Many people scoff at the mere thought of renting a home in Toronto. I don’t believe it’s just a cultural issue. There’s a deep rooted mentality that home ownership is the only option.
And renting a home isn’t even worth considering.
Low mortgage rates have pushed many families to establishing roots in Toronto. They’ve embraced home ownership as these record low interest rates have made it viable. Home prices skyrocketed over the past few years. Homes in Toronto have seen double digit year-to-year price growth.
The introduction of tighter mortgage rules drastically affect affordability. This pushes home buyers, especially first timers, further away from affording their first home. For example, a family with $80,000 combined annual income and $40,000 downpayment can afford a $520,000 home as of today. On October 17, that same family will only afford $$425,000 under the new mortgage rules.
Why brush off renting a home
People in the ‘pro-ownership’ crowd will do anything to buy a home. They will work several jobs just to scrape together a down payment. Some immigrants choose to live with extended family to afford mortgage payments. Others move out of the city, to nearby suburbs, to get what they want.
Renting a home comes with negative thoughts for some people.
What if the owner decides to sell and I get kicked out?
Don’t all my payments go down the toilet when I rent?
And besides, people will think negatively about me if I’m just renting.
Renting a home in Toronto becomes the viable option
Home ownership is not for everybody and maybe that’s surprising news to hear from a real estate broker. But it’s the plain truth. Buying a home isn’t always the best option and more people should actually consider rneting.
Consider what’s going on in the Toronto real estate market today and think about the reasoning.
The average home prices is well over $700,000.
Tighter lending practices have grossly affected your ability to afford the average home.
The limited supply of homes is rapidly driving up home prices.
You need to have a lot of capital upfront to buy a decent home in Toronto. Your commitment has to be for an extended timeframe to benefit from home ownership.
The most profound reason is if you calculate mortgage payments versus renting that same home, you’re actually better off renting than buying in many situations.
I’ve tried this calculation myself for real estate investors when they analyze income from renters who are renting a home in Toronto. The notion is that with 20% down, your mortgage payments (at the very least) should be paid for by the monthly rental income you earn on the property.
Now think of it this way. If you’re not putting 20% down on the home you’re buying, and your monthly mortgage payments exceed the cost of renting a similar house, aren’t you better off renting the home?
The changing perception of renting
Some people won’t have a lot of money upfront and will defer home ownership to when they’re ready.
Others no longer want to stick with the ongoing maintenance costs of home ownership and turn instead to condo ownership and rentals.
People value experiences over assets and may want to have the flexibility and mobility. Instead of being locked down to one place.
Over the next decade, I see renting as a growing option and many people will adapt it in place of home ownership.
Don’t get me wrong. People will still buy homes.
And I’m not saying buying a home is something you should shun and avoid altogether.
Stop listening to what people are saying. Don’t let the media influence you. And don’t just follow what everyone else is doing.
Look at your personal and critically think about whether owning or renting is the right choice for you.