Budgeting, Discussions, For Beginners, Money

Buying, Comparison, Costs, Debt, Home, Homeowner, Money, Mortgage, Renting, Things people don’t think about

What it costs to buy a home versus renting one

Obviously as I don’t own a home, these are just estimations based on mortgage calculators I found online, and notes from other sites put into one big table.

SCENARIO: MONTREAL, CANADA

Buying a home in Montreal for $400,000 versus renting a similar-sized place for $1700 a month.

NOTE: Jane Savers in the comments did make a good point though that a house is forced savings.

Keep that in mind, if you suck at saving.

I do not necessarily suck at saving, I suck at working which hinders my saving, but that’s another post for another day.

I also suck at not spending money.

Montreal is considered reasonably priced right now, even with this housing market bubble that we’re in, so this seemed like the best place to do a comparison (plus, I am planning on living here soon).

ONE-TIME / FIRST YEAR EXPENSES	OWNING A HOME (YEARLY)	RENTING (YEARLY)	NOTES
Down Payment	$80,000.00	$0	Assuming you put down 20% so you don’t pay for mortgage insurance
Rent/Mortgage	$1,805.07	$20,400.00	25 year amortization, Mortgage amount for $320,000, 10-year low fixed rate at 4.690% paid monthly (will have to re-negotiate in 10 years)
Utilities	$2,045.00	$0	Homes cost more than apartments to heat, etc; a lot of places are all-inclusive for utilities
Maintenance / Condo Fees (3% a year should be set aside if you’re prudent)real homeowners say this should be half that, or at least, based on housing estimate. See update & comments*	$12,000.00…or… $6000*	$0	Includes things like pest control if they show up, etc but the landlord takes care of this in an apartment
Taxes (Municipal / Provincial)	$3,766.00	$0	Only for homeowners
Yard Care	$1,200.00	$0	If you have a home with a yard (or even if you don’t, condos charge a maintenance condo fee)I suppose this should be included in the Yard Care number above, but I separated it out.
Home Insurance	$840.00	$408.00	Always insure your home; apartments are cheaper to insure
Parking	$0	$600.00	I paid $50 for a parking spot but parking may be up to $100 a month depending on your rental situation
Closing Fees (See chart below)*	$20,000.00	$0	Between 2% – 5%
Moving Expenses	$5,000.00	$5,000.00	Let’s assume it’s the same
Post-Move Costs	$2,000.00	$500.00	Hooking up cable TV, telephone, water, fixes, painting, decoration, appliances (homes may not come with them)
TOTAL FOR THE FIRST YEAR	$128,656.07…or… $122,656.07 (assuming the real home estimate is not $400K but $200K)	$26,908.00
DIFFERENCE	$101,748.07…or…. $95,748.07 (assuming the real home estimate is not $400K but $200K)		Give or take, you need to shell out about 3.78X the capital for the first year of your home versus if you rented.Let’s say 2.5X – 3X, because it depends on fees and closing costs too.

SUBSEQUENT YEARLY EXPENSES	OWNING A HOME (YEARLY)	RENTING (YEARLY)	NOTES
Rent/Mortgage	$21,660.84	$20,400.00	25 year amortization, Mortgage amount for $320,000, 10-year low fixed rate at 4.690% paid monthly (will have to re-negotiate in 10 years)
Taxes (Municipal / Provincial)	$3,766.00	$0	Only for homeowners
Yard Care	$1,200.00	$0	If you have a home with a yard (or even if you don’t, condos charge a maintenance condo fee)
Utilities	$2,045.00	$0	Homes cost more than apartments to heat, etc; a lot of places are all-inclusive for utilities
Maintenance (Fund should be 3% a year to take care of home stuff)*real homeowners say this should be half that, or at least, based on housing estimate. See update & comments	$12,000.00…or… $6000*	$0	Includes things like pest control if they show up, etc but the landlord takes care of this in an apartment
Parking	$0	$600.00	Parking on average is $50 a month depending on your rental situation
Home Insurance	$840.00	$408.00	Apartment insurance is cheaper than home insurance
TOTAL FOR SUBSEQUENT YEARS	$41,121.84…or.. $35,121.84 (assuming the real home estimate is not $400K but $200K)	$21,408.00	Renting is significantly lower.
BUT WAIT! There’s more!

Furniture, Renovations, Purchases for the home	$10,000.00		EVERY homeowner feels the need to do or add stuff to their home each year; renovate the kitchen, build a deck, etc
Estoppel certificate fee	$100.00		Only for condos, and not in Quebec
GST/HST (One-Time)	$20,800.00		Only for newly built homes
Mortgage Default Insurance	$200 – $11,600 a year		If you have less than 20% down; the more you put down, the less mortgage insurance you pay

UPDATE #1: Real homeowners chime in!

Apparently $12,000 is really steep for maintenance.

(What do I know? I don’t own a home!).. but real homeowners in the comments have come up with more realistic numbers if you want to read what they’re saying.

Also, the 3% as pointed out by the commenters below, should be calculated on the home’s estimate, not the home’s VALUE.

See, sometimes a home can have a city estimate of $200,000 let’s say but have been sold for $400,000 because of the neighbourhood, fancy upgrades, etc.

The 3% should be calculated on the $200,000 not the $400,000.

3% x $200,000 = $6000/year or half.

I am going to keep it at $12,000 in the charts for the sake of continuity but add the $6000 note in there.

HOLD ON.

I AM MISSING THE MOST IMPORTANT PART OF ALL OF THIS!

Everyone always says:

“When you buy a home, you are paying yourself and building equity instead of paying some landlord.”

Yes, they’re true, but have they considered what it costs to borrow such an amount of money to purchase a home?

Ahh.. you didn’t think the banks were so foolish as to give you a huge chunk of money for FREE, did you?

Even with interest rates at a record low (the historical average is at 11.45% – 12.71%) (Source), just check out this quick mortgage calculation I did.

(If this doesn’t convince you, nothing will.. really..)

I took the mortgage of $320,000 (80% of $400,000), assuming like a responsible saver, I put down my required 20% down payment to avoid paying 0.5% – 2.9% in mortgage insurance fees each year.

I pay my mortgage monthly, for 25 years (max time), at 4.69% (A STEAL I tell you!)

Looks all right so far?

Let’s check out the highlights I made here:

1. Balance at the end of term

…means that at the end of 10 years with 4.69% as my mortgage interest rate, I have to re-negotiate for the next 10 years another fixed rate.

At this time, the interest rate is SURE to be higher than 4.69% (maybe at 9% .. or 11%?) and my mortgage payment will be higher as a result.

I won’t be paying $1805.07 each month because they’ll require a larger pound of flesh to cover the interest.

(Note: Principal is what you actually build in home equity whereas Interest is what goes into the banks’ pockets.)

Furthermore if you look at your payment of $1805.07 a month, only 30% of it is actually building equity.

The rest of it at 70% is making the bank richer each month.

Did you get that?

Only 30% of your mortgage payment in this case, is building equity.

*mind boggle*

You are paying more than 2/3 of your equity for the privilege of being able to borrow money.

2. But what if I’m wrong and the interest rate stays the same?

You’re right, let’s consider that super, duper, best-case, unicorns-romping-through-wildflowers scenario, shall we?

Take a look at the amount I will pay at the end of 25 years.. IN ADDITION to my mortgage (principal) amount of $320,000, also known as Interest Cost at Amortization.

Do you see that?

$221,505.76 in interest costs alone

That’s how much you will pay in interest over 25 years, to buy a home that is worth $400,000 even putting down 20% or $80,000 as a down payment.

Your total cost for the home?

$80,000 down payment
$320,000 principal (paying off the home, for a grand total of $400,000 in equity)
$221,505.76 (what you had to pay the banks for the privilege of being loaned $320,000 over 25 years at 4.69% interest)

TOTAL = A Heart Attack

… Just kidding. It’s $621,505.76 for a $400,000 home.

You would be paying about 70% of your borrowed home’s value ($320,000) just in interest costs alone.

That’s not even taking into account renovations, repairs, and all that junk I listed above.

Ouch.

Oh and let’s not forget that this money is sitting tied up pretty in your fixed asset of a house, and it is not on the stock market in an index fund earning 5% – 7% a year.

You’re banking on basically having an asset (your home) that will return 5% – 7% at the end of 25 years by appreciating in value, are you not?

Although we should consider that selling a home also costs money.. like $30,000 more, so let’s make it $650,000.

Do you think your home will be worth $650,000 in 25 years?

Maybe. Maybe not.

Does not that sound risky? Or as risky as putting money on the stock market?

It does to me.

SO WHADDYA SAYIN’ THEN? NEVER BUY A HOME? EVER?

Au contraire.

I am not saying “NEVER buy a home”.. I am saying buy a home with your eyes wide open, and stop saying glib crap like: Buying a home is better than renting, unless you have facts, numbers and figures related to your situation in your city and area to back up such a claim.

In some areas, buying a home makes more sense. YES. MORE SENSE. But you need to do the calculations.

Put down as much as you can on a home, don’t go homeowner HGTV renovation and buying crazy, and avoid carrying a mortgage (pay it off as soon as you can).

DO THE MATH between renting and buying FOR YOUR AREA AND YOU, is all I am saying.

Do. The. Math.

Don’t accept what everyone keeps saying such as:

“Stop throwing your money away on rent”
“You are only paying a landlord and aren’t building equity”
“Owning a home is the only way to become wealthy”
“You will never get anywhere if you don’t buy a house”
“You need a house!”
“The Baby needs a house!”
“You’ve outgrown this house and need way more space!” (Read this post)
“The dogs need a house!”
“You need a house so you can host guests who come only once in a blue moon to visit you!”

Bla bla bla!!

…

All of the above is just making me even more determined to buy my first place in cash. Or with as much of it in cash as possible so that I avoid those interest payments, and everything going forward is gravy.

Otherwise, I don’t really plan on buying anything. Nor do I want to.

UPDATE #3: Considering the cost of rent rising as well

I did consider rent going up, but I am also assuming that their income goes up along with it, which would keep in line with rent increases.

Furthermore, inflation would then, also affect homeowners who also have a higher income in the future which they would then be able to save or put towards their mortgage.

So I figured it was all a wash for everyone on both sides.

Plus, with renting, you can always find another place to rent and live if it becomes too rich for your blood.

Or take on a roommate and share.

With a mortgage? Not so easily. You could take on a renter for sure, but then you’d turn into a landlord and have to deal with all that.

CLOSING FEES — WHAT ARE INCLUDED IN ‘CLOSING FEES’?

This is by no means a comprehensive list, nor is it done by province or state, so you need to ask someone in your area for what applies to you.

They are about 2% – 5% of your home’s value, or $8000 – $20,000 on a $400,000 home.

So here’s what they could consist of:

Transfer Tax	$4,500.00	New homeowners have to pay a fee to obtain the property; varies by province
Appraisal Fee (One-Time)	$300.00	Professional Apprasier’s Opinion of the value of the property versus selling price
Land Survey Fee (One-Time)	$1000 – $2000	Up-to-date land survey or Certificate of Location
Home Inspection Fee (One-Time)	$400.00	Coverage to protect from title complications to own the property free and clear (unpaid liens, loss by defects)
Pest Inspection Fee	$200.00
Water quality inspection fee	$150.00
Title Insurance	$250.00	Services provided by lawyer or notary (title search, title deed, preparing mortgage, registration fees, disbursements)
Title search fees	$400.00
Attorney (Legal) Fees	$2,000.00	Recording, Underwriting, time of the lawyer and related expenses
Prepaid property taxes, utility bills and charges	$500.00	Tax and utility costs the seller has prepaid must be reimbursed back to them
Discount Points (fees to pay for lower interest rates)		Fees you may pay for lower interest rates
Credit Report Fee	$50.00
Interest adjustments		Interest on gaps between closing date and first payment date of the mortgage
Escrow deposit fee	$1000 – $20,000	Varies.

SOURCES USED

Spring Realty: How much do you have to pay in GST/HST for a newly built home?
CIBC Home Buyer Costs
BMO Home Buyer Costs
Kiplinger: True cost of owning a home
Zillow: What are closing costs?

UPDATE #2: Do not forget the cost of your realtor as well!

Good point raised! (See comments)

I always thought it was the SELLER that pays the commission for both agents, but apparently this could not be the case.

(Well it does makes sense. If you are paying $400,000 for a home, you’re basically paying for the realtors too..)

It could be anywhere from 2% – 6% of the home’s selling price. In this case, about $8000 – $24,000 in realtor’s fees on a $400,000 house.

So out of a $400,000 sale, only $392,000 – $376,000 is the seller’s to keep, and the buyer is out $400,000.

Read this post from a realtor for more insight on what realtor’s charge and how they do it.

Oh and watch out for how they’ll try to scam you too. What I am understanding is that if I buy a place, I should buy it for life.

UPDATE #4: Check out this rent versus buy calculator in case you’re interested

c/of Holy Potato – Renting versus buying

There. Now you know everything.

48 responses to “What it costs to buy a home versus renting one”

Adrienne

July 29, 2014

I love your site, but I don’t agree with this post at all. We bought an 1800sqft, 3br house for $147k (Texas) in 2008. Our mortgage is $700/mo, taxes and insurance adds $400mo, so total $1100/mo. That was 6 years ago. Our income has gone way up, inflation has gone way up and more importantly, rental rates have gone WAY up. You can’t find a two bedroom rental apt for less than $1500 – and that’s the cheapest, far away from where we work. Yet, our monthly payment is still $1100; it will never go up (except for taxes). With extra income, I put more into principal. Our rate will never change. 10 years from now if we haven’t paid off our house, we’ll still be paying only $700 for mortgage (taxes will inevitably go up) and who knows how high rentals will be. So yeah, I’m not a financial guru but rental rates increasing every year is a fact, and income does not always increase at the same rate.

Also this is for a 3br house – renting a 3br house instead of an apartment would easily be $2000/mo and increase every year. We are paying half that for the same house and will never pay more.

Reply
1. save. spend. splurge.
  
  July 29, 2014
  
  You are in Texas. I am writing from Montreal Canada.
  
  Texas has some of the cheapest houses I’ve ever seen. It depends on where you live but I did the comparison for Montreal.
  
  Reply
  1. Adrienne
    
    July 29, 2014
    
    @save. spend. splurge.: I truly appreciate you responding. I really do. I didn’t mean to sound snippy in my comment because I love your site. It probably got lost in tone, but my overall point was securing that monthly rate, I think that’s the most important thing. And it really helped that this was our first home purchase, so we were eligible for the FHB loan without putting any money down. But still rental rates increasing every year is a huge thing, even for Texas.
    
    Thanks for your site – it really opens my mind about how bad a spender and saver I am.
    
    Reply
    1. save. spend. splurge.
      
      July 29, 2014
      
      Not a problem. What I am trying to point out in my post though, are all the hidden fees no one thinks about when buying a home. A home isn’t just the mortgage, there are lot of things on top of it in addition to utilities and all the other costs that come with renting. Property taxes, school taxes.. all of these things don’t apply in a renting situation.
      
      For instance, the other day I was looking at a $400K property in Montreal (we’re thinking of buying a condo if the prices go down), and the taxes on it came up to $1000 a month. JUST the taxes.
      
      A lot of people forget about all those fees and I wanted to point it out, particularly since in Canada we have some of the highest prices for homes.. EVER.
      
      Texas is ridiculously cheap, and it’s well worth it to buy a home instead of renting there (I think there’s even a calculator online for this), but in San Francisco or NYC for instance, it’s far too expensive to consider buying anything.
      
      Reply
AJ

May 15, 2014

I am not a homeowner, but instead a renter (North York, Toronto – home of the shoebox condos!). I like the overall point of your article (that home ownership is not all sunshine and rainbows) but several of your points have serious flaws.

You said in Update #3:
“I did consider rent going up, but I am also assuming that their income goes up along with it, which would keep in line with rent increases.

Furthermore, inflation would then, also affect homeowners who also have a higher income in the future which they would then be able to save or put towards their mortgage.

So I figured it was all a wash for everyone on both sides.”

You are missing an important point: True, rent and wages go up with inflation but in the homeowners case the mortgage payment is not influenced by inflation while their wages are increased. Advantage: homeownership (not ‘a wash’).

Also you said this:

“Plus, with renting, you can always find another place to rent and live if it becomes too rich for your blood.

Or take on a roommate and share.

With a mortgage? Not so easily. You could take on a renter for sure, but then you’d turn into a landlord and have to deal with all that.”

First off.. LOL. Can you monetize the cost of moving further and further away to find the magical cheaper rent? This cost includes the stress of packing/ unpacking and also physically moving your stuff.

Also, so much for an apples-to-apples comparison. If I own a house and want to sublet a room… that makes me a landlord but subletting a room in a rented condo doesn’t?

I like you site, truly. Otherwise I wouldn’t have gotten this far into your archives. But sometimes you have to try and be a little less biased and try to present all the facts.

Reply
Potato

January 6, 2014

Don’t forget about the downpayment. When you’re renting you can invest your savings instead of having them stuck in the house, doing nothing more than offsetting the mortgage. That makes renting even more attractive if the price-to-rent multiple is high. I created a spreadsheet calculator for the rent-vs-buy comparison (though the defaults are focused on Toronto) that I believe covers all the variables.

Reply
1. save. spend. splurge.
  
  January 6, 2014
  
  Excellent calculator! Thanks for the link to it, I’ll add it to the post.
  
  I put the down payment at 20% in the sheet, but I didn’t try to compare it versus investing it in index funds earning 7% over the long-term. Just made a note of it… but as far as I understand from my own calculations, a house purchased here in Toronto / Montreal returns a real return of 0% in the long-term. That’s enough for me to understand it’s just a place to park my money.
  
  Reply
Sandy

December 26, 2013

I KEEP telling people that they are NOT throwing their money away by renting and that they have absolutely no clue what the true cost of owning a home is. If you’re a renter and something breaks you call maintenance of the landlord and it gets fixed. If you own a home and something breaks the only one to call is the repair man while you lament the costs.

While I own (cheap) rental property, I will never own a home of NYC because prices are too high and I would rather put the money somewhere else…like on another rental property out of the state.

Reply
Charles@gettingarichlife

December 23, 2013

I’m a big fan of housing but what sucks is you can’t write off the interest while we can. I’ve never put 20% down at most 5%,(although before I met my wife she had put 25% down on her condo) If the gap between renting and buying is so wide its not worth it, but you’ll always be at the mercy of landlords and rent increases.
You should become a caretaker for some old lady so when she passes she’ll put you in the will before her children.

Reply
1. save. spend. splurge.
  
  December 23, 2013
  
  *LAUGH* I don’t want to be a caretaker, but good idea.
  
  Reply
Dookie

December 23, 2013

Yeah NO. Really one sided. You’ve assumed all worst case, dumb moves for a homeowner but a unicorn scenario for the renter. Eg $10k a year for furniture for home owners, but nothing if you’re a renter?! No ongoing move costs, no lost bonds, no crappy landlords? And you’ve decided that increases in rent over the next 25 years are offset by increase in income, but you have not given comparable treatment to the homeowner, whose mortgage gets easier to manage and prepay with those increases? And don’t forget a homeowner has the choice to change the numbers massively by paying down the mortgage early. Do the math indeed, but it must be apples-to-apples. Also I don’t get why no one ever calculates this as a lifetime comparison – after your home is paid off, you get to live in it for an annual cost of rates and insurance. I think the average homebuyer is in their late twenties/early thirties, so they have a good 60 years of needing a roof over their heads. Even if you throw in a few moves, a smart homeowner won’t be restarting the clock for another 30 years with every mortgage; they’ll keep making progress, keep accumulating equity and ultimately they’ll downsize in retirement and can free up some hard earned capital. A renter meanwhile, is stuck paying what the market demands and doesn’t have a comparable option to get ahead by paying off the mortgage early. The answer here isn’t buy or rent, but to have a plan to make the most of your money; be it rent and invest or buy and smash the mortgage. Its not buyer versus renter so much as smart vs dumb.

Reply
1. save. spend. splurge.
  
  December 23, 2013
  
  Obviously I’ve assumed all the worst case, dumb scenarios. I’m comparing it to what experience I have as a renter (those are my real numbers renting) versus what it costs to have a place in Montreal.
  
  Reply
2. save. spend. splurge.
  
  December 23, 2013
  
  To explain further because it seems like you yourself may have overlooked some of my rationale:
  
  1. $10K in furniture for home owners sounds normal to me seeing as it’s a house you have to fill with stuff (not to mention sheds with lawn mowers etc). I have never spent more than $1000 on furniture in total, and most people get their furniture from their family / friends for free, or Ikea.
  
  In addition, as a renter who would move to a home, I would already have furniture — bed, etc. Can you really honestly say that each time you rent a place you throw out everything you have and buy brand new furniture again? That’s ridiculous.
  
  This is why it’s $10,000 for a homeowner and not for a renter. Homeowners want to furnish their place, decorate it, etc. A renter doesn’t care about their surroundings (at least, most don’t.. like me). But if I had a house, I’d spend $10,000 buying a few nice pieces for it, like a large dinner table and chairs, a grill for the backyard, and so on.
  
  So really, the only reason why I’d get MORE furniture is if I had more space (e.g. if I had a home instead of an apartment).
  
  This sounds rational to me. I can’t see how you see a problem with that.
  
  2. What are lost bonds?
  
  3. I assumed NO prepaying with a mortgage because who do you know out there that willingly wants to increase their mortgage payments to get out of debt faster? Not only that, interest rates are not going to stay the same, so even if their income goes up, so does their mortgage payment. It washes out in the end. Renters can move, homeowners have to sell to move. BIG difference.
  
  4. “Few smart moves” You have to be kidding me. No move is a smart move. The only time buying a place is smart is if you are planning on staying in it for your entire life. How many people have you heard say: “I am buying a starter home, and then we’ll upgrade”?
  
  Who really stays in the first house that they bought? Warren Buffett is a rare and famous example of someone who has not upgraded, but most people tend to upgrade and move to bigger and bigger places over a lifetime.
  
  Even my super responsible friend who bought a place at 19, changed houses TWICE to upgrade to a bigger place / better location.
  
  She would have been better off waiting and then saving up enough money to buy the one house in the location she really wanted in the first place.
  
  The average homebuyer is in their late 20s and 30s are it’s pretty stupid for people at that age to think it’s the time to buy a place if they can’t afford it. I wish I had bookmarked the article, but someone did the research somewhere and said that people should hold off home buying until at least their 40s because it is too many life changes at once (most people get married, have kids, etc).
  
  5. You make a good point that it is smart versus dumb, but people don’t have that kind of rationality to see that buying a $800,000 place with only 5% down is dumber than NOT buying the place and investing that money saved instead. All they see is the house.
  
  I did the comparison for what I would buy in a comparable place.
  
  As a renter, I already know what it costs for me, versus what it costs to buy a comparable place where I live.
  
  As I already said, it’s also a question of buying a place when YOU want to buy it but don’t buy a house just because you want to stop paying a landlord and giving other bullshit excuses about why renting sucks, and try and pass it off as a good investment, because the reality is not that at all.
  
  Buying a place is something people should buy for life, period. That’s the only way it’s an investment and forced savings. Otherwise, with the housing market in Canada, it is not worth it to buy a house thinking that you’ll save on rent in the future when you’re already outlaying a lot of cash in the PRESENT to prepay for the future, not to mention lining the banks’ pockets.
  
  I didn’t even go very “bad case scenario” because with 5% down, it would have been a bloodbath for numbers. I put 20% down, and WHO PUTS DOWN 20%!?
  
  A dollar yesterday is worth more than a dollar today.
  
  Reply
Pauline @RFIndependence

December 20, 2013

Because it is so hard to get a rental in Paris (you have to earn 3-4 times the rent in NET salary, have a long term contract, references, etc.) I am traumatized with renting. If I can afford it, I will buy. Even if that doesn’t make 100% financial sense, having no landlord on top, no tediou application, no agency fee and checkups it worth the extra expense.

Reply
Daisy

December 19, 2013

You did really well in this post in catching as much as possible. There are so many variables that it’s almost impossible to do an accurate calculation, but you did really well. I laughed out loud at the dog needing a house comment. My dogs were completely fine in an apartment! They are small, though.

It would be interesting to do my own calculation based on what expenses we actually incurred when we bought our house. It definitely wasn’t cheap and we were saving a lot more money renting. We lived in a terrible rental, though, because I just have a wierd mental barrier against paying a lot to live in something that isnt mine. It’s just a complex I have. So any calculation I do wouldn’t be accurate, becuase I’d be comparing apples to oranges.

There are so many variables, including how good you are at DIY, when it comes to the cost of home ownership.

For instance, we bought a house that was built in the 1960s (which in home terms, is OLD – considering the building code updates and standards of today’s property market). We did the roof, added two dormers (with four windows) to our loft, painted the entire main floor, renovated one bathroom, and put in a kitchen in the basement suite and we didn’t even come close to even the updated home maintenance cost of $6,000. Reason? My fiance is a carpenter and my dad is in the building supplies business. I’m pretty handy, too. Even if our furnace, hot water tank, AND a major appliance broke down in the same year, and a window was broken and we needed to repave the driveway, it wouldn’t cost us $6K in that year. But we’re an anomaly.

We have a quarter of an acre and our yard care (since we did it all ourselves) cost maybe (MAYBE) $500 this past spring/summer, including the purchase of a boatload of bark mulch that we won’t have to update every year, and we built a whole new fence. But again, we don’t have a landscaper and we mow our own lawns. Plus, we don’t believe in chemicals so we save there, I guess. We live in farm country so I’m sure the prices at the yard/garden stores are lower here than many urban areas.

Another huge variable is the ability to rent part of your home as a home owner. Not everyone is able to do this (or has the desire to), but many families do/can. We have a basement suite so my brother (tenant) pays ~1/3 of the mortgage through rent.

Our lawyer fee was less than $800 when we bought our house, but again, that’s variable.

Maybe I missed the reasoning in the post, but should we be comparing an apartment rental to the purchase of a home? I think it may be more accurate if we were comparing the purchase vs. rental of an apartment, or a purchase vs. rental of a house- we rented a house once and we had to pay for utilities just like a home owner that lived in the house would have to.

Even with all of that said, with all of the money home owners spend on interest/maintenance/property taxes, the whole “you are throwing your money away renting” is an ignorant argument.

Reply
1. save. spend. splurge.
  
  December 19, 2013
  
  @Daisy: I’d love to read you do a comparison between a house and renting!
  
  You are also lucky that you have handy people to help you out. I have 0. No one is handy in my family, except the ones who think they are (they’re deluded).
  
  WHY NO TENANTS?
  I did not put in a tenant or a renter in the calculation because then I would just halve my renting assumptions into two or by however many people I am planning on living with. I assumed one homeowner unit, and one renter unit.
  
  COMPARISON IS BETWEEN RENTING VERSUS BUYING
  I compared the rental of an apartment to a purchase and owning a home because you need to have the money saved / capital up front to even put a down payment on a home.
  
  There are a lot of one-time and up front costs that people do not consider when moving from renting to homeownership.
  
  This would basically be you taking your assets and putting it into a fixed asset (like a home), but to have the money saved in the first place is the key.
  
  SAME SPACE, SAME LOCATION, JUST ONE IS RENTING AND ONE IS BUYING
  As for renting “apartment”, I did the cost for a similar-sized place (2 bedroom condo) based on where I want to live (2 bedroom rental, same size).
  
  It’s exactly that price to rent the space that I would otherwise have to buy.
  
  (I did it based on condo estimates versus apartment, which is how I got those numbers. )
  
  Reply
MelD

December 19, 2013

This will all depend on which country you’re talking about, the size of the home (house/apartment – they vary enormously!) and its condition…
We live significantly more cheaply in our bought house than we ever lived in rented apartments or houses with the added bonus that at the end of the day the property will belong to us. Best investment possible where we live.
At present, we pay between 0.85-2.7% on our mortgages, 20% downpayment and amortization is included. Although our house is old, it was hulled 25 yrs ago so effectively it’s almost new with the bonus of metre-thick walls (1770!) and the new bits (e.g. windows, energy-efficient gas central heating) are environmentally friendly, too – win/win in our view! Insurance and maintenance are a lot lower than we anticipated. Etc. etc. etc.
We like being in control, which you aren’t in a rental. Here, you can only give notice on a rental 3x/year (end March, June, September) so flexibility isn’t really a given (often an argument!).
All in all, as I said, it depends on so many factors!

Reply
1. save. spend. splurge.
  
  December 19, 2013
  
  @MelD: I did the comparison between renting an apartment (2 bedroom) versus buying a condo (2 bedroom) in the same area.
  
  It’s essentially the same thing in my mind, although the maintenance/yard cost per year is up for debate seeing as some condos have amenities that homes don’t have and vice versa.
  
  Yes! Some countries, cities, and even AREAS of town are cheaper to buy than it is to rent. I’ve seen this in the U.S., but it is not very common in Canada in major cities like Toronto, Montreal, Calgary, Vancouver…
  
  I find that in some parts of the U.S. and in some parts of Europe, the houses are built a LOT sturdier. Lots of metre-thick walls as you have pointed out (EXCELLENT), and efficient because it is built better.
  
  Here, homes are made out of wood beams, chipboard, and frankly I’m a bit scared when I watch home renovation shows because you can REALLY see how it is built and how easy it is to rip apart a home. Takes less than 3 days to demolish a place.
  
  Where we were in Spain, they were renovating a room in an apartment building and just to knock down a wall took them a week with jackhammers because it was solid stone/brick.
  
  For us, we can’t even give notice to leave if we rent. It is one year, locked in, which is why now we’re basically living in a hotel rather than in an apartment….
  
  Reply
$Alicia @ Financial Diffraction Avatar$

Alicia @ Financial Diffraction

December 19, 2013

I own a house, but I don’t currently live in it (it’s now being used as a rental because I don’t live in that city any more, and couldn’t sell without loosing money). I now rent an apartment.

I will say it – I LOVE renting! I love not being responsible for maintenance, or snow removal, or cutting the grass. If a pipe bursts I just call the landlord. And it’s cheap, compared to a mortgage (lower cost of living city than where I owned).

So I get to have the forced savings plan of the equity developing in the rental unit (and will fix anything if anything goes wrong) and the ease of having a landlord in my current rental. I know it’s a bit backwards, but it’s working for the time being. I’ll re-evaluate in 5 years.

Reply
1. save. spend. splurge.
  
  December 19, 2013
  
  @Alicia @ Financial Diffraction: That’s a good idea actually — renting your home out rather than selling it. 🙂
  
  I really.. really.. enjoy renting. The only way I’d switch is if I bought a condo at a reasonable price (reasonable for me, not in comparison to this insane Canadian housing market).
  
  I love not having to do anything. Even garbage is not my problem — there’s a chute!
  
  I think you’re doing just fine if you are able to find renters all the time for your place. I mean why not? 🙂
  
  Reply
Jane

December 18, 2013

Every time something in my house breaks, I start wishing I was still a renter. Lol

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  @Jane: So do 1 out of 3 Canadians who have purchased a house 🙂
  
  Reply
Emily @ Urban Departures

December 18, 2013

Nevermind re: the realtor fees; you’ve already made that update!

Reply
Emily @ Urban Departures

December 18, 2013

Great post and comparison! I bought my home but I don’t necessarily think it’s the better thing to do. I have friends who are looking to spend $400K on condos or $800K on tiny houses and when I suggest renting instead, I get the “but then I’ll be throwing my money away” response. It’s so ignorant, I want to shoot myself.

There are also realtor fees to consider when selling to purchase; that’s an additional 3-5%.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  @Emily @ Urban Departures: Buy the home only if YOU want to buy the home.
  
  Don’t buy it because you think you are throwing your money away on rent or that it’s stupid to pay rent.
  
  Alls I’m saying is go in with your eyes wide open.
  
  Reply
Cassie

December 18, 2013

This is a really thorough, in depth post. I’m impressed 🙂

I do think though that if you want to do a subsequent year comparison you need to show how it stacks up after you’ve paid the mortgage off as well as the years when you’re paying the mortgage. I’m over 25 years away from retirement, let alone when I estimate I’ll one day die.

You’re absolutely correct in pointing out that when you renew a mortgage you can’t assume that it will be at the same interest rate, especially when you sign on in the low rate environment we’re currently in. I checked and calculated my mortgage a couple percentage points higher than what I’m currently paying to make sure that wouldn’t turn into an issue for me (or at the very least, lower the risk). It would be a fallacy though to assume that your rent will stay stagnant for 25 years as well, unless of course you live in a rent controlled apartment. People who are looking at renting for the long term should make sure they take inflation into account in their calculations as well.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  I kind of did it for me. 🙂 Those are my real numbers.. I’d consider a $400,000 home as a MAX but my budget is really $350,000 if I am honest.
  
  I did consider rent going up, but I am also assuming that their income goes up along with it (inflation inflates everything), and that also affects homeowners who have a higher income in the future which they would then be able to save or put towards their mortgage.
  
  With renting, you can always find another place to rent and live if it becomes too rich for your blood. With a mortgage? Not so easily.
  
  Reply
Revanche

December 18, 2013

But but, the dog needs a yard!!
Hehe. I want a yard for my convenience, for the dog(s), to have my own garden, etc. BUT a lot of your points apply to us like so:
1. Both the real estate and rental market around here is NUTS, especially with all the Silicon Valley inflation, and therefore it’s a landlord’s market. I hate renting in those circumstances as we have to pay a premium for what we want (a nice house in a nice location) and still won’t get all our requirements. Same with buying since we don’t have SV money! So instead of rushing into a purchase to get what we want, we’re accepting that we can’t afford it yet and we’re going to have to do without for a while. Not until it’s not a stretch.
2. In the meantime, I’m looking into all the ways I can make the most of the money we do have because however much I can build up in “cash” (actual cash or easily liquidated assets), that’s just more money that I’m not wasting from a loan and the related interest. The insane, OMG how much is that over time??? interest. Because seriously, I ran the numbers for loans and the accumulated interest over time too and it’s horrifying. Better to wait. If we can’t do it, we can’t, and that’ll be a bridge we cross later.
3. Same logic to the taxes and maintenance. We’re responsible for a certain amount now and I’m happy not to take on more responsibilities for a good while!

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  OH GOD. Don’t start with me 🙂
  
  Honestly, I think waiting until even your 50s is not a bad thing. What’s the rush in getting a house now? It’s cheaper to rent in most big cities, and you might as well wait until it’s a good time to buy than to rush in and regret it.
  
  Frankly, they did a study and 1/3 Canadians regret buying their homes (aged 24 – 55 I think)…
  
  Reply
Tania

December 18, 2013

Great post! Mmmm, but you need to fix your mortgage amount, you’re showing monthly to yearly in your comparison. Minor, we figured it out and you drove your point home effectively.

I’ve rented and I’ve owned and where I live you do not get the same sort of space buying as you do renting. You can have a bigger space in a better location renting for the same monthly. Of course, you don’t get any asset either but ya know what I’m saying. When I see young couples house hunting, you often see their expectations about what they can get is a bit unrealistic as they may not realize you get less house if you are comparing monthly payments (similar to leasing a car vs buying, you can get a more expensive car leasing for the same amount but then you always have a car payment each month as you never own anything).

Number one reason in my viewpoint for not buying is flexibility. You can’t just get up and move. It is also more difficult to downsize should the need or mood strike. When you break up with your significant other, that property can be an albatross if it’s not a good time to sell and it’s not as easy to rent it out to make up one’s cost as people think it is. The only people I know who make a profit renting out their former home are those that inherited it or bought it 20 years ago or bought a fixer upper and then fixed it up combined with it turning into a “hot” neighborhood. If a young couple lives in their move in ready property for a few years and then decides to rent it out, they most likely will take a loss. I did end up selling my condo at a profit but it took ten years before we could do that. There was a part of me that always felt trapped with it. It’s easier to get divorced then to sell an underwater property without a huge loss in a depressed market.

Just think also how many people ponder buying and selling several times in their lifetime (the whole starter home mentality surely invented by realtors and mortgage brokers). Where I grew up, I hardly knew anyone that moved to a bigger house. Their family stayed in their 1,200 sq ft house throughout their lifetime. Also the HGTV show “Love it or List it”. Sometimes a couple is considering buying a rather expensive new home rather than pay the additional $10K necessary to fix up their old (as the designer on the show runs into an unforeseen issue, that would probably need to be fixed before they could sell anyway). I’m always thinking moving is not going be cheaper so just fess up and say you’re craving a fancy new house! I do honestly feel that many of our home issues could be at least partially solved if everyone adopted a more minimal lifestyle. When I see a bunch of stuff cluttering up someone’s living room, I’m not thinking you have to move, I’m thinking get rid of it!

Reply
1. Tania
  
  December 18, 2013
  
  @Tania: There I go, writing a whole blog post in your comments again.
  
  Reply
  1. save. spend. splurge.
    
    December 18, 2013
    
    Which I love. DO not stop 🙂
    
    Reply
2. save. spend. splurge.
  
  December 18, 2013
  
  Agreed — you don’t need as much space as you think you need, and people who buy homes thinking that “everyone else has the same home, why not me?”.. are delusional if they don’t realize that homes are also passed on and/or parents are helping them.
  
  (I finally saw the table, it was in the first one not the second one that I screenshotted..) *facepalm*
  
  Reply
Corina

December 18, 2013

There is indeed a mistake in the chart of yearly payments – it’s the mortgage per month instead of that per year. Anyways, it only increases the owning costs – which is the point you are trying to make. But, as a homeowner myself, I can say a few things: The 12000/year maintenance is HUGE 🙂 Look at the big ticket items: roof = $10,000, kitchen remodel =$15000, bathroom remodel= 8-12,000, basement remodel= $10000, electrical, floods, etc etc – not more than $10000. You only do those once every 20-25 years. The idea behind the maintenance fund is to Have it and do repairs that are necessary , not paint every year just because.
The rest of your calculations I’m not going to argue – I am sure you did your research! But this being said – there is no price you can put on how you feel inside. Not dealing with a neighbor who smoked in front of our door (couldn’t open her windows because it was too cold – had to smoke somewhere) or not stepping in dog pee/poo on the hallways …priceless!

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  I am a moron I see it now! It was in the first table, not the second one.. *face palm*
  
  Thanks for the notes. AdinaJ made a good point about what the 3% is calculated on:
  
  ” I believe GVO has suggested going with the value of the building, not the property as a whole, when calculating annual maintenance savings. For example, our house was valued at something over $400k, but the actual structure was valued at something like $280-290k for insurance purposes. I would use that number in coming up with the 3% figure.”
  
  Reply
Aleksie

December 18, 2013

In the US, you sometimes have to pay a real estate agent’s fee. This can be as much as a month’s worth of rent. If you’re moving frequently, that can add up fast.

I do agree it depends on where you’re living.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  I feel like they may have added that in closing costs… or maybe I missed it. Anyway, it makes my case all the more stronger.
  
  I haven’t gone through the actual process so this is all guesswork 🙂
  
  Reply
AdinaJ

December 18, 2013

12k a year (EVERY year) in maintenance is steep, and I say that as someone whose stove just went kaput. It is definitely a very good idea to have extra savings to cover home maintenance, but the 3-5% recommended by some is a lot when you’re dealing with a house that costs $400k on paper. I believe GVO has suggested going with the value of the building, not the property as a whole, when calculating annual maintenance savings. For example, our house was valued at something over $400k, but the actual structure was valued at something like $280-290k for insurance purposes. I would use that number in coming up with the 3% figure.

I also think the cost of buying a house is higher in some provinces due to extra fees/taxes. 20k in closing costs – ouch!

But I agree with your general point: buying a house is NOT always the best choice, from a financial perspective, even if you’re sufficiently solvent to do it. With the RE market being what it is, it may rarely be these days. But whatever people say, they rarely buy houses as a purely financial decision. All that is just baloney justification. I agree – it’s important to be honest about your motivation.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  AH! That would make more sense then. I do remember her saying 3% of the home’s value each year and I thought: Wow.. okay.. that’s steep but that’s what I gotta save!
  
  So in that case it’s the City Housing Estimate then, not the home’s value? Even worse, if I look at what my parents’ home is really worth ($300K at best), then it means that the market is overpriced by at least 50%, as they could sell it for $600K today.
  
  $20,000 in closing costs is apparently not abnormal. My eyes popped out when I read how much someone paid.
  
  Reply
jane savers @ solving the money puzzle

December 18, 2013

Don’t forget that you have to buy a larger life insurance policy so that the mortgage is covered if something happens to one of you.

Buying a home is forced savings. Not all of us are good savers and those automatic mortgage payments that come out of your bank account mean more money when you are old.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  *headache*
  
  I do agree that it is forced savings which is not a bad idea.. but why not force those savings into an RRSP?
  
  Reply
  1. jane savers @ solving the money puzzle
    
    December 18, 2013
    
    @save. spend. splurge.: When you have committed to a mortgage you are stuck with the payments and it is very hard to get out of it.
    
    It is very easy to cancel an automatic withdrawl to an RRSP.
    
    Reply
Dear Debt

December 18, 2013

Girl, you are amazing with how much info you pack into your posts. I am truly impressed. I have no desire to buy a house and this post is a great reason why. So many hidden fees and I like flexibility. I see myself moving quite a bit over the next 40 years. My parents don’t have a house either. I think housing as an investment needs to be re-considered and also as you say, looked at with eyes wide open.

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  All on a baby brain too, which is why it may not be 100% totally clear.. 🙂
  
  Flexibility is a big deal to a lot of people including me. Up until now, we had no idea where we wanted to settle.. and it heartens me to hear that your parents don’t have a home either. In my family, having a home is like THE THING to do, but only my brother is realistic about it (he has a home but says it’s a 0% real return over time).
  
  Reply
eemusings

December 18, 2013

Hey, I think you’ve either put in the monthly cost of mortgage rather than yearly, or put the comma/decimal point in the wrong place?

(And are you accounting for rent increases as well? Inflation is a bitch)

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  OH I SEE IT NOW. Gosh I’m a moron.
  
  It’s in the FIRST table, not in the screen shotted table of the mortgage calculator.. *facepalm*
  
  I am not accounting for rent increases but I should (to be more accurate), although if a place gets too expensive, you can always leave and rent cheaper elsewhere. This is also assuming your income rises with inflation as well so I kind of figured it would even out.
  
  Reply
Michelle

December 18, 2013

Thanks for doing my request! 😀

It just confirms that I will not buy a house like how everyone says… When I was younger, it would make sense because I didn’t know that you have to pay interest when you borrow. House is $400,000? Okay! lol but it’s really like $700k by the time you pay it off. :/

I rather invest the money that isn’t paying off the house. Who knows… maybe the interest from my money will pay off my rent money! :O That would be awesome!

Reply
1. save. spend. splurge.
  
  December 18, 2013
  
  You’re welcome!
  
  Well do the math for yourself right? 🙂 Don’t assume it is or isn’t for you based on what others say.
  
  Personally I’d buy a condo, but it’s on my terms and what I’d afford..
  
  Reply