Economics of Renting vs. Owning
- Thread starter The Kin2
- Start date
Taxes are 120$/month insurance is 60$. My job is being self-employed and I decide when I move.
Rent is easily the same as my MTG payment.
You could find these deals all over the country if you look. I live in Calgary,AB and bought at the right time 1.5 years ago, before prices started to skyrocket.
edit: Some of the downpayment money came from a house I owned when living in Florida 2000-2004.
Rent is easily the same as my MTG payment.
You could find these deals all over the country if you look. I live in Calgary,AB and bought at the right time 1.5 years ago, before prices started to skyrocket.
edit: Some of the downpayment money came from a house I owned when living in Florida 2000-2004.
True. But he agreed to pay many less dollars way back then that he would have to agree to pay today to get one. The decreased number of dollars offsets the higher value of those dollars. And if he'd have rented this whole time, he'd have paid out way, way, more dollars over that time period.
Bingo! The weighted average of the percent of income was 20% over that time period. Then you get to factor in the tax advantage, but admittedly you have to subtract out maintenance.
For a renter, their payment would remain about 85% of what a new home owner would be expected to pay, so they would pay out 85% of 30% for the duration, or an average of 25.5% of their salary.
And after that 30 years, they would still be paying out 25.5% of their salary, but the homeowner would have it paid out, so they'd only be paying the taxes and insurance, which is less than 2%.
Yes, if might make sense now, in some markets, to rent instead of buy, but over the long-run, there is just no way in my mind that it is better.
SM
Oops. Forgot to mention that at that end of the 30-year period, my father in law owns that house free and clear. His net worth is $400,000 greater than if he just rented. I'd really like to see the assumptions in the spreadsheet that started this thread but I couldn't download it.
Curious, what's the tax situation for homeownership in Canada? As in the US, where owners get an interest deduction without paying tax on imputed income? What about capital gains on sale?
Quote from Adobian:
Had he been renting then put the extra cash investing, perhaps he would have made millions.
I think it would actually work the other way. Assuming that the average tenant pays 85% of the payment, then he would only have four years to invest before the homeowner's payment would be less than the renters due to inflation. So the owner would have 26 years to invest his savings which would increase every year, starting at about 3.5% per year.
SM
There is no interest deduction when paying off your mortgage unlike the US.
When you sell your principal residence, there are no capital gains taxes as long as you've lived in it for 1 year+.
You can use your equity, and this is a good deal if your house has apprecited substantially, to invest in other opportunities.
Your bank will lend you a maximum of :
Appraised, current value of your house * .75 - Mortgage = Maximum Line of Credit
The interest rate for that would be prime (sometimes you can get prime -.5) and this becomes tax deductible if the money is used for investment purposes (stocks, other real estate etc...)
So, as an example, your house is paid off and you have no payments. You can take 100K out and control 400K worth of rental properties for about 4K/year (current prime - tax deduction). The market would have to appreciate less than 2% on average per year for you to break even after taxes. (Your tenant is paying off the rest of the mortgage, hopefully, and some principal)
If you are smart (and maybe a bit lucky) and get a 25% year then you've almost doubled your money with minimal risk.
You can't just buy any property out there, but with a little bit of smarts, anyone can do it. And this doesn't require you giving up your job or risking your entire financial situation etc...
When you sell your principal residence, there are no capital gains taxes as long as you've lived in it for 1 year+.
You can use your equity, and this is a good deal if your house has apprecited substantially, to invest in other opportunities.
Your bank will lend you a maximum of :
Appraised, current value of your house * .75 - Mortgage = Maximum Line of Credit
The interest rate for that would be prime (sometimes you can get prime -.5) and this becomes tax deductible if the money is used for investment purposes (stocks, other real estate etc...)
So, as an example, your house is paid off and you have no payments. You can take 100K out and control 400K worth of rental properties for about 4K/year (current prime - tax deduction). The market would have to appreciate less than 2% on average per year for you to break even after taxes. (Your tenant is paying off the rest of the mortgage, hopefully, and some principal)
If you are smart (and maybe a bit lucky) and get a 25% year then you've almost doubled your money with minimal risk.
You can't just buy any property out there, but with a little bit of smarts, anyone can do it. And this doesn't require you giving up your job or risking your entire financial situation etc...