I’m going to throw it right out there. I’m a renter in my thirties. Please control your shock and horror and resist your urge to try and make me understand that this is a terrible financial mistake.
I’ve heard all of the arguments in favour of buying a home many times before. Over dinner on first dates, while having drinks with friends and at every family event for the last ten years. According to the ‘Toronto Life’ two million is the new one million in Toronto real estate. The truth of the matter is, as a single person living in Toronto who is not making six figures, I actually can’t afford to buy my own place. You would think that this Torontonian financial candour would end the conversation right there but it doesn’t.
What About Life in the Suburbs?
There are always the suggestions that I move out of the city to say, Brampton or Caledon like one of my friends did recently and commute. Not an option... ever. Or buy a fixer upper in say, Barrie then do it up and rent it out. Not an option since I’m not Handy Manny. My old school aunt, bless her, even suggested that I ‘shack up’ just for the second income and a shot at the property ladder before it’s too late.
Renting vs Buying a Condo
Another suggestion I often hear is, “buy a condo!” One of those fancy shoe boxes in the sky. To be honest, I have thought of that and even looked into it. Almost threw down everything I have to put a deposit on a pre-construction unit. Only this one was a baby shoe box and was so low down you could likely see into it from the street, like those lower units that sit on the Gardiner.
But I have to tell you that once I sat down and did the numbers I was genuinely terrified. Sheer fear. I hadn’t even signed for anything and suddenly rising interest rates and unemployment rates were all I could think of. After the mortgage payment, condo fee and property taxes, I would have been left with less than what I need to cover basic expenses. That pesky condo fee! And that was just for the basic finishes. Imagine the shame of not having stainless steel appliances or granite countertops in my new build! I was assured by the sales agent that I would absolutely qualify for a mortgage. Oh, how I laughed and cried simultaneously. Perhaps I could have pulled it off but then I would spend the next 20 years house poor, and for what? The pride of ownership? Getting second dates and having my friends and family then move onto my perpetual single status and childlessness? No thanks.
Rather than increase my financial well-being and standard of living, in my case, buying would almost certainly lead to debt problems since all I would have in the case of an emergency or for some of my basic needs would be my MasterCard. As a renter, I have my own place that is at least twice as big as the condo unit I was looking at, and I can afford a life! I can afford to go on vacation, save for emergencies and retirement and even save for a down payment should my want to live in Toronto change. I’ve seen some very technical calculations on how buying a home is better financially than renting in the long-term, and for those who can afford to pay their mortgage and property taxes, save for retirement and emergencies and actually still eat, then I’m sure buying is the best decision for them.
Crunching the Numbers and Co-Op Living
Being a renter does not mean that I’m poor or financially illiterate, it means that I’m building assets that are not property. If I was condo poor, that condo would be all I had in the world and when I retired, my state pension would barely cover property tax and condo fees. Also, if I find Mr. Right how am I meant to fit him into 450 square feet? What it would cost me to sell a condo after a few years of living in it is a whole new topic.
Some experts have done calculations on how much you’d save over five years if you rented instead of buying a condo. Some have a realistic interest calculations at 1.25 percent in a high interest account, while others randomly suggest 6 percent over five years in a mutual fund or some other investment with risk. At $370 a month you would end up with $22,894.
That’s nice but you really want more than $370 per month, if not just to make you feel better about getting harangued on a weekly basis over your housing choice. I actually save twice as much per month renting when I compare with the pre-construction unit I looked at. How do I do this? Co-op living. Why pay for someone else’s dream in the sky and then have them boot you out when they feel like it or crank up your rent when your lease expires when you can live in a community where people actually know your name and where you make the decisions regarding your home. Renting is a very affordable option in Toronto when you consider Co-Op living.
I could talk about this topic all day and haven’t even scratched the surface so I’ll end it here and happily chat it out with anyone who wants to continue this in the comments. Go easy on me though! To any fellow young city folk out there, if you’re considering a condo you need to do a monthly budget before you even sit in front of a savvy sales agent. If budgeting isn’t your strong point then have one of our financial coaches help you out. Give us a call at 1.800.267.2272.
Comments
Submitted by Tea Nicola (not verified) on
I think you are doing the right thing.
When it comes to own vs. rent argument, specific personal circumstances are always necessary to make the right decision. Also, if you know that buying would tie up all your money in equity of a home, means that you are not diversified in your savings.
In addition, living in the burbs may allow you to get into a home faster as your downpayment will not be as big, it also means that your monthly cash flow will increase by the cost of the commute. Not to mention the time spent in the car/train and the ease of live you would have if you were closer to things you enjoy doing.
And the fact that you are in a co-op housing makes this decision the smartest one you can make at this time.
I live in Vancouver and own my home. I bought a nice cute two level home that is close to downtown (I could walk if need be) and I rent out the three bedroom apartment in my basement for more than half of my monthly mortgage payment. Yes, I pay less to live in the house I own than the people I rent to. Shhhh! :-) I know that house rentals are not as common in Toronto and I was lucky enough to scrape some wedding money for a downpayment and make it happen.
But again, personal circumstance, the right environment and all that jazz. Had the numbers not shown me that this was actually going to work out, I would not have done it.
Advertise your choice to as many people as will listen. With confidence. Cause there's nothing wrong with renting, especially when you have taken care of all other financial goals. (Like retirement and emergency fund.)
great article. i own a house, but also feel the crushing burden of debt, and have actually been thinking maybe we'd be better off selling the house and renting something instead. we'd still make a profit off our house, and free ourselves of the monthly debt payments. but it's hard, because it feels a bit like failure :(
There’s no shame in living an affordable lifestyle, whether that be owning a home or renting. Failure to me, is a society that puts so much emphasis on owning a home and what that represents financially. I rent and regardless of how family, friends, or dates may judge me, it’s a good financial choice for me. I rent because I want to. It allows me to save for retirement, travel, entertainment and an emergency fund. I refuse to pay thousands of dollars more for a home just because it’s in Toronto instead of Markham or some other suburb that would take me an hour to get home to and cost a fortune in gas (because I’d also have to have a gas guzzling SUV if I lived in the burbs, right?). I also live in a Co-op because it's affordable, how else can you get a 2 bedroom townhouse for under $1000? It may have annoying neighbours at times but annoying neighbours are everywhere, even in houses and condos!
I bought my condo on 5% down in 1999, alone, after having gone back to university at 32, on a salary of $33K at the time. It hasn't been easy, but I don't feel deprived, and now I have 150K in equity which my boyfriend (who can ONLY afford to rent) and I are putting down to get a bigger place together in downtown TO. We have looked at a house in the burbs, but the public transit costs and 12hr days door-to-door just don't appeal, to us. (Right now I walk to wok) As to Co-op, I have three friends who tried it; one had a 3am abusive drunken couple next door, another 24hr barking dogs and a third two drug-dealers living down the hall. I have no regrets choosing to buy but I know renting can be just a good an option only IF YOU DO ACTUALLY SAVE.
Hallelujah! I am not the only one that thinks this way. I saw an article recently about how gay couples are at a financial disadvantage over heterosexual couples. I'm not sure what the basis of the argument was but all I know is - try being single! Everything is geared towards what couples can afford - the costs of travelling, groceries, and accommodations (renting OR buying) for example. Friends and family continue to look at me puzzled because I haven't jumped on the home ownership bandwagon. The trouble is - first if all, saving a large enough down payment (I keep saving and the prices keep rising); secondly, having no back up should I lose my job or get sick. The idea of putting everything into a little box with condo fees that I can't control is very scary for me. For now, I'll keep saving, living in my huge 2 story apartment (with a deck), and hoping that the Toronto housing market crashes! :)
Eeyore, what a poor argument regarding Co-op living. Drunks, barking dogs and --gasp-- drug dealers can be found in many places. They're not endemic to Co-ops. Please!
People judge what they don't understand. You made some great points. I am in my 30's, Married and am renting. We are trying to save for a place, but for various reasons it hasn't been in the cards for us yet. We don't pay for bright lights and traffic chaos. We pay for the lifestyle that suits us. Walking to .. well everywhere. Festivals, museums, one of a kind pop shops. Parking isn't an issue because we don't have to drive. (When people complain about Toronto drivers I laugh because most of the cars on the road are Suburban. We don't have to drive. Those aren't Toronto Drivers...that's your neighbour you are complaining about)
I never run out of groceries because the store is across the street. For health reasons, it has suited us to be near the hospitals. If I fall ill, the walk-in is on the corner. Our rent may be a bit higher, but we save on Gas, Insurance, Maintenance... not to mention time in our day.
I'm not saying one is right and the other is wrong, but we do what we do because it fits in our budget, suits our needs and lifestyle.
Great blog! And good for you for not giving into the peer pressure. As a home owner I can tell you that nothing can prepare you for the slew of bills that hit you every month until you actually own a home. And once you do buy a house or a condo, its not emotionally or financially easy to give up or downgrade if something changes in your situation. Better to be fully financially prepared and enjoy it than to jump in.
Thanks for all the great comments. Some of you have put very nicely some points I would have included had I had another week to write this article! Karen, I actually laughed out loud at your housing crash comment because I too am waiting for that. I also understand what you mean about having no backup should you lose your job. That was a factor for me in backing away from a condo. It’s really great to hear that some people, like Eyeore, have managed even though it wasn’t easy at the start and have come up smelling of roses, as they say. Wish I’d got in in ’99! RS, how true about the traffic consisting of non-Torontonians, bet they’d take traffic over road tolls though. I’ve lived in my Co-op for almost three years and it’s been a good experience. I really like my neighbours and I’ve never heard any drunken rioting...yet, perhaps I lucked out.
I do own my own home but as pointed out below the bank owns me. However I do expect to have paid my mortgage within the next five years and I tell you, it'll feel pretty good. I don't live in Toronto though, I don't even know how you afford the rent. All that money for bright lights and traffic chaos. Not to mention zero parking. I say get out of the city and buy.
Well said. Better to be realistic and rational than to chase some hollow, silly dream about 'owning a home'. First of all, you don't own it until it's paid off. The banks owns you. Yay! I own my home! I can't eat and I don't have a life but I OWN my home!!! Pishposh.
Great article! You have the same arguments about buying vs renting as I do. People assume I am poor b/c I rent! I rent so I don't end up house poor. I like investing my money and going on vacations.