The Financial Upside of Home Buying vs. Renting in Toronto 2023 - Insights from the Johnson Team


In 2023's vibrant real estate climate of Toronto, understanding the financial dynamics of renting versus buying is imperative. This informative piece aims to illuminate these dynamics, guide you through the tangible benefits of homeownership over renting, and help you make an informed decision.


When considering the cost of renting downtown, with average prices around $2,500 a month, you're facing an annual expense of $30,000. In a five-year span, this amounts to $150,000 - a significant outflow with no financial return.


Now, let's evaluate the scenario of buying a $500,000 property. The minimum down payment required is 5%, equating to $25,000. Your monthly repayments would be around $2,700 on a 25-year amortization plan, or $2,500 per month over 30 years. Gathering the initial down payment can be approached through multiple avenues:


RRSP Withdrawals: This strategy involves leveraging your tax-free RRSP contributions to assist in gathering your down payment.


Government Programs: Various government initiatives exist to aid in financing your down payment in exchange for a small percentage of your property's future value.


Family Support: While informal, the support of family can often be instrumental in achieving homeownership goals.


Many individuals compare the similar monthly outflows of renting and mortgage repayments and conclude they're financially equivalent. However, this perspective overlooks the wealth-building potential of homeownership. Let's take a five-year timeline: assuming an annual property appreciation rate of 3%, a $500,000 property would potentially increase in value to $573,000-$579,000. This $79,000 increase in value is essentially tax-free income.


Historically, since 1969, house prices have appreciated by an average of 7.6% per year. Therefore, within one year, a $500,000 property could potentially be worth $515,000, with this value growing annually. After five years of mortgage payments, you'd have contributed $61,000 towards your principal, resulting in a net property equity of $140,000.


Contrast this with the renting scenario, where your $150,000 expenditure benefits the landlord, not you. On the homeownership pathway, if you decide to sell after five years, you could net $147,000.


Despite prevalent beliefs that inventory shortages lead to intense competition, actual market data presents a different narrative. In the past 30 days, 77 properties under $500,000 have sold in the Greater Toronto Area (GTA), along with 45 properties priced between $500,000 and $600,000. A total of 486 properties have been transacted in the GTA in this time frame, indicating a healthy market rhythm.


In conclusion, choosing to buy a property in Toronto in 2023 yields substantial financial gains over renting. While the initial down payment may seem formidable, several strategies can help overcome this hurdle. The dual benefits of property appreciation and equity growth offer long-term wealth creation opportunities that renting simply cannot provide.


If you want to check out some of the properties currently available in the GTA for under 600K CLICK HERE


For further information or real estate assistance, don't hesitate to connect with the Johnson Team. We're committed to helping you navigate the real estate terrain with confidence and in-depth knowledge.


Posted by Maryann Jones on


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