
Toronto Condos: Should you rent or buy? - goldlist
http://blog.wealthsimple.com/are-you-missing-out-on-torontos-condo-market/
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DMac87
The assumptions made by the author are ridiculous, namely: \- In the 10-year
comparison, rents paid are not factored in at all. \- In the forward-looking
comparison, condo prices are assumed to be flat, mortgage rates go up (why?
can't they be locked in now?), while equity prices go up 6-8% per year \-
Taxes are not factored in at all - capital gains on a primary residence are
tax-free, while investment gains will be taxable (eventually, even if buy-and-
hold) \- Mortgages allow an effective leveraged investment on home equity, so
your gains (and losses!) on home values are magnified

It's a worthwhile debate, and there are merits on both sides, but such blatant
bias has to be pointed out.

Also: in the US, unlike Canada, there are tax benefits for a mortgage...

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corcoran2015
Great comment DMAC. The model shows what will happen if rates go up 1% and
condo prices are flat. Rents paid are definitely factored in the model as are
taxes. The investor is in a TFSA & RRSP which means capital gains are a non-
issue. Property taxes cant be avoided though. Its a real advantage of
investing in Canada to use the RRSP & TFSA vehicles.

You're right, mortgages can typically be locked in for five years.

But really people can check out the model and use their own assumptions:

[https://docs.google.com/spreadsheets/d/1ZJnbA2MO7iuQc4xEX9E2...](https://docs.google.com/spreadsheets/d/1ZJnbA2MO7iuQc4xEX9E2NJZETddZG0oM3rVd6zLoV7g/edit#gid=1187439665)

~~~
DMac87
1\. RRSP & TFSAs have limits much lower than the assumed contributions, so
there are tax differences between the two alternatives. 2\. Even slight tweaks
to your assumptions (e.g. reduce investment returns to 6%, increase condo
returns to 2%) equalize the two scenarios. If you're going to use such an ill-
conditioned model, you really must spend significantly more time justifying
all of its assumptions, or else show sensitivities to them.

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brewdad
I take issue with the assumptions of the second chart. If we allow the author
to assume 6-8% growth in the stock market over the 25 year period shown in
chart two, surely assuming 0 change in value of one's condo over the same
period is nonsense.

Perhaps, I might allow for 0 change in "real" prices, but since the author is
not making adjustments for inflation in his calculations, his assumptions
suggest Toronto condos will be worth 40% less in inflation adjusted dollars 25
years from now.

While this is one possible future, it seems incredibly unlikely given the
optimistic outlook for his equities growth.

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g8oz
The gold standard for this kind of comparison is the New York Times Rent vs
Buy calculator. Note how relatively small changes in any one of many factors
can result in very different outcomes.

[http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calc...](http://www.nytimes.com/interactive/2014/upshot/buy-rent-
calculator.html?_r=0&abt=0002&abg=1)

~~~
jarek
Note that it needs a few adjustments for Canadian market, the biggest ones
being mortgage rates are usually not locked in longer than five years in
Canada and mortgage interest is not tax-deductible

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corcoran2015
Hey I'm Tim, the author, really glad people are into this. Interesting
situation in Toronto. Check out the model and input your own assumptions if
you'd like!

[https://docs.google.com/spreadsheets/d/1ZJnbA2MO7iuQc4xEX9E2...](https://docs.google.com/spreadsheets/d/1ZJnbA2MO7iuQc4xEX9E2NJZETddZG0oM3rVd6zLoV7g/edit#gid=1187439665)

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manishsharan
Neither. I had to do it all over again, I would buy a detached house in the
middle of boondocks ( like Mississauga, Brampton , Vaughn ,Markham , Richmond
hill etc. ) . The supply of detached houses is limited whereas condos in
Toronto are growing like weed. The detached houses have grown more in value
and they are not encumbered with maintenance fees.

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OldSchoolJohnny
Detached houses could end up costing far more in maintenance. From experience.

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eekfuh
One time maintenance fees versus monthly HOA fees that you are required to
pay.

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mfringel
That's true, but only in the most naïve sense.

A house starts falling apart as soon as it's put together... and it keeps
falling it apart, and you have to keep putting it back together. The
distribution of expenses is lumpier with a house than with a condo, but it's
certanly an ongoing cash outflow.

~~~
nasalgoat
Toronto is mostly made up of 100-year-old brick houses, so the maintenance is
mostly soft stuff like painting, gardening, etc. unless you do major
renovations.

My last house I did, essentially, zero maintenance over a 10-year span except
for a drain replacement ($2K). Every other expense was month to month expenses
like heating and electrical.

When I finally decided to sell, I replaced the crappy carpet, painted the
walls beige and made a 5x profit.

~~~
jarek
> Toronto is mostly made up of 100-year-old brick houses

That's true for inner Toronto but not for the suburbs as manishsharan
suggested. Newer developer-built-subdivision wood-frame rules out there.

~~~
nasalgoat
Yeah, fair point. Mississauga mostly dates to the mid-70s and has some truly
terrible construction.

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chongli
_Myth #1: Toronto condos have outperformed the stock market by a long shot_

Isn't it disingenuous to include _automatic dividend reinvestments_ in the
price calculation for stocks but not include net income from rents reinvested
into more condos?

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davenugent
Hey there, we assume that the condo you purchased you live in not as a rental
property. The spirit of this post is to show that there isn't a straight yes
or no answer to rent vs. buy...The shorter the time frame the less likely is
you should own.

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dangerboysteve
The author did not factor in Condo fees or property taxes.

~~~
frandroid
You're going to pay the fees through your rent if you're a tenant, so they're
not a differentiator anyway.

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hbbio
The article is interesting but does not mention a few facts:

\- In several countries (including France where I live), there is a "tax
break" in owning real estate since the virtual rent is not added to revenues
(or: you cannot deduct your rent from your revenues). For instance, if you're
renting a flat that you own but at the same time rent to someone the flat
where you live, you'll be paying taxes on your rent income, but deduce nothing
from the rent you pay.

\- Rented flats tend to be in less optimal condition that flats that you own.
Since the utility of a flat is to live (in the best conditions available),
it's sometime a good idea to invest in renovation works, plan changes, etc.
for which the owner of a rented flat will see little value.

And also it mentions but does not insist on one major thing. Taking a mortgage
to acquire a property is a bet on future inflation. If inflation is/will be
high is the next years, getting a fixed rate mortgage is a great opportunity
(and there are little chances you will be able to get a significant mortgage
for anything else than real estate). If inflation is low (or worse, we enter a
period of deflation), renting is by far the best option. IMHO this criterion
is by far the most important while deciding about rent vs. buy.

~~~
Joeri
One thing easily forgotten with renting is that you can be kicked out. This
can be extremely stressful. Then again, as a home owner you can be hit by
surprise maintenance work, which has its own source of stress. But, on the
other hand, as a renter you may not have much control over necessary
maintenance work, and be forced to negotiate with your landlord through the
court system. Trade offs...

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rolyatyasmar
I live in Toronto, I own real estate but not in the city (largely because I
cannot afford to buy). I've invested in income property a few hours out of
Toronto in a small town that produces positive cash flow that I reinvest in
the stock market. I rent a small, shitty apartment in the city. This has ended
up giving me returns of excess of 60% per year on the money that I've
invested. I'm always amazed at how overlooked this strategy is.

~~~
nasalgoat
Is that small town a University town like Guelph or Peterborough?

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kazinator
> _Myth 4: Renters throw cash away, at least owners build equity_

It's no myth, because you have to live somewhere. (Well, you could put your
money elsewhere, and go live in a cardboard box under a bridge, but let's be
realistic.)

Owners are building equity with the money they would otherwise be completely
throwing away on rent, and they got into that situation with just a little
money down.

(Depending on area), current rents are in about the same ballpark as payments
on a new mortgate, but: 1) mortgage payments stay approximately the same over
the life of the mortgage, whereas rents just go up and up. 2) only the
interest portion of a mortgage payment is thrown away, and it goes down over
time.

For the cost of the opportunity loss on your down payment, you're fixing the
amount of a significant living expense that would otherwise continue to
inflate, and you're getting a slice of that expense to go into equity that
would otherwise be thrown out, and that slice gets bigger.

The opportunity cost on the down payment is not bad, if the property
appreciates! You have to think in terms of leverage: if the property goes up
by 80K, and the down payment was 80K, that's a 100% growth! You put in 80K,
and it doubled. _And_ your rent expense was replaced by something better. If
you compared the _leveraged_ view to the stock market, the stock market
doesn't look so good. You can use leverage in the stock market also
("margin"), but that's a heck of a lot of risk.

I just renewed a mortgage for another term and the payment was supposed to go
_down_ (probably due to all the acceleration). Moreover, I declined that and
kept it at the same amount. No way will a renter face a declining payment in
the same area---not to mention that it would be irrational to refuse it.

~~~
jarek
> (Depending on area), current rents are in about the same ballpark as
> payments on a new mortgate,

Not in Toronto, which is like the whole point

> 1) mortgage payments stay approximately the same over the life of the
> mortgage, whereas rents just go up and up

Condo fees go up and up

~~~
TwiztidK
>> (Depending on area), current rents are in about the same ballpark as
payments on a new mortgate,

> Not in Toronto, which is like the whole point

Then what is the rent/mortgage situation in Toronto? That was never discussed
in the article. In my area rent is 2-3x higher than a mortgage, all I know
about Toronto is that property values are high.

~~~
jarek
The early-90s harbourfront towers by Bay and Queens Quay rent studios/1bds for
$1500-1600 incl utilities or buy for $400-500k + maint fees $500-700/month +
tax + util

~~~
sanswork
1+1 in the area at the moment will go for around $1800-1900/month. Based on
two places I've rented in the Pinnacle centre over the past 3 years(and
looking for places in that complex and ones near by).

~~~
jarek
In the battle of anecdotes, my entry is a studio in the upper third of 99
Harbour Square, 120 degree lake view to the east, rented in July 2014 for
$1500 including all fees and utilities. Has it gone up a lot over the past
year?

~~~
sanswork
I moved out of my last Toronto place a few months after that so I'm not 100%
but I would say no given the rate of increases in the years before that I
lived there. I can say that for a few hundred more a month you could almost
certainly have a bedroom and a den pretty much across the street. Pinnacle has
some of the better amenities in the area too.

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dblock
There's something big missing: you can sublet your condo, therefore building
income after it's paid off or to offset the mortgage. You will never be able
to do this with stocks.

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GigabyteCoin
>Renters can build equity by building their investment portfolio.

But you can't live in an investment portfolio.

I get the point that the author is trying to make. The TSX has outperformed
the Toronto condo market. But I would still invest in a home before I invested
in the stock market for the same reason I invested in GPUs to mine Bitcoin
instead of Bitcoin a few years ago.

GPUs (as well as condos) are tangible. If Bitcoin (or the TSX) was worthless
tomorrow, my GPUs and condos would still hold value.

If the stock market was wiped out tomorrow, I would still have a place to live
if I owned the property.

I would hate to be in the situation of relying on my next monopoly money
dividend to pay for the rent on a home which I do not own.

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peter303
The last time I bought was because I got tired of rent increases. Insurance
and taxes do increase with time, but more slowly than rent.

