Subject Property: 2 Bedroom Condo
Sale Price: $300,000 vs. Rental Price: $1500/mo
Down-payment: 5% ($15,000)
Mortgage of: $285,000
Interest Rate: 4% (5 year fixed with 25 year amortization)
Monthly Mortgage Payment: $1500/mo
Property Taxes: $2710/yr ($225/mo)
Condo Fees: $280/mo
Total cost per month when you purchase: $2005
Total cost per month when you rent: $1500
*Do note that this is a more extreem case and there are many opportunities in Barrie where the spread is much less. Sometimes you can even find that you would be paying more monthly if you rented.
PURCHASING:
Now let’s look over the 5 years.
If you assume that the property increased by 3% per year (the historical average for real estate), the property would be worth $347,782.
Over 5 years you would pay $90,000 in monthly payment and it’s safe to say that half your monthly payment is split almost equally between interest and principal repayment. So after 5 years, the buyer would have repaid $45,000 of principal on the mortgage (forced savings).
Total amount saved by the buyer in both equity and paying down their mortgage: $107,782
If the buyer needed to borrow their down-payment, the net gain would still be $92,782
RENTING:
Now let’s say you rented for those 5 years and saves and invests the $505 that they save by renting instead of buying (which rarely happens) but let’s believe they will do this every month and earn an interest rate of 2% after tax (probably high).
Total amount saved by the renter: $31,840
Let’s say that property value didn’t increase at all over the 5 years, the buyer would still be $15,000 ahead of the renter.
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