Tag: Rent

Let’s say you are renting a townhouse. In Ottawa a nice townhouse can fetch 1450-1600 a month rent, so let’s just say $1500 for arguments sake.

That same townhouse is likely going to be about 305-325 to purchase, so let’s go with $315,000.

5% down is 15, 750. Budget a few thousand for closing costs as well.

On a 5 year, 30 year ammo, 3.5% your payment is $1343 – CHEAPER than rent. 

It get’s better. 

Remember that rent you were wasting? All $1500 of it? Well when you are paying a mortgage – this one specifically – $480 of the payment is going towards the loan itself, and the only the balance of $1020 is being wasted away! With a scenario like this you are saving about $500 a month when compared to renting. The money being paid against the loan is similar to being put in a bank account called “equity”. Think of it as a bank account in the walls of your home, and you get to cash it out when you sell. Now if you only put 5% down you will have to pay CMHC Insurance, which will get added to the mortgage and cost you about $30-$40 extra per month. Property Taxes and Insurance will also cost you about $300 a month as well. So you’re extra $480 per month becomes about $150 per month of a net savings.

It get’s better.

Some banks are offering Cash Back incentives of up to 5% of the purchase price of the home you buy, so while you are spending 5% plus closing costs to GET the house, you are getting back 5% cashed back, meaning you are only out of pocket a few thousand bucks!

Not too bad!

It gets better.

Let’s say that townhouse appreciates at a conservative 2% per year, and you hold onto it for 5 years. That’s about $6600 per year in appreciation, or $550/month NET (since you can realize this amount in a lump sum when you sell, tax free as long as CRA determines it was your principle residence). 

Summary:

TOTAL CASH OUTFLOW of owning this townhouse of ($1343 mortgage plus $330 taxes and insurance = ) $1637 per month.

Net Worth Increase of ($150 paid against loan + $550 gain in appreciation = ) $700 per month. 

Do you see how people make some good money by buying a home and selling it after (about) 5 years? That’s 60 months of increasing net worth by $700 which is $42,000!! MONEY YOU WOULDN’T GET RENTING!

BONUS: Rent out a room to a good friend for $600/month and put that money directly against your mortgage and realize ANOTHER $40,000 of equity from paying down that loan faster. That’s up to $82,000 of a gain in 5 years!

As I always say – don’t go running amok spending your money on a townhouse now… consult with your trusted sales and lending professionals to make sure this scenario is right for you, and to go over all the intricate details and risks. Email me at mevans@evanselattar.com to look into it if you would like.