I really want to buy but I can't justify it finacially. I don't think I'm missing anything but just in case.

Appreciation - property taxes - condo fees + rent saved - opportunity cost on capital tied up - interest costs on any mortgage.

If the number is negative then that is how much I'd lose by owning vs renting.

Is there something I've neglected?

- closing/transaction costs, which often shift the balance in favor of renting if you're staying for a short time, or in favor of buying for longer periods... It really depends on the length of your stay.

Looking at 8-10 years so transaction costs would be negligible when amortized over that many years. Still I'll add them just for the sake of being complete.

That though increases the renting position. I'm really hoping I missed something that would increase the buying argument.

Some things that probably aren't applicable to your situation but I'll throw out there for the sake of the argument: renting out part of the property and making improvements to the property that increase value more than the cost of the improvements.

One that might be applicable is that you get a tax break when you're a home owner. I'm not exactly sure how it works but I think you can write off the house as depreciating or something.

Mortgage interest & property taxes are deductible so if you itemize, you can assume after tax costs of those items are around 30% less (depending obv on your marginal rate, state tax rate, etc.).

But hey, I'm not trying to talk you into buying. Prices have come down a little bit, but are still high in general IMO. Renting is a better financial option for a lot of people nowadays.

cost of lack of diversification among your assets (not necessarily true if you have a big portfolio but RE represents 100% of some peoples wealth allocation)

I believe there was a lengthy discussion here not too long ago about buy vs. rent. One of the arguments for renting was that very few home repairs/remodels will increase the value of the home more than you put into them.

I'm pulling numbers out of my ass here, but I believe claims were made that the value added by most home repairs was 50-90% of the cost of the work.

I should have mentioned I'm Canadian so no tax deductions. In fact I'd lose the tax credit I currently get for paying too much rent.

Roommates are not something I'd consider and the place I'm looking at is new and quite nice so any improvements would be more for personal taste and a negative finacially.

I use to own but I've been renting for 8 years. I've paid out $259k in rent and if I stay another 8 years that will be another 1/4 million plus. It seems counterintuitive that the correct decision is to pay out 1/2 million and have nothing to show for it at the end. The math says I should keep renting.

You forgot insurance, which is a not-insignificant expense. You also forgot that it is possible to buy properties for less than fair market value, giving you immediate equity. Or you could buy a property for FMV and then improve it to create additional value - zoning changes are your most likely candidates for this in your situation. Tien, I believe is Canadian, and a RE investor that might be able to help you find a cheap decent property, or otherwise have some good Canadian advice.

Hopefully, you won't have nothing to show for it; you should have a portfolio of assets which you invested instead of paying a higher mortgage....

Some people lack discipline wrt to investing the difference between rent and mortgage, and so the mortgage can be seen as forced saving. This "benefit" to buying should only be considered if you are applicably lazy, which it probably isnt if you're actually going through the trouble of comparing costs.

There is more to buying a home than just the finances of it. The quality of living is usually several times better than renting. No more paper thin walls and floors, decorating/modifying as you see fit to create the space what you want, etc. If you are a lazy person with no wife and kids, then the upkeep may be a bit much, it depends on whether you're looking at a house or condo.

Henry,

$259k is quite a lot of money. What is the difference that your calculation is showing?

I am fairly lazy but based on my calculations I'd only need to generate a 2-3% return to make renting preferable. A bank account would give me that.

The problem is with appreciation. I don't expect there to be any. In the last 3-4 years there have been 3 projects that match what I'm looking for and all of them still have never lived in units. That implies to me that appreciation will be next to nil. Real estate though is not my strong point so maybe that is normal but I doubt it. To me it implies a lack of demand.

It is actually the same place. There are units for rent and for sale. Owning would give me the option to customize but like I said the place is brand new and nice so it would be minimal stuff that I'd improve.

Assuming a very conservative return on tied up capital (5%) I'd lose ~$25k a year owning.

I have ONE question Henry17:

You seem to be a very astute investor/financially educated poster on this forum...how/why did you choose to rent vs. owning a home the last eight years ,in the BIGGEST real estate bull market in history?

I am very curious,and in no way trying to question your decision,but spending $250k+ in rent,and now deciding to make another decison whether to spend ANOTHER $250k is perplexing?

I truly would like to hear your perspective over this time frame?

Thanks,
~stephen

Originally I wasn't sure how long I was going to stay so renting was the correct choice.

But even if I knew I was going to stay for 8 years I still would have rented. The area is a major tech hub so when I got here real estate was over priced. When tech crashed I started to look into buying. There was nothing that matched what I was looking for. 2004 they finally built a building that matches my criteria (mostly). The units though have not appreciated at all despite the biggest real estate bull market in history.

I don't see much upside to $800-1.2M condos in my city. Of the 3 projects that have units in that price range all of them have units that have never been lived in despite being on the market for 3-4 years. With a 4th upmarket building in the works I can't see enough demand for this particular type of real estate in this specific location. I figure if it meets inflation that would be the best I could expect.

agreed. what's your location?

google: dinkytown rent vs. buy calc
and be honest with yourself when estimating the input variables.

It sounds like he already "knows" his answer.

The only thing I could suggest is finding a different city or place to live thats close but cheaper. $2500/mon is a lot to pay just for rent.

Ottawa. The only building I'm willing to live in is 700 Sussex.

I really doubted that I had missed anything but I was hoping I had. I really would prefer to own. Tried the Dinkytown calculator and it also suggests I continue to rent.

v. nice location. Are you willing to share what rent is there? That's got to be one of the most sought after condos in Ottawa isn't it?

Rent is about $3300. I'm paying $2700 to live in a different building but now that I'm looking at another 7-10 years I want to move in the spring.

It is the most prestigious address outside of Rockcliffe but surprisingly there has never been much demand. As of a few months ago there were still 4 units that had never been lived in.

I myself am renting at the moment as well. Probably will for the next 2-3 years and then might buy something exactly to my tastes.

Anyways, it was a no brainer for me.

I am now living in a nice penthouse condo, with ample space, and many nice amenities. The condo building is about 20 years old, so its not as 'new' and shiny as the newest fancy condo units that are popping up everywhere these days, but its still a very nice place to live.

Face value on my 2 bedroom unit is about $365k i'd say.

As such, i estimate the following MONTHLY costs if i were to buy it instead:

$1300-$1500 Mortgage interest
$900 Condo Maintenance Fee
$300 Property tax
$90 Insurance

So roughly $2800, before actual mortgage principle payment, which then would also bring my monthly payment to around $3200 - 3400 depending on how you want to structure your mortgage.

Instead, i negotiated a monthly rent of $1950. They had initially asked $2400, then reduced it to $2250. I came in and lo balled them on feb 24, saying i could move in mar 1, and offered $1900. I fully expected them send a counter offer in the $2100 - $2150 range, which i likely would have taken. However, they were desperate to unload is ASAP, and the fact that i was willing to take it for a week later, thus allowing them to cash in a full month extra rent, made them sign back to me at $1950...which i gladly took.

So compare:

Owning i'd be paying well over $3k per month, renting i am paying under $2k, for the exact same unit.

Of course, if i stay ten years, if i own i would have equity in the house AND the aprreciation it yields.

But i think i am way better off pocketing an extra $1000 a month, and investing $700 of it in stock market, and using the extra $300 maybe for fun money, or for additional lease $$ for my car, which can easily be the difference between a regular acura or a nice 4 year old porsche.

Sounds like a much better deal for me.

If I was in Toronto I'd buy. The appreciation would make it worth while. Plus there are at least 4 buildings I really like. The only thing that worries me about Toronto is the mayor and his insanity with taxes.

This should mean that you can get a good price on buying.

Real estate usually booms in a 10 year cycle, if the last boom was particularly big then it might take a little longer but if your planning to stay there 10 years and there's nothing moving in the last 3-4 years your odds are good.