Buying a Condo Versus Renting an Apartment 

BUYING

Buying a standard $300,000 condo with the current five-year fixed interest rate and 5% down would look something like this:

Condo Purchase Price: $300,000

5 Year Fixed Interest Rate: 3.25% 

Total Due on Signing:

o Down Payment: 5% = $15,000

o Deed Transfer Tax: 1.5% of purchase price = $4,500

o   Lawyer Fees: ~ $800

o   Total Up Front Costs: $20,300
____________________________________________

o   CMHC fees (added to loan amount to be financed):  $11,400

Balance Remaining to be Mortgaged: $296,400

Mortgage Payment: $1,441 / Month

o   Interest Paid: $797

o   Principal Paid: $644

Condo Fees / Utilities / Insurance: $450

Property Tax: $250

Total Monthly Carrying Costs: $2,141

At this rate, in 5 years, the mortgage will be paid down to $254,552. Meanwhile, the estimated condo value in 5 years with 2.5% appreciation equates to $339,422.

Equity Gained = Appreciation ($339,422) - Balance Remaining on Mortgage ($254,552) = $84,870 – Upfront Costs ($20,300) = $64,570.

However, in this example buying costs $541 more per month (see ‘Renting’ below) so we want to back that number out now; $64,570 - $32,460 ($541 x 60) = $32,110.

So after five years, assuming you have to live somewhere (and that rent is $1,600 / month) purchasing a condo will provide you with a lift on investment of approximately $32,110.

Note that if you put more than a 5% down payment you would reduce the CMHC insurance fee in addition to the interest paid on your mortgage so that the lift on your investment would be even greater. 

RENTING

Renting Similar Unit: ~ $1,600 / Month = $96,000 in Rent over 5 Years

Monthly Savings Renting vs. Buying = $541 ($2,141-$1,600)

By renting, one would be saving $541 / month in addition to the $20,300 in up front purchasing costs.  If you were to invest all of this money in a GIC with a 3% annual compound interest rate you would make $6,274 profit in five years (see below).

Current Principle: $20,300

Annual Addition: $6,492 ($541 x 12)

Years to Grow: 5

Interest Rate: 3%

Future Value: $59,034

Gain on Investment: $59,034 - $20,300 - $32,460 ($6,492 x 5) = $6,274

BOTTOM LINE

No two scenarios are ever the same and some people are much more savvy investors than others. For example, a renter may choose to invest in stocks instead of a GIC and do very well. In contrast, appreciation on your condo might only be 2% or if it’s new construction it could be more than 5%. Regardless, whatever the scenario, you can take the guidelines set out here and apply them so they match your own.

Last, it’s very important for us to note that this is meant only as an example. We always recommend discussing any investments you plan on making with your financial advisor and mortgage broker.  After all, while we know and understand the Halifax Condo Market very well the same cannot be said for your personal finances and investment goals. Whichever the case, we hope you found some value here and if you would like to discuss this exercise in greater detail, please feel free to contact us.