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Buy or rent?
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| d!abolic |
| I'm gonna move out in the coming months, and i was going over the numbers, trying to figure out if i should buy or rent. Now, i'm gonna want to sell the property in a 1.5-2 years to move into a better one, so the realtor fee is a major factor. Around here, it's 6%. So it would cost $15,000 to sell an $250,000 condo. Now, according to mortgage amortization schedules, it would take me THREE YEARS of $1,500/mo payments just to build up $15,000 in principal. So in other words, if i end up living there only for 1.5-2 years, i'll LOSE money when i sell. Unless of course, the price goes up, but who can be sure of that? Right now, the papers are filled with stories about overbuilding, and builders being unable to sell everything they built. Guess what that's gonna do to the prices in the next 2 years? They could FALL, causing me to lose even more money! With that being said, wouldn't it make a lot more sense to rent? Especially since rent includes property tax, and mortgage doesn't. Or am i missing something here? Perhaps it costs something like $2,000 to rent a place the the mortgage for would only be $1,500? |
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| bluE_Neon |
| Either way your better of buying the condo. If this is a new condo, the property of it will get richer and you will always end up on a profit. |
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| d!abolic |
| Did you read my post thoroughly? In order for me to even BREAK EVEN, the property's value would have to go up by $15,000 in 18 months. If it doesn't, i will LOSE money. Not only that, but i will also lose a lot of time that i would spend on arranging the mortgage. Why? Well, the $7,500 in accumulated principal would cover 1/2 the realtor fee, leaving me to pay another $7,500. Plus the $1,000 for the mortgage. Plus $7,500 in maintenance and taxes i'd pay over 18 months. So if it doesn't go up by $15,000 in 18 months, i will LOSE the difference between 0 and 15,000. Now, the value isn't guaranteed to go up, and it could actually go DOWN, since the building bubble is about to burst. It seems that i'm taking a lot of risk by buying, and getting little or no benefits. If anything, i can only see the drawbacks, because if i rent and change my mind, i can always move out, but if i buy, i'm stuck. So in a nutshell: huge risk of losing $10,000+ or more, a lot of time invested in organizing the mortgage, limited freedom, etc. WHY BUY? |
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| ChocolateTrance |
sounds like you have it all figured out!
| quote: | Originally posted by d!abolic
Or am i missing something here? |
you're not missing anything. *thumbs up* |
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| baystreetboi |
Even if you end up being out $15,000 in 18 months, how are you any better off renting?
Say you find a relatively cheap place to rent for $1,000 / month. Now you're out $18,000 after the same period of time and have nothing to show for it. |
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| d!abolic |
| quote: | Originally posted by baystreetboi
Even if you end up being out $15,000 in 18 months, how are you any better off renting?
Say you find a relatively cheap place to rent for $1,000 / month. Now you're out $18,000 after the same period of time and have nothing to show for it. |
You're forgetting the mortgage payments. $1,500 x 18 = $27,000. PLUS $15,000. I'd be out of $42,000. |
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| miketg23 |
| I am in the construction industry, and the general feeling is that we are headed for a slow down in the residential sector in about two years. The reason it's so far is that on going projects, and those that have reached development (engineering, archietectural, contracted) to the point where it wouldn't pay off to cancel will take about that long to complete. Somewhere between the first and second year housing prices will peak. Properties in general will always go up long term, but there will be a period of decreasing prices first. There will likely higher intrest rates also making your property harder to sell. If you are looking to sell within two years, save your money, wait for the bust (it will happen, it always does) and buy in a buyers market. |
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| baystreetboi |
| quote: | Originally posted by d!abolic
You're forgetting the mortgage payments. $1,500 x 18 = $27,000. PLUS $15,000. I'd be out of $42,000. |
You can't take the full mortgage price into consideration though as you pointed out earlier, about $7K or so over 18 months would be added to your equity in the property.
I don't think I'd ever consider buying property though if I had the intent of flipping it in 18 months or so. Why not just rent during that period and save up for an even larger downpayment for the nicer place you want to upgrade to anyway. |
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| MarkT |
if you're moving within 2 years, I'd suggest renting and investing your down payment money for those two years. There are substantial fees to consider in that short timeframe.
1. the condo market is going to become somewhat saturated (although demand is still very high) and prices will likely not continue to climb at the rate they are now.
2. as a 1st time home buyer, you get a Land Transfer Tax credit. You won't have that when you move and will pay the full tax when you buy your second property. On 250k, you're looking at $2,225 just for LTT:
http://www.trd.fin.gov.on.ca/userfi...a_3_7793_1.html
http://www.macnaughtonlaw.com/landtax.htm
3. CMHC/Genworth mortgage insurance premium. If you're not putting down 25%, you're going to, by law, pay an insurance premium on your mortgage. For CMHC, if you only put down 5%, the premium is 2.75% of your mortgage amount...and the % declines from there, depending upon how much you put down.
4. Realtor fees on the purchase, the sale, and the purchase again.
5. Legal fees for the purchase and mortgage both times (well over $1000 for a purchase + mortgage).
6. Moving expenses both times.
To use a round number, while 15k in fees (and realtor + legal fees will be more than that in your scenario) doesn't sound like much, over two years, that's almost $625/month.
You also can't just go by the anticipated appreciation of your first condo as whether or not this will be worthwhile, as every other condo will appreciate too. So when you buy in 1.5 to 2 years again, everything else on the market will be more expensive.
That the pit so many people fall into...they see themselves as being "ahead" when their property appreciates...but that's only true if when you sell you don't have to turn around and buy another property in the same market.
And when people talk about "making" 50k on their home over 3-4 years, they're forgetting that their 200k mortgage is going to *actually* cost them several times that amount once the compounded interest is factored into the equation.
If you're set on buying...make sure your mortgage is portable (ie. can be moved over to the new property without penalty). Most banks offer a portability option with their mortgages, but some do not (all PCF mortgages are portable ;) )
anyway...if you're going to move in less than 2 years, I'd say rent...or buy if you'll keep and rent out the 1st property when you move. Otherwise, save your money and put more down in 1-2 years when you're ready to buy a bigger/nicer place. |
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| d!abolic |
| Thanks guys. I've already nearly ruled out buying by the time i finished typing out the original post, and with all this new info, it's now out of the question. I'm now officially in the market to rent a 1-bedroom lake/cityview condo with wall-celling windows and stainless steel appliances for under $1750. The plan is to live there for 1-2 years, and then when condo prices take a nosedive, buy something for 500k+. |
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