First, rental rates are up 20-30% (in various markets) in just one year. Specifically, Vancouver is up 25%, but some surrounding areas are higher. Vancouver averages $2,900 vs about $1,750 in Calgary. Keep in mind that this is all property types so one-bedroom and studio condos bring these numbers down
Can you guess how much income has gone up in comparison? According to the stats website Insurdinary, income in British Columbia went down 5% over the last year! This is, sarcastically speaking, perfect timing for our insane inflation 🙁
Let’s compare renting vs buying a single-family home & also a downtown condo.
If you are a family looking to buy a nice home, Vancouver is likely out of the equation for most families. Considering how expensive homes are nowadays, we will look at one of the Greater Vancouver “affordable” cities, Surrey. As of now, to rent a large newer home in Cloverdale, a lovely area of Surrey, will cost you over $4,000. However, to purchase this same home, currently valued well over $2,000,000, you would need $500,000+ cash and would be paying around $12,000 a month in mortgage payments and annual property at the current mortgage rates. That equates to paying $144,000 annually. At a 40% tax bracket, someone needs to make $240,000 to “just pay the mortgage”. In this situation, it makes more sense to rent this property and then purchase one or two rental units so you are still in the real estate market.
According to CMT (Canadian Mortgage Trends), the average two-bedroom condo in Vancouver rents for $3,600. Living downtown is a luxury so let’s look at slightly older condos. We can still find a two-bedroom condo, 10 years of age or less for $900,000. With the minimum down payment, you would need $65,000, so that would need to come from your savings, investments, RRSPs etc. Let’s not forget about the required PTT (property transfer tax) of $16,000. So with closing costs, let’s assume $85,000 is needed. At current mortgage rates, strata fees and annual property taxes, the monthly cost is around $5,000. Is it worth it to pay an extra $1,400 a month to own? Let’s do some math.
- $1,400 multiplied but 12 months is $16,800
- $16,800 times 10 years is $168,000 in additional payments
- However, Vancouver properties traditionally double every 10 years meaning your $900,000 condo is now valued at 1.8 million!
- You have also paid off 10 years of a 30 year mortgage equating to $145,783
- Your net worth has now increased over $1,145,783
- So, subtracting $168,000 from $1,145,783, you are now $977,783 richer!
This is also tax-free income if it is your principal residence. YES, buying is WAY better than renting in this example, if you can pull it off.
How about buying a home on a budget? Do houses still exist below $1,000,000? They do for now, but for how long is the question?
Where can you find these homes? Well, if you check out realestatevancouverbc.com and click Advanced search, you can easily see exactly what is available for homes below $1,000,000. Abbotsford and Chilliwack are your best bets. You might find the odd property in Surrey or Langley if lucky.
Using the same numbers recently mentioned, it would cost around $5,000 in mortgage and annual property tax with the slightly higher mortgage but no strata fees. Rental costs are much higher in Abbotsford or Chilliwack compared to property values. This same home could easily cost $3,500 to rent, so in this argument, you are much better off to buy then rent.
Keep in mind that if you own a home, you have better chances of being able to rent out a basement suite or a spare room on Air BnB for additional income. The moral of the story here is that it is much harder to purchase more expensive homes, and it appears better to rent them instead but still hold rental properties. Furthermore, rental rates are expected to skyrocket in the next few years from low vacancy rates, low inventory and record immigration.
Always purchase a principal residence if you can.
For more information on buying real estate in Canada, read my best-selling book: https://amzn.to/3C3D8pg