Whether you’re looking to buy or rent in Toronto, there are a few things one needs to take into consideration before you can sign that lease, or get approval for your mortgage.
For starters, the Canadian real estate market has been in somewhat of a frenzy in the last couple of months. This comes after months of decline caused by extensive lockdowns, and buyers putting their money into savings for post-COVID purchases.
As demand skyrocketed in mid-2021, with most restrictions lifted, and people now on the hunt for a new property, demand quickly surpassed supply, which left much of the Canadian, and Toronto real estate market in a short squeeze.
By the start of January 2022, the market was still showing signs of being over-active, with young buyers now moving back into the city, and work-from-home protocols being lifted. As more and more people started looking for that perfect property again, prices went soaring, and the market was left short supply.
While it’s been a rollercoaster year for the property market, prospective renters and buyers are now somewhat on the fence – either continue renting a place or perhaps apply for financing to purchase a home.
While there are a lot of contributing factors that can quickly influence the final decision, above the obvious being finances, personal needs, and of course the location – one needs to consider how either of these choices could impact you in the long run.
There’s of course a lot of good and bad to each side, and whether you’re torn between the two options – here’s a quick rundown on whether you should rent or buy in 2022.
Owning property, of any kind for that matter, is something a lot of us have been dreaming about for decades. Buying any form of property takes time and a lot of deliberation.
One needs to consider whether or not you are in a comfortable financial space to make such a big purchase. You also need to consider your lending options, and whether you have enough credit to apply for secondary financing.
While owning real estate puts you in the driver’s seat of becoming a bit more accomplished, a host of contributing factors should be considered well before closing the deal.
Here are some of the pros when looking to buy a home.
- Capital Gains Tax Exemption: According to the official website of the Government of Canada, capital gains tax exemption on a property simply means that when you sell your property, and it was solely your principal residence for the time you owned it, you are exempt from paying any taxes on the gain.
- Owning a physical asset: When you purchase a home, even if it’s for the first time, you are now the sole owner of a physical asset. You can either rent it out or use it as a home for yourself.
- No Landlords: You are the landlord, meaning you do not have to answer to anyone else about what you’d like to do with your home, except the local housing authorities, but other than that – you’re in control of your home.
- Financing Options: Although it may seem like a bit of a stretch, there are ample financing options currently available, making it easier for younger buyers as well to tap into the real estate market.
- Homes can become an investment: Perhaps it might not seem as if you’re purchasing an investment, but buying real estate can be an investment for those looking to rent out their property, or make use of it for something else.
Here are some of the not-so-positive things about buying a house.
- Buying a house doesn’t guarantee wealth growth: Although it might seem that when you purchase a house or condo, you will grow your wealth through other means, such as cutting back on rental costs, or perhaps renting your property. This isn’t usually the case and will take a few trial runs before you can get your wealth to start growing through property purchasing.
- High upfront cost: Typically speaking, the first down payment made on your home is one of the biggest hurdles you may need to overcome. While some down payment schemes can be as low as 3%, you need to consider that the lower your down payment, the higher the interest rate on your mortgage principal payments will be. You should also include closing costs with your lender, which are between 3% and 6%.
- Property Tax: Owning such a large asset comes with a list of taxes and additional fees. Property taxes do however pay for other local services such as roads, schools, and public park maintenance.
- Home Owner Fees: Besides having to pay for property taxes, you also need to budget for HOA fees, insurance, private mortgage payment interest, and your utility bill. Consider monthly carrying costs within the purchase price.
- Less Flexibility: If you own the property, real estate, or condo you live in, you have less flexibility to simply move again, or relocate to a different part of the city. This is a difficult calculation to make, as your current situation may not look the same three or five years from now. Same with the neighbourhood, perhaps your local neighbourhood starts to downgrade in quality of living standards.
Buying a home means you will be fixed to both the mortgage you need to repay and of course the location where the property is. There are also some additional considerations such as upkeep of the property, and that buying is a long-term investment that won’t see you grow wealth over time making it a bit riskier than renting.
While a lot of us have spent some greater time of our lives renting an apartment, condo, or perhaps a small studio flat, it does come with its perks as well. Renting has always been considered a lot easier, and perhaps a bit more affordable, depending on where your rental is located.
Renting also gives you a lot more flexibility, you can simply lock up and go whenever you feel like it, additionally, maintenance costs are low, you don’t need to pay additional fees or taxes, and if you have a decent landlord, you might get some utilities for free.
These might sound just perfect, but there are also a few negative sides to renting which we will look at below.
Here are some of the positive things about renting:
- Minimal costs: It’s not always the case, but it does sometimes happen that renting works out a lot cheaper than buying, especially if you look at the mortgage payment rates, interest, closing fees, down payments, and then additional monthly costs. Renting helps you keep residential costs to a minimum, from HOA fees to maintenance costs.
- Maintenance is minimal: Renting also means that when something breaks or needs replacement, without due negligence, of course, the owner or landlord will usually be responsible to pay and replace it. Usually, they will have some form of insurance for the property, which helps them save a bit, but the overall upkeep of the residence, which isn’t stipulated in the rental agreement, is left for the landlord and owner to oversee.
- Better flexibility: If you live in a small apartment, but you’re looking to move to a bigger condo downtown, renting allows you more mobility and flexibility. Depending on the rental agreement or lease, you’ll be able to either cancel your lease during the time of renewal or perhaps find someone else to take it over for you. There’s no long-term or full-time commitment to renting.
- No high insurance costs: When renting, you might have some form of insurance on your personal belongings, but in most cases not on the property or rental itself. That means, if something is supposed to happen, either a fire or burst pipe that causes flooding, that wasn’t caused by you, the landlord or owner of the rental will have to cover the cost of the repairs.
- Less concern over lowering real estate value: As the property, and the surrounding neighbourhood or real estate age, it might start to decrease, which will see the property value decreasing alongside it.
Perhaps renting is not all that it seemed:
- Answering a landlord: This is perhaps the biggest drawback of renting, is that you will have to answer to someone else, whether it be the landlord or the owner of the rental. More so, you will need to abide by their rules and regulations, and in some cases, it might be more of a hassle than what it initially looked like.
- No permanence: You’re simply renting, and at any given time you may be requested to either give up your rental this can be with or without long enough notice. This puts you in the difficult spot of having to find a new place to live and can incur additional moving costs, a rental deposit, and increased expenses.
- No fixed rental amount: The landlord or owner can increase your rent over time, this may be to cover additional upkeep, maintenance, or as we’ve recently seen to keep up with the rising costs of utilities and inflation.
- You’re not allowed to make any changes: While there are cases where you’re allowed to make changes to the property with prior arrangement, in most instances you’re not allowed to make any structural or interior changes to the rental, meaning that you will have to live with what you are given.
- Less privacy: For those who live in a large apartment or condo building, privacy does come at a price, and perhaps you see yourself paying less for a place to live, you might need to give up the privilege of having more privacy in and around the property.
Yes, renting may have a bit more flexibility, but when you consider you might not be allowed to have any pets, the fact that you’re not building equity or missing out on property tax benefits, you might need to start looking into purchasing a full-time residence rather than paying someone else.
Comparing the Monthly Expenses
So what’s cheaper, buying or renting? While there may be various viewpoints on which is better for your budget, it’s not always to say that buying could save you more money in the short term than in the long run.
A variety of factors can influence the monthly costs such as personal lifestyle, your surroundings such as local amenities and attractions, mortgage and interest rates, and how much you’re willing to spend each month on certain expenses such as taxes, insurance, utilities, and more.
When buying, there are two different categories, one-time expenses, and ongoing expenses, and these can range depending on the type of real estate you’re looking to purchase.
These can include, appraisal fees, legal fees, land transfer taxes, minimum down payment costs, upgrades, moving expenses, and title insurance fees.
For ongoing expenses, you will need to budget for HOA fees, mortgage insurance, property taxes, mortgage interest, home and real estate insurance costs, monthly utilities, and maintenance fees such as gardening, pool upkeep, condo upkeep, or building fees. There could also be other monthly payments that should be included in the financial strategy.
Renting does also come with its own set of challenges and financial costs, and perhaps it might seem cheaper, that’s not always the case.
Security deposit, transfer duty fees, moving expenses, there may be some legal fees, but this isn’t a common occurrence.
Monthly rental fees, monthly utilities such as electricity, gas, and water, personal living costs, tenant fees for upkeep and maintenance. Other montly payments can vary from person to person.
To narrow it down on what works out cheaper, consider the following example:
Renting a property at CAD 2,500 per month over five years accumulates to CAD 150,000 in total rent paid.
Now, buying a house for CAD 850,000 with a 20% down payment at a 2.95% interest rate, and 25-year amortization accumulates to more than CAD 169,417 in repayment.
Purchasing a house or property of this value, compared to the amount of rent paid over five years, makes it CAD 19,417 more expensive than renting at the end of year five.
In this specific scenario, buying real estate will only work out cheaper if you stay longer than 6.17 years, but over time, renting is considered a lot more affordable.
This is one specific scenario, and at the end of the day, when you take into consideration the additional fees and taxes that come with the monthly mortgage, for someone who’s not in the financial position to buy real estate, renting is a lot better.
How Do I Buy a House in Toronto?
You will first need to have incurred some forced savings to secure a down payment. Then you can apply for mortgage payments and after you’ve been approved find a real estate agent that can help you look for your home. Once you have placed an offer on the home, you will need to complete a home inspection and finally close the purchase with a property lawyer.
Is Toronto More Expensive than New York?
According to the latest consumer prices in both Toronto, Canada, and New York, US, the cost of living is around 26.38% lower in Toronto than in New York, excluding rent, and including rent, Toronto is roughly 37% lower. Rental prices are roughly 50.08% higher in New York than in Toronto, with purchasing power also being 3.54% higher in Toronto as opposed to New York.
How Much Can Rent Increase Ontario 2022?
The current maximum allowable rent increase for Ontario in 2022 is 1.2%.
Whether you’re looking to buy or maybe you’re comfortable with renting, the final decision is purely based on personal reasoning and financial security.
While buying gives you better housing security and increases your credit, it does come with additional taxes and fees. Whereas renting can be more affordable, and allows you more flexibility to easily move around, you have a less fixed monthly rent over time, and you will still need to adhere to the landlord or property owner’s rules and regulations.
Both buying and renting give you the ability to have more freedom, and a great sense of independence. The bottom line is, you should consider the option which works best with your budget, but also look for a place that aligns with your needs, and that can offer you the best sense of financial security.