owning vs renting

The rent vs buy conversation in Calgary is certainly not something "new" on the scene in 2021.  Clients ask on a regular basis if we think it's a good time to buy or if they should keep renting.  In the past 5 years in Calgary, we've seen reasonable vacancy rates and market rents have been affordable. Because of this, finding a great accommodation to rent hasn't been a difficult task in Calgary and lots of newcomers to the city have chosen to rent instead of buy.  But, the question to ask is, "What is the best for your long term financial goals?"

We asked the talented team at Spire Mortgage to give us low down on renting vs buying, they ran us some numbers on a single family home in Calgary.  

Renting a Home in Calgary

To rent a single family home, worth approximately $400,000 clients are likely to pay approximately $2000 per month or $24,000 per year.  Over 4 years the clients will have paid nearly $100,000 in rent.
In today's market, Calgarians can purchase a $400,000 home with as little as $20,000.  With interest rates sitting around 2%, monthly payments on that mortgage would be about $1675.  Clients would need to consider the costs of home insurance and property taxes which would put their payments in a similar range per month, right around $2.000.  

Equity Gained Buying a Home in Calgary

Over the 4 years renting a property clients would pay $100,000 in rent and gain nothing.  Over the 4 years of owning a property clients would also spend $100,000 but they pay down $50,000 of the principal balance of the mortgage.  This means that they've built $50,000 of equity in their new home.  
Comparing returns of zero to returns of $50,000 literally results in infinite benefit to the client.  
Let's say that property prices in Calgary increased 1% per year for each of those 4 years, the result would be an increase in value in the home of approximately $16,000 over the 4 years.  Clients that chose to purchase vs. rent would have a net increase in their overall wealth of $66,000 over the 4 year period.  
Overall, with interest rates at historical lows and property still at affordable levels, Spire Mortgage Team is certainly a fan of purchasing real estate.  


Comparing Total Costs of Renting vs Owning 

Here's an interesting take - Back in 2020 this thread came up in r/personalfinancecanada a popular subreddit focused on stocks, financial advice, housing, and more titled ' buying a house vs renting an apartment in Calgary '  - 61 comments, the top voted comment echo's another users posts saying 

"To do an apples-to-apples comparison of renting vs. owning, look at the non-recoverable costs in each case. The non-recoverable cost of renting is easy: it's your rent. The annual non-recoverable cost of home ownership is roughly 5% of the market value: 1% for property tax, 1% for repairs and maintenance, 3% for cost of capital." - A great point and valid argument, but it does get a lot deeper than this! There are a few more scenarios (for both sides to consider). 

The 5% rule though isn't that easy, there is much more to consider:

The cost of capital is pre tax, anything you make on stocks and investments will be taxable, if you do decide to invest the money and the market dips you could be out a significant amount, and most importantly the increase in prices for homes. 

Consider this, in 2015 Port Coquitlam was under $600,000 for benchmark prices on homes. Today, it's over double that and is trending towards the $1.3 Million dollar mark. Townhouses went from under $400,000 to over $750,000 in that same time frame, and apartments saw an increase from under $250,000 to just above $500,000 - Economists at the mortgage sandbox predict that the Vancouver market will continue to increase. If Calgary sees growth similar to what it saw in the early 2000's, or anything similar to the HOT Ontario and B.C. markets, renters could find themselves in a position to be unable to purchase for even longer as we're continuing to see new mortgage rules from the Government of Canada that will ultimately make it tougher for buyers to purchase making the benchmark minimum of 5.25% from 4.79% previously. 

Increases in the Market = Increase in Equity

When you own a home that doubles in value, moving to another home is pretty simple and in some situations (Moving from a hot market to a more typical market) gives you the opportunity torent vs purchase really get ahead. If you owned and your properties price effectively doubled, a move to a cheaper market could land you in a position where you could outright buy a new home with cash proceeds received from the sale of your property. Alternatively, if a market spikes and you aren't holding, you'll be at the mercy of that market until it comes back, or you're able to catch up to it.  

We had clients who recently moved from Ontario to Calgary, they had purchased a townhouse just over 5 years ago for around $500,000 and when they sold a couple months ago in the beginning of 2021, they sold it for just under $1,000,000, when they moved here, they were able to purchase a $750,000  with over $500,000 in cash in hand, had they rented since 2015 while living in Toronto they would have paid roughly $150,000 in rent that they would never have seen. During that time, they were able to not only build equity but also were able to achieve quite a bit of financial freedom by holding and owning real estate. Something a renter could not have achieved. 

With all that said, we're going to break it down further with a list of different pros and cons of renting and buying.

Pros of Buying a home 

  • Payments build equity 
  • Stability. If you've ever rented, you know the nature and unpredictability it can bring. While some renters may stay in a place for 10+ years with no issues, others are required to move yearly due to landlord issues, sale of the property, rent increases, etc. 
  • Could easily be cheaper than renting, especially in markets where rental demand skyrockets 
  • Privacy - Depending on your landlord situation, you could be seeing visits monthly or bi-monthly visits from a property maintenance company or your landlord, in fact, some insurance companies require that a landlord visit a home every 30-60-90 days to ensure it's in good condition. 
  • Historically is a good investment 
  • More pride in ownership and stronger community ties 
  • Market increases provide flexibility and equity growth 

Pros of Renting a home 

  • No tax or maintenance costs renting vs buying a home
  • No down payment required
  • Lower upfront costs  
  • Easier to move
  • Fewer expenses, utilities may be built into rent
  • Opportunity to put difference of rent vs home ownership into investments 

Cons of Owning a Home

  • Bigger upfront costs - Down payment, maintenance, repairs, etc. 
  • Less mobility. Selling costs are much higher than rental costs when it comes to moving, a job offer you can't refuse out of town that's given one year after moving in could cost you significantly when you factor in selling costs, legal fees, and mortgage breaking costs if necessary 
  • Property values could fall
  • Typically a long term commitment 
  • Foreclosure is a possibility 

Cons of Renting a Home 

  • Rent never stops. If you're able to pay off your mortgage in 20 years, that's it, you can stay there and start utilizing the mortgage payment money elsewhere. There's no rent relief when retirement comes around. 
  • No creation of wealth
  • No credit score improvement 
  • Less Stability - You could be evicted with as little as 90 days notice in most normal instances 
  • No fixed costs - You could lock in a mortgage today on a 7 year fixed rate for under 2.5%  
  • More rules and restrictions. This can include limited to no pets, no remodeling / decor / painting etc 
  • Nothing to pass along. While younger buyers may not consider this, it's important to consider how difficult it is for millennials and younger generations in today's market to purchase in most major cities. As prices continue to climb, more and more sacrifices and money is required to be able to own a home, in 35 - 50 years it may be more important for you to have a property that you can pass along or will to your family 

Renting in Calgary vs Vancouver

Rent trends for apartments in Vancouver - According to the stats, rent in Vancouver is on the rise, in reviewing opportunities to rent apartments in Vancouver command prices upwards of $1,900 for one bedrooms, presently we are seeing homes (basement suites) renting for $2500 - $3,000 and homes renting for $3,000+ but typically in the $4,500 to $5,000 ranges. 

vancouver renting 2021 price chart

Rent trends for apartments in Calgary - Calgary (presently) is a much different story, and while we don't anticipate Calgary prices to ever match Vancouver prices, it's a possibility, that in the future we'll see Calgary reach the levels that Vancouver is presently at, where average home prices are significantly higher than they are. 

Calgary renting 2021 price chart

Renting vs buying Final remarks

The fact of the matter is, there really isn't a right answer for anyone. A lot of these choices come down to personal preferences, risk tolerance, and individual circumstances (being able to purchase, stability, plans to move, etc) 

Whether you're a buyer considering the rental route vs buying route, or a seller deciding whether they should be selling vs holding onto a property, we believe it's important to have clear conversations that ultimately will allow you to know all of the avenues, possible outcomes, risks and exposures, and potential gains or benefits. 

Posted by Cody Tritter on
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