Happy Bachelor Monday!
I have provided an insight toward renting versus buying at the Woodwards Building – 108 West Cordova, which has 32 Floors and 536 Suites.
Rent:
1 bedroom, 1 bathroom – $1890 (first month free) discounted to $1,733 per month. Approximately 625 sq.ft on the 24th floor.
As a renter you are not responsible to pay property taxes or maintenance fees.
Total due per month – $1,733
Buy:
1 bedroom, 1 bathroom – Approximately 625 sq.ft on the 24th floor – Approximate sale price $415,000.
Mortgage Payment:
20% down payment ($83,000) locked in at a 3.25%, 5 year terms with a 25 year amortization – $1,614 per month
Estimated Property Taxes (2013 Woodward’s owners are required to pay) $1682/year or $140 per month.
Maintenance Fee $3,552 per year or $296 per month
Total due per month – $2,051
Conclusion:
The rental alternative will allow you to save and invest both the downpayment of $ 83,000 and the monthly rental savings, initially at $ 370. At the end of the 60 month term your before-tax investment will have grown to $ 109,844, assuming the savings rate of 2 % per annum. After paying annual income taxes at 0 % on the investment interest gain, the investment will have grown to $ 109,844.
In order for the home purchase alternative with a mortgage interest rate of 3.25 % to perform as well as the rental option, the annual rate of property appreciation must be at least -0.24 % . Total property appreciation of -1.2 % together with principal repayment would result in homeowner’s equity of $ 120,211 in 60 months, less the 2.5 % cost to market the home of $ 10,367, for a net gain of $ 109,844.
If the home value increased by more than $ -5,300 ( -1.2 % ) in 60 months, purchasing would be a better financial option than renting.
However, please proceed with caution. In my experience with talking to different individuals in the real estate business (brokers, agents and developers), the majority of them indicate that the interest rate will go up, but for the last 2 years this hasn’t happened. I don’t believe this will happen until mid 2014, there could even be a drop in the interest rate, but I won’t push my luck here. There is recent data from the Bank of Canada that suggests that Canada has had the lowest inflation in 3 years (December-January).
A separate Statscan report showed annual inflation at a mere 0.5 per cent in January, marking the smallest 12-month increase in consumer prices since October, 2009, and contributing to the prevailing sentiment that Canada’s economy, once the envy of the industrial world, suddenly is standing still.
First Time Home (Condo) Buyers, this is the biggest financial debt you will take on and it’s imperative you have an understanding both locally, provincially, nationally, and globally. However, if you are the person or couple that is filled with the anxiety that you will “Miss Out” on the rare, limited, opportunity to make money in real estate then I suggest to be safe and try to put a down payment that will offset the market rent for your unit (inclusive of maintenance fees and property taxes) Ie. The rent you can fetch for your condo unit will cover all your fees to own the condo.
If you have any questions or want confidential feedback from someone who isn’t an agent and doesn’t have an ulterior motive please contact me at kmatkaluk@gmail.com
Have a great day,
Kit
