5 ms·

Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house c

Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house costs more, but you get more. You'd have to rent out part of your home and be a landlord to trade that extra space for cash flow. I value my time and privacy at a non-zero dollar amount :) This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe. anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. [0] https://precondo.ca/canada-real-estate-statistics/#:~:text=The%20Canadian%20Housing%20Market%20has,yearly%20appreciation%20over%2015%2Dyears&text=These%20numbers%20are%20based%20on,Canada%20across%20all%20property%20types https://precondo.ca/canada-real-estate-statistics/#:~:text=T...

Sohcahtoa82 5y ago
> anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
- leetcrew 5y ago
  you're missing the part where the renter is continually investing the difference between their current rent and the mortgage they would be paying. but yeah, if you're prescient enough to know ahead of time that you're going to live in the same building for 35 years, you'd be foolish to rent.
  - Sohcahtoa82 5y ago
    Yeah but as you said in another comment, in some locales, the rent and a mortgage payment are equal. There would be no difference to invest. And considering a mortgage payment is constant while rent continuously goes up, in a few years, rent would EXCEED the mortgage payment. When I bought my house in the end of 2015, I paid $338K. Mortgage + property tax was $1800/month. Zillow estimated the rent value at $1700/month. It's now early 2022, 6 1/2 years later. Zillow estimates the house is worth $615K and has a rent value of $2500/month.
    - wnolens 5y ago
      Before you bought the house, were you renting previously at 1800/mo? Rent and mortgage may be similar for the same exact space, but rarely in cities do people rent entire houses. There is usually significant lifestyle inflation that comes with buying. In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha
      - Sohcahtoa82 5y ago
        > Before you bought the house, were you renting previously at 1800/mo? I was renting a 2-bedroom, 1 bath, 800 sq foot apartment for $900/month which would have been going up to $1,100/month if I had signed a new lease instead of buying the house. The house is 3 bedroom, 2.5 bath, 1850 sq feet. > In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha Suburbs just outside of Portland, OR.

Sohcahtoa82 5y ago

> anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.

leetcrew 5y ago
you're missing the part where the renter is continually investing the difference between their current rent and the mortgage they would be paying. but yeah, if you're prescient enough to know ahead of time that you're going to live in the same building for 35 years, you'd be foolish to rent.
- Sohcahtoa82 5y ago
  Yeah but as you said in another comment, in some locales, the rent and a mortgage payment are equal. There would be no difference to invest. And considering a mortgage payment is constant while rent continuously goes up, in a few years, rent would EXCEED the mortgage payment. When I bought my house in the end of 2015, I paid $338K. Mortgage + property tax was $1800/month. Zillow estimated the rent value at $1700/month. It's now early 2022, 6 1/2 years later. Zillow estimates the house is worth $615K and has a rent value of $2500/month.
  - wnolens 5y ago
    Before you bought the house, were you renting previously at 1800/mo? Rent and mortgage may be similar for the same exact space, but rarely in cities do people rent entire houses. There is usually significant lifestyle inflation that comes with buying. In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha
    - Sohcahtoa82 5y ago
      > Before you bought the house, were you renting previously at 1800/mo? I was renting a 2-bedroom, 1 bath, 800 sq foot apartment for $900/month which would have been going up to $1,100/month if I had signed a new lease instead of buying the house. The house is 3 bedroom, 2.5 bath, 1850 sq feet. > In any case, where do you live? 615 is so cheap that I suspect the economics here aren't comparable to my situation. Maybe I'll move! Haha Suburbs just outside of Portland, OR.