The Age-Old Question: Rent or Buy?
In Toronto's expensive housing market, the rent vs buy decision requires careful analysis. While homeownership builds equity, high prices and carrying costs change the traditional calculus. This guide provides a framework for making the right choice for your situation.
The Financial Analysis
True Cost of Owning
Homeownership costs extend far beyond your mortgage payment:
- Mortgage payment (principal + interest)
- Property taxes (0.6-0.7% of value annually in Toronto)
- Home insurance ($1,200-$3,000/year)
- Maintenance (budget 1-2% of home value annually)
- Utilities (higher than renting typically)
- Condo fees (if applicable, $400-$1,000+/month)
- Opportunity cost of down payment
True Cost of Renting
Renting also has hidden costs:
- Monthly rent
- Tenant insurance ($20-$50/month)
- Utilities (sometimes included)
- Rent increases (capped but cumulative)
Case Study: $700,000 Condo
Buying Scenario:
- Purchase price: $700,000
- Down payment (20%): $140,000
- Mortgage ($560,000 at 5%): $3,244/month
- Property tax: $350/month
- Condo fees: $600/month
- Insurance: $50/month
- Total: $4,244/month
Renting Equivalent:
- Rent for similar unit: $2,800/month
- Tenant insurance: $30/month
- Total: $2,830/month
Monthly difference: $1,414
But wait—part of your mortgage builds equity. Approximately $1,000/month goes to principal in early years. Your 'true' extra cost of owning is closer to $414/month.
The Appreciation Factor
Historically, Toronto real estate has appreciated 4-6% annually over long periods. On a $700,000 property:
- 4% appreciation: $28,000/year
- 5% appreciation: $35,000/year
This wealth building isn't accessible through renting. However, appreciation isn't guaranteed—prices can drop for extended periods.
The Investment Alternative
If you rent and invest the difference (down payment plus monthly savings), how do returns compare?
Investing $140,000 down payment + $1,414/month at 7% annual return:
- After 10 years: ~$500,000
- After 25 years: ~$1,500,000
Meanwhile, a $700,000 property appreciating at 4%:
- After 10 years: ~$1,037,000
- After 25 years: ~$1,866,000
Homeownership wins in this scenario, but only if you actually invest the difference—many renters don't.
The Lifestyle Factors
Reasons to Buy
- Stability and permanence
- Freedom to renovate and personalize
- No landlord restrictions (pets, painting, etc.)
- Forced savings through mortgage
- Community roots and belonging
- Pride of ownership
Reasons to Rent
- Flexibility to relocate easily
- No maintenance responsibilities
- Lower monthly commitment
- Access to neighbourhoods unaffordable to buy
- No risk of falling property values
- More liquid financial position
When Buying Makes Sense
Buy if you:
- Plan to stay 5+ years minimum
- Have stable income and job security
- Want to start a family and need roots
- Can afford payments without financial stress
- Have emergency savings beyond down payment
When Renting Makes Sense
Rent if you:
- Might relocate within 3-5 years
- Value flexibility and mobility
- Would be house-poor if buying
- Are building a business or career
- Prefer to invest savings differently
The 5-Year Rule
Transaction costs (land transfer tax, realtor fees, legal fees) total 6-8% of home value. You need approximately 5 years of ownership to recover these costs through appreciation—assuming positive appreciation.
If you might move within 5 years, renting often makes more financial sense.
A Balanced View
Neither renting nor buying is universally superior. The right choice depends on:
- Your financial situation
- Career stability and location flexibility needs
- Life stage and family plans
- Risk tolerance
- Personal values around homeownership
Need help analyzing your specific situation? We provide honest advice—even if that means recommending you wait to buy.
