Suckered

So, you’re a trendoid, metrosexual, urban Toronto hipster wanting to upstage your vacuous, vaping social-climbing peers with digs of your own? Gotta have exposed brick, of course. Plus stainless and caesarstone. And in an emerging hood, without too many Audis, of course. Or old people. They sort of smell.

Well, here’s one in the west end of 416. And 12 Herman Avenue is on sale!

Major Price Reduction! Spectacular Renovation In Roncy Village Turned This Solid Semi Into A Gorgeous Open Concept Modern Fam. Home Characterized By High Ceilings, High Baseboards & Decorator Flooring. The Exposed Brick Wall Running The Entire Interior Length Is An Unmatched Stunning Feature.Prop Is Loc On A Popular Street In The Roncy Hub. Beautiful Custom Kit Opens To A Brand New Deck & Bckyrd W/Gate To Loblaws Prking Lot & A Short Walk To All The **** EXTRAS **** Best Rest., Bars & Activities In The Village. New Windows Wiring, Plumbing, Drywall & Much More.* Lovely Lower Level Features A New Quaint Rec Rm & 3 Pce Bathrm All New S/S Fridge, Stove, B/I D/W. Elf’s, White W/D

So, the house – actually it’s just half a house, on an anorexic 18-foot lot, without parking – is now listed for a bargain-basement price of $1,118,800. Clearly this listing is aimed at the late-Millennial crowd, and here is what a buyer can expect…

Downpayment: $225,000 minimum
Closing costs: $40,000, including $37,000 in land transfer costs
Monthly: $4,400 plus insurance and property tax ($600), plus utilities. So, five grand.
Opportunity cost: Figure on a lost 6% on the down, or $1,125 a month.
Total occupancy load: a tad over $6,100.

Of course, if you had to borrow the down payment (and a whack of people do), the cost of ownership would be even more muscular. And so over the course of five years, this half-a-house would set you back about $360,000, at which time (even given the absurdly low rate of 2.6%, not to be repeated) you would still owe $800,000, after having dropped $225,00 into it. If you were to sell at that point, deduct 5% from the sale price and hope like hell there’s been at least $400,000 in capital appreciation, or you lose.

Or, you could rent it.

“Here is a direct Price to Rent example in Toronto,” points out blog dog Eric. “Same house is currently listed for rent and for sale (Cash flow problem I guess?). Price to Rent ratio at a 27 before throwing in insurance, property tax, maintenance, hydro/gas, land transfer taxes, and fees.”

Quite so. Even if you ponied up the entire $3,495 a month to be a tenant, you’d be ahead almost three grand, or $180,000 over five years in terms of cash flow. Yes, no equity after that period of time, but no risk, either. No mortgage to renew at a higher rate. No real estate correction to live through. No maintenance issues with an ancient, tarted-up half a house. No property tax increases. No realtors, open houses or people tromping through your space when you need to sell. No panic and despair when prices finally correct. And you still live in the same cool space.

Given the true overhead on this property, the price-to-rent ratio is probably closer to thirty. And remember what that means:

• P/R ratio is lower than 15 = Listen to your mom. Buy the place.
• P/R ratio is between 16 and 20 = Nah, better off renting
• P/R ratio exceeds 21 = Your landlord is a munificent god. Worship him.

Of course, nobody’s listening. Half of the country’s Millennials have already pickled, sautéed and immersed themselves in epic debt and monthly servitude by purchasing residential real estate. According to a Bank of Montreal survey released a day ago, on average these moisters mustered a mere 4% downpayment on their own ($18,000), borrowing three times that amount from their prodding parents. Even so, half of them fear they won’t be able to keep up with mortgage payments.

Scarier, 76% of Millennials who currently rent say they expect to become owners within the next five years. This, despite the absolute certainty mortgage costs will rise, debt fatigue will set in, occupancy costs will increase and (probably) prices will abate – even in Roncy Village where the sexy people go. It continues to amaze that so many are so willing to give up the gifts of youth – mobility, freedom, choice, change and flexibility – so they can turn into their folks.

Helicopter parents, take a bow.