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Rent CaseInvestment return:7.00%Owning CaseMortgage Interest:I used a mortgage calculator, assuming interest of 2.8% for the first 5 years, and 4.5% for the next 5 years, and 5.5% for the final 15.Assume 10% down payment, CMHC fees, Toronto land transfer taxes, never selling
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YearRentSurplus vs owning (annual)Investment portfolioMortgage (P+I)MaintenanceProperty TaxInsuranceAnnual Cash OutlayMortgage Balance (opening)House ValueOwner's EquityInitial downpayment (10% of house value + 2% CMHC + 2.26% LTT)
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201225200770864,170225485,625373510003290840500045000045,00064170
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201325,7047,49676,640225485,7383,8841,03033,200393651459,00065,349
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201426,2187,28389,763225485,8524,0401,06133,501381980468,18086,200
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201526,7427,069103,584225485,9694,2011,09333,811369978477,544107,566
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201627,2776,854118,151225486,0894,3691,12634,132357635487,094129,459
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201727,82310,275133,516261846,2104,5441,15938,098344942496,836151,894
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201828,37910,059153,497261846,3354,7261,19438,439334054506,773172,719
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201928,9479,843174,653261846,4614,9151,23038,790322667516,909194,242
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202029,5269,627197,067261846,5915,1121,26739,153310756527,247216,491
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202130,1169,411220,825261846,7225,3161,30539,527298297537,792239,495
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202230,71910,983246,023279726,8575,5291,34441,701285267548,547263,280
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202331,33310,767274,612279726,9945,7501,38442,100272672559,518286,846
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202431,96010,552304,979279727,1345,9801,42642,511259366570,709311,343
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202532,59910,337337,249279727,2776,2191,46942,936245310582,123336,813
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202633,25110,124371,555279727,4226,4681,51343,374230461593,765363,304
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202733,9169,911408,042279727,5716,7271,55843,827214775605,641390,866
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202834,5949,700446,863279727,7226,9961,60544,294198203617,754419,551
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202935,2869,491488,183279727,8767,2751,65344,777180697630,109449,412
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203035,9929,283532,178279728,0347,5661,70245,275162203642,711480,508
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203136,7129,078579,038279728,1957,8691,75445,789142667655,565512,898
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203237,4468,875628,966279728,3588,1841,80646,320122028668,676546,648
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203338,1958,674682,179279728,5268,5111,86046,869100225682,050581,825
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203438,9598,477738,910279728,6968,8521,91647,43677192695,691618,499
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203539,7388,283799,407279728,8709,2061,97448,02152859709,605656,746
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203640,5338,094863,939279729,0479,5742,03348,62627155723,797696,642
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203741,343-20,064932,79209,2289,9572,09421,2790738,273738,273
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203842,170-20,245977,32109,41310,3552,15721,9250753,038753,038
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203943,014-20,4221,024,77909,60110,7692,22122,5920768,099768,099
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204043,874-20,5921,075,37709,79311,2002,28823,2810783,461783,461Renting vs Owning:
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204144,751-20,7571,129,34009,98911,6482,35723,9940799,130799,130Renter ahead by330,210
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Notes: This spreadsheet was created to compare the case of buying a house in Toronto for $450,000 vs. renting that exact same house for $2100/mo. It assumes reasonable values for mortgage rates, investment returns, property tax, insurance costs, maintenance, inflation, etc. Feel free to adjust as desired. Note that mortgage data was entered manually from a mortgage calculator, so it will not automatically update. You see in this scenario that even if house prices continue to go up, if the renter saves the difference in costs an invests in a conservative portfolio with a nominal 7% return, the renter will be able to just buy a house for cash if they so wish at the end -- even though houses then will be more expensive. In fact, even renting forever is fine: though the outlay becomes greater for the renter at that point, the investment portfolio more than makes up for that.There are of course many important assumptions: what will house prices do? If you're sure they will increase by 10%/year, it's hard to argue for doing anything *but* buying houses. Buy 5, or 10, why not? The problem is what if house prices are flat, or go down, or follow the long-term trend of increasing at about the rate of inflation? Conversely, the investment return the renter can expect is a big factor: the long-term nominal rate of return is more like 8%, and though tax shelters would likely be sufficient for these numbers, there may be a tax drag. But if you assume you can invest like Buffett and get 20% returns, well, why would you waste your money sitting in a house? The other factors are also important, but don't have quite as much impact over the long term, and there's more data to suggest the answers are correct (e.g.: the tax rate and rate of property tax increases is easy to look up; there are many rules of thumb for maintenance in around that range).
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Created by Potato for http://www.holypotato.netRead-me post: http://www.holypotato.net/?p=1073
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Update Dec 21 2011: Brian Wolfe pointed out an issue with how the renter's portfolio was compounded. Now additions from the previous year's discount to owning compound at half the investment return rate (a fair and quick approximation). The figure for investment portfolio is for the beginning of the year, as is the figure for the owner's equity (in year 1 - 2012 - the renter opens with just the downpayment + CMHC + closing costs, and the owner just opens with just the down payment)
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