To Buy or Rent in Ottawa?
Here is a common question that people may think of when deciding on purchasing a condo/house in Ottawa, whether it would be better to rent or to purchase a place since it is a big financial decision in either case.
I will tell ahead that the winner is TO BUY rather than TO RENT in Ottawa, it strongly depends on number of years one would stay in either property. Below is an example of a condo property that one would live for 5 years.
I will use an example of a rental property/condo here in Ottawa, somewhere close to Carleton University.
The rent for the place is Canadian: $1800 dollars + utilities
The purchase price for the condo around that area would be around $300, 000 to $400, 000, so lets take the median and say its $350,000 for the purchase.
Costs after 5 years
|Initial costs||$20,518(5% down+CMHC+legal+inspection)||$3600 (1 month rent as deposit. Some places charge 2 months rent as deposit.)|
|Recurring costs||$136,680 (5 Year mortgage, tax and condo fees)||$114,000 (5 year estimate cost of rent, with yearly increase)|
|Total Profit Estimate||$100,000||$55,000|
Detail Purchase Price
|Monthly Condo Fee are around||$350|
|For down payment minimum 5%||$17500|
As of today a low rate for 5 years closed is 2.96% mortgage offered.
Inspection, CMHC PST
|Home Inspection with Tax||$339|
|PST on CMHC Insurance||$838|
|Legal Lawyer Fees||$1,225|
|Total Legal Fees||$1841|
Total Cash & Spending
Your total mortgage borrowed $342,974
|Total cash cost for purchase||$20518|
|Your monthly payment to mortgage is estimate around||$1618|
|Your estimated property tax per year||$3,725|
|Total condo fees and property tax per month||$2278|
|5 years, your mortgage amount left||$292,986|
The average increase of a property here in Ottawa can be around 4% per year over 5 years (depends on market value goes up and down but it averages out to be around 4%), thus over the 5 year period your property would have gained an estimated value of $70,000.
Assuming that you did not do any major renovations or maintenance, you lived at the place just like you were renting, and after 5 years you were selling, and just for simplicity you sold the condo for $420,000 at the 5 year mark.
|Your amount after mortgage payout ($420000 – $292986)||$127 014|
|Sum 5 Year mortgage, tax and condo fees||$136 680|
If you have rented for 5 years and with an increase of rent, the estimate cost is around $114, 000
|Difference between rent and owning the condo/house in Ottawa is||$22, 680|
|left over investment money for mutual funds at 6% per year||$4568|
Let’s say over 5 years you have around $25000 in investments, and adding your down payment that you did not have to pay since you were renting would have been estimated around $55,000.
As one can see the amount that you end up saving by investment isn’t as large as purchasing and selling of your place, where the payout is estimated close to $100,000.
Additional things to consider
There are certainly circumstances that one has to decide upon, like maintenance of the house, appliances if you own etc., market value going up and down. It is harder to predict the housing market, the amount of time you will be staying at one place also affects all the calculations. The taxes may increase over each year. Take those into consideration when you plan to rent or purchase, and if you get a roommate and rent out one of your rooms to a student while living in the property, then you would have more of a profit.
The New York Times has a great article on rent versus buy with a calculator to help you to find out which one suites better.
If you do plan to purchase, feel free to contact me and I will be able to find the right home and right price for you here in Ottawa.
Author: Nilay Ertemur