Renting vs. Buying a Condo: How to Know What is Best for You
Which option makes more financial sense – renting or buying a condo? This is a common question among many people. The decision of whether to rent or buy a condo usually depends on a number of factors. Finances are certainly one piece of the complex puzzle. Nonetheless, it’s not the only aspect you need to consider.
Condo development in Toronto, Ontario has been on the rise in the recent years. In most markets, condo prices rise by roughly 4% annually. Therefore, if you purchase a condo for around $250,000 and then put 5% down, you’ll invest $12,500 of your money. If the same condo rises in value by 4% in a single year, it’ll have increased by $10,000 in value. That is a return on investment of 80% in just one year. While this might be the case, renting a condo also brings with an array of benefits as you’ll discover in this primer.
Consider the following pros and cons of each option if you’re struggling with which one of them makes fiscal sense:
Establish your Household Budget
Your income is one of the financial aspects you need to consider when deciding whether to rent or buy your next condo. Are the purchase prices of condominiums in your area exceeding your three-year income? If yes, it might be an indication that they’re overpriced. The prudent thing to do would be to rent your next condo or look at other locations or neighborhoods if you’re planning on buying.
Determine the Price-to-Rent Ratio
By determining the price-to-rent ratio, you can be able to find affordable housing. This term basically tells you the option that makes more economic sense. The truth is that it’s less sophisticated than it sounds. All you need to do is search for a condo for sale and one for rent in your area. Ensure they boast similar features, like comparable square footage, or same number of bathrooms and bedrooms.
For example, you might find a $200000 condominium for sale within a nice neighborhood. A similar condo might be available in the next block charging a monthly rent of $1000 per month, which translates to $12000 annually. By dividing $200,000 by $12,000, you’ll obtain a P-to-R ration of 16.7.
According to experts, if a rent ratio is higher than 20, it simply means that the monthly costs of owning the condo will be more compared to renting a similar condo.
How long will you stay put?
How long do you intend to stay in the area? Do you envision joining a different company anytime soon? If your job stable? Are you unmarried or married? All these are million-dollar questions, which you must have concrete answers to. Renting a condominium makes more sense if you aren’t fully settled in an area. This option gives you more flexibility in terms of relocation should the need arise. Purchasing a condominium on the other hand is an incredible option if you intend to remain stuck in one location for several years.
Identify your Needs
Do you have any plans of extending your family? When purchasing a condominium, constructing a new wing or room might be an option. When renting out, you’re stuck with the layout and space you have. Owning a condo also provides you with the freedom to make other invasive changes to the interior like expanding the master bedroom or remodeling the kitchen. A good number of condo associations don’t allow tenants that lease the unit to initiate any changes to the interior.
Consider Renting Stipulations
When renting or buying a condo, you must live by certain rules. Many landlords and condo associations bar their residents from conducting business out of their units, and owning pets among other regulations. Others even have more restrictions on their renters against associations especially where condo ownership is allowed. Are you good with these stipulations? If yes, then renting might be an excellent option. Nonetheless, if you aren’t comfortable being told what to do with your home, purchasing your own condo might be the prudent thing to do.
Consider the Responsibility of Maintenance
Renting a condo removes the responsibility of maintenance from your shoulders. If the stove breaks down, toilet backs up, electricity malfunctions, or pipes burst, all you need to do is call the maintenance personnel or condo association to fix the problem. If you own a condo or home, you’ll be responsible for hiring an appliance repair person, an electrician, a plumber or even fix the problem yourself. While some associations provide maintenance services for the condo owners, it might come at a higher cost than it normally does for condo renters.
Establish Up-Front Costs
There’s more to making the decision of renting or buying a condo. While it circles back to it, it doesn’t have to be all about money. You need to consider the upfront costs of renting a condo versus buying a condo. Normally, when renting a condo, you have to pay the last and first month’s rent to act as a security deposit. If you rent a condo for $1,000 per month, it means that you need to come up with around $2,000 prior to moving in.
When it comes to buying a condo, you’re normally required to make a down payment, which is typically 10% of the purchase price. Additionally, you have to put up with closing costs such as title fees, bank fees etc. which generally total to around $5,000 – $7,000. Up-front costs of ownership can quickly rise to roughly $20,000 – $30,000.
Fortunately, experts, in their website right here opine that it’s possible to buy a condo without making a down payment and include the closing costs within the mortgage itself or have the seller pay them. If you are in Canada, there are plenty of condo developments in Toronto Ontario. You can always do a quick search to find one.
Compare Long-term Costs
If you intend to remain within one area for many years, ownerships begins to pay off as you build your equity. If you lease your condo or home, you might never see your rent money again. You should also compare the cost of condo insurance versus renters insurance.
You can find renters insurance at incredibly low prices, normally around $20 – $30 monthly. A homeowner’s insurance policy on a similar condominium might go as high as $2,000 annually. Either way, it’s important to obtain a policy that both you and your property.
After all is said and done, you’re the one to make the final decision. You’re the done to decide whether renting or buying a condo is ideal for you. When it comes to making a choice of these two options, there’s no wrong or right answer. It all depends on the kind of lifestyle you desire to live as well as what works perfectly for your budget and situation.