Rental rates are on the rise.
Interest rates are on the rise.
And house prices are coming down.
So what does this mean? Should you rent or is it the right time to buy?
We need to look at historical averages over 25 year terms instead of just today’s market, as any savvy investor looks at investing in a long game format.
There are a lot of factors which could make a mortgage or rental payment higher in a similar home, so to keep this apples to apples, let’s compare a recent freehold sale on the Hamilton Mountain with a similar recent rental in the same busy street location. They are both bungalows in decent shape with 3 bedrooms and 1 bathroom.
The purchase price for the bungalow was $455,000.
If you put the lowest amount down possible at 5%, your monthly mortgage payment would be $2,326 on a 25 year amortization at today’s variable interest rate(3.8%).
Add in your monthly taxes and home insurance at approximately $358, and your total monthly payment is $2,684.
The rental property was leased at $2,000 per month.
So, if you only look at it without an investment lense, the summary might sound like it’s $684 more per month to own versus to rent.
BUT you would be missing the big picture!
Homes are one of the safest, if not THE safest long-term investment available. If you factor in the Canadian Housing Market yearly average appreciation of 6.1% over the past 15 years, this home could be worth around $1.55 million if you bought and held the home for 15 years. This number gets even more impressive if you decided to add improvements and renovations.
So, if you subtract your initial investment of $455,000 you’re looking at about $884,443, in appreciation over a 25 year amortization. If you take that figure and break it down to a monthly appreciation it equates to $2,948.
Subtracting that number from your monthly payment you are actually MAKING about $263 a month if you hold it for 25 years, plus you get your entire investment back, walking into retirement with over 1.5 million in your pocket from that one investment alone, and keep in mind, these were extremely conservative numbers.
When you rent you are not building any equity, and collecting no future money, while making your landlords monthly payments on their appreciating asset. You are building someone else’s wealth.
It’s really not so much about when to get into the market, but to buy and hold for the long game as soon as possible to see your money grow in a safe long term investment.
So now that you know the breakdown of both do you think it’s more affordable to buy or rent!?