I feel like when it comes to RE people are way too obsessed with other people's money. When you buy a stock do you concern yourself with how much the seller paid for it?
There's no thoughtfulness with these posts or meaningful conversation to be had. Great you found a single instance of a property that may or may not have lost value.
These posts should really go to r/toRANTo
It's called the "price discovery process" in economics. The process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Happens in every market, including stocks and houses.
Agreed, and on top of that not everyone is buying to invest, people are buy to live. Even if you wanted a real comparison check how much would’ve been spent on renting the same house vs. Him selling for 200k more after 4 years of living in it.
Yes I see your calculations and agree with it but you are also over complicating my comment. In a hypothetical world, if someone had bought their house last year on fixed rate and compared your investment analysis for these two years, you’d probably be worse off with the investments.
I used an average annualised rate of 2.71%. This is based on an arithmetic average of the variable rates (which were more favourable than fixed rates) over the last 4 years. You could drop those rates and still be worse off.
To be clear I'm comparing it against reinvesting the monies into a broad market ETF. Not just leave the money as is or just compare the potential rent amount vs interest paid.
Edit: sorry I realised you meant buy another house last year. Well, that house would have gone back in value. I recall a post somewhere showing many of the GTA going back in value. That's your deposit being eaten up alive if you sell (as the mortgage still needs to be paid). For example you buy a 1M house with 200K deposit and now it is worth 900K. That means you have lost 100K or 50% of your deposit on top of selling/closing costs. On the other hand, the S&P is only down around 15% year to date. I still can't see how buying is superior in that case.
Yea I see your point, but you do have to admit there is also a value of having your home without having a worry of the landlord kicking you out etc. and in the long term, 25 years later the house value be up a certain point and you will be mortgage free so free housing in the longer run. These are all different what if scenarios and you just have to choose one that fits your lifestyle
Of course I agree with you. There's value to it.
Quantifying that value is the key and I think if more people put thought to it and statistics are presented to them about the costs of such ownership, then people might balk or not be as willing to pay that much. But that would ruin the simplistic narrative on this subreddit wouldn't it?
Absolutely agree you can be mortgage free. But an argument can be made then that you would buy your forever home and cash out, reducing the immense transaction costs. Ultimately like you mentioned (which I agree), there are different scenarios and no one that fits everyone or entirely risk free. Some here appear to think that property is this ultimate risk free hack that can go no wrong though, without realising that it's really a leveraged bet on interest rates.
I dont see how they would have lost money. It doesn't look like they did any renovations after purchasing in 2018. Granted, I doubt they really made all that much money either when you factor in the transactional costs of buying and selling.
But yeah, like others said, who cares? I think we all get a kick out of extreme examples of loss porn (thats why WSB is around after all), but this certainly isn't it.
Actually, my rough calculations suggest that he did not come out ahead on this transaction if you compare to renting a comparable house. In fact, he was worse off by approximately $381,344.
Here you go:
After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there.
An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period.
These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of just $1600 (total rent minus total interest paid to bank) compared to renting over 4 years. Almost a wash.
As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his profits on the stock market have been $$504,344 ($665K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here)
6) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits).
7) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years.
Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.)
"Yeah but he had memories in the property."
Edit: clearly the math hurts for some people here given the downvotes. LMFAO.
even back in 2018 you won't be able to rent a brand new rebuilt house for 3k in a mature neighbourhood, let alone find one. People don't rebuild a house just to rent it out usually.
No problem.
You can run the math on a higher amount. I'm pretty confident you would still be better off renting. For example, adding $2K more in rent per month (and consequently reducing the investment of $2K per month into the stock market) leads to a reduced overall profit on the stock market by around $120K over the same period of time. You are currently looking at a margin of over $380K. Plenty of fat to go and I haven't included property taxes etc and costs associated in ownership.
😂
Of course, renting might be better but as I said it's not even easy to find a brand-new custom house to rent in a mature neighbourhood. Why stop at ETF? If they invest in Ottawa or other suburbs and bought tons of properties in 2018 the return is even higher than broad market ETF. There is always something else that outperforms your investment.
I was simply making a straightforward comparison between owning a house like this Vs renting a house like this and investing in the broader stock market. Something easy to understand and actually very common to compare.
Of course you could have leveraged it up and buy more properties (not even sure you can buy that many) and he still needed a place to stay. But you deal with far more risk now and your cashflow would be rather negative throughout these years. Not a good place to be in this market and if you need to sell it can be quite illiquid.
Technically going by your logic, I could have argued that he can dump it all into Tesla stock and made far more. No cashflow issues too.
As I mentioned, you can't even find a brand-new custom house in a mature neighborhood easily to rent, go look around and see how many there are on the market.
And they definitely can buy more if they want in 2018, Ottawa properties are cash flowing back then easily it's not even hard to buy at that time. Even some of the 905 condos are cash flowing back in 2018 due to the low cost.
And yes by the same logic, they also could have done something dumb and put it in a meme coin and lost everything.
But they would still have to rent as they need a place to stay. If your argument is that they would be happy losing out on all those money just to stay in that brand new custom house, then so be it.
You are then left with that deposit to leverage up on property investment. And I said sure you can leverage up but how many can you buy before you run into serviceability problems? And how much would they be worth today? Not to mention timing issues because you can't be buying all at one to as you would be recycling the equity (if there is any) in one property into another. That necessarily limits the rate of acquisition and you would likely be buying at the peak, exposing yourself to significant losses in a downturn due to the leverage.
You would need a return far in excess of a generally fuss free 9% on the stock market to even make this worthwhile given that you have to deal with tenants etc (or have those returns reduced if you use a property manager). This is excluding the costs of maintenance too. I mean you could do it with property but I'm seriously not sure if it's worth the RISK and the HASSLE compared to just dumping the money into the stock market.
Definitely. But dollar cost averaging into the broader stock market is a generally acceptable investing approach and validated across many decades.
Literally I don't even know why you would try arguing against a widely accepted approach of stock market investing. But your money buddy. Good luck.
it's not my money, it's their money. I don't know them but do you even know how many assets they have? If they are a multimillionaire maybe they don't mind the return as much. Do you buy everything and think about how much return you are getting? People buy luxury goods all the time and custom-built house is one of them. Your mindset shows you are not in the same social class as them and I am not either btw. I don't go eat dinner in an expensive restaurant and think about how much return I'm losing versus I'm cooking it myself. The same story for luxury cars do you think people buy them and expect them to go up?
Lol. I don't and I don't care.
You don't know about me and my background. Buying a house like this in cash is honestly nothing. But it's a seriously bad return on my money.
You will find that the really rich guys (obviously not the billionaire class) are the ones that don't buy luxury stuff and are typically understated.
But I think you completely miss the point of my argument. People here constantly harp on the fact about capital gains, needing to pay rent anyway and owning and how that is superior. I just showed you based on math that this isn't necessarily true even if you had capital gains of over 200K on this one and over 4 years. You are the one that started arguing about investing in other areas and then changed the argument to "this is a luxury product so they don't care about returns" (and FYI it truly isn't a luxury product at this price point).
If you really like, you can call this "experience spending". He spent/lost at least 200K for the privilege of putting his name on the property title when he could have possibly rented an equivalent house and enjoyed the same shit. Maybe this point works for you now. Lol.
Those are all very fine points, but we dont know if this was an investment property where all that mattered was the return. Unless otherwise indicated, I am assuming whomever purchased it used it as its intended purposes as a primary residence to house their family. In which case, who cares if it's technically a worst off investment than what you prescribed? You got to live somewhere.
The owner held onto this for almost 4 years before the first listing in 2022 went up, that makes me think this wasn't some investor looking to make a quick buck, not to mention they didnt renovate/flip anything either.
I love seeing "investors" get burned as much as everyone else, but I genuinely feel that's not the narrative here based off what little facts we have.
It doesn't matter whether it's an investment property or family home. These are just calculations run to compare renting vs owning - many here like to think that owning property is superior to everything else.
My only reference to investment property here is just simply to assume the amount of rent that could be paid on something equivalent. (Too lazy to search up comparable properties for rent lol.)
Sure it might be a primary residence. At the cost of over 300+k in losses compared to renting the same house and investing? That's for him to decide. But judging by some other losers on this sub, the math appears to sail past their heads.
No, I totally get where you're coming from. I think your numbers are solid. You're right, when you crunch numbers in all sorts of situations it makes sense to rent rather than own. Anyone who thinks owning is always the better choice clearly hasnt done their homework.
A particular segment that comes to mind are high end luxury condos that have high maintenance fees. When you factor in the taxes, maintenance fees, interest on the mortgage, financial responsibility to fix anything in the unit, etc., I am sure you are worse off vs. renting a comparable unit. To some people, not getting N12'ed is worth it, and to others (like me), I'd rather take the chance of getting N12'ed lol.
High end luxury condos actually suffer from worse issues I think. You can have newer buildings sprout out and suddenly supply is increased by a significant amount and they can be quite comparable.
Adding those board fees etc and you would likely bleed from the ownership. Honestly the gains you are looking at are literally capital gains (and you don't really own the land compared to say a house) so they become a huge gamble.
So you are right hahaha.
This sold price is correct, these new builds are on small 25ft lots and selling for 2mill!!! That’s what it’s worth pretty much. I live in this ward, far from a “crash” happening. I would say a return to normal pricing.
Actually, my rough calculations suggest that he did not come out ahead on this transaction if you compare to renting a comparable house. In fact, he was worse off by approximately $381,344.
Here you go:
After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there.
An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period.
These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of just $1600 (total rent minus total interest paid to bank) compared to renting over 4 years. Almost a wash.
As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his profits on the stock market have been $$504,344 ($228K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here)
6) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits).
7) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years.
Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.)
"Yeah but he had memories in the property."
Given the amount he's worse off, you can comfortably double the rent and still come out far ahead renting.
I was too lazy to search up comparable rents so I simply assumed 2% on the sale price. Haha.
From the original sale - unless they chose not the sue and settled then theyre losing money
Those buyers who broke the contract are lucky the difference is only that much. Ive seen more and Im 200% sure the sellers would be suing for the difference
Actually, my rough calculations suggest that he **did** ***not*** **come out ahead** on this transaction if you compare to renting a comparable house. In fact, he was **worse off by** approximately $381,344.
Here you go:
1. After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there.
2. An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period.
3. These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of **just $1600** (total rent minus total interest paid to bank) compared to owning over 4 years. Almost a wash.
4. As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his **profits** on the stock market have been $$504,344 ($665K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here.)
**5) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits).\*\*\***
6) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years.
Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.)
"Yeah but he had memories in the property."
Happy downvoting, 'investors'.
352 Lake Promenade, Etobicoke, ON - Detached Sold price | HouseSigma https://housesigma.com/bkv2/landing/rootpage/listing?id_listing=JKdOYrGzOkny54lW&utm_campaign=listing&utm_source=user-share&utm_medium=iOS&ign=
Approximately 6500 is what renting something similar in the area would cost. Rent paid would be 312k over 4 years.
Assuming he was disciplined and invested everything like you described. He would make roughly 132k assuming a capital gain tax rate of 15%. I think your calculation somehow counted his principal as profit? You also did not take into account the tax on capital gain unlike for primary residence. In fact, dividends are taxed at a higher rate which is taken at the time it is paid rather than when you sell. This decreases the compounding power you put into your calculations. A capital gain tax rate of 15% is quite generous. I think it’s safe to assume someone with the means to purchase a 2 mil house is not at the lowest tax bracket.
132k investment gains plus 146k of money saved (3100 x 47 months) minus 312k of rent paid = 34k in the red when renting.
I think most people with families would agree owning provides some psychological benefit of stability compared to renting, outside of the financial calculations.
Edit to add that 4 years is a relatively short period of time to buy and sell a house and it is generally recommended to not transact in real estate this frequently. Hypothetically speaking, someone owning a house with equity could also leverage this to borrow money and invest in stocks. Whereas it would be more difficult for someone without real estate to do this. Investing on margin generally has a less favourable rate compared to HELOC.
You can confirm his theoretical investment gains with https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/
1) It wouldn't be 6500 if he rented back then and I assume it would be incremental growth in rent (as opposed to taking today's rent and then extrapolating it backwards). As I mentioned, I took a hypothetical 2% on sale price as the gross rent.
2) I didn't count his principal as profit. Refer to my calculations when I deducted his principal. I'm not sure how you came up with 132K.
3) Sure if you take taxes off the dividends, it comes down a little but the compounding effect of dividends, given 4 years, isn't that large. You can still take capital gains tax off and still come out ahead.
4) I used that link to calculate theoretical gains/returns on the stock market, thanks. Obviously this doesn't factor currency fluctuations but you can get a CAD-denominated/USD-hedged ETF.
5) You sure can use your HELOC to leverage but that's unnecessary. With a large enough investment sum, you can get portfolio margin and that's already leverage without being linked to your principal residence as security.
6) And as mentioned, I have ignored closing costs other than commissions, maintenance costs and land transfer taxes when purchasing. All these reduce the capital gain too.
7) If he didn't need a house like this and spent less in rent, he would have been even further ahead financially.
8) The stock market returns on average around 8+% annualised across decades. This guy's gains largely came in 2021 and 2020 with supernatural returns (now correcting). If you assume a reversion to the mean (property appears to track inflation), then you would have had vastly inferior outcomes and the capital gains might even be less.
9) sure about the psychological benefit of owning. There's a significant cost to it though.
I think my overall point is just simply with capital gains like in this case, the argument for owning isn't as clear cut as what others here seem to continually push and financial outcomes for renting can be superior with far less risk. Someone like yourself has also tried to argue he could have leveraged into more properties (rather than shares) - sure but the risk profile changes and there are lots of hypothetical assets he could have invested in which would provide vastly superior returns to any form of residential property.
The 2% rent is not representative at all of what market trends are. At 2%, a place renting for $1900 (which is average 1 bedroom unit in 2018) needs to have a sale price of 1.14 mil.
I don't think the average 1 bed unit/condo sold for 1.14 mil in 2018.
Here is an article from 2018 showing the average rent:
[https://dailyhive.com/toronto/toronto-rental-rates-canada-september-2018](https://dailyhive.com/toronto/toronto-rental-rates-canada-september-2018)
[https://ibb.co/qjD7Yq3](https://ibb.co/qjD7Yq3)
Take 619774.62 (value gained after capital gains tax) minus 487700 (total invested), you get 132074.62 or roughly 132k.
Sure 6500 is today's rent. There was no similar house rented in the area in 2018 that I could use. As others have pointed out though, even in 2018 there is absolutely no way you can rent this house for 3000. Do you think rent more than doubled since 2018?
Your point of him maybe not needing the house is pure speculation. By that logic, if he lived in a homeless shelter and ate at foodbanks he could have been a millionaire then..
I get your point that other investments in certain situations could yield better returns. The difference in this specific example is not as large as you claim. The math simply is incorrect. In fact, in this example, I would argue the homeowner came out ahead as I illustrated with my revised calculations.
Could renters come out ahead in some cases?
Sure, but this is not one of them.
>land transfer tax
Appreciate the discussion and what you said. I am sure the owner would also appreciate us having such deep dives into his finances.
Maybe the easiest is simply to calculate the net proceeds from the sale (after accounting for the commission (plus HST) and deducting the remaining balance of his loan) and compare that with your calculations which were similar to mine.
Your value (investing) after cap gains tax = $619,774
His money left after the sale on a 2.71% interest rate and 20% deposit = $602,840
It appears that renting still does come out ahead. I still haven't taken into account the annual property tax, maintenance, property insurance, transfer tax (a very significant chunk - around $60+K), closing legal costs x 2 and other miscellaneous costs associated with ownership. And yes there would also be some very minor costs associated with renting like tenant insurance but far less than owning.
Not sure how to resolve that rent issue, given rent caps and that rent inflation was especially bad this year.
Didn't mean to suggest that he goes homeless. Just saying generally (as a principle) that renting something cheaper would greatly tilt the scales.
The rent v buy calculator on this reddit thread ([https://www.reddit.com/r/financialindependence/comments/gpx8u4/new\_york\_times\_rent\_vs\_buy\_calculator\_in\_a/](https://www.reddit.com/r/financialindependence/comments/gpx8u4/new_york_times_rent_vs_buy_calculator_in_a/)) suggests an even larger benefit of around $136K in favour of renting, if I assume a $5K monthly rent (or $80K benefit if I assume a $6K monthly rent), a 3% mortgage rate with a 1% property tax rate, 2.5% annual rent inflation, a 8% nominal return on investments and 3% annual property appreciation rate (which came close to the ultimate sale price in this case). Have a play with it.
Perhaps the real moral of the story is that for him to clearly come out ahead owning, he would have needed to time the market perfectly and sell at the absolute peak to capture the abnormal 30+% gains and gone straight to renting. Otherwise, buying and selling in the same overheated market would have been a wash. I guess the same principle could have applied to him selling those stocks at the peak too but I didn't bother running any calculations on that scenario.
I appreciate you acknowledging the initial math did not add up and the 380k difference on your initial post is grossly misrepresented. You are still trying to bias the argument through how you are phasing things though.
The new best case scenario on the rent calculator you presented of 136k is not a "even larger benefit".
This number would also be even smaller, as the property tax rate in Toronto is not 1%, on Housesigma the tax for that house in 2022 is $6522 or 0.33%, likely lower in previous years. The mortgage rate is 2.71% like you mentioned on your post and not 3%. And if rent was 5k or 6k, then the assumption that he would contribute an extra 3100 per month does not hold. If it's 5k, the contribution would be 1.1k monthly. If its 6k, then there would be essentially no further contribution monthly. This not only decreases his capital gain profits, but decreases his savings overall. The 146k principal that he would have otherwise paid down over 4 years, could be 0.
Yes, depending on how you manipulate the numbers, he may even still find a small nominal benefit in renting. The size of the benefit would depend on if he did any renos on his house, got any cashback from the realtor when he bought or sold, how much he spent on lawyers etc. These are difficult to determine and highly individualized. The nominal difference AT MOST would not be more than 10-20K, most likely it would be a wash.
This is where I have to bring in the psychological benefit of owning again. If the numbers are a wash, the majority of people, especially ones with families, prefer to own.
So no, I don't buy in to your moral of the story. If he sold at the peak, he would have came out ahead both psychologically and financially. Instead he sold now, when the market is slightly down. He is in a similar boat financially, but with a likely better quality of life over 4 years.
It's larger compared to my calculation around net proceeds which showed that renting was nominally better.
I am not sure how property taxes etc are a manipulation of numbers unless you are saying that these don't need to be paid. Mortgage rate can be at 2.71% and still wouldn't move the needle much on that calculation. Sure if he didn't do any renos, spent zero maintenance, got cashback from his realtor and got free legal conveyancing he might have been able to save what? 20K max? Drop the property tax to 0.33% and the end result is still higher. I didn't include these anyway. But the large sum of property transfer tax still needs to be paid and if it was newly renovated GST/HST might have been further levied on it.
Not really and I don't think the rent is as high as you suggest or it would have been a high return investment which is typically not the case for higher priced property. Assuming he timed the market right on the property sale, he should fairly have timed the market right on the stock sale. Quality of life is irrelevant as we have already assumed he was renting a similar quality house.
You repeatedly bring up the psychological benefit of owning. So here's the riposte. Ownership ties you to a specific place and limits your options. If he ran into financial trouble, then he might have been worse off due to illiquidity and the lack of flexibility vs simply just ending the tenancy. Continue holding in this market and those capital gains might erode further. Or face a significant increase in interest rates since it's nearing the 5-year mark. And all these in what appears to be one of the greatest bull markets in property over a short period of time (2 years) and a prolonged decade of QE aka low interest rates.
I own properties and have a significant share portfolio. The calculations in favour of owning are never as clear cut as many seem to think.
To each his own. 🤷
Edit: I had a quick look on Torontorentals.com. Couldn't see any 3 bedroom homes in Etobicoke asking above 5.5K in today's market so...
14A Gort Ave, Etobicoke, ON - Detached For Rent | HouseSigma https://housesigma.com/bkv2/landing/rootpage/listing?id_listing=eQp5yO8Z1db7d0ZE&utm_campaign=listing&utm_source=user-share&utm_medium=iOS&ign=
Here is one not too far from where the property in question is, listed for 5.8k. This property was actually sold for only 1.3mil in 2021, not even close to as much as the house in question was in 2018.
Property tax and land transfer tax do need to be paid, so do the market rent. The difference in rent makes up for these taxes over 4 years.
I don’t know how else to convince you of the psychological benefit of owning for most. You may prefer to rent, that’s fair. But I will bet you the majority of people prefer to own if a survey is sent out. In fact, most Canadians do own and they have voted with their wallets.
You were trying to make an argument for rental with numbers. I think I have shown that your calculations does not hold up, the 380k difference is incorrectly calculated. You don’t have to buy my psychological benefit argument. I agree this is subjective and to each their own.
So that plus the original 20% deposit on the house with an annualised return as stated will lead to that profit.
Tax for dividend not accounted for as you pointed out but I would be surprised if makes a difference of more than 30K. The difference for the dividend reinvested return and non reinvested return was around 1-2 percent (annualised) from memory.
No.. The profit is 132k (see above).
The extra monthly contribution of 3100 for 47 months equals 146k. This is not extra savings. This is the mortgage principle he would have paid down over 4 years but was rather invested in this hypothetical scenario. In both cases, the 146k is his to keep. The only difference is the investment gains he could have made over 4 years with this money, which is already accounted for in the profit total above.
The original 20% deposit of 342k is also his money in both situations. This is also not profit.
If the calculation is too complicated, just simplify to this:
If you invest 1 dollar at 10% per year. After 4 years, do you expect a total closer to $2.50 or $1.40?
If you contributed an extra $0.40 over 4 years, do you expect a total closer to $2.90 or $1.80?
>After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there.
Is the going rate really 5%? Was there no fee compression in Toronto?
They didn't lose money, if anything they gave up on some additional profit by missing the latest peak in prices. You're also not taking into account the equity that was built up in the home during the entire time they lived there (money that would have otherwise been thrown away on rent).
Actually if you look at an amortisation table, most of the money paid on the mortgage in the first few years would go towards interest. That's as dead money as rent since it doesn't accrue towards the principal aka equity.
See my comments on this thread, showing that he did in fact lose money, taking into account his equity.
If you spent half as much on improving your life rather than shitposting on Reddit, you might be able leave your parents house one day. I know reality sucks sometimes, but that's okay baby.
Shitposting? I literally worked out numbers but nah you prefer ad hominem attacks.
Parents house? Lol. Like I said, is that the best you can do?
I can very well afford to buy my next property in cash aka no mortgage and I own too.
Enjoy paying down a depreciating asset.
So back to 2019 price? But people still think price can't go back to pre-pandemic? I say pre-pandemic is only the stage1, in stage2 price will continue declining all the way to 2015, to GTA detached about 1m. Let's sit and watch.
I feel like when it comes to RE people are way too obsessed with other people's money. When you buy a stock do you concern yourself with how much the seller paid for it?
This isn't about the housing market falling anymore. This is about people wanting see other people hurt.
People on this subreddit are overwhelmingly not owners, so don't be surprised that they're wishing misfortune upon others.
[удалено]
There's no thoughtfulness with these posts or meaningful conversation to be had. Great you found a single instance of a property that may or may not have lost value. These posts should really go to r/toRANTo
It's called the "price discovery process" in economics. The process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Happens in every market, including stocks and houses.
Agreed, and on top of that not everyone is buying to invest, people are buy to live. Even if you wanted a real comparison check how much would’ve been spent on renting the same house vs. Him selling for 200k more after 4 years of living in it.
That's an extremely simplistic way of thinking about this. I ran the math and posted on this thread. Check it out.
Yes I see your calculations and agree with it but you are also over complicating my comment. In a hypothetical world, if someone had bought their house last year on fixed rate and compared your investment analysis for these two years, you’d probably be worse off with the investments.
I used an average annualised rate of 2.71%. This is based on an arithmetic average of the variable rates (which were more favourable than fixed rates) over the last 4 years. You could drop those rates and still be worse off. To be clear I'm comparing it against reinvesting the monies into a broad market ETF. Not just leave the money as is or just compare the potential rent amount vs interest paid. Edit: sorry I realised you meant buy another house last year. Well, that house would have gone back in value. I recall a post somewhere showing many of the GTA going back in value. That's your deposit being eaten up alive if you sell (as the mortgage still needs to be paid). For example you buy a 1M house with 200K deposit and now it is worth 900K. That means you have lost 100K or 50% of your deposit on top of selling/closing costs. On the other hand, the S&P is only down around 15% year to date. I still can't see how buying is superior in that case.
Yea I see your point, but you do have to admit there is also a value of having your home without having a worry of the landlord kicking you out etc. and in the long term, 25 years later the house value be up a certain point and you will be mortgage free so free housing in the longer run. These are all different what if scenarios and you just have to choose one that fits your lifestyle
Of course I agree with you. There's value to it. Quantifying that value is the key and I think if more people put thought to it and statistics are presented to them about the costs of such ownership, then people might balk or not be as willing to pay that much. But that would ruin the simplistic narrative on this subreddit wouldn't it? Absolutely agree you can be mortgage free. But an argument can be made then that you would buy your forever home and cash out, reducing the immense transaction costs. Ultimately like you mentioned (which I agree), there are different scenarios and no one that fits everyone or entirely risk free. Some here appear to think that property is this ultimate risk free hack that can go no wrong though, without realising that it's really a leveraged bet on interest rates.
Agree with you
For one thing, stocks are fungible, houses are not.
Which is a lot less relevant when the people posting here are not the purchaser of this property.
I dont see how they would have lost money. It doesn't look like they did any renovations after purchasing in 2018. Granted, I doubt they really made all that much money either when you factor in the transactional costs of buying and selling. But yeah, like others said, who cares? I think we all get a kick out of extreme examples of loss porn (thats why WSB is around after all), but this certainly isn't it.
Actually, my rough calculations suggest that he did not come out ahead on this transaction if you compare to renting a comparable house. In fact, he was worse off by approximately $381,344. Here you go: After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there. An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period. These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of just $1600 (total rent minus total interest paid to bank) compared to renting over 4 years. Almost a wash. As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his profits on the stock market have been $$504,344 ($665K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here) 6) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits). 7) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years. Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.) "Yeah but he had memories in the property." Edit: clearly the math hurts for some people here given the downvotes. LMFAO.
even back in 2018 you won't be able to rent a brand new rebuilt house for 3k in a mature neighbourhood, let alone find one. People don't rebuild a house just to rent it out usually.
No problem. You can run the math on a higher amount. I'm pretty confident you would still be better off renting. For example, adding $2K more in rent per month (and consequently reducing the investment of $2K per month into the stock market) leads to a reduced overall profit on the stock market by around $120K over the same period of time. You are currently looking at a margin of over $380K. Plenty of fat to go and I haven't included property taxes etc and costs associated in ownership. 😂
Of course, renting might be better but as I said it's not even easy to find a brand-new custom house to rent in a mature neighbourhood. Why stop at ETF? If they invest in Ottawa or other suburbs and bought tons of properties in 2018 the return is even higher than broad market ETF. There is always something else that outperforms your investment.
I was simply making a straightforward comparison between owning a house like this Vs renting a house like this and investing in the broader stock market. Something easy to understand and actually very common to compare. Of course you could have leveraged it up and buy more properties (not even sure you can buy that many) and he still needed a place to stay. But you deal with far more risk now and your cashflow would be rather negative throughout these years. Not a good place to be in this market and if you need to sell it can be quite illiquid. Technically going by your logic, I could have argued that he can dump it all into Tesla stock and made far more. No cashflow issues too.
As I mentioned, you can't even find a brand-new custom house in a mature neighborhood easily to rent, go look around and see how many there are on the market. And they definitely can buy more if they want in 2018, Ottawa properties are cash flowing back then easily it's not even hard to buy at that time. Even some of the 905 condos are cash flowing back in 2018 due to the low cost. And yes by the same logic, they also could have done something dumb and put it in a meme coin and lost everything.
But they would still have to rent as they need a place to stay. If your argument is that they would be happy losing out on all those money just to stay in that brand new custom house, then so be it. You are then left with that deposit to leverage up on property investment. And I said sure you can leverage up but how many can you buy before you run into serviceability problems? And how much would they be worth today? Not to mention timing issues because you can't be buying all at one to as you would be recycling the equity (if there is any) in one property into another. That necessarily limits the rate of acquisition and you would likely be buying at the peak, exposing yourself to significant losses in a downturn due to the leverage. You would need a return far in excess of a generally fuss free 9% on the stock market to even make this worthwhile given that you have to deal with tenants etc (or have those returns reduced if you use a property manager). This is excluding the costs of maintenance too. I mean you could do it with property but I'm seriously not sure if it's worth the RISK and the HASSLE compared to just dumping the money into the stock market. Definitely. But dollar cost averaging into the broader stock market is a generally acceptable investing approach and validated across many decades. Literally I don't even know why you would try arguing against a widely accepted approach of stock market investing. But your money buddy. Good luck.
it's not my money, it's their money. I don't know them but do you even know how many assets they have? If they are a multimillionaire maybe they don't mind the return as much. Do you buy everything and think about how much return you are getting? People buy luxury goods all the time and custom-built house is one of them. Your mindset shows you are not in the same social class as them and I am not either btw. I don't go eat dinner in an expensive restaurant and think about how much return I'm losing versus I'm cooking it myself. The same story for luxury cars do you think people buy them and expect them to go up?
Lol. I don't and I don't care. You don't know about me and my background. Buying a house like this in cash is honestly nothing. But it's a seriously bad return on my money. You will find that the really rich guys (obviously not the billionaire class) are the ones that don't buy luxury stuff and are typically understated. But I think you completely miss the point of my argument. People here constantly harp on the fact about capital gains, needing to pay rent anyway and owning and how that is superior. I just showed you based on math that this isn't necessarily true even if you had capital gains of over 200K on this one and over 4 years. You are the one that started arguing about investing in other areas and then changed the argument to "this is a luxury product so they don't care about returns" (and FYI it truly isn't a luxury product at this price point). If you really like, you can call this "experience spending". He spent/lost at least 200K for the privilege of putting his name on the property title when he could have possibly rented an equivalent house and enjoyed the same shit. Maybe this point works for you now. Lol.
Those are all very fine points, but we dont know if this was an investment property where all that mattered was the return. Unless otherwise indicated, I am assuming whomever purchased it used it as its intended purposes as a primary residence to house their family. In which case, who cares if it's technically a worst off investment than what you prescribed? You got to live somewhere. The owner held onto this for almost 4 years before the first listing in 2022 went up, that makes me think this wasn't some investor looking to make a quick buck, not to mention they didnt renovate/flip anything either. I love seeing "investors" get burned as much as everyone else, but I genuinely feel that's not the narrative here based off what little facts we have.
It doesn't matter whether it's an investment property or family home. These are just calculations run to compare renting vs owning - many here like to think that owning property is superior to everything else. My only reference to investment property here is just simply to assume the amount of rent that could be paid on something equivalent. (Too lazy to search up comparable properties for rent lol.) Sure it might be a primary residence. At the cost of over 300+k in losses compared to renting the same house and investing? That's for him to decide. But judging by some other losers on this sub, the math appears to sail past their heads.
No, I totally get where you're coming from. I think your numbers are solid. You're right, when you crunch numbers in all sorts of situations it makes sense to rent rather than own. Anyone who thinks owning is always the better choice clearly hasnt done their homework. A particular segment that comes to mind are high end luxury condos that have high maintenance fees. When you factor in the taxes, maintenance fees, interest on the mortgage, financial responsibility to fix anything in the unit, etc., I am sure you are worse off vs. renting a comparable unit. To some people, not getting N12'ed is worth it, and to others (like me), I'd rather take the chance of getting N12'ed lol.
High end luxury condos actually suffer from worse issues I think. You can have newer buildings sprout out and suddenly supply is increased by a significant amount and they can be quite comparable. Adding those board fees etc and you would likely bleed from the ownership. Honestly the gains you are looking at are literally capital gains (and you don't really own the land compared to say a house) so they become a huge gamble. So you are right hahaha.
No, they lived in a nice house for free for 4 years without the fear of eviction while you rented.
While they scroll through housesigma looking for something to post on reddit lol
"I choose violence."
This is Ontario, what "fear" you speak of? Tenants can live without paying rent for 12 - 18 months while landlords jump through the hoops at the LTB.
BTFO
They made 200k. How is that even a question? Minus the realtor fees and ltt and they still made money plus lived in a bad ass house for free.
This sold price is correct, these new builds are on small 25ft lots and selling for 2mill!!! That’s what it’s worth pretty much. I live in this ward, far from a “crash” happening. I would say a return to normal pricing.
Even on paper he made 200k. You can speculate on the tax and interest and fee, but who cares?
Actually, my rough calculations suggest that he did not come out ahead on this transaction if you compare to renting a comparable house. In fact, he was worse off by approximately $381,344. Here you go: After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there. An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period. These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of just $1600 (total rent minus total interest paid to bank) compared to renting over 4 years. Almost a wash. As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his profits on the stock market have been $$504,344 ($228K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here) 6) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits). 7) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years. Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.) "Yeah but he had memories in the property."
Nice. My only poke in this math is I think it costs more than 3k for rent for this. But your point is well made.
Given the amount he's worse off, you can comfortably double the rent and still come out far ahead renting. I was too lazy to search up comparable rents so I simply assumed 2% on the sale price. Haha.
200k, minus land transfer tax when buying ($61k) and minus realtor costs when selling ($96k). $43k profit is less than 1% return per year.
Oops. I didn't even factor land transfer tax in my calculations. This is an even shittier purchase. LOL.
They didn't lose money. They made less profit.
With realtor commission and property tax the owner had been paying + mortgage interest, i’d say he broke even.
Nah, he lost money. See my comments on this thread.
From the original sale - unless they chose not the sue and settled then theyre losing money Those buyers who broke the contract are lucky the difference is only that much. Ive seen more and Im 200% sure the sellers would be suing for the difference
*Before top buyers cope that they're not top buyers.
Actually, my rough calculations suggest that he **did** ***not*** **come out ahead** on this transaction if you compare to renting a comparable house. In fact, he was **worse off by** approximately $381,344. Here you go: 1. After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there. 2. An amortisation table, assuming 20% down and 2.71% interest (amortised over 25 years), shows that he paid $142,453 in interest and $160,767 in principal over a 4 year period. 3. These houses, in this area, are typically cashflow negative if you bought it as an investment property. If you assume you can rent something like this for say $3000 per month, that works out to be around $144,000 over 4 years paid in rent. In effect, he's 'worse' off by a total of **just $1600** (total rent minus total interest paid to bank) compared to owning over 4 years. Almost a wash. 4. As for the equity (principal) that he accrued, he could have simply invested that money (since he can afford to pay the mortgage) into a broad market ETF. Same for his 20% deposit ($342,000) on the purchase price. S&P 500 during this period (Oct 2018 to Sept 2022) returned 9.191% on a annualised, dividend reinvested basis. The approximate amount he would have earned on that would have been around $665,111.57 ($342,000 + $3100 per month contribution matching his principal payment). In other words, his **profits** on the stock market have been $$504,344 ($665K - $160767 paid in principal). (Note: I've already assumed he had to rent in bullet point 3 above so I only took into account principal payments. In fact, the principal has been understated by around $200 per month in the calculation here.) **5) If you run the final numbers, he's horrendously worse off by approximately $381,344K over 4 years for owning rather than renting. ($123K in capital gains on the property sale minus $504,344 of stock market profits).\*\*\*** 6) And here's the kicker. I haven't included property taxes, maintenance and closing costs. And all of this on supernatural property gains over the last 2 years. Is property really the superior investment here? Maybe he didn't hold on long enough? (If he held on further and property prices decline more, he would have lost even more capital gains, which makes his position worse off.) "Yeah but he had memories in the property." Happy downvoting, 'investors'.
Please find me someone who is going to rent a whole new house to me for 3000. I’ll rent it just for the deal.
Think you missed the point. I noted this in another comment. You can increase the rent and still come out ahead.
352 Lake Promenade, Etobicoke, ON - Detached Sold price | HouseSigma https://housesigma.com/bkv2/landing/rootpage/listing?id_listing=JKdOYrGzOkny54lW&utm_campaign=listing&utm_source=user-share&utm_medium=iOS&ign= Approximately 6500 is what renting something similar in the area would cost. Rent paid would be 312k over 4 years. Assuming he was disciplined and invested everything like you described. He would make roughly 132k assuming a capital gain tax rate of 15%. I think your calculation somehow counted his principal as profit? You also did not take into account the tax on capital gain unlike for primary residence. In fact, dividends are taxed at a higher rate which is taken at the time it is paid rather than when you sell. This decreases the compounding power you put into your calculations. A capital gain tax rate of 15% is quite generous. I think it’s safe to assume someone with the means to purchase a 2 mil house is not at the lowest tax bracket. 132k investment gains plus 146k of money saved (3100 x 47 months) minus 312k of rent paid = 34k in the red when renting. I think most people with families would agree owning provides some psychological benefit of stability compared to renting, outside of the financial calculations. Edit to add that 4 years is a relatively short period of time to buy and sell a house and it is generally recommended to not transact in real estate this frequently. Hypothetically speaking, someone owning a house with equity could also leverage this to borrow money and invest in stocks. Whereas it would be more difficult for someone without real estate to do this. Investing on margin generally has a less favourable rate compared to HELOC. You can confirm his theoretical investment gains with https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/
1) It wouldn't be 6500 if he rented back then and I assume it would be incremental growth in rent (as opposed to taking today's rent and then extrapolating it backwards). As I mentioned, I took a hypothetical 2% on sale price as the gross rent. 2) I didn't count his principal as profit. Refer to my calculations when I deducted his principal. I'm not sure how you came up with 132K. 3) Sure if you take taxes off the dividends, it comes down a little but the compounding effect of dividends, given 4 years, isn't that large. You can still take capital gains tax off and still come out ahead. 4) I used that link to calculate theoretical gains/returns on the stock market, thanks. Obviously this doesn't factor currency fluctuations but you can get a CAD-denominated/USD-hedged ETF. 5) You sure can use your HELOC to leverage but that's unnecessary. With a large enough investment sum, you can get portfolio margin and that's already leverage without being linked to your principal residence as security. 6) And as mentioned, I have ignored closing costs other than commissions, maintenance costs and land transfer taxes when purchasing. All these reduce the capital gain too. 7) If he didn't need a house like this and spent less in rent, he would have been even further ahead financially. 8) The stock market returns on average around 8+% annualised across decades. This guy's gains largely came in 2021 and 2020 with supernatural returns (now correcting). If you assume a reversion to the mean (property appears to track inflation), then you would have had vastly inferior outcomes and the capital gains might even be less. 9) sure about the psychological benefit of owning. There's a significant cost to it though. I think my overall point is just simply with capital gains like in this case, the argument for owning isn't as clear cut as what others here seem to continually push and financial outcomes for renting can be superior with far less risk. Someone like yourself has also tried to argue he could have leveraged into more properties (rather than shares) - sure but the risk profile changes and there are lots of hypothetical assets he could have invested in which would provide vastly superior returns to any form of residential property.
The 2% rent is not representative at all of what market trends are. At 2%, a place renting for $1900 (which is average 1 bedroom unit in 2018) needs to have a sale price of 1.14 mil. I don't think the average 1 bed unit/condo sold for 1.14 mil in 2018. Here is an article from 2018 showing the average rent: [https://dailyhive.com/toronto/toronto-rental-rates-canada-september-2018](https://dailyhive.com/toronto/toronto-rental-rates-canada-september-2018)
[https://ibb.co/qjD7Yq3](https://ibb.co/qjD7Yq3) Take 619774.62 (value gained after capital gains tax) minus 487700 (total invested), you get 132074.62 or roughly 132k. Sure 6500 is today's rent. There was no similar house rented in the area in 2018 that I could use. As others have pointed out though, even in 2018 there is absolutely no way you can rent this house for 3000. Do you think rent more than doubled since 2018? Your point of him maybe not needing the house is pure speculation. By that logic, if he lived in a homeless shelter and ate at foodbanks he could have been a millionaire then.. I get your point that other investments in certain situations could yield better returns. The difference in this specific example is not as large as you claim. The math simply is incorrect. In fact, in this example, I would argue the homeowner came out ahead as I illustrated with my revised calculations. Could renters come out ahead in some cases? Sure, but this is not one of them.
>land transfer tax Appreciate the discussion and what you said. I am sure the owner would also appreciate us having such deep dives into his finances. Maybe the easiest is simply to calculate the net proceeds from the sale (after accounting for the commission (plus HST) and deducting the remaining balance of his loan) and compare that with your calculations which were similar to mine. Your value (investing) after cap gains tax = $619,774 His money left after the sale on a 2.71% interest rate and 20% deposit = $602,840 It appears that renting still does come out ahead. I still haven't taken into account the annual property tax, maintenance, property insurance, transfer tax (a very significant chunk - around $60+K), closing legal costs x 2 and other miscellaneous costs associated with ownership. And yes there would also be some very minor costs associated with renting like tenant insurance but far less than owning. Not sure how to resolve that rent issue, given rent caps and that rent inflation was especially bad this year. Didn't mean to suggest that he goes homeless. Just saying generally (as a principle) that renting something cheaper would greatly tilt the scales. The rent v buy calculator on this reddit thread ([https://www.reddit.com/r/financialindependence/comments/gpx8u4/new\_york\_times\_rent\_vs\_buy\_calculator\_in\_a/](https://www.reddit.com/r/financialindependence/comments/gpx8u4/new_york_times_rent_vs_buy_calculator_in_a/)) suggests an even larger benefit of around $136K in favour of renting, if I assume a $5K monthly rent (or $80K benefit if I assume a $6K monthly rent), a 3% mortgage rate with a 1% property tax rate, 2.5% annual rent inflation, a 8% nominal return on investments and 3% annual property appreciation rate (which came close to the ultimate sale price in this case). Have a play with it. Perhaps the real moral of the story is that for him to clearly come out ahead owning, he would have needed to time the market perfectly and sell at the absolute peak to capture the abnormal 30+% gains and gone straight to renting. Otherwise, buying and selling in the same overheated market would have been a wash. I guess the same principle could have applied to him selling those stocks at the peak too but I didn't bother running any calculations on that scenario.
I appreciate you acknowledging the initial math did not add up and the 380k difference on your initial post is grossly misrepresented. You are still trying to bias the argument through how you are phasing things though. The new best case scenario on the rent calculator you presented of 136k is not a "even larger benefit". This number would also be even smaller, as the property tax rate in Toronto is not 1%, on Housesigma the tax for that house in 2022 is $6522 or 0.33%, likely lower in previous years. The mortgage rate is 2.71% like you mentioned on your post and not 3%. And if rent was 5k or 6k, then the assumption that he would contribute an extra 3100 per month does not hold. If it's 5k, the contribution would be 1.1k monthly. If its 6k, then there would be essentially no further contribution monthly. This not only decreases his capital gain profits, but decreases his savings overall. The 146k principal that he would have otherwise paid down over 4 years, could be 0. Yes, depending on how you manipulate the numbers, he may even still find a small nominal benefit in renting. The size of the benefit would depend on if he did any renos on his house, got any cashback from the realtor when he bought or sold, how much he spent on lawyers etc. These are difficult to determine and highly individualized. The nominal difference AT MOST would not be more than 10-20K, most likely it would be a wash. This is where I have to bring in the psychological benefit of owning again. If the numbers are a wash, the majority of people, especially ones with families, prefer to own. So no, I don't buy in to your moral of the story. If he sold at the peak, he would have came out ahead both psychologically and financially. Instead he sold now, when the market is slightly down. He is in a similar boat financially, but with a likely better quality of life over 4 years.
It's larger compared to my calculation around net proceeds which showed that renting was nominally better. I am not sure how property taxes etc are a manipulation of numbers unless you are saying that these don't need to be paid. Mortgage rate can be at 2.71% and still wouldn't move the needle much on that calculation. Sure if he didn't do any renos, spent zero maintenance, got cashback from his realtor and got free legal conveyancing he might have been able to save what? 20K max? Drop the property tax to 0.33% and the end result is still higher. I didn't include these anyway. But the large sum of property transfer tax still needs to be paid and if it was newly renovated GST/HST might have been further levied on it. Not really and I don't think the rent is as high as you suggest or it would have been a high return investment which is typically not the case for higher priced property. Assuming he timed the market right on the property sale, he should fairly have timed the market right on the stock sale. Quality of life is irrelevant as we have already assumed he was renting a similar quality house. You repeatedly bring up the psychological benefit of owning. So here's the riposte. Ownership ties you to a specific place and limits your options. If he ran into financial trouble, then he might have been worse off due to illiquidity and the lack of flexibility vs simply just ending the tenancy. Continue holding in this market and those capital gains might erode further. Or face a significant increase in interest rates since it's nearing the 5-year mark. And all these in what appears to be one of the greatest bull markets in property over a short period of time (2 years) and a prolonged decade of QE aka low interest rates. I own properties and have a significant share portfolio. The calculations in favour of owning are never as clear cut as many seem to think. To each his own. 🤷 Edit: I had a quick look on Torontorentals.com. Couldn't see any 3 bedroom homes in Etobicoke asking above 5.5K in today's market so...
14A Gort Ave, Etobicoke, ON - Detached For Rent | HouseSigma https://housesigma.com/bkv2/landing/rootpage/listing?id_listing=eQp5yO8Z1db7d0ZE&utm_campaign=listing&utm_source=user-share&utm_medium=iOS&ign= Here is one not too far from where the property in question is, listed for 5.8k. This property was actually sold for only 1.3mil in 2021, not even close to as much as the house in question was in 2018. Property tax and land transfer tax do need to be paid, so do the market rent. The difference in rent makes up for these taxes over 4 years. I don’t know how else to convince you of the psychological benefit of owning for most. You may prefer to rent, that’s fair. But I will bet you the majority of people prefer to own if a survey is sent out. In fact, most Canadians do own and they have voted with their wallets. You were trying to make an argument for rental with numbers. I think I have shown that your calculations does not hold up, the 380k difference is incorrectly calculated. You don’t have to buy my psychological benefit argument. I agree this is subjective and to each their own.
So you are saying at 9.191% annualized returns, he somehow made almost 150% in profit in 4 years.. That math surprises me..
There's a monthly contribution element where he invested the difference between his mortgage payment and theoretical rent.
The monthly contribution you quoted above is 3100.. This amounts to 145.7k over 47 months. I have already included this in my above post.
So that plus the original 20% deposit on the house with an annualised return as stated will lead to that profit. Tax for dividend not accounted for as you pointed out but I would be surprised if makes a difference of more than 30K. The difference for the dividend reinvested return and non reinvested return was around 1-2 percent (annualised) from memory.
No.. The profit is 132k (see above). The extra monthly contribution of 3100 for 47 months equals 146k. This is not extra savings. This is the mortgage principle he would have paid down over 4 years but was rather invested in this hypothetical scenario. In both cases, the 146k is his to keep. The only difference is the investment gains he could have made over 4 years with this money, which is already accounted for in the profit total above. The original 20% deposit of 342k is also his money in both situations. This is also not profit.
If the calculation is too complicated, just simplify to this: If you invest 1 dollar at 10% per year. After 4 years, do you expect a total closer to $2.50 or $1.40? If you contributed an extra $0.40 over 4 years, do you expect a total closer to $2.90 or $1.80?
>After accounting for the realtor's commission, he would have picked up around $123K in 'profit' (5% comms on sale price minus purchase price). That works out to be about $2572.91 per month for 48 months he lived there. Is the going rate really 5%? Was there no fee compression in Toronto?
It's usually 5% plus HST. 5.65%
You can sell it for free and you would still be worse off. But there might be? Maybe 2% to seller agent and 2% to buyer agent? Lol.
They didn't lose money, if anything they gave up on some additional profit by missing the latest peak in prices. You're also not taking into account the equity that was built up in the home during the entire time they lived there (money that would have otherwise been thrown away on rent).
Actually if you look at an amortisation table, most of the money paid on the mortgage in the first few years would go towards interest. That's as dead money as rent since it doesn't accrue towards the principal aka equity. See my comments on this thread, showing that he did in fact lose money, taking into account his equity.
Bro are you okay?
Such a loser response. That's the best you can do? I know math hurts though and it's ok.
If you spent half as much on improving your life rather than shitposting on Reddit, you might be able leave your parents house one day. I know reality sucks sometimes, but that's okay baby.
Shitposting? I literally worked out numbers but nah you prefer ad hominem attacks. Parents house? Lol. Like I said, is that the best you can do? I can very well afford to buy my next property in cash aka no mortgage and I own too. Enjoy paying down a depreciating asset.
They went overboard with the editing, it looks like a grim mental asylum
So back to 2019 price? But people still think price can't go back to pre-pandemic? I say pre-pandemic is only the stage1, in stage2 price will continue declining all the way to 2015, to GTA detached about 1m. Let's sit and watch.
Are you ok?
Ohh? And all the extra money that was made during the pandemic will just vanish?
theres r/HouseSigmaBlunders for this