Save. Spend. Splurge.

Ask Sherry: Should I buy a $1.1M home or continue to rent?

Hi, Sherry! I have a question related to the cost of real estate. In my city, a 2-bedroom apartment costs the equivalent of 1,025,000 CAD in a pleasant area.

That sounds like Toronto.

For the same apartment, the rent is the equivalent of 3,294 CAD. The income here, for contractors, is similar to what you are making. My net worth now, in cash, is half the price of the above apartment (and this is all I have).

So around $500K.

If you didn’t have a house of your own right now, at your age, what would you personally do given these prices? Buy an apartment at this price? Rent?

This is tough but I will get into the full range of thoughts below.

Rent while waiting/hoping for a bear market when house prices hopefully would be lower (but I’m not sure how much lower they can be in major cities)?

Major cities are a serious cost of living suck.

Move to a cheaper, more rural area and commute to the city?

If this is an option, okay, but my thoughts on commuting below.

I’m not sure if paying rent for an entire working lifetime is a good idea. In a working lifetime, you would have perhaps paid the place that you rent, but, by renting, in the end you will have nothing left from that money.

*sob* Don’t say this please! My argument for why renting is not throwing away your money, is below, in great detail.

It pains me to hear that people think you rent, and at the end of your life you have “nothing to show for it”. *tears*

Homes to me, are a great way for people to save in general, but not necessarily the best way to invest your money if we are taking emotions out of it.

You don’t have “nothing” at the end of it if you are renting because if you are disciplined in saving, you could have much more, it just isn’t a physical asset.

More on that below.

At the same time, borrowing thousands of hundreds of dollars is a risk.

Only if your job isn’t stable. If it is, maybe it’s not that risky.

So what would you do? Thank you.

A completion to my question about the cost of a 2-bedroom apartment: half the price of that apartment is my net worth in cash at about your age. I’m poorer. 🙂

Listen, if you have $500K saved and you are my age, you are doing awesome.

I don’t give AF what anyone says, and you really shouldn’t compare your net worth to a weirdo like myself. I make an unusual income for someone my age for the hours and position I work, and I generally save a good chunk of it instead of spending it paycheque to paycheque like some of my other colleagues.


Look at the averages for people our age:

I am in the class of 2006 in this case, and the average net worth is $16K.

$500K? You’re crushing it.

Onto your home ownership question

So the math you have to do, is what it would cost to put in every penny you’ve got into a property, having it tied up, versus having it liquid and renting.

Let’s do some straight math, very simple compounding interest.

House: $1,025,000

Down Payment: $205K minimum – 20%

Mortgage: $820K

(By the way, my general rule of thumb is — take the cost of your home, and if you take a mortgage, you will have paid that cost of the home over the period of time. So $1M home, $1M in interest, you would have paid $2M at the end for a $1M home… of course, not taking into account that your home went up in value as well… On paper that is.)

Mortgages depend on your qualifications

Remember mortgage qualifications depend on your job, salary from your T4 or W2 for Americans, and not from what you have as a net worth.

As a freelancer, I would have been denied for a mortgage even though my net worth at the time was nearing $500K at my age, because I do not have a steady paycheque, take dividends and therefore have no T4 salary income, and generally look like a big red flag to lenders.

Going rates in Canada are only locked in for 5-years at best

Now remember that in Canada, we only have fixed mortgages up until 10 years, but if you choose 10 years, the rate doubles.

So I checked out the going mortgage rates at TD Canada Trust, and it looks like the special rates are 5-years fixed, at 3.07%.

IF you were in the U.S., and you could lock that ish down for 30 years?


*after reading my whole post and thinking hard about it of course

If you go any higher, you’d be looking at 6%, so I took that into account being conservative, I would put your estimated rate at 6% which is still very low, only because you would have to refinance your mortgage after 5 years, and for every 5 years after that.

The point is — in 5 years, is it going to stay at 3%?

Is it going to go up to its historical average of 11%? I do not know. But it might.

The past decade has seen very low mortgage rates, but that is no indication that it will be like that forever.

This is a crystal ball I don’t possess, and a risk you take when you take a mortgage and get a “great rate” at 3% but then the Bank of Canada raises rates, and you get #$*@ because you are suddenly saddled with an extra bump in mortgage payments.

Are you able to absorb increased interest rates?

Maybe I am wrong and it is 30 years of beautiful 3% refinanced every 5 years until the house is paid, but let’s be pessimistic in this case, not optimistic.

You’d pay $4877.55 a month for your mortgage and $935K in interest

I inputted numbers into this mortgage loan calculator, and got that your mortgage payment would be $4877.55 a month but what kills me is the $935K in interest. O_o

Now, I don’t know what your budget is, but that’s a hefty chunk of money per month, with a possibility that it could go up over time (of course, we could assume your salary will also go up as well to combat the , but that’s another story).

You’d pay an extra $1583.55 a month over renting and don’t forget the other costs…

So with these rates, you’d pay an additional $1583.55 a month over renting something similar, and everyone always forgets about the stuff that comes with home ownership that NO ONE remembers to factor into their budget:

  • Property taxes
  • School taxes – yes you pay for the schools around your area
  • Increased utilities
  • Condo fees – what you’d need to save aside anyway, even if you owned a home; what if your roof goes? My parents just paid $4K to fix their roof last summer
  • Increased spending in general for repairs – paint, renovations (budgets are estimated at $15K and they ALWAYS GO OVER or double)
  • Snow removal and other fees – not sure if this is included in condo fees depending on what you buy, but some smaller 3-story condos have these extra fees on top of their condo fees
  • Appliances – if they don’t come with the home that is

…. you get the idea

I’d budget another $1K for all of that, at a minimum.

Again, don’t know what your budget is, what you spend, how much you save etc.

Renting is not throwing your money away

You are not throwing your money away and down the drain when you rent, because you are paying the landlord the amount of money that they need to just keep the place going; you are paying them for their invested capital that you did not have, that they put into the place along with the mortgage they took, and all the fees they pay.

Many landlords don’t actually make that much of a profit at the end of the year if they have a mortgage, it isn’t until the place is paid, that it really starts to generate money, and they see it as a capital asset they can divest of (sell) a paid off place to obtain the proceeds and release the capital to live on as their retirement.

That’s the REAL deal with real estate from what I can gather. It is forced savings. There is a goal.

Many just break even, if that, especially in very $$$$ areas because not many people have $3000 to splash on rent, let alone $5000 or whatever these people are asking for million+ dollar properties, as that is kind of what they have to pay themselves each month, taking into account condo fees and so on.

Many can’t even afford to pay a management company to handle tenants for them so they can just dust their hands off and not be troubled by people calling at 11 p.m. screaming the hot water is out.

A friend I know, has 8 properties which he has to manage on his own almost like a full-time job, and starting next year when he retires, he wants to sell one property to live off the proceeds, then another, and another…

That’s his retirement plan, and he has nothing invested in the stock market. Everything went to properties.

Now let’s compare that against investing it in the market instead and renting

$1583.55 is the base number I will use between the mortgage vs rent only because I do not know what the costs of the other amounts would be.

Let’s assume the other stuff I mentioned with a home comes up to $2000 a month even, and that’s what you have to pay above and beyond as a renter.

The numbers I am using:

$2000 invested monthly in the market, over the same period of 30 years, with an average 7% return is, and I am also putting down the capital saved of $205K (your down payment) with this calculator gave me….

You’d have $4.1M at the end 

Okay, but let’s say you have a 3% inflation rate and 1% management fees to deal with, even with 4% this is what you have:

Still have a respectable $2M at the end.

Would a property be worth $2M at the end?

Very likely or worth more, so if you are just looking at numbers, you are going to be getting about the same amount at the end of renting or owning a place.

However don’t forget, I didn’t put in the full difference of what it would cost because I don’t have all the numbers of fees, etc that you should work out based on each property you look at.

A good rule of thumb is 2% of your home’s value should be set aside for maintenance every year – which in your case, would include the condo fees. When a water heater breaks in a condo, you kind of all need to come up with the money and pay to get it fixed.

There are no “oh I will do it later or find another solution”, and sometimes they could ask for $2K out of the blue.

Other things to consider:

You could absolutely get a smaller place, why not?

I could afford the place I had with my partner because he was paying half.

You’re alone, the math doesn’t work out as well.

He also paid cash, as I did, so that was helpful.

We bought at a lower floor, not a higher one or a penthouse with a mortgage, because we felt it was the best value for the money to buy where we did (above the 10th floor), in the angle/view we wanted (we paid a premium, thinking of resale value), with 2 underground parking spots (a huge bonus because we are two people in a household and anyone who would buy our apartment would pay a premium to have TWO locked in spots to our apartment).

Many people who took only one spot, regretted their cheapness later, but if you truly can’t swing that extra cost, get at least ONE PARKING SPOT. That’s the minimum anyone should consider in a home.

How much space do you really need?

Ask yourself that seriously.

Why two bedrooms? Why not just one?

You are truly PAYING for that extra space that you don’t need. Even if you think – oh it’s great because if I meet someone and end up having a family, you could sell that place and go somewhere else.

Why take on that space and cost now, for a future that is uncertain?

We got 2 bedrooms because we could afford it together, otherwise, if I had been alone, I may have just kept renting, or purchased in an older building at half the price, without the great view, and knowing the maintenance costs may rise in the future.

You could buy with someone else — but this is risky as well

I wouldn’t do this, but it is an option – two singletons, buying a place together, sharing the cost.

Clear cut papers on half the down payment, mortgage and payments, allows you to have a permanent roommate.

Why not? If you know someone and like them enough to live with them forever, I’m all for it.

As you said – if you can, go to a cheaper city

Hands down, a cheaper city will cost you much less in a home, and maybe it is far more affordable.

Can you do the math between a lower salary (if you even get a lower salary for moving), versus being in a bigger city with a higher salary?

Sometimes the cost per living math really works out, and it is far more affordable on a slightly lower pay, to live in a cheaper place and still afford everything.

Moving and commuting instead is my least preferred option of all

Maybe it is my holdover from being a consultant and constantly traveling but I LOATHE COMMUTING.

I take contracts I can commute to in under half an hour one way, traffic included, and I really really REALLY dislike spending my life stuck in traffic, stressed out after a long day, or just about to start a long one.

I sort of don’t understand, intellectually, why anyone would want a huge house in the middle of nowhere, and then to commute a long ass time to work.

If you’re doing it to be in the country, own 1-acre, have complete peace and quiet and your commute is ALSO under half an hour one way, GO FOR IT.

If you are doing it just to have a bigger place, and/or your commute will be crazy, might I remind you that you may not even have time to spend in your huge palace because you’ll be stuck in traffic there and back?

LOL. Sorry. Just thinking of all the people who do this and hate their lives and wish they could retire / quit and win the lottery so they wouldn’t ever have to commute again.

I can’t speak for you – I don’t know what your commute would be, but if it is more than half an hour, seriously reconsider.

Also, if being out in the boonies means you have to travel more often into the city to do groceries, errands etc… not just for work, doesn’t that just ruin being out so far?

I mean, you spend most of your time in the city anyway, and that is why I’d pay a premium to live in the city, close to amenities and so on within walking distance if possible, rather than live in a huge place and have to commute.

That’s my 2 cents. I truly hate commuting. Can you tell?

You can’t eat your home

You must be giving me a look right now, but you can’t. Unless you sell your home (which means it is your retirement plan), and/or you also save like a mofo on the side to have equal retirement accounts to your place, you need somewhere to live and something to eat.

If all you have at the end is your home, you’re house-rich, and will have to sell it to eat.

My parents are in that position – almost a $1M home paid off already, but barely anything in savings if at all. That’s not a life I want to live, which is why we chose a cheaper apartment in the area we wanted.

Location is everything

Always buy the crappiest home in the best place possible. Those are some WISE ASS WORDS everyone should follow.

I know someone who bought a nice home in a crappy area, and now the place isn’t even worth what they initially agreed to pay for it, and they are stuck – they would have to PAY TO GET OUT OF THAT HOME.

How crazy is that?

So, buy wisely – in the best location possible and remember that housing prices are not always going to go up, if you index it against inflation and factor in the lost earnings from not having the money invested instead.

Don’t assume houses will always go up in value

Housing prices in the past 50 years, have definitely made some money, but generally speaking (cannot say for everyone), did not make as much as if it was invested in the market during the SAME PERIOD.

Housing prices these days are inflated.

People used to buy a home for $100K back then and even indexed against their dollar at the time, was considered cheap, versus what we have to pay now for the same home, looking at real dollar values and costs.

Homes are for sentimental reasons

More often than not, homes are just places to live. You buy a home for SENTIMENTAL reasons, because you want a permanent place (I totally get this, and women are definitely hit harder with this need for security than men), and renting seems so up in the air – “we could get kicked out at any time if the landlord wants to sell! our home where we raised our kids is going to have to change!” – and I COMPLETELY understand this. ‘

Trust me. I do.

However if we are looking at just the costs of owning a home, it is more or less not worth it versus the financials of having it invested instead.

Is your job stable?

The real questions are:

Do you really want a home?

How badly?

..and is your job stable?

Can you keep up with those payments for 30 years?

Sometimes, we buy what we want, and go against our numbers and technical judgment because we are emotional creatures, and that is perfectly fine.

Only you can really make that decision for yourself, and no one else, but I at least showed you the numbers and that renting is in fact, NOT a bad deal, if you take that extra money you would have spent on a mortgage and put it into investing instead.

Hope that helped. <3


  • Keni Akins

    This is such an enlightening post. Thank you very much for sharing.

  • md

    Is there any way to tell when a property is overpriced?
    Do you compare it to the rent to see if it is overpriced?
    What calculation would you use?

    • Sherry of Save. Spend. Splurge.

      You could try the 1% rule but I have never found a property like that here.

      A property that costs $100,000 should rent for at least $1,000 per month
      A property that costs $200,000 should rent for at least $2,000 per month
      A property that costs $300,000 should rent for at least $3,000 per month

      That means you’ll get paid back in 100 months. Obviously you’ll need to do the math to see if you paid more and charged less in rent, how it would play out.

      I know people who find cheap properties and put the rent so cheap that people are very reluctant to move and turn into forever-renters. That’s ideal to have someone in there full-time and not much change in tenants, but also tricky to find/balance.

  • E

    I love this article and it is so true what you are saying here. I used to be the biggest proponent of owning a home but then housing prices crashed in Calgary. We started crunching the numbers and realized how much money owning a house actually was, especially when you no longer have the gains in the house value to help offset your costs.

    We’ve now sold our three (!) properties (and I should add that we lost a lot of money on the sale of two of the properties) and are renting. It costs us less to rent when you consider the rising property taxes here in Calgary. When we used to own two rental properties, we had a mortgage on both properties and barely broken even each month. If some major repair was needed, then you definitely were losing money.

    We’ve now taken the net proceeds from the sale of those three properties and invested them in the stock market, they are performing much better compared to house prices in Calgary!

    • Sherry of Save. Spend. Splurge.

      Oh god.. I’m so sorry you lost money on these properties. I am not a fan of real estate if people are not informed and keep saying things like: “Housing prices will ALWAYS go up. You will ALWAYS make money on a home.” I really.. really.. dislike that.

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