Seriously?

Is an entire generation being tricked? Misled? Pressured into retracing their parents’ footsteps, on a path which now leads to financial reversal, if not ruin?

It’s about housing, natch. I know your mom always told you ‘paying someone else’s mortgage’ was a sin, but is renting really an evil thing for the young? Is buying real estate the best passage to adulthood? Or a bottomless pit? What’s the big prize in return for giving up flexibility, freedom, mobility plus all your savings – while becoming immensely indebted? Huh?

This week a new study found that in 90% of the States it’s now considerably cheaper to rent than purchase a three-bedroom home. In Canada the junk-property site Zoocasa unleased a report saying in all but a few Canadian communities rents are less than mortgage payments. Condos, it claims, are almost equal. Alas the math is flawed. Only partial costs of ownership were included in the calcs. Kids buying condos – at least in urban areas – have lost their minds, according to a certain pathetic blog.

To Rent or Buy: How Do Rental and Resale Monthly Costs Compare in 2024?

Okay, let’s do the math on buy vs lease.

As the housing market picks up steam after a disastrous (for sales) 2023, and as hopium abounds that mortgage costs will be lower in a few months, it’s time to review once again how real estate no longer makes sense for most wannabe newbie buyers.

It’s math time. Sit up and pay attention. Yes, there will be a test.

The average selling price of a condo in Toronto these days is $721,000. (In Van it’s even more ridiculous at $816,000). For this you get about 700 square feet. (Average double car garage.)

The buyer pays that amount upon closing, plus $13,300 in land transfer taxes in T.O. (after the first-timers rebate), plus about a grand in legal fees. Moving and renos are extra.

Of that total cost of roughly $735,000 a downpayment of 20%, or $147,000, is needed to avoid paying hefty mortgage insurance. (It’s estimated that 22 years of saving is required to come up with that amount, based on average incomes – unless you guilt your parents into paying.)

Now. What about ownership costs?

The mortgage of $575,000 at a rate of 5% (if you can find it) on a five-year term costs $3,410 a month. Condo (strata) fees average $420 per month (far more in some older buildings). Property tax comes to $350 a month – but soon a lot more, given an historic hike in Toronto (ditto in Vancouver). We won’t add in insurance or utilities.

And, of course, there’s that downpayment of $147,000. If it were invested in a portfolio of moderately-successful asssets averaging 6% a year (much of it tax-free in a TFSA plus a FHSA), that represents a true cost of $735 a month.

So, total occupancy overhead comes to $4,915 a month for a box in the sky.

Owners pay a whack more. For what?

How much does it cost to rent an identical condo in the same building? At the current time, about $2,340. No financing charges. No condo fees or property tax. Move when you want. No maintenance or repairs – those are all landlord costs.

In other words, the premium an owner would pay over the cost of renting is $2,575, or 110%.

But wait, the house-lusty, fully-experienced, know-everything, navel-gazing, real estate-horny Boomer and GenX parentals cry. Real estate is an investment! It always goes up. I want Junior deeply, sorely indentured immediately, for her own good!

So, let’s assume there is routine capital appreciation in the value of the condo (unlike last year when it deflated). If the unit grows by a healthy 5% a year (more than the long-term average), by the time the five-year mortgage term is up, it will be worth just over $900,000. Sweet, says mom. Toldyaso.

After selling commission, there would be a residue of $846,000. After retiring the remaining mortgage principal of $510,527, the ‘profit’ would be $335,473. So far, a big win for the owner.

But, not so fast. To secure $335,473 the owner paid $147,000 (the down payment) plus shouldered $4,915 a month in costs for five years. The total outlay is $441,900 – to make $335,473. So the net negative is $106,900.

In other words, the owner paid a premium over rent of $154,500 over five years to live in the space. The renter handed over a total of $140,400 (and saved/invested the difference in financial assets) while staying young and free.

Tell us again why you’re pushing your children to fail.

About the picture: “I am a Canadian American, who left Canada after college in the dismal economy of the 90’s,” writes Mike. “I was educated in Canada and all I wanted to do was be a teacher and a coach.  Well, there were no teaching jobs in Ontario and probably wouldn’t be for a decade.  So, I packed up and made my way to Florida.  I have never looked back. Sometime along the way my parents gave me a copy of  your “Little Book of Finacial Wisdom”.  It had a big impact on me (this is the obligatory suck up)  as did, “The Wealthy Barber” and later “Rich Dad Poor Dad”.  All were greatly impactful on getting my wife and I to where we are today (not totally pooched financially). I am now contemplating retirement and spending some more time in Canada caring for aging parents.  It is with great sadness that I also send you a picture of our good boy Reggie who we had to put down recently.  He was a great companion to all of us and we will miss him dearly.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.