I wish it made sense to buy instead of rent

15 Comments

After spending a month on my own in Paris, in the smallest but most stylish studio apartment I’ve ever been in in my whole life, I decided that I would really love to live in a studio apartment. Permanently. In Edmonton.

What I want is a small, maybe 500 ft2 space that forces me to be creative, live without a lot of stuff, and takes the least amount to clean. What I can get in Edmonton, however, is 800-1000 ft2 of luxury, look-at-me, please-put-your-leather-couch-and-matching-ottoman-here.

Sigh.

Nevertheless, I did fall in love with one centrally located loft that boasts exposed brick walls and wood-beam ceilings. It’s on the smaller end at 800 ft2, and I was in the mood to compromise so I decided that the extra room was just fine. I quickly began to stitch together an awesome fantasy life where I am a super trendy twenty-something in an upscale loft downtown. I could put art on the walls and have my friends over for cocktails at my bar table and I could live into my thirties like the down-to-earth, minimalist-but-still-fashionable missing character from Sex & the City.

It was going to be AWESOME.

So, committed to being single and sexy for at least the next 5 years, I decided maybe I would like to buy this loft. What did I need my grandmother’s 4 bedroom house for? I’m going to be a jet-setting professional that can only call a place home if it is within 10 metres of at least 5 different restaurants.

Of course this glorious dream came to a screeching halt when I was reminded that I live in EDMONTON, city of unjustifiablyexpensivehomes. Only here would a loft — yes, 800 ft, no distinct bedrooms, one bathroom, four-walled-thing — cost $300,000.

Should I even begin to point out the problems with this? After my dreams of home ownership were crushed, I decided I could probably console myself by renting one of the lofts instead of purchasing it. Except rent is about $1,000/mo, which I thought was interesting since it really shows the difference between owning and renting — namely why renting is better. Now, many of my friends hate when I say that, but it’s because they were duped into the ridiculous idea that buying a house is always an “investment” and renting is always “throwing money away”. STFUDF, renting for me is awesome because when compared to home ownership of the $300K loft, it looks like this:

Ok, so I have a pretty good deal not having to pay utilities or internet, but $650/mo is NOT the cheapest rent in my city — it’s completely reasonable to find a room that costs as much as $200 less than that if you wanted!

So, I did my math assuming a 20% down-payment on the loft of $60,000 plus an additional $6,000 in closing costs. The condo fees are $400/mo and the property taxes are $1513 per year as written on the sales listing. By renting instead of owning, I have $871 extra to play with each month. Now, imagine I saved up that 20% down-payment + closing costs, and instead of buying the loft, invested the cash and contributed my extra $871 each month. After 5 years, even a simple savings account at 2% produces a better return than what I would build up in equity in the home. Because many would argue the case for homes appreciating in value (as if a downtown loft has any appreciation value.. HA!), I re-did the calculation assuming an annual appreciation of 3%, and it’s still less than investing at 2%. Would I ever allow so much money earn 2% though? Of course not. I’d dump all that cash in riskier investments, and here assuming a very conservative return of only 5% was see that after 5 years renting KILLS owning:

For me, renting is not throwing money away — it’s an easy way to make $20,000.

Now I understand the main problem here is I want a $300,000 home. Maybe if I set my sights on some dumb townhouse in suburbia the numbers would flip, but for now renting is the best decision if I want to stay downtown… which is terrible, because I really want that loft.


15 Comments

  1. If I can come up with a down payment, I would prefer buying a place instead of renting. My reasoning is that price trend for real estate is going up. Even if it cost a bit more than renting, in the long run, you will probably sell it at a much higher price than what you paid for. The key is the location. If the location that you are buying into is the next up and booming location or there’s potential talk of developments, then it’s probably a good place to buy because you can always sell it when the area starts to boom.

  2. Keep in mind that Edmonton does not have ridiculous house prices compared to Clagary, Toronto, Vancouver, and Fort Mcmurray. Buying is definitely feasible in Edmonton where as other places it is not. I like the freedom of renting because you never have to be tied to a property. That way if you have bad neighbours or property values go down you are never stuck. The place a currently own has decreased in value and I now own more than it’s worth… not a great feeling considering I thought I was making a ‘good’ investment.

    • The difference in average house prices between Edmonton & Calgary is like $10,000 max.. Not sure about Ft Mac but I would never want to live there. Toronto and Vancouver are nicer more metropolitan cities than Edmonton so a higher cost of living is expensive.

      I also like the freedom of renting, and I’m so afraid of ending up in the situation you are in and losing money in home ownership 🙁

  3. I’m with you on the renting is def. not throwing your money away. Yes I would love to be a homeowner one day but….. the thought of not having the landlord to take over the bill in case my roof caves in makes me want to be a renter that much longer esp. since I don’t know if I would like to stay in one place for so long.

  4. Everything in NYC/Brooklyn in a half-way decent area is at least this much. So, even at $1400/month of cheap ($400 below market value) rent, I RENT. Because there is nothing I want that I can actually afford.

  5. jangle

    Thank you for justifying my existence. I’ve watched a bunch of my friends buy by their mid 20s, mostly at the height of the housing boom, and now are stuck (unhappy and broke) with places they couldn’t really afford in the first place. I may be “throwing my money away” on rent, but while they’re saving up for a new roof, I’m saving up for a trip to Europe. And they’re jealous 🙂

  6. Andrea

    Speaking as a homeowner; keep on renting! I bought a house at the ripe ‘ol age of 22 and well here I am… still broke. Lol. I’ve learned a lot so the thought of not having bought a house makes me wonder where I would be now had I not, it’s interesting…. It’s a good thing I didn’t invest MORE, thankfully I’m only $50k in the hole on a house that’s worth maybe $70k… so the damage wasn’t too bad.

    You’re totally right… renting is NOT throwing your money away. Renting can be better and in fact for most twenty-somethings renting is likely the best option, especially when a place will cost you $300k, yikes!

  7. I rent a loft in Phillips Lofts on 104th Street, for about a million dollars a month (at least that’s what it feels like). But I really like it (amazing location, 1200 sqft, etc)

    I am ok with that right now, mostly because I don’t know where I’ll be in a couple of years (even what country) and buying for such a short period of time just doesn’t make sense.

    But a few things are interesting ( 😉 ) about your math.
    On your fantasy condo, the fixed costs (eg, the ones that don’t build equity) are almost as much as your current rent ($640 vs $650). So basically even if you were to rent that loft instead of buying it, it’d still be more expensive.
    In the same sense, if your apartment building was to go to condos, you could probably buy your unit for $100k and your monthly cost wouldn’t be much more than your rent now.

    You’re comparing expensive apples (the loft) to cheap orranges (your apartment). Not really fair eh?

  8. @Money Pincher
    “My reasoning is that price trend for real estate is going up”
    That’s what realtors told people 3 years ago, and look what happened 😉

  9. We would have never bought a house if we didn’t live somewhere that was completely affordable. We move every three or four years, so maybe buying a house wasn’t the best idea, but I think we can still going to make it work out for us.

    Renting does make sense for lots of people. I don’t think you are throwing your money away.

  10. You’re right, there is a minimal difference in real estate prices between Edmonton and Calgary.

    Out of curiosity, how would the numbers pan out if you were to rent that loft rather than buy it? Like you, I also live in Edmonton, and I initially wanted to start out in a loft downtown. Having tried to rent downtown before, I know that you wouldn’t be able to get anything comparable to a $300,000 loft at that rent, especially without condo fees. The last 5 line items on your “buy” list total $640, while on renting you state them as 0. I can’t see anyone owning a loft similar to the one you’re interested in renting it for essentially $10.

  11. Woot! I’m always happy to hear people say that renting is better than owning because I love renting! I like having the option to move when I need to, and am glad to avoid the panic of flooding basements or leaky windows or the other unexpected emergency my house-owning friends encounter.

  12. I could see myself kicking it in a small house for a while but holy crap. 300K for 500 sq. feet sounds outrageous. I would probably rent for the rest of my life at that cost unless I won the lottery.

    Renting is not throwing away your money and you have logic to prove that, it just depends on what you value and where you choose to live and how much you are willing to spend.

    Dreaming is still nice 🙂

  13. Tara

    I hope you are not referring to me as one of your “duped” friends.

    If I was in your situation I would also never have bought, it’s just not realistic. The only justifiable reason for me and Brett to have bought our condo in central Edmonton was that.. it was myself AND Brett. Having two people paying off a mortgage is way easier than having one. Our monthly payments for our 1200 sq. ft. house are around $700 each, which I think is pretty darn reasonable, for us to rent something of equal quality and location at the same price is likely, but why would I rent for the same price? If it really was cheaper to rent then yes, I would have considered sticking with renting. I think that lifestyle should be the main determining factor when choosing whether you want to rent or buy. If you know you want to stay in the same location for at least five years, and you can afford the down payment, why not buy? You will get a return on what you put into your house. If you dont know where you’re going to be six months down the road, yea, buying is a terrible choice. But in terms of finances there are so many benefits to buying, and when we bought there was the first time home buyers tax rebate, which was awesome, saved me a couple thousand!

  14. Bridget, coming from someone who owns a home and rents, your numbers don’t tell the truth. A house that is 300k in Edmonton does not rent for $650/mth. Try more like $1400-1500. Plus, condo fees in some cases cover your utilities (for example, water and power), so your inflating your home ownership cost, and in turn, undercutting your renting cost. I don’t know of many rental places that include your internet and water. For my rental property, I only cover the condo fees for my tenant, and they pay water, electricity, cable, internet, and any extras. I’d be interested to see what a fair comparison would look like.

    However, now that I am renting out my property in Edmonton and renting in Vancouver, I am making money every month on the house that I bought. If you are thinking down the road that you want to buy a property, you don’t necessarily have to live in it. Considering real estate in Edmonton is decent right now, you could buy the place you want, and rent it out for 5 years. Taking into account your appreciation in property value, and the money you would make from renting it out, not only have you paid down your mortgage principal without you actually paying it (your tenant does), but you’ve found another source of income that is relatively easy to maintain.