Rent vs. Buy: If You Have to Ask, You Should Probably Rent

Image Credit Martin St-Amant – Wikipedia – CC-BY-SA-3.0

Four years into writing this blog, I thought I had seen almost everything when it comes to the most common financial suicides committed by the middle class. But today I was hit in the head by a shocking realization:

When choosing between buying versus renting a house or apartment, people are making much, much worse choices than I would have thought possible.

The implications are so striking that logically, some of the world’s busiest stretches of road should not even exist. We could save millions of lives and trillions of dollars by just helping certain people operate a basic hand calculator at a beginner level. It sounds improbable, until you review the following stories from this Canadian vacation I am currently wrapping up:

Case Study One: North America’s Fourth Largest Miscalculation

The City of Toronto is famous as one of the world’s most happening and expensive places to live. With over six million people in the highly car-oriented metro area, it sprawls on forever and people commute in from an insane zoo of connected cities comprising 31,000 square kilometres, or roughly a quarter of the entire land area of England.

There’s only one real highway across this thing, the 401, which has the dubious distinction as  busiest and most traffic-jammed highway in the world. Rush hour extends roughly from 3:30AM to 11PM, so I don’t even attempt a crossing except in the 4-hour window outside of that range*.

So what has created this incentive to commute? There are great jobs in Toronto – some of the highest paying in the country. Unemployment is low. The city is clean and quite beautiful along the lakeshore and the many ravines and rivers. But unfortunately, as the saying goes, nobody could ever afford a house there. Average price for a detached residence is up to $1.05 million, and even a car-commuter special runs you $730k. If you don’t have that kind of money, you just follow standard Realtor advice and “Drive ’til you Qualify”.

Mr. Money Mustache Moves to Toronto

For years, I have accepted these prices as a given and told people to either get creative with roommates unless you have secured at least a $400,000 salary, or get the hell out of the whole area as I did.  Until I conducted a little experiment in Mustachianism: asking myself “what would I do if I had to move to Toronto myself?”

Let’s assume a worst-case scenario, because if you can prove that it also covers every other situation. Somebody offers me a job in the most expensive and hardest-to reach region right downtown. It’s an a amazing job that I can’t resist and it pays well.

And wanting to maintain my current luxurious lifestyle, I insist on only the best: living in a huge apartment in a brand-new, modern building near the shore with beautiful views, within walking distance of work, the stadium, the train station, and everything else downtown has to offer. No buses or subways for me, and let’s assume I’m not even willing to ride my bike, because hey, it can occasionally get snowy in Toronto and nobody can possibly ride a bike in winter.

So I pull open the useful apartment-hunting site called padmapper.com and set my criteria to unlimited price, insisting on 2 bedrooms and 2 baths, so I can comfortably bring my family along for the ride. I select one of the nicest looking listings at random, because it overlooks a park with floor-to-ceiling windows, has a sweet balcony, granite and stainless kitchen, and heck, there’s even a gym and a rooftop patio on this 40-story building:


This place looks appropriately fancy. A high-end pad in an expensive city’s most desirable district. I brace myself for an astronomical price, because after all, let’s look at the math:

People are commuting 40 minutes from $700,000 houses in the “closer” suburbs. A $700k house costs a minumum of $4,000 per month to operate in this area counting only mortgage interest at today’s amazingly-cheap-but-temporary 2.5%, a 7% opportunity cost of capital in the downpayment, plus property taxes, insurance, heating/cooling and maintenance at 1% annually. Let’s assume you’ve been wise enough to avoid areas with an HOA. 80 daily minutes in a car translates to roughly 900 miles ($450) and 22.5 hours of your time (say, $900) a month, for a grand minimum total of $5350.

All that, just to live near nothing but strip malls and TV-watching suburban commuters. So I’m assuming an apartment like this would list for upwards of ten grand a month. I look at the price.

$2300 per month

 Oh, and that includes free heat and an underground parking space
(parking for mere mortal visitors in this area costs about $30/day)

Is this a joke? Are apartments really that cheap? Looking through a few dozen other listings in the prime areas, I realize that yes, they are. And if you’re willing to be really badass and step onto a subway for your morning commute and move down to a less luxurious apartment building, you can find central-Toronto 2/2 apartments for $1200.

Share one of those with a roommate, and you can work a minimum wage job ($11.00/hr) in this city, pay for rent and food, and still save almost 50% of your income, retiring from your job working at Starbucks by age 37.

I repeated the same experiment in Canada’s capital city of Ottawa. Brand new 900 square foot luxury apartment with 9 foot ceilings and two walls of glass overlooking the city’s hottest “Byward Market” district: $1950 per month. And this is in a city where people defy death by driving an hour through a blizzard before paying for parking and heading in to the office. It’s also a city where some people spend $900 per month on their winter heating bills alone (this apartment also includes free heat).

The implication of this is that an amazing majority of the traffic jams, car dealerships and SUV pileups and harried lifestyles and stress-related diseases and obesity that come with a car commuting lifestyle are completely stupid, optional, irrelevant byproducts of our choices. Almost every expensive suburb should not even exist. Every major urban highway should be shut down and converted to gardens and bike paths, with a few solar awnings thrown in – just enough to power the entire city.

So I ran these numbers by a fellow Canadian, expecting full astonished agreement. Instead I got the start of a bizarre set of justifications:

“But people want a back yard. For their kids, or their dogs.”

Are you JOKING?? When you live in a high-end district, ignoring the fact that luxury apartment buildings typically have amazing landscaped common areas, you have literally a multi-billion dollar back yard. The Toronto lakeshore is an endless expanse of beaches, bike paths, fountains, gardens, play structures, volleyball courts, patio restaurants, and of course one of the largest expanses of sparkling blue freshwater in the world. In Ottawa you have a stunning riverfront, forests and parks and bike paths that lead everywhere, and rapid transit that would eliminate any need to ever own a car.

Would you really waste an extra $3,000 per month just so your kids could play on your personal fenced-in postage stamp overlooked by vinyl-clad suburban houses in every direction while you are out stuck in traffic? No.

But what about the dogs?

$3,000 per month, plus the $400 it costs to feed and treat and house and transport and occasionally kennel the a dog, compounds to roughly $588,200 every decade if you invest the money instead. That’s every decade, and they live longer than that. Are you really rich enough to spend a million dollars, and clean up warm squishing chunks of excrement daily with only your bare hand and a plastic bag, just so you can have this extra bit of companionship during your sparse time outside of work? No.

And we haven’t even mentioned one of the biggest joys of renting: unlimited mobility. On a whim you can jump to a new place anywhere in the world. Never be subject to the pain of fighting with buyers in a hot real estate market, or begging for sellers in an icy-cold one.

The lesson? If you live in an area where houses cost more than $300,000, take a close look at the rent prices around the areas you currently drive. Budget your driving costs at at least a dollar per mile (80 cents/km in Canada to account for higher costs) because you absolutely must put a high value on your spare time to get ahead in life. Doing the math on life decisions like this was by far the biggest factor in my own early financial independence.

Buying a house is a great thing to do when you’re settling down in a beautiful, affordable spot right near everything you need to do for the next ten years. And if your schedule and temperament allow some time for a good several hours a week of maintenance work. But for the rest of us, it’s worth having another look at Rent vs. Buy.

Further Reading: The New York Times has a pretty great Rent vs Buy Calculator that covers many bases and includes some nice conservative default assumptions (except I’d personally assume higher than 4% investment returns and less than 3% property price appreciation in expensive markets where the price-to-rent ratio is out of whack, such as those in this article). Also, many areas have property taxes higher than the default.

The biggest difference between NYT and MMM is just the focus on location. Rentals often dominate the market in the most expensive and walkable areas, so if you want to work and live in such a place, it might make sense to go straight to the apartment buildings.

*Luckily we have now switched to taking the VIA – here’s a video I took out the window of the train traveling at 150 km/hr past a line of car commuters stuck in the usual jam leaving Toronto. This train is both faster and (usually) cheaper than driving a car the 450km from Toronto to Ottawa, which reveals a few hundred million more dollars of savings available, since thousands of people make this drive in any given week.

  • B.C. Kowalski July 27, 2015, 7:27 pm

    I think people are missing the fact that MMM is talking specifically about Toronto in this post (and by extension, other larger cities). It would be foolish of anyone to say renting is always better than buying, or vice versa. It depends on a variety of factors, including where you live, how much housing prices are, how much rent prices are, what your current situation is, etc. For example, I’m saving for a house because I know I’m in the place I want to be for awhile, I have a stable job, prices for good houses are very low (I live in a small city), there is a poor stock of rental properties (something my city is trying to address to attract more young professionals). I can still bike commute because there is no difference between single family homes and rental properties in terms of distance to downtown (and my work). In my city I can buy a modestly priced house and, with insurance and property taxes included, pay less than a crappy rental. Another factor to consider, if you plan on staying in the same place, is that once you’ve paid off your mortgage, you now have an even cheaper place to live than you could ever find to rent, because now you’re just paying taxes and maintenance. Finally, if you’re a light sleeper, finding a good rental that’s built well enough that your neighbors don’t keep you up all night will cost you a lot. Obviously in the luxury apartment scenario above that’s likely not an issue, but some places, such as the city I live in, really don’t have much in the way of condos or other high end apartments (and the few it has get gobbled up so fast they never make it on the market).

    MMM’s points make a lot of sense in the scenario he related, and if I lived in Toronto, or Tokyo, or New York, I would definitely rent. But it concerns me that some of the commenters are relaying “renting/buying is always better” type of arguments. It really comes down to doing the math + your individual housing needs. I think what MMM is trying to do here is to get people to challenge their assumptions, and think them through, not simply subscribe to another dictum.

  • Haru July 27, 2015, 9:58 pm

    Also check out the Khan Academy videos on Renting vs. buying a home: https://www.khanacademy.org/economics-finance-domain/core-finance/housing/renting-v-buying

    Rent money is not dead money!

  • Jeremy July 27, 2015, 10:18 pm

    Examples like this are why we will be renters for life

    • Ed Mills July 28, 2015, 5:59 am

      Really! I feel like such a hayseed looking at these numbers. We just downsized to a 2 bedroom / 1.5 bathroom townhouse in small town south Georgia for $500 a month. Our utilities will be $100 or less, we have a pool, no lawn care or maintenance responsibilities, and it’s really clean and quiet. We’re selling our 2,200 sq. ft. 5 bedroom / 3 bathroom home where we used to live. We finally realized that for our family of three a five bedroom home was a clown house.

  • Ryan July 27, 2015, 10:46 pm

    Great article. And don’t forget Shiller’s data showing inflation adjusted appreciation on housing was practically 0 from 1890-1990. Many people have the mistaken assumption buying a house is a great investment. For most people who plan to live in their house for less than 10 years it’s a horrible investment. Houses are depreciating assets due to technological advances and modernization, not to mention changing styles. Another article that discusses similar issues – http://www.businessinsider.com/robert-shiller-home-investment-a-fad-2013-2

    Thanks Mr MMM!

  • EricL July 27, 2015, 10:57 pm

    Sigh. I live in an area like that. I have 2 Zillow apps on my phone. One tells you every house listed for sale near me – almost all $1 million ++. The other calculates how much per month I’d have to pay in mortgage payments, HOA fees, taxes, and insurance based on the total cost minus anything put down but not maintenance. Usually it’s $4-5k per month. Even if I put most of my life savings down and figure adding 2-3 room mate to share with it’s always twice as much as my current rent. Every few months I check them both to see if the numbers change. They don’t. It’s an exercise in masochism but not as bad as actually buying.

  • James July 28, 2015, 12:20 am

    I think you’ve substantially overestimated the cost of a dog. Google tells me you’re looking at more like 700-2000 a year. Estimating it at 4800 a year is pretty generous to your argument.

    That said, solid article. Keep ’em coming!

  • HenryDavid July 28, 2015, 3:44 am

    I grew up near Toronto and lived in the city for years. I personally know several couples whose lives have been damaged by their insistence on owning a home–in other words, commuting from far-away suburbs–while holding jobs in Toronto’s city centre. Slogans like “I will never live in a high-rise” or “my kids will have a yard to play in” turned into rigid living-death sentences in the form of crushing costs–in both time and money–which placed enormous stress on their family lives. I compare this to other friends who happily live in the city, either renting or buying far smaller duplexes or condos without “a yard for the kinds.” They and their children live rich lives while using the parks and beaches as their “yard,” are more calm and happy, and, for all I know, may be better of financially. But it’s the personal costs of commuting that have stunned me as I observe them over the years. The prejudice against renting is ingrained in Canada, outside of Quebec. But it’s often an expensive prejudice.

    • Doug July 29, 2015, 6:49 pm

      Some of that prejudice is probably a result (or cause) of the housing bubble. If it seems like everyone thinks that owning rather than renting is a good idea, it’s probably a good sign that it’s time to sell if you own, or stay with renting if you rent. Remember the tech bubble of the late 1990s and 2000? Same idea. Better to rent, and own property in the form of REITs.

  • Kevin July 28, 2015, 4:38 am

    The only reason to move to the suburbs is schools. I live in Chicago and the public schools are beyond terrible (and dangerous as well). There is maybe one public school in the city that I’d consider sending my kids to, and a 3 BR apartments rents for a cool $3,600 in that district.

    • Kagey July 31, 2015, 10:10 am

      A huge DITTO on this — when we lived in Los Angeles in the early 2000’s, the same home inside LAUSD and outside it was [at least] a $50K difference, in adjacent neighborhoods. At that time LAUSD had a huge ad campaign boasting about kids “reading by age 9!”
      Uh, my kids were reading in kindergarten. No thanks.

  • electric July 28, 2015, 5:14 am

    In big, active cities like Toronto, San Francisco and New York, buying property is primarily a speculative bet on future appreciation (of the land being purchased and the alternative rent).

    A lot of people who made those bets “early on” are very happy with the results. Current buyers hope that it is still “early on”.

  • Jay July 28, 2015, 5:23 am

    I live in Israel, and for the past, I don’t know, nine or 10 months, I’ve belonged to a Living Financially Smarter in Israel Facebook group. Posts regarding how to pay for your residence appear regularly. Unfortunately, most of the comments reflect non-financial arguments in favor of buying. It’s kind of frustrating. I even posted a link to this blog post, and many the comments in just the first few hours of course make non-financial arguments in favor of buying.

    Which is perfectly legitimate, of course, except that the group is devoted to LIVING FINANCIALLY SMARTER.

    I also have the sneaking suspicion that most of these people then also defend their decision with a rousing chorus of “Renting is throwing money away”.

    In one particularly sad example, one group member posted a link to her blog post that documented her and her husband’s recent purchase of a residence with a mortgage for something like 75% of the purchase price, even though they did not have enough money of their own for a down payment (an inheritance/gift from a relative provided the cash), and their family income was not much higher than minimum wage. And, unfortunately as no surprise to me, dozens of members of this group actually congratulated them!?!?

    For f–k’s sake, if these people already had sizable net worth and wanted a residence or more than one property to be one part of a diversified portfolio, I’m all for it. But I can pretty much guarantee that many if not most of these people barely make ends meet each month, and might only be saving the legal minimum toward retirement/financial independence, if anything.

    • pmm July 28, 2015, 9:02 am

      I also live in Israel (Tel-Aviv). This article made my day for basically the same reason as you: Israelis are so fucking dogmatic about home ownership that they shoot themselves in the foot. Add the fact that everyone in Israel thinks they know better than everyone else, and it’s not an argument worth getting into. Just laugh at the car clowns on the Ayalon while biking past their sorry asses in Park HaYarkon ;)

      • Jay August 1, 2015, 4:06 am

        Amen, pmm!

        Were you aware of that Facebook group?

        In addition to me hopefully being able to provide helpful information, after more than 18 years in Israel after making aliyah from the US, it is a constant source of amusement – just like those car clowns on the Ayalon!

        • pmm August 2, 2015, 5:26 am

          i am aware of the group. i briefly joined at one point and didnt like what i saw. i think arguing online is worthless, so i just left. i always think about writing an MMM-style article when i hear people complaining about the cost of living in israel, or how its impossible to buy homes, or blahblahblaheverythingisterribleweshouldmovetoamericablahblahblah.
          if you’re actually trying it, then i wish you the best of luck! feel free to be in touch if you want to discuss any of it.

          • Jay August 3, 2015, 12:23 am

            If reading and participating in the group does eventually bother me, I’ll leave it too. But, I enjoy being one of the few who swim against the stream, and this is a way to do that. :)

            I have a journal in the MMM Forums (http://forum.mrmoneymustache.com/journals/israeli-badassity/), which requires an account. That means you can send me a message if you want to keep in touch.

            • pmm August 3, 2015, 11:09 am

              just joined :)
              i hope for your sake that MMM doesn’t read it and realize that YOU’RE SPENDING 5 FUCKING PERCENT OF YOUR MONEY ON CABLE TV!!!!
              considering you’re saving 50% currently, this switch would let your retire 2.5 years earlier according to MMM’s math.

              not that i’m judging, i just think he might :)

  • Chris July 28, 2015, 6:17 am

    This is crazy. We live in a town home and were told what about the back yard?”
    WE HAVE ACRES OF AVAILABLE GREENERY THAT WE DON’T HAVE TO MAINTAIN. There’s multiple parks, a huge pool, big common area spaces, a walking path, and a stream all included in our $1,000 per year HOA. Property taxes aren’t even that expensive. It was a no brainer for us. The stand alone homes in our area were much more expensive and you don’t get as much bang for your buck. Plus, these townhomes can be rented super quickly for at least $400 more than our mortgage payment!

    I just don’t get it, and Toronto is even crazier than I thought!

  • Lise July 28, 2015, 7:04 am

    What a find! What is the location? Sqft? Is it a private owner or a rental building.? Is there grocery nearby? (big issue in TO Condo forests)

    I’ve been looking to sell my place and rent, and haven’t been able to find anything close to this price within my parameters. typically 2 bedrooms in new condos are 950 sqft. i rented in a rental building downtown for a decade in my 20s. I saved much more than my friends who bought real estate back in 1990. It was great, and for me renting has always been better than buying. (Except over the past 6 years in TO, where my unit has doubled in market value) — and maybe as an empty nester, I will rent a condo again, but I guess I’ve gotten “soft” with age and looking for the luxuries of green parks, a lower decibel count, and walking distance to grocery. They are hard to find.

    in my experience, having lived in toronto for 30 adult years, this rental unit is not typical or easy to find. Bravo MMM for finding it. How lucky for you! I hope I will one day find such a deal too. The hunt continues.

    But still with 2300/month, that’s a fair bit in the bank required to generate after tax passive dollars. Moving out of toronto is still cheaper. Too bad that this city is so great, I can’t bear to move.

    • Mr. Money Mustache July 28, 2015, 1:03 pm

      Lise, Are you using Padmapper.com? I find it ridiculously easy to zoom in on the map and click the location bubbles. The example from this article was found just by clicking a few right near the parks around the CN tower area. This one was among the first I clicked. When you shop near the top of the market, almost everything is nice!

      • Lise August 5, 2015, 10:47 am

        Thank you for the reply! I do like the pad mapper app, thank you for discovering and sharing. The “original” button takes the user directly to the original ad, many of my trails led to kijiji and private rentals . Since I’d like to stay long term, I am looking for a rental building, but many rental buildings (in my experience) are rundown, unreliable hot water, and cockroaches or bedbug buildings. In my 50s, I’m too old for that now!

        I did find one for 2300$/month, but it was 800sq ft – a challenge for a family, in my experience. We are currently in 1100sqft, 2 adults and a teen. We just make that size work – mostly, for the size a teen needs, it’s not enough.

        FYI: This was in paper today:

        Prices continue to increase, albeit moderately. New condo prices were an average of $566 per square feet in the second quarter, up 2 per cent from a year ago.

        In the resale market, prices were up 6.8 per cent from a year ago to an average of $453 per square foot. Sales in the resale market were up 21 per cent from a year ago.

        Meanwhile, condos are getting more expensive to rent. The average condo rented for $2.48 per square foot in the second quarter, up 4.6 per cent from a year ago.

        I continue to hunt ! Thx for the app lead!

  • LoonieITGuy July 28, 2015, 7:07 am

    My sister and her boyfriend recently bought a place downtown. They looked at buying vs renting and decided buying a place would be better for them. Sad part is, they paid more for their condo than we did for our house 3 years ago.

  • Fiona July 28, 2015, 7:17 am

    We did the same sums a few years ago for Sydney – another high-cost city. It stacked up so we rented out our suburban house and moved to the inner-city, in a 2 bedroom apartment only 2 blocks from some of the most spectacular urban coastline and beaches in the world.

    With only one child, we thought this would be paradise but it’s surprising how the ‘non-financial’ factors weigh heavy in the argument.

    It drove us craaaazy to have to accompany our 6 year old every time he wanted to walk outside. All the public space in the world meant little when none of it was private space your child could chill out in while you did the dishes or caught up on laundry. If he jumped or ran indoors, we got complaints from neighbours with the shitty apartment building codes and high noise transfer.

    In both our rentals at that time, cheap, low-end appliances led to massive heating / cooling costs.

    We got a 60-day notice to vacate so one place could be gutted for renovation. More unexpected costs for removalists.

    The ‘happening’ inner city, beach lifestyle led to constant noise and street parties waking us for months on end over spring / summer / autumn.

    We put our money where our mouth was but it didn’t work for us. After 2 years we gave our own ’60 day notice to vacate’ to our tenants and moved back to the burbs, where our kid can trampoline in our yard, play with neighbours in the street till dark and ride his bike to school in a lower-traffic area.

  • J July 28, 2015, 7:24 am

    I mostly agree with this, and in fact I’m following your advice. I live in Boston, where the dynamic is pretty similar to what you described in Toronto (great economy, sky-high real estate prices, traffic, etc). I moved from the suburbs to an expensive and prestigious downtown neighborhood, which surprised a lot of my friends (“How can you afford that?”). But as you’d predict, I’m actually doing better financially than I was before, now that my commuting time and expenses are nil.

    But I don’t have kids. There’s another issue here, and it’s so glaringly obvious that I’m surprised you didn’t mention it. It’s actually the first thing that many people consider once they reach a certain phase in life: public school quality. Here in Boston, as in many big cities, the public schools suck. Very few of this blog’s readers would be willing to entrust their kids to the BPS, unless they were lucky enough to get them into some kind of special program, which is always a gamble. But just a few miles away, in the inner ring suburban towns with the ludicrously expensive single family houses, the public schools are some of the best that you’ll find anywhere.

    It would take a much longer post to flesh this out, but I’d argue that school quality is mostly a function of exclusivity. Schools perform well to the extent that they’re able to restrict their enrollment to high-performing kids. And high-performing kids tend to come from financially successful parents, so the best schools have some kind of financial barrier to entry.

    The barrier is direct in the case of private schools that charge a lot of money for tuition. But elite public schools have a barrier too: they’re “free”, but you can only send your kids to them if you live in a town with extremely expensive real estate. So parents are in effect paying school tuition when they sign their fat mortgage checks. (Note: I’m not addressing the elite public magnet schools, like Stuyvesant in NYC, that select their student bodies with high-stakes aptitude testing. These are great for the kids who get accepted, but their numbers are few enough that they can generally be ignored in this conversation.)

    You could argue that living in the city is so much better financially that you can shell out for private school tuition and still come out ahead. That might be true (although private schools in big cities can be eye-poppingly expensive). But schooling is such a huge issue for most people that it absolutely has to be addressed in a debate like this.

    • Mr. Money Mustache July 28, 2015, 1:59 pm

      Ahh, but because of the points you raised, I’d ignore the test scores when choosing a public school. If you’re only measuring the education privilege of the incoming kids, what good are they?

      I’ve heard that same objection to my own public school: “not a very good ranking” – turns out this is just because not all the kids come in knowing English.

      Instead I’d sit in on a few classes if possible and interview the staff. And volunteer. And don’t forget about homeschooling – a world-class school right in your own home.

  • Danny July 28, 2015, 7:26 am

    As I’ve said elsewhere on the internet: “When it doubt, rent it out.”

  • Mr. Enchumbao July 28, 2015, 7:26 am

    I’m glad you’re putting this information out there. We have this conversation with coworkers and friends all the time – people that buy huge homes, an hour away from work, just because they can get more housing. Renting is not throwing money away as long as you invest your savings. My wife and I rent, and we now live about 5 minutes from work as opposed to our previous 30-45 mins commute. That commute time translates to lots of savings. We even have time to blog now and comment on awesome threads such as this one! Who knew! We also have a rental property that “subsidizes” our rent. It felt great waking up on Saturday and noticing that our lawn was getting mowed and we didn’t have to take any action because it’s included in the rent.

  • EL July 28, 2015, 7:31 am

    I would prefer the apartment any day and no commute. In addition to all the useful personal finance advice between buying and renting, have you closed a mortgage deal after 2009? It is horrendous the process of buying that this recession brought about because people over extended themselves. I think the culture needs to favor renting more, and stop commuting so much. Some people think if they rent they will not grow wealth, but that is totally not the case.

    • Mr. Enchumbao July 28, 2015, 10:15 am

      Hi EL,
      I think the issue is that most people don’t have the discipline to save, unless they have the “force savings” that comes with a mortgage. They opt for buying instead of renting because when they rent they probably save very minimal if anything at all. I agree that we need a cultural change in favor of renting when it makes financial sense and cutting those long commutes.

  • Ms. Must-Stash July 28, 2015, 7:48 am

    Love it! We personally decided that BOTH renting and owning was the right decision for us:

    – We own and occupy a smaller town house. Gardening is one of my great passions, and our other top priorities are being in a good school district where we can walk to everything, and being in a dense neighborhood where we could have long-term friendships with our neighbors. At this point in our lives (mid 30s, 2 kids), we wanted to put down roots both literally and figuratively. For us, a smaller town house in a fabulous location with a small (but very productive!) yard is the way to be in the great neighborhood that we want, but at a reasonable (for the Northern VA area) price.
    – We also own and rent out multi-family rental properties in a mid-size midwestern city. We had been saving a lot (of course!) and thinking of using it as the down payment for a bigger, single-family house. But shortly around discovering MMM a few years ago, I had an epiphany that it would make more sense to enjoy our smaller house and instead invest that money in rental properties that generate positive cash flow. We are very close to the point where the positive cash flow from the investments purchased by that “down payment” will entirely cover our mortgage each month.

    So, my add-on to this great advice is – if you’ve already purchased a smaller house that you really like, and the cost is reasonable vs. renting but now you are tempted to trade up to a larger house (because everyone else you know is!) – well, what if you didn’t? What if you instead get rid of stuff, get some bunk beds, and decide to just enjoy your smaller house?

  • Alex McKellar July 28, 2015, 8:04 am

    I have to disagree about the dog point. For us dog lovers it IS a quality of life factor. But it could be worth finding a place that allows dogs and using the time you saved NOT commuting to enjoy a fabulous walk with the dog before/after work! Still winning and no back yard needed.

  • Free to Pursue July 28, 2015, 8:28 am

    Sadly, the push towards home buying is not usually about the money. Sure, the “throwing money away” argument is playing on a loop for most people but let’s face it, it’s about status. That’s why housing and transportation make up more than 50% of the average family’s budget. Ridiculous!!!

    People want the stamp sized back yard and the status-oozing car(s), no matter the cost in blood, sweat and tears to get it. Not only that but a housing purchase is “aspirational” with many choosing to be house poor because the home is the number one statement of status…including its perfectly manicured front lawn (the most expensive unused carpet you’ll ever own.

    Bottom line: seeking status = living for other people because we haven’t come to grips with our own insecurities

  • Just sayin' July 28, 2015, 8:49 am

    I just moved from a townhouse (that we owned) to a single family that needs some work with a ludicrous amount of property that needs even more work… With all of the work laid out ahead of me, I was jokingly bemoaning to a friend, “why does anyone move or bother to own.” he replied, “because of all the learning and self actualization that comes from owning.” I know that’s not what drives most people to own compared to rent but owning a home can provide so much of that good hard, work, research and problem solving that renting just doesn’t. Some people don’t want this but to me it provides a lot of satisfaction and self improvement and knowledge and is worth something other than cash in my bank account. (Which, as a good mustachian, I already have an adequate amount of.)

  • Randomgiraffe July 28, 2015, 8:54 am

    Great article, but just 1 thing to add into consideration. If you buy an appropriately sized and priced property in a good, walkable area near work etc. then pay the mortgage off quickly. In 17 months I’ll be mortgage free and only on the hook for a fixed $409 per month covering taxes, HOA and insurance. It ties up a chunk of equity but has its benefits – 4% savings from not having a mortgage, potential capital growth, the security of knowing that it’s mine, the flexibility of having bought a perfect rental in a perfect location and knowing the rental numbers make good financial sense and the comfort that my monthly spend is much lower from having no mortgage so that I require less income to cover my spend. Yes, the HVAC or stove, or anything else not covered by the HOA could develop a fault, but it’s unlikely on a relatively new build and it’s an acceptable risk. Everyone here has good points, just depends on individual circumstances. The key is to keep questioning your own decisions and do the math. Great blog MMM, you’re making a difference to a lot of lives, mine included.

  • Jens July 28, 2015, 9:16 am

    Is there a reason you can’t buy the apartment in the city? Or rent the suburbs home?

    This doesn’t look like a buy or rent decision. More like a suburb house vs. city flat.

  • mrshudson July 28, 2015, 9:44 am

    This. So much. Thank you! I’m renting in a city where property prices don’t make much sense owning, and this is clearly earning the disapproval of my suburban-living-it’s-just-a-40-minute-interstate-car-commuting- work-till- you’re-70-and-then-drop-dead colleagues.

    When I rationalize and show them the numbers, they suspect my math (I’m a PhD in STEM- literally, you know, a rocket scientist) as not taking into effect that renting is throwing money away, while owning is “building equity” and results in “tax savings”. I know this comment didn’t add anything useful to the discussion here, but some of us have to vent here because this is one of the few sane places on the internet.

  • Horatio Spifflewicket July 28, 2015, 9:46 am

    Especially when you include the cost of commuting, I think that there is a lot for renting. I always look at it with two caveats though:

    1.) As jlcollinsnh says – just because it’s cheaper doesn’t mean you HAVE to rent. Just be informed about the price you are paying for those “intangibles” (like not having a landlord, or grass or whatever).
    2.) While in most cities, rent ends up cheaper, there can be a few places where something (like a university) screws up the rental market by flooding the area with people who want to rent (for all the mobility reasons).

    A quick calculation with the NYT tool shows that rents where I live (near a major university) are way high (for cruddy little student properties). So I’m better off owning. (which matches what the family wants anyways). But eyes wide open, you know.

  • Ricky July 28, 2015, 9:57 am

    Wow, $2300 for a 2br luxury apt in the middle of a world class international city? You can’t even get a studio-1br in the middle of many “second class” cities in the US for less than $2500.

    On another note, not everyone needs to commute downtown for their job. And not everyone wants to be in a city center. With the internet, it’s becoming increasingly irrelevant to pile yourself up around millions of other people. I’m currently in San Francisco and while living car-free would totally be possible, it’s amazing how slow/non-existent the buses are around here. Then again, I wouldn’t want to drive in this congested, rude mess either. Definitely beats taking the bus that is 75% of the time full of crazies. I’m sure this isn’t like every city though.

  • Ralph I July 28, 2015, 10:10 am

    Great article!
    I think people want too much at the same time. The high-paying job down town and their own house somewhere in the green.

    I think you can have both, but not at the same time. Which is not a problem, because change makes life interesting, doesn’t it?
    Take me for example. I’d love to own a house at some later point in time. But right now, being in my 30s, I’m still in the wealth building phase.
    I moved to a European capital, where me and my wife earn about $120000 per year each, after taxes. We rent a 120 sqm apartment with three bedrooms, which costs us about $3000 per month. We live near a river and many parks. We live in walking distance to our workplaces. I’m perfectly fine with that situation for now!
    Buying a house in this area would cost us more than $1.5M. Much more than our current net worth! We currently have an ETF and stock portfolio of about $450000 plus some $200000 cash. And a savings rate of about 60%. Once the portfolio has grown to its target size ($1M), I might consider moving to a place where houses are much cheaper. I’ll be able to do so since I won’t need a high-paying job any more.

    So in short:
    1st phase (wealth building): rent, work in walking-distance to your high-paying job, enjoy what the city has to offer
    2nd phase (“retirement”): buy or rent, enjoy the less urban life

    Best regards, Ralph I

  • Dean July 28, 2015, 10:15 am

    As someone who’s renting in a fairly expensive city (Melbourne, Australia), and who has considered buying next year, this rings true.

    I’d probably end up buying a 2 bedroom unit 15km from the city, as anything closer would be too expensive for my liking. Might be OK if it’s still bikeable :)

  • Scamber Man July 28, 2015, 10:20 am

    Living in Santa Monica, CA, renting is the only viable option if you make less than $250,000 year. Agree totally with your article. Its the mindset that’s hardest to chance. “Must Own Home, Must Own Home, etc.”

  • Miguel July 28, 2015, 10:24 am

    Great post! Just recently I was thinking that this was a good topic for MMM!

    I live in Montreal with my wife and 2 kids and I’m a happy renter. I pay under $1200 for a 2 bedroom apartment (1050 sq ft, heating included) not in downtown proper but close enough (35-40 min public transit, 30 min biking or 15 min by car) in a very nice zone with lot of parks, biking paths and wooded areas. The apartments here sell for at least $350K, while the houses can go well above $600-700K.

    Whenever I say that I have no interest in buying I get weird looks and it’s almost impossible to convince people that buying is not necessarily a good financial decision. Most will just say something like “… yeah, but my parents’ house has tripled in value since he bought it…”. Which in 25 years means 4.5% increase BEFORE inflation. But well…

    A few points that I like to bring up when discussing this matter:

    * What’s the price-to-rent ratio of your city (price of the house / annual rent)? 1-15 means it probably makes more sense to buy. Over 21, rent makes more sense. (16-20 is not that clear). For Montreal is currently above 30.

    * Another advantage of renting is that you’re more likely to “overbuy” than to “overrent”. For example, a couple just married will probably buy a house with 3 bedrooms thinking of when they’ll have a family, even if that’s 10 years in the future. You’re also more likely to, for example, add $4000 blinds for your windows (true story from a coworker) because, “…hey, what’s 4k more in a 350k apartment…”

    * Renting does not necessarily mean apartment. In the same neighborhood where I live I could rent a 4 bedroom house for $1600. I just don’t want to for the moment.

    * On the other hand, apartment doesn’t mean you must listen to your neighbors all the time as some might think. Choose wisely before renting. For example, I live in the last floor (4th) so I have no neighbors on top, in a corner unit so I only share one wall and it’s a concrete building so we rarely hear anything and when we do is really faint.

    But most of all, the flexibility of moving if we need to or if we want to is great.

  • Emily July 28, 2015, 11:04 am

    MMM~ I’m really curious on your figures for this:

    “And if you’re willing to be really badass and step onto a subway for your morning commute and move down to a less luxurious apartment building, you can find central-Toronto 2/2 apartments for $1200. Share one of those with a roommate, and you can work a minimum wage job ($10.25/hr) in this city, pay for rent and food, and still save almost 50% of your income, retiring from your job working at Starbucks by age 37.”

    Are you assuming no incidentals (medical bills, insurance premiums, etc.), debt (student/consumer), no car, and averaging a really unlikely 40 hours per week as a min. wage employee? Unless this is a US vs Canada thing, I don’t understand how this would actually work out.

    • Mr. Money Mustache July 28, 2015, 12:55 pm

      Yeah, I figured that a 20something Mustachian would have no medical bills (besides, Canada has universal health care) and no car (why else would you bother living in central Toronto while working in food service?).

      And working all those years with no raise is equally improbable for our wise readers – if you work hard for 17 years, you could be managing an entire Home Depot branch (well into the six figures), rather than continuing to operate the espresso machine.

  • Jeff July 28, 2015, 11:17 am

    Even in Toronto, you don’t have to drive for hours into the burbs to play fetch with a dog. My friends there have rented various houses and always had a yard, not downtown, but in desirable neighborhoods a few train stops away.

  • Sara July 28, 2015, 11:29 am

    Thanks for the inspiration! I would love to see an entire post dedicated to should you/should you not get a dog. Very interesting angle, that I’ll bet a lot of people don’t consider!

  • Travis July 28, 2015, 11:30 am

    The math here is flawed in several meaningful ways.

    1) It neglects the appreciation of homes over time. The related point is that, in the U.S. at least, appreciation on homes is tax-free, whereas investments are taxed at the federal and state level. The gap between investing and buying a home is not anywhere near 7% (the opportunity cost MMM identifies)– its probably closer to 1-2%.

    2) Buying a home with a fixed-rate mortgage is a hedge against inflation in the sense that the payment is fixed over time, whereas rent goes up with inflation (or greater) over time. Year 1 to Year 1 comparisons aren’t meaningful comparisons. You need to look at costs over a long-period of time, which will dramatically close the gap in terms of costs (because the cost of rent will go up far faster than the cost of home ownership).

    Provided you know what area you want to live in, owning a home actually increases flexibility, by giving a homeowner total clarity as to what his mortgage payments will be for the next 30 years — you can plan your life by knowing what housing will cost for the next several decades with a fair degree of precision. It is far more difficult to guess what rent for an apartment in Toronto will cost in 2045. You will be at the mercy of the whim of your landlord and the strength of the renal market.

    3) It totally ignores the value of leverage, specifically that you can borrow 90% + of the price of a home (again in the U.S.) at call it a tax-deductible 4%. This can dramatically increase your wealth. Of course, it can decrease it as well (leverage works both ways), but prudent use of leverage creates tremendous wealth over time.

    4) Most fundamentally, its an apples to oranges comparison to compare a suburban house with a Toronto apartment. They are different in every way — size, amenities, neighborhood, schools. Its not a meaningful comparison.

    And, in the U.S. at least, price/rent (properly calculated, using comparable homes) is much, much lower than this example illustrates (25x), further demonstrating that buying vs. renting is generally a much closer call financially than this post indicates.


    5) In many U.S. cities, public education is awful while suburban school districts are better. That is a broad statement, and clearly is not always the case, but, as a general rule, that holds. If you rent in an urban core, you either have to factor in private school tuition or acknowledge that your kid is, on average, getting a lower-quality education.

    To be clear, I’m not saying that buying a home is a good move financially (it varies quite a bit from person to person and city to city) or an optimal lifestyle. But, this post does not provide the proper framework for making that determination even on strictly financial terms.

    And, the broader societal point (we do not need the suburbs at all) does not hold. If people fled the suburbs, the price of rent in urban areas would spike immediately (its simple supply and demand) and the cost of suburban homes would plummet, and this entire analysis would be no longer valid.

    • Concojones August 2, 2015, 6:49 am

      Travis, your points are mostly misconceptions:

      1) homes do not appreciate over time (ex-inflation, long-term). You can look this up. The one exception being (in my opinion) areas with a growing population or wealth.
      2) the stock market (which is where MMM would stash the money saved on housing) has similar benefits
      3) leverage does not help if we assume 0% appreciation (see point 1)
      4) I think we all agree on that
      5) true but there are always workarounds (see MMM comment here)

  • TOReader July 28, 2015, 11:36 am

    Great article! Always great to look at this and glad to see my hometown featured!

    Although my wife and I recently purchased a home for significantly less than your example, in the city core with a basement apartment. Granted it was a real fixer upper. Also apartments can be rented for cheaper so the whole article is a good illustration but people need to realize these are just two numbers pulled from the sky.

    One thing I don’t like in this analysis is viewing the world as black & white. Live in the suburbs and commute or live in a high-rise and walk to work. There are a lot of places that are in-between these two options! The world is complex. Lots of options out there.

    I get it though… owning not a dream. Lots of costs. Lots of work. Lots of stress, but we have done very well in terms of value appreciation in the past year since owning.

  • Michelle July 28, 2015, 12:02 pm

    Enjoy how you crunch numbers. Can you do Vancouver B.C. & maybe show how to accomodate a larger family?

    • Weaver August 17, 2015, 5:11 pm

      This subject of raising a large family in a downtown Vancouver rental has been well covered by the CBC and also at SFU Downtown campus in their lunchtime lecture series. This guy’s blog about renting 1000 sq ft downtown with 5 kids is excellent http://5kids1condo.com/ and he covers it specifically here http://5kids1condo.com/reader-mail-owning-your-house-vs-renting/.

      We’re just about to move into rental downtown for reasons no one seems to have mentioned so far. We are retired with no kids and want to be free of the responsibilities of ownership. We’ve done 5 decades of our own bricklaying, cement mixing, dry walling, plumbing and electrics in fixer-uppers and aren’t flexible enough now to get under the sink to fix leaking pipes (etc) without a lot of backache.

      Over the years we before we met we’d each rebuilt/renovated 3 wrecks, and together we did another 4. We LOST money on our residences 4 times when various recessions/corrections hit and made money 3 times. We’d like our money to be where we can access it quickly without having to sell, in case one of us gets sick and needs residential care. We’ve always been aggressive savers (no car, don’t eat meat/dairy, don’t fly, dry clothes naturally) so have a good size stash, but quality long term residential care can eat into that quickly.

  • Dmitry July 28, 2015, 12:11 pm

    Your calculations are momentary, you don’t take in account the fact that rent grows up and may become twice more in 10 years, for example
    look at NY City or SF

    • Mr. Money Mustache July 28, 2015, 12:51 pm

      True, it could happen.. or house prices could slide down to approach a reasonable price/rent ratio instead, and you would be left with a house that is $300,000 underwater, like many Miami residents a few years ago.

      It is difficult to predict the future, but Canadians have an unusually high personal debt rate, plus the income levels in Toronto aren’t nearly as high as in San Francisco, which mean I wouldn’t count on the same type of situation in Toronto.

      Finally, in 10 more years, you could be RETIRED with the savings of renting in TO vs. owning. Then you could easily move to a better market.

      • Dmitry July 28, 2015, 2:36 pm

        If we’re talking in 10 years perspective, would be better to compare Miami prices in 2008 and 2018, i guess
        What i can see now, they go up despite the past bubble. So it’s more like temporary fluctuation – look, population grows as well as a demand

        But, speaking “momentary” i meant that Toronto bubble started inflating less then 10 years ago. So still there are at least 10-years old buildings bought by their current owners who can afford to lend them for a reasonable price, but 10 years more and situation will change

        There is no silver bullet:)

  • Jamie July 28, 2015, 12:15 pm

    Hi guys,

    This comment is directed to all of the suburbanites that live I. The 905 region and outwards of the Toronto area. I wholeheartedly agree with MMM regarding the rent vs buy analysis. However, my wife and I decided to pull the trigger in the York region, better known as Aurora, On. For those of you who don’t know, the average detached home runs upwards of 600k and up these days. That being said, we ran the numbers for renting a similar 3 bed 2 bath home and we were looking somewhere around 1700-2200$ a month. We both have permanent positions as teachers in the town and we wanted to be within 3-5km from work so that we could a) reduce our commute to merely 5 minutes and b) also to allow us to take the bikes to or from work weekly….

    But after reading MMM for awhile I knew there had to be an even better option…

    So we settled on buying a home 5.5km from work which was literally the smallest bungalow on a street filled with 700-900k dollar homes. I bike to and from work, I walk every day to get groceries, Canadian tire, the bank, the LCBO hahah and whatever else is pressing… It’s within reach so to speak. This was never the plan before I read MMM but it all made sense to me.. Why live 20-30-40+ km from work when you can find something nearby. The final kicker is we have a rental income in the basement which provides us with a cool 950$ a month to cover the rather hefty mortgage and if you boil it down, we pay 1500$ a month for. 600k home… That my friends is a true MMM house hack experiment….

    Nothing is perfect, we all have sacrifices to make but I think the lessons of this blog show everyone that if we all endured some type of delayed gratification it eventually builds character within us which lets us have hope for a better a life and one that doesn’t require us to work to the very end of time missing out on the stuff that makes life so special…

    Cheers! Oh and thank you MMM! You have changed our lives for the better.

  • AK July 28, 2015, 12:28 pm

    There is also a useful article similar to this great post on J Collins blog


  • WageSlave July 28, 2015, 12:35 pm

    One thing I haven’t seen mentioned regarding the financials, in favor of buying: mortgage interest and property tax deduction. If you are a high earner (meaning high marginal tax rate) and itemizing deductions, then your mortgage interest and property taxes are effectively discounted by your marginal tax rate. For those with the highest income, this could be upwards of 40% (in the USA anyway).

    My monthly mortgage payment plus property tax is about $2700. But the “effective” cost is about $1870, once income tax deductions are considered. Note this actually gets worse over time, since most (all?) mortgages are skewed towards interest in the beginning (i.e. only the interest portion is discounted, and every month I pay a little less interest and a little more principal).

    In my particular case, my mortgage rate is 3.5%. But the effective rate, after mortgage interest deduction, is 2.1%. My investments have earned more than 2.1% since I’ve held the mortgage. Therefore, I’m implicitly investing on margin, which is increasing my returns, hopefully offsetting the opportunity cost of home equity (to be honest I haven’t done *that* math). And for what it’s worth, my investment portfolio value is over four times what I owe on the house, so I feel confident I have a nice safety net.

    • Kacie July 28, 2015, 2:02 pm

      You need to consider the deductible amount ABOVE the standard deduction available to all when factoring in the mortgage interest and property tax deductions.

      It sounds like you live in a more expensive area. In my case, we paid $165k on our house and last year (3 years into a 15-year at 2.875%), my mortgage interest amounted to only around $3k, plus $1800 property taxes.

      My charitable donations and other deductibles gave me the needed boost to itemize, but were it not for that, the standard deduction would make those mortgage interest deductions moot.

    • DFS July 28, 2015, 4:25 pm

      Good point; one thing to note though, in Canada, Mortgage interest in not tax deductible.

  • Nepenthe88 July 28, 2015, 12:41 pm

    Perfect timing MMM. I am actually buying a house right now! I close on Sept 1.

    For me the question wasn’t, “should I rent” but rather, “How am I going to find the house I want?” It took almost 7 months, but I eventually found a move in ready, 2 unit house with a 2 car garage (built in 1929) with a limestone porch and oak columns! Does it need a kitchen renovation? Yes. But I used to work as a custom carpenter, and the property is a mere 1.8miles from the hospital I work at (already bought pannier bags and rain-gear. Plan on selling the Subaru). I am buying it for a measly $55,000.

    With 20% down, and a 10 year, no closing cost mortgage at 4.o% my total monthly payment is just under $600 a month… which is– wonderfully– the same amount my tenant downstairs will pay me for rent (she’s lived there 21 years and keeps a nice house). Basically, for an upfront cost of about $13,000 I get to live in a “major” city for the price of utilities and have all the amenities of city life no farther than 3.6 miles from my door.

    Here’s the fun part…

    I look forward to doing the home repairs and renovations because they are my ticket to traveling the world. I’m excellent with my credit and always pay my bills in full and on time (as all mustachians should). I figure, with a little bit of credit card churning and spending on renovations which increase my equity (and satisfaction / happiness) it’s a no lose situation.

    oh, and psst… Buffalo’s only a 2hr drive to Toronto.

  • PatrickGSR94 July 28, 2015, 12:50 pm

    I think part of it depends on where you live. Where I live housing is cheap. I paid about $95/SF for my house in 2005. Comparable sized apartments are almost always 25%-50% higher around here, per SF.

    For me the benefit of owning a detached house as opposed to renting is that I can do whatever the heck I want to my house. I’m a big time DIY guy so I always have projects going, or at least on the drawing board. Then there’s the garage so that I can do my own repair and maintenance on my cars. Plus bicycles (dedicated cyclist and cycle commuter here) so I can store and work on my bikes also. I can make the interior finishes whatever I want, paint the inside and outside whatever I want, do the landscaping however I want.

    I did purchase the house very close to my office when I first got it. But then my office moved farther away, now 15 miles each way by bike. If I were to move us closer to the office, I would then be farther away from family and other amenities that I currently use my bike for as much as possible.

    So for us it really makes more sense to own rather than rent.

    • PatrickGSR94 July 28, 2015, 12:52 pm

      Oh and I almost forgot, there’s the outlook of eventually paying off the mortgage, which would then be like getting a massive raise.

  • Tom July 28, 2015, 12:50 pm

    Seems like all of Canada is willing to overpay on housing in the hopes that housing appreciates at a rate similar to prior appreciations.

    Wish them luck with that…

  • EcoCatLady July 28, 2015, 12:52 pm

    OK… I’ve just gotta play devil’s advocate for a moment here. It seems like you’ve got an apples to oranges comparison going here. You’re comparing a giant McMansion in the suburbs to a 2 bedroom apartment in the city. The only factor that seems to tie these two together is that they are “nice”. But you’re probably comparing 3000 square feet to around 1000 square feet – it’s just not a true comparison in my mind.

    What if you compared renting that 2 bedroom apartment in the city to a buying a nice 2 bedroom bungalow in the city? Oh, that’s right… we can’t consider a nice 2 bedroom bungalow in the city because those only exist in “working class neighborhoods” and heaven forbid upper middle class white people lower themselves to cavorting with plumbers, construction workers and landscapers – and folks who might not be white and college educated!

    Sorry for the sarcasm – but I faced an enormous amount of criticism and skepticism from my upper middle class white friends and family when I chose to buy in a working class section of Denver. But from my perspective, my 900 square foot bungalow is just about perfect. I’m walking distance from everything I need, if I do want to go downtown for some reason, it’s about a 6 mile “commute” (which can easily be accomplished by hopping on a bus or the bike path.) I have room for an enormous garden where I grow a big percentage of my own food, my mortgage (back when I still had one) was about 1/3 the cost of a 2 bedroom apartment, and now that it’s paid off, my monthly housing costs (including taxes, insurance, utilities and upkeep) run around $300/month. And if I ever do choose to sell it, the house is currently worth about 4 times what I paid for it 20 years ago.

    And despite the fears of my friends and family, my neighbors totally rock! Here, the kids all walk to school, people regularly walk, bike or take the bus for transportation, people work on their own houses & cars & yards, and there are no HOAs to get on your case if your lawn isn’t perfect. You know… it’s where people still live with less ridiculousness!

    Back in college I had a professor from India who claimed that the caste system was alive and well in America. At the time we all thought he was crazy, but the older I get, the more convinced I am that he was right. If people were just willing to step out of their “caste comfort zone” a tiny bit, there’s a whole other world of possibilities out there.

    Anyhow, I’m not saying that everyone should buy a house – gardening & upkeep aren’t everyone’s cup of tea – but I just think that if you’re gonna make comparisons, they should be more apples to apples.

  • Kapitalust July 28, 2015, 12:54 pm

    Ah Vancouver, Canada: the city where renting is $800 cheaper (minimum) per month than owning the exact same condo unit (our current circumstance).

    Of course, if the equation ever flips, we would buy in a heartbeat.

  • The KG July 28, 2015, 12:55 pm

    Where I live, the rents in the city are ridiculous. $3500 for a one bedroom of mediocre quality! I think it’s pretty simple. If rents are about equal to what your mortgage would be, better to buy if you can come up with the down. If rents are significantly less and you can use that saved money and invest it, that’s another story. Where I live most people can’t afford to live close to work, even figuring commuting costs and time.

    Then there’s the added inconvenience of possibly being kicked out for no good reason with very little notice. Or rental increases every single year, not corresponding to improvements in the apartment. Or if you want to move and you’re in a rent controlled area, you probably can’t afford the new place, so you’re stuck.

    We recently bought a condo; our mortgage plus other costs is less the most of the current rents in our neighborhood (and it won’t increase – though the HOA will from time to time) and a good 1500 to 2500 lower than what the same place would be in the city. We have a relatively short commute but it’s pleasant. Moving to the city wouldn’t reduce it all that much, if at all (depending on where in city). I think we made the smart move. It all depends on the circumstances.

  • ender July 28, 2015, 12:58 pm

    A lot of you (commenters) are missing the forest for the trees.

    Ok, maybe the dog costs are a bit off. Or maybe other costs are off a bit. The point is that you should think about this decision! You shouldn’t just buy a house by 30 since if you don’t you’re a societal/family failure or whatever the feeling of pressure comes from.

    You should choose rent or buy because it makes sense. Part of it making sense is understanding the decision, including the economics of it among other factors (lifestyle, commute, etc).

  • GTA Observer July 28, 2015, 1:45 pm

    Thanks for this important analysis. Maybe someone else has pointed it out already, but outrageously inflated house prices in Toronto (and ‘burbs) are not “just the way things are” but the result of a massive credit bubble. In 2009 when Canadian real estate should have crashed right alongside that in the USA, the government slipped the banks some money to make that problem go away. Plus – 2006 brought 40-year amortizations and 5% down, the latter often “disappeared” by banks baking that 5% into “cash-back” loans. Never mind “stated income” (low to no documentation) loans for the self-employed and so on, until the claim that Canada doesn’t have a subprime problem like the USA did starts to sound delusional.

    So, if history is any guide, and it usually is in asset bubbles, prices will correct at some point and bear some relation to incomes — which have not risen in Canada in line with housing prices.

    Rent is controlled only in some areas and only to some extent; for example, Ontario rent controls apply only to construction before 1991.

    The main problem with renting is insecurity and it’s completely integrated with the housing bubble — there’s no escape. A lot of rental properties, including condos, are owned by “specu-vestors” hoping to flip. They’ll take a loss on the monthly if they think they can make more through rising asset value. But that’s going to end soon due to overbuilding. Then as sellers rush to the market to lock in their gains, tenants will have to go elsewhere. There’s a real shortage of quality institutional & professionally managed rentals in the True North, which puts even financially savvy renters at a disadvantage — you have to gauge your landlord’s commitment carefully.

    It all comes down to a problem with affordable housing on a grand scale.

    But yes, renting makes a lot more sense in an inflated market if you need/want flexibility, fewer maintenance hassles, can find something decent and have a landlord who is in it for the long haul, plus some municipal attention to landlord-tenant law. And it’s a crazy shame that renters are looked down upon. For many, it’s a choice.

  • Kacie July 28, 2015, 1:53 pm

    When traveling through Toronto earlier this year, we accidentally took the toll road. We were a little confused as to how we were supposed to pay the toll. Got home, looked it up, and plates in my state don’t have to pay. Ok then!

    I know that toll road is a source of ire of the residents who live there.


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