asking.
Here's the calculation of what you're left with:
Selling Price $357,000
Your realtor's commission $7,312
Purchaser's realtors's commission $6,113
GST On commission $671
You are left with $342,904

You pay off what you owe on your mortgage, you are left with $110,413.19.
Out of that, your original down payment was $68,000, $39,509.19 was what you've paid off in 5 years, your profit = $2,904.00.

Compared to, you paid rent for 5 years, your $68,000 made you $9,350 and you have at least $36,000 in savings, equaling to $113,350
so in reality, you end up in a BETTER spot, and you take virtually no risk compared to the risk of the price of your 1 bedroom 650 sq ft apartment crashing... which over the course of 5 years is about 40%, according to the logic posted earlier

Food for thought.... by the way I forgot to include the purchase tax, but let's say you are a first time buyer and you get a break

epic post. Wish I could thank you 1000x.
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Excellent comparison, but I am not convinced that your "same exact type of 1 bedroom 650 sq ft apartment" can be currently found on craigslist for $1200/month, including utilities, tv, internet. I found a bunch of basement suites that would work, but apartment units are a lot more rare. The few that I found that work with your numbers tend to be located in less convenient locations.

More importantly, I noticed a major flaw in your presentation of the numbers:

The way the numbers are presented seems to emphasize $2,904 vs $113,350. However, the actual numbers should really be $110,413.19 vs $113,350. In your $113k rental figure, you counted the $68k you started with and a $36k savings. But with the $110k ownership figure, the $68k and $39k principal were conveniently left out.

Last but not least, this is probably a poor reading comprehension on my part, but would you please explain to me where that $36k saving figure (from the renting scenario) came from? I couldn't figure it out from your post.

So if I am reading things right, the difference between purchasing and renting in our hypothetical scenario only differs by $3k, which amounts to ~3%. That amount is really small enough to swing the argument in either way should any of the variables change slightly. So effectively, I am going to call it a wash. You pretty much end up in the same boat regardless of whether you buy or rent. There is a little less risk involved with renting, but there is also less potential profit as well.

I've looked at multiple places for rent in Burnaby, in 5 year old buildings or newer, which are being rented for around $1,200/month. So that figure is not taken from thin air.

Secondly, the $36,000 came from you putting away $600/month for 5 years. I stated that if you can afford to spend $1,800/month on a mortgage+bills, you can afford to pay $1,200 in rent and put $600 into savings.

I emphasized the $2,904.00 figure to show the "profit" people are hoping for by buying real estate on a notion that "it always goes up".

Yes, you end up with $110,413.19, but that is the BEST case scenario, in the current market. As I said, there's a good chance that the value of your apartment will stay the same if not decrease. The $110,413.19 is based on your apartment going up by 5%.
If your apartment does not increase in value and you sell it for $340,000, you end up with $326,350 after commissions. That means that you lose $13,650 and are left with $93,859.19

The $113,350 you end up with by renting is a very realistic scenario that is not really affected by the market.

By the way, I think there's a lot more risk involved in buying as opposed to renting, but that's personal opinion of course. I would much rather end up with $113,350 and take virtually no risk than end up with $110,413.19 and take a big risk, or worse the apartment not going up, leaving me with $93,859.19... all for what? To proudly tell people I own a place?

currently renting a 3500 square feet single house in burnaby for $1,800/month. even after i got this place i still see few ads here and there with people renting the an entire single house in burnaby for $2000. thank you canada for our generous 70% home ownership and record mortgage debt to service. it sure makes it easy for someone who wants to rent.

Another example using a 2 bedroom condo
2 BD 2 Bath available now @ Silhouette

http://vancouver.en.craigslist.ca/bn...141638806.html
These places are currently for rent for $1,500/month, not including utilities. So, we’ll take utilities out of the calculations. There are a few units for rent in the building, so I think you may be able to negotiate a lower rent.

There are currently 3 2 bedroom apartment for sale in the same building. Cheapest one being $449,000, most expensive being $549,000. The third one is listed for $499,000 which is conveniently right in the middle, so that’s the price I will use for my example.
V991589, # 1205 9868 CAMERON ST, Burnaby, British Columbia $ V3J0A5

You may be able to get it for a bit less, so we'll cancel out reducing the rent and reducing the purchase price.


To purchase this apartment, you would put 20% down or $99,800.00
Mortgage rate of 3%
Monthly payment of $1,889.07
Strata Fee of $267.10
Property tax $1,500/year (probably more) = $125/month.
Total cost of owning the apartment is $2,281.17/month
Again, you are saving $781.17 by renting.
Cost of your mortgage:

5 Year total calculation:
$55,366.37 (interest) + $7,500 (property tax) + $16,026 (strata fees) = $78,892.37


Cost of renting:



You have spent more than cost of mortgage = $16,672.08

Once again, you take your down payment of $99,800 and purchase some GIC’s at 2.75%, after 5 years, it has made you $13,722.50.

You take the $781.17/month you’ve saved and you put it into a savings account = $46,870.20 after 5 years.

After 5 years you sell your apartment.
Two examples, one with the price of the apartment going up by 5% and the second with the price staying the same.

Selling Price …………………………………………………..$523,950
Sellers Agent Commission……………………………..$9,545
Buyer Agent Commission………………………………$8,053
GST………………………………………………………………..$880
Seller Receives………………………………………………$505,471

Total profit = $6,471.00

Selling Price …………………………………………………..$499,000
Sellers Agent Commission……………………………..$9,212
Buyer Agent Commission………………………………$7,763
GST………………………………………………………………..$849
Seller Receives………………………………………………$ 481,176

Total loss = $17,824.00


So, after 5 years, if you bought the place for $499,000, it went up by 5% to $523,950 and paid off your mortgage, you are left with $164,256.63

If it did not increase in price, and you sold it for $499,000 and paid off your mortgage, you are left with $139,961.63


Renting calculation after 5 years:
$99,800 down payment has earned you $13,722.50, you have saved $46,870.20 (without adding interest), and you lost $16,672.08 by paying rent instead of buying, you end up with $143,720.62, which is less $20,536.01 than if your apartment went up by 5% and $3,758.99 more than if it stayed the same.

So, some people may think it’s worth the risk to buy a place and make $20,536.01, after 5 years, on a chance if it goes up. You also need to consider maintenance costs and possible special assessments for repairs in the building. I think there are less risky ways to make an extra $342/month.

^^ This is why I don't understand why people want to buy for an "investment".

"Oh, I'll just rent it out!"

Turns out that unless you have, like, a 50% down payment, you'll need to rent your one bedroom in SoBu for $1700/month to break even. Like anyone would do that when you can rent a house down the street for $2000/month, lol.

Your logic is too strong.

WHY WOULD ANYONE RENT?! WHY PAY THE OWNER'S MORTGAGE WHEN YOU CAN PAY YOUR OWN!!!! RENTING IS FOR THE LOWER CLASS!

:troll:


I love these equations/infographic...always shuts down the illogical peeps.

exactly... even if you tie up $250,000 as a down payment, your mortgage payment is $1,180.67+$125 prop tax + $267.10 strata fee = $1,572.77, you're not covering your costs by renting it out for $1,500/month

I think your recent posts here should be "Sticky'd" in the House and Home Renovation forum...those calculations are extremely helpful to all those thinking about buying.

There are a lot of users always asking about buying and renting...

I shake my head when my friends or acquaintances buy their principal house mainly for "investment".

This fact reveals itself when they buy a much bigger house than they need and rent out the basement or leaving many floor space unused.

What is the point of buying more space than you need?

-----------

In this market, buying solely for investment, especially if it is your only house/principal residence is a risky bet, as Xplosive commented so well on.

However, buying for living and treating your abode as what it is (for living, not for investing), over the long-term (eg. for the rest of your life), then buying makes better sense.

Over a long period of 20+ years, the crashes and bubbles or slow increases/declines in prices of housing should smooth out risk.

It's a tricky proposition, but for home buyers looking for buying and holding for life (even if you upgrade a few times along the way), it is not as risky as buying and selling after 5 years.

The sad truth is that the increase in home prices over the last 5 to 7 years severely impacts NEW home buyers.

The REAL question is: when should new home buyers start purchasing their first home?

When will these over-the-top home prices drop to more manageable and affordable levels?

Is it wise to TIME the market, especially when you are buying to live and hold, rather than to invest?

Will the market increase another 10% next year or drop 10% next year?

Who really knows?

These questions cannot be answered definitively, even with information and numbers and statistics, because they are based on PAST historical information.

We do know that housing prices in the past 5 to 7 years increased much quicker than before the early 2000s.

But... that's the point.

We only know this fact (the huge increases in prices) only AFTER they happen.

The future is ever elusive and there is no definitive answer.

And while deciding on whether to buy their first home or wait for the impending crash, they are either renting or living with their parents.

My take on this is that buying real estate for investment right now is out of the question because it is very risky, especially for apartments/condos.

But, if you are buying your very first home for living and holding, then the question is WHEN to buy.

I just dont understand how most people can invest almost their whole life savings (the down payment) into something soo risky.

We are near ALL TIME HIGHS for Real Estate, the chances that they will go up further are very slim. Why risk your whole life savings on something that will most likely stay the same or drop in value?

look at other similar cities like melbourne, sydney in australia and auckland, new zealand.
they had crazy run up in prices just like Vancouver. They didn't experience a crash, but their prices have plateau'd or dropped 5-10% the last 12 months.

Prices cant just go up forever, think about how hard it took you to save up for a down payment? why risk that?

valid question, and to be honest it all depends.

but how do you know you will be living in Vancouver for the rest of your life? What if there's an unexpected career opportunity in another city? What if theres a major recession in Vancouver and you need to move to find work?



also, there's a lot of uncertainty right now, why not wait to see where the market is heading especially if you are living at home with parents. ask yourself? what are your thoughts on where the market is heading? Do you feel like it's going to increase 20% next year? if yes then buy now. but most likely you are thinking like most members on here, that it's probably going to stay flat or decrease - with a chance of it dropping more.

so why not wait until next year' to see if it stabilizes or see what the market is indicating. you live at home, save up more money for your down payment. if the market drops 5-10%, congrats, you just saved 30-100K on your purchase price without doing anything. if the market stays the same, you now have a bigger down payment and you will be paying less interest costs to the bank.

You are correct.

It's all about risk tolerance and the ever dreadful "it depends" (as in moving to another city, life milestones, emergencies, etc.).

I've known some friends who thought buying in 2007 was too expensive.

Fast forward 6 years, and the price of the houses they were looking at increased by 30% to 50% or even more (varies).

And lo and behold, they buy a house in 2012 and rent out the basement suite, because they didn't need that much space.

So, it depends.

It's like rolling a die, and see how it lands.

I agree, right now, it is a bad time to purchase for new home buyers.

What if you buy a house and rent out the basement? Can you do a calculation on that?
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Australia is just like Canada, commodity based economy which escaped recession bc of combo of having and selling commodities and going with lots of easy cheap money.

What happens here will, roughly, happen in Australia, and vice versa

Not like for like.

If u rented a house with a basement suite, you would rent out the suite in both situations, so that's not a very good thing to do, as it tells u nothing

my thought process: say I buy a house with a basement suite for around 600k (at the suburbs) I rent the basement for 1000 dollars and live at the upper level. Based on his said calculations of 20% mortgage and 3% interest rate wouldn't I still be better off than renting? (I didn't do any math, but I feel like this puts me in a better position than renting.

Posted via RS Mobile

houses are a bit different since I feel that land will always be worth something. But to buy anything decent, with a basement suite where people would actually want to live, on the mainland, i.e Vancouver/Burnaby/Coquitlam, you will need to spend around $1,000,000 - $1,200,000, which means you need a $200,000-$240,000 down payment and a $160,000-$200,000/year family income to actually be able to afford that mortgage. I would think that most people on this forum are not there just yet.

Here's a screenshot from the mortgage/affordability calculator on realtor.ca It's a great tool, you guys should use it.

http://img202.imageshack.us/img202/1666/77kz.jpg


I do understand that if you are buying for the long term, the market variances will eventually become negligent. But, you still have to worry about renewing your mortgage every 2,3,5 years, depending on how long you sign for...

Quick example using the 1 bedroom apartment above:

You bought the apartment, put $68,000 down, spent 5 years paying for it, which cost you $77,233.80, and you still owe $232,490.81. Now after 5 years, the bank decides to have your apartment appraised and you find out that it's value has decreased by 20%, now it's worth $272,000. (not impossible). now you still need to have 20% equity in the mortgage so they renew you, which would mean you need to have $54,400 equity and the bank gives you $217,600. Except you owe $232,490.81. So the bank says, "you have to give us $14,890.81, or we aren't renewing your mortgage."

So, how would you feel then? The $77,233.80 that you've spent paying over the past 5 years has disappeared and you need to pay another $14,890.81 to keep the place. That is a $92,124.61 risk you take buying a place in the current market and having it go down by 20% in the next 5 years. Of course you could try and sell it and a few lucky ones would, but the rest of the prices will keep decreasing making the problem worse. Say hello to 2008 USA.

If you haven't seen a movie called "Inside Job", you should watch it. Explains this concept in great detail.

You should never calculate the purchase of a property to include a rental. Rentals are not guaranteed and can cost you A LOT of money if things turn sour.

Any rental income should be viewed as a bonus income.

Your argument sounds good but please tell us where you are getting this info from and what qualifications do you have in the RE industry.

Good posts above. We're always told that buying a home would build equity... you're never told negative equity also exists.

what info lol? this is just basic math showing potential risks and rewards of buying vs renting. you don't need to have "qualifications" to be able to figure it out for yourself

Qualifications in RE???

I wouldn't consider people with a RE license a good source of information when it comes to economics or personal finance.