Give Me Back My Five Bucks

Breaking down my cost of renting vs. owning

Over the last few days I started calculating how much it would cost me to sell my home in the suburbs and move downtown. After a feeble attempt at finding a condo in Vancouver within my price range (that wasn’t a complete dump), I’ve come to the (obvious) realization that I’ll be a renter once I move. And I’m okay with that, because there are actually a lot of options for me to choose from.

So in order to see how much I would save by moving downtown, I decided to take a typical monthly budget with my mortgage and compare it to what I would be paying if I were renting instead:

mortgage_vs_rent

Note: Rent in the area I want can vary in price from $750/month micro-lofts to $6000/month luxury oceanfront condos. While I actually do find the idea of living in a micro-loft appealing, for the purposes of this exercise, I went with $1,200/month rent – which is slightly lower than the average of around $1,400 that I was finding.

So based on the numbers above, I’d be saving $400 month. Huge money to me. Not only that, but I’d be cutting down on my commute (most places I looked at I could walk to work), and I’d be within walking distance to a lot of the things that I love to do in this city.

There are drawbacks though. First of all, according to my mortgage terms, I’d have to pay approximately $1,900 to back out of my mortgage. Not as much as I thought I’d have to pay, but still a significant amount. And for field hockey and visiting my friends, I’d have a longer commute from downtown because obviously I’d be farther away. But I know I’d be happier moving, so I think the positives outweigh the negatives.

$400 extra in my budget means that I could bring my retirement contributions up towards the $1,200-$1,300/month range with no real effort, and I find that extremely appealing. It then becomes feasible to start looking at potentially being able to put away closer to 50% of my income from my full-time job towards retirement, but one step at a time I suppose. :)

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Good analysis! The loss in the investment value of owning a property might be offset by the non-monetary value of better living (no commute, activities nearby). Plus, you could realize a gain on the sale that could reimburse you for the mortgage payout cost.

  2. Ginny Scarbrough says:

    What about the loss of you homeowner’s tax deduction?
    I believe that with the money being almost equal you should move, because that is what you’d like to do, and you can never put a price on better living. Commuting takes a toll on health.

    • Kate says:

      Canadians don’t get a homeowners tax deduction (except for a one-time tax rebate of around $750 when you buy your first home).

  3. Leigh says:

    I usually don’t count the principal portion of the mortgage payment when I’m comparing renting vs buying. This is interesting to me because my housing costs while owning are about $1,000/month this year, but I would be paying about $1,700/month to rent a similar place, so I’m saving $700/month.

    How much do you think you’ll walk away with after selling your place? Would you put that money into retirement accounts?

    • Krystal Yee says:

      I’m not exactly sure how much I’ll come away with after fees, etc. but am thinking perhaps $40k? I’m meeting up with my Realtor soon so that we can talk about it. And yeah I would put it all into my TFSA and RRSP accounts – majority going into TFSA.

  4. Michelle says:

    Hi! Just curious about why you have $0.00 for utilities when renting? Do most rentals in your area include gas or electricity in the rent?

    • Krystal Yee says:

      Yeah most places I looked at had all utilities included into the price of the rental. Some even had cable and internet included too, but I budgeted for those just in case. :)

  5. Sounds like renting may be the best option for you. You can then redirect savings into your retirement goals. Renting also gives you the flexibility to relocate if you want to.

  6. So smart of you to do this analysis. Sounds like renting will work out well for you! You’re lucky to live in an area where renting is cost efficient. Where I live, rents have gotten out of control, such that my mortgage is substantially lower than the cost to rent a similar place (even though my mortgage is only a few years old).

    Also, I think it is a great idea to live closer to work and have to drive further for social activities. Work is where you go day to day, so cutting down on a commute will make you much happier. If you’re going to see friends, you’ll already be happy, so you won’t mind driving as much :-)

  7. C says:

    How do mortgage penalties work? I have a mortgage with a 5 year term and a 25 year amortization. Do I get hit with the penalty any time during those 25 years, or only within the 5 year period? What I mean to say is, if I decide to sell right at the 5 year mark, do I avoid the penalty entirely? Or am I saddled with the possibility of a penalty for all 25 years?

  8. Stellaky says:

    I’ll go against the crowd here and take up for home ownership. I too plan to retire early and that is really only possible because I will own my home outright and need less money in retirement with out housing costs (in addition to saving 15-25% of income/yr!

    Having owned 4 homes in 16 years – and selling each (except the last 2) for at least a 25% profit – it’s helped me build a nest egg and now own a rental property.

    I would suggest you consider renting out or sub-leading your condo (or do I remember you posting a while back that that isn’t allowed by your HOA? Even if not – you could ask for special consideration). That way you keep building equity and also get to move Downtown!

    Glad to see you’re posting more – I’ve always enjoyed your blog!

    Stellaky

    • Krystal Yee says:

      Yes you’re right, my building does not allow rentals except for extreme financial hardship – which I looked into, and I do not qualify for. :)

      I do agree that I’d like to own my own place once retirement comes around, so that living expenses don’t have to be accounted for. But there’s plenty of time for that – especially if all I will ever have is a small space like a townhouse or condo. I’ve never considered anybody else’s income into my retirement plans, but perhaps in the future buying a home with someone else will be easier to pay down the mortgage faster.

    • Anonymous says:

      Now that she doesn’t have her BF supporting her expensive opulent lifestyle, she’s come crawling back to the blog. At least this is better than sponsored Amex posts.

      • Freckles says:

        I admire any personal finance blogger who puts out details about their life (their financial numbers) and I am the first to admit that I would never in a million years have the courage to be so transparent. And thus, I don’t blog. And thus I don’t derive income from a blog.

        Having said that, if a PF blogger is ‘putting it out there’, earning money from her blog that is ‘transparent and honest’ I feel that we, as readers, have the right to make certain comments on Krystal’s private life. Normally her private life isn’t any of our business, but because she is advertising herself as a PF blogger that is transparent, I feel that she should be honest with her readers regarding how her past relationships have factored into her finances. From when she first started blogging and was living with a boyfriend in his microapartment (wasn’t it his and was rent free for her? Can’t remember exactly so don’t quote me on that but I do think it was financially advantageous to her to be with him). Then she had a boyfriend who she tagged along with on his work transfer to Europe so that she could travel Europe on his dime (accommodation wise). And then once his time in Europe was over with, it was bye-bye to that boyfriend. Then this most current boyfriend who certainly provided a lot of financial perks for Krystal, including a place for her to stay over for extended stays so that she could be closer to work.

        As i said normally her personal life is normally just her business but her boyfriends have definitely provided financial perks for Krystal that she does not admit to on her blog. If you want your readers (that are a source of income to you) to believe your credibility, it is important for Krystal to address the issues of how her boyfriends have factored into her financial life and decision making. Anything less is an insult to your readers, and borderline dishonest and fraudulent.

        • Anonymous says:

          this is so accurate!

        • Krystal Yee says:

          Hi Freckles, thanks for your comment. I understand the need for transparency in my blogging, and that’s why I post all of my financials for everybody to look at. I try to be as open as I can about my work as well as past relationships and other aspects of my life, but unfortunately I’m not going to reveal everything about my personal life. It’s not fair to me, my past relationships, or my future ones either. There are definitely things I do not talk about on this blog, and I just never will.

          I will make a few comments though:

          The micro-apartment I lived in with my ex-boyfriend a long time ago – even though it may have seemed like it was financially advantageous for me to live with reduced rent, I did not come out ahead overall. He did not want me to write about our joint personal finances, or his personal expenses, and I’m still going to respect his wishes. My budgets and finances from that time of my life are published on this blog to see.

          When I was living overseas in Europe, I paid my fair share of the rent and expenses, along with my mortgage back in Canada. He was not paying for our rent by himself. In fact, I was the one who secured accommodation sponsorship (among other sponsorships I was able to negotiate) so that we could travel to all of those places in Europe without that added cost.

          As for my ex-boyfriend, it’s true, I was able to stay at his place a couple of times per week. But I was still paying my mortgage obviously, and my gas cost only went down by about $50/month because while staying there, I had to travel even further for field hockey games/practices, and to see my friends. All of our other expenses were shared. We were very fair with how we split bills – keeping receipts and transferring money to each other on a monthly basis.

  9. Anonymous says:

    What about your boyfriend? Either buying a place together with two incomes or at least having him paying his share of the rent? After all, it’s great for you to move to wherever, but if you’re just going to move again in a year when you do move in together, you’d save yourself a lot of work by just jumping right to it.

    • Krystal Yee says:

      Well, I haven’t actually said anything on this blog, but my boyfriend and I split up a while ago. So that’s why the decisions that I’m making right now only include me. :)

      • Anonymous says:

        That’s great! You’re on to new exciting things. Renting is a good idea if you invest all of your savings. Keep up the frugal life!

      • Anonymous says:

        Lol really! And just a month or two ago you two lovebirds were planning on moving in together. Nice one, Krystal.

  10. Halee says:

    Reasonably off topic, but as someone who is moving to Vancouver next year on a two year working visa and will work in the CBD, what downtown areas are the best and why? Would you consider doing a post on this? :-)

  11. Anonymous says:

    Instead of building up equity in your home in Canada’s hottest real estate market where values are just going up and up you are going to rent and pay someone else’s mortgage??? Ridiculous!

  12. Kim says:

    The last comment from ‘anonymous’ about rent ‘paying someone else’s mortgage’ is exactly the kind of garbage you’re going to have to face when you become a renter as Vancouver is a real-estate-obsessed town. Real estate comes up in most social conversations it seems; comparing rising values, talking about future purchases blah blah granite blah blah hardwood floors.

    So, be prepared for that! My single best friend just refused to date a guy because she found out he was ‘just a renter’.

    How I handle it is stay quiet and think about my debt-free life, and the fact that hubby and I save 60% of our income each and every month: $4,560 goes into our investment accounts each month. We follow the couch potato index funds portfolio and earn about 7 to 9% return consistently. We could do better with straight stocks but I like to sleep peacefully at night. We can save so much because the rent plus utilities on our large, one bedroom apt in Van West is $1100. It is in an old 3 story building with no granite or stainless steel but is big with hardwood floors, spotless, well managed by prof firm (no idiot amateur landlords for us). Our rent has gone up a total of $100 over the past 7 years.

    So, when people might think we are crazy for renting, we can be quietly content knowing that we are on track for a comfortable retirement at 55.

    One thing I wonder. If you have a mortgage, do you actually truly own it? Just try skipping your mortgage payments for a couple of months and see how long the bank lets you keep it. Or if it is paid off, skip paying property taxes and see how long you get to keep it. Anyway, I don’t know why people care so much – to each his own.
    Best of luck.

  13. jay says:

    Ignoring trolls is seriously always the best policy. Cheers and best wishes!

  14. ARBM says:

    Hey Krystal,
    I know that you will weigh each side of the decision well and make the right decision for you in your current situation, so I have no worries for you there. What I am curious about is if you’ve done a full analysis of the difference between the amount of the mortgage payment that was going towards the principle of the mortgage vs. interest and how that compares to paying rent and what the profit from the sale would contribute… (I know I’m not saying this in a clear way, but hopefully you sort of know what I’m trying to get at…)

    Quick personal note… I hope you are doing well, and are leaning on your fieldhockey teammates for support whenever you need them. That’s what they are there for! :)

  15. wonderingwhy says:

    May I ask why you budget $0 for clothing?

    • Krystal Yee says:

      Because I plan on spending $0 on clothing this month. :) My budgets change every month and are not static.

  16. Hi Krystal,

    I have been reading your blog for the last few weeks and wanted to tell you how much I enjoy reading. Although, it is sometimes difficult for me to read the comments especially the ones that seem to push into your personal life. I want to commend you on your responses.

    Its interesting reading in the personal finance space and the all debt is bad perspective that seems to be the prevaling thought.

    If you bought the property you would have mortgage paydown, appreciation, and the ability to improve the property and there by increase the value of the asset. Which could possibly exceeed the value of your $400 investment over time. I think there is an opporunity cost of owning an asset that you would want to consider as well.

    Living below your means is always a good thing. Good luck!

  17. James Brown says:

    Krystal, I’m also in the dilemma of renting or owning office for my offline business. It really depends on the current financial situation in the owner’s local country. So recently in my country many business objects got cheaper as most businesses are bankrupt or closing. So in this case, I would prefer to buy office for my trainings and services rather than rent for $500-$700 a month. As I could spend that money in marketing and advertising.

  18. I’ve just been drawing up a similar budget to see if it would work out better financially to keep living in a house I own (with a mortgage) or rent a smaller place when I go back to university. Turns out I’m better off to stay put as rent prices are ridiculous. Any place I found that cost the same as owning (excl. principle payments) was a complete dive.

    P.S. – there are some pretty spiteful comments on your blog. I hope they don’t keep you from posting as your blog was incredibly motivating for me when I was working my way out of a ton of debt a few years ago.

  19. jen says:

    Thanks for posting this, I find the table very helpful! I am curious, is that a typical mortgage/property tax combo for the suburbs in BC? Here in NS, where our housing prices are much lower than those in BC, even in the suburbs you’d be hard pressed to find a house (of any size) with monthly property tax that low.

    To save a couple extra bucks, you may be able to find much lower tenant insurance than home insurance. but that is such a low rate you’re paying already.

    I think the other thing to remember is that when you’re paying in mortgage payment, a lot of that goes to interest and to the bank. So when people say you could be paying yourself that money, instead of on rent, they’re missing the point of where a lot of that money ends up.

    Also – and I know you said your budget is not static – but most likely you would spend (on average) more than $100 misc on upkeep to your home – perhaps on repairs once a year, etc., so most likely you will save more than $400/month in rent. I don’t know many people who have homes that don’t need maintenance of some sort each year.

    I also wanted to comment (as others have) that the mean spirited nature of some of the comments on here is surprising. Usually internet trolls go after people making too much money, or bragging about their life, not people helping people save their money! So bizarre. You’re better than that, obviously.

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