[Bahhbeehhaaaa]

Khan Academy (http://www.khanacademy.org/#browse) from Finance to Science to Banking etc.. all written by the same person!


Rent or Buy.?
Renting vs. Buying a home - YouTube

http://www.youtube.com/watch?feature=player_detailpage&v=8IR5LefXVPY

[ImportPsycho]

is mortgage tax deductable in canada too?

[dim_sum]

is mortgage tax deductable in canada too?

not for most people. if you run a business from home, then you can deduct the portion you use for business and pro rate it, but there are consequences when you sell the home. you got to pay cap gains on it i beleive

[Nightwalker]

I'm already in the trap. :heckno:

[GabAlmighty]

Lol i'm still gonna buy a house.

[Psykopathik]

http://www.apoliticus.com/wp-content/uploads/2008/12/khan.jpg

[z3german]

Thanks so much Bahhbeehhaaaa, past few days with my family has been hectic on whether we should continue to rent or buy. Doing the math now and this will help greatly in our decision!

[Psykopathik]

Rent is never a good idea.

[7seven]

Vancouver now has become a lot like other major world cities like New York, where it makes more financial sense to rent than own. If you can get past the old mindset of you must own, which a lot of our parents have ingrained in our minds, you will be better off financially.

IMO there is still room for some rise in detached home values but I think the condo market is pretty much at its peak now, inventory figures have been getting uglier, especially if you're looking at owning or renting condos in the $500-600k+ range, personally I would rent.

[Glove]

he's also asuming a million dollar house with a 6% interest rate,

whereas our houses in the suburbs are around the 600k area with 3% interest,

but yet renters are still charged 3k a month.

I could rent out my spare room to anyone if they want, for 1000 a month, Itd be nice if someone payed my mortage for me, then one day when im mortage free, my entire paycheck goes into my pocket.

[Hehe]

It's amazing how many different fields this guy actually have decent knowledge on. Even more amazing that he can explain it to people in a relatively understandable way.

As for the rent vs. buy, his calculation is what everyone should do. As for deeper calculation, it would be the appreciation of the property. Those who are trying to buy their own place now should take note... do your homework. Vancouver RE has appreciated for the last decade, but it's estimated by most sources (banks, RE boards.. etc) to lose its steam or at least stay relatively flat for the coming years.

So, factor that accordingly into your estimate.

[Hehe]

he's also asuming a million dollar house with a 6% interest rate,

whereas our houses in the suburbs are around the 600k area with 3% interest,

but yet renters are still charged 3k a month.

I could rent out my spare room to anyone if they want, for 1000 a month, Itd be nice if someone payed my mortage for me, then one day when im mortage free, my entire paycheck goes into my pocket.

6% is the going rate in US. And in SF, a million dollar home is everywhere.

Back to lower mainland, a quick look on CL, for 3K a month, you can rent some properties well over a million dollar. One won't get anywhere near 3k of rent on a 600k house in GVR or suburbs.

Also, we have record low rates for mortgage, at a $500k mortgage, for every 1% increase on mortgage, monthly payment is increased by about $300. (25yr) So, at 6% (3% more than current), the 1k you get from rent is gone. And for the course of next 5yrs, the interest rate has nowhere to go but up.

[AWDTurboLuvr]

Vancouver now has become a lot like other major world cities like New York, where it makes more financial sense to rent than own. If you can get past the old mindset of you must own, which a lot of our parents have ingrained in our minds, you will be better off financially.

IMO there is still room for some rise in detached home values but I think the condo market is pretty much at its peak now, inventory figures have been getting uglier, especially if you're looking at owning or renting condos in the $500-600k+ range, personally I would rent.

I agree with this statement, although in probably the outer suburbs of the Lower Mainland, I would say detached homes will come down 5-10%. However, your view on the condo market is spot on. The inventory level is disgusting right now and I got lucky when I sold my rental property in Richmond last week.

It would be cheaper for me right now to rent the 3BD condo I live in....which is something I plan to do.

[Glove]

6% is the going rate in US. And in SF, a million dollar home is everywhere.

Back to lower mainland, a quick look on CL, for 3K a month, you can rent some properties well over a million dollar. One won't get anywhere near 3k of rent on a 600k house in GVR or suburbs.

Also, we have record low rates for mortgage, at a $500k mortgage, for every 1% increase on mortgage, monthly payment is increased by about $300. (25yr) So, at 6% (3% more than current), the 1k you get from rent is gone. And for the course of next 5yrs, the interest rate has nowhere to go but up.

Valid point, but everyone who says renting is cheaper, always fail to look in the future when your property is actually paid off, even the guy in the video. The way he explains it is you will be paying said monthly costs for the rest of your life, if you renting, you will be, if your buying, you will be finished by 40 ect.. then your entire income is your own, and you have 600k+ in equity.

I hope to have my mortage payed off by the time im 35, if I succeed, il be laughing, while people will still be paying 2k+ a month until the day they die

[dinosaur]

When I bought my townhouse in 2008 (completion date was summer 2009), my initial interest rate was 6.3% from the bank. The broker told me that that was the initial rate, but that I would be a able to get the lowest rate within the 90 days before closing (completion). At first I was hoping just for a 1% drop, but ended up with an interest rate of 3.5% at the time everything was said and done.

That dropped my mortgage payments from $1800-ish to about $1250. Crazy drop. Right now I have it rented for $1550. I am glad the interest rates dropping as I would have been fucked if I needed to rent it at over $1800.

The down side to this, is that my property has barely appreciated in the 3 years of owning. My fear is now, when I go to renew in 2 years, the rates will be back up again and I'll be fucked.

On a side, I am not sure I would buy again. I, like many others, fell victim to the pressure to buy and did it...even thought I was mortgaged approved by myself, I was not prepared in any way to actually buy. I knew every little about the process and still don't to this day. Renting seems to carry this stigma of not being responsible, or not have enough money to buy. It really isn't true. I feel very tied-down owning a house here...as soon as the seller market picks up (if it ever does), I'll probably jump ship as soon as possible.

[AWDTurboLuvr]

Valid point, but everyone who says renting is cheaper, always fail to look in the future when your property is actually paid off, even the guy in the video. The way he explains it is you will be paying said monthly costs for the rest of your life, if you renting, you will be, if your buying, you will be finished by 40 ect.. then your entire income is your own, and you have 600k+ in equity.

I hope to have my mortage payed off by the time im 35, if I succeed, il be laughing, while people will still be paying 2k+ a month until the day they die

I would rather have $600K in cash than $600K in equity.

This scenario depends on how much of your total wealth went into your down payment into a mortgage and into your monthly payments. If the majority of your wealth is in other investment vehicles, then having a mortgage isn't affecting your financial picture as much as someone that has 75% of their cash stuck in their home.

[Bahhbeehhaaaa]

No problem! glad to help :thumbs:

Thanks so much Bahhbeehhaaaa, past few days with my family has been hectic on whether we should continue to rent or buy. Doing the math now and this will help greatly in our decision!

[GabAlmighty]

I guess I should've said, I'm still gonna own a house but it's gonna be out in the valley, Mission more specifically probably.

His 6% is pretty crazy and he's making a long term assumption that houses won't appreciate, which he has every right to do but personally I don't agree with it, just my opinion. Those two things drastically change things.

[Hehe]

Valid point, but everyone who says renting is cheaper, always fail to look in the future when your property is actually paid off, even the guy in the video. The way he explains it is you will be paying said monthly costs for the rest of your life, if you renting, you will be, if your buying, you will be finished by 40 ect.. then your entire income is your own, and you have 600k+ in equity.

I hope to have my mortage payed off by the time im 35, if I succeed, il be laughing, while people will still be paying 2k+ a month until the day they die

This is assuming they never buy. But if they do and they ended up buying the same thing cheaper or better house for the same money, you might be crying.

I have a JP friend who bought an apartment after a few years of consideration. The price he paid was roughly 60% of what his neighbor paid. And my friend has yet to seem them smiled once since he moved there.

Imagine if a renter friend of yours buy an identical unit next door for 30% less in 5 years. I am not sure I would be laughing if I were you.

[Hehe]

His 6% is pretty crazy and he's making a long term assumption that houses won't appreciate.

Canadian mortgage rate have averaged around 8% for the last 25yrs. If you think 6% is crazy... hold on tight.

And the thing about "appreciate" is the very thing that still make any sense to buy in GVR.

But the question is, how much more can it go? We have record low mortgage rate. No stable creation of jobs (FT at least) and negative immigration to BC and many ppl in lower mainland stretching to their limit on mortgages. If we were to increase the price further, who would buy?

[Mining]

What he's saying is not true for all cases. His assumptions being 3k/month on a million dollar house. Along with all the other assumptions he made. Although you can use his math to help you in your future decisions.

He forgot that you can make money renting out your house as well.

edit: I like khans videos too btw, I watched them during my first year in engineering for help. just not this one.

[rsx]

His example is for one very specific scenario ONLY.

[no_clue]

Valid point, but everyone who says renting is cheaper, always fail to look in the future when your property is actually paid off, even the guy in the video. The way he explains it is you will be paying said monthly costs for the rest of your life, if you renting, you will be, if your buying, you will be finished by 40 ect.. then your entire income is your own, and you have 600k+ in equity.

I hope to have my mortage payed off by the time im 35, if I succeed, il be laughing, while people will still be paying 2k+ a month until the day they die

Yes your mortgage payment will be gone, but other expenses remain such as property tax/maintenance, possible roof leak,plumbing problem as the house ages. However my opinion is that owning is better... provided that you bought at the right price.

Condos are terrible in Vancouver at the moment. $500-600K for a 1bed, plus $350-600 monthly HOA fees, and property tax....

[Meowjin]

buying is not for me, especially since im a person that likes being very mobile, hence why I chose the career path that will get me a job in any major city. Eventually I do want to own when if I choose to have a family, but if I don't. Why own?

Even though it's a selfish mentality, my father spent the last 15 years saving for his retirement and is now off to australia next year to retire.

[Glove]

I would rather have $600K in cash than $600K in equity.

This scenario depends on how much of your total wealth went into your down payment into a mortgage and into your monthly payments. If the majority of your wealth is in other investment vehicles, then having a mortgage isn't affecting your financial picture as much as someone that has 75% of their cash stuck in their home.

you would not have 600k in liquid cash vs equity because you would still be paying 3k a month rent, unless your living at home rent free or something, thats obviously the best option.

This is assuming they never buy. But if they do and they ended up buying the same thing cheaper or better house for the same money, you might be crying.

I have a JP friend who bought an apartment after a few years of consideration. The price he paid was roughly 60% of what his neighbor paid. And my friend has yet to seem them smiled once since he moved there.

Imagine if a renter friend of yours buy an identical unit next door for 30% less in 5 years. I am not sure I would be laughing if I were you.


But now you are gambling on the waiting game, the sole purpose of the discussion was renting vs owning and the guy in the video measures it over a lifetime.

while its true that if a person waits it out and buys for 60% of the cost, he is laughing,

what if the reverse happens? and prices go up 40%? he would never be able to own anything, and thus will be paying rent for the rest of his life.

pick your poison, pay a high price now, or wait it out and possibly an even higher price later, or possibly a lower one, its like gambling on stocks.

Everyone keeps saying its going to crash eventually, still waiting... its not going to crash, not in the near nor distant future, not while they are allowing foreign purchases and sales, our housing market has become more about money making and investing, than it has about living.

It will only crash when there physically arent enough workers that can afford to live in the lower mainland anymore, and are all forced to move out east, then the economy wont be self sustainable like it is now.

Im gambling on my belief that the crash will happen in probably 10/15 years or so, when fuel prices are too high, all our highways will be tolled, all bridges tolled, and transit will be 20 dollars per ride, and the entire middle class leaves vancouver because its not affordable.

I agree that buying a house now, or in the next couple years, will be a huge mistake, but for those of us who bought 5-10 years ago at normal prices, hopefully the prices only crash back down to average pricing, so we dont all get screwed.

[Hehe]

what if the reverse happens? and prices go up 40%? he would never be able to own anything, and thus will be paying rent for the rest of his life.


I think it's better to discuss how much more can it increase?

In historic norm, houses have been around 3x the average yearly income. Let's say that Vancouver carries a premium of being the *best place on earth* of 5x the yearly income. Where is Vancouver now? about 11x.

So, at 11x the yearly income, where and how do we get people to buy at even higher price?

Lower interest on mortgage - BoC is already at the absolute bottom

Higher income - With the job market being tight and unemployment being high, wages have no pressure to go up. Not to mention our real wage have been in steady decline over the past decades.

Foreign investors - these investors would ultimately want to unload their holdings onto locals, but if the price plus the premium that they want to charge is at a price local can't pay, investors would stop buying.

[z3german]

I did the math and i talked to the bank about mortgages and stuff, learned a lot! Really eye opening! The video helped me ask the right questions and took a huge rock off my shoulders.

Now the argument of renting vs buying. I understand what the video says about it and reading the other posts i see what the people agreeing with Khan are saying. But i also see what the other side is saying and its completely logical and understandable too. Is there no definitive science behind it? For my situation renting vs buying my monthly payments are approx the same, i would just be losing out on the initial lawyer notary stuff, house inspector, property tax which might be about 3k? I mean if my monthly payments are similar is it still foolish to buy? (btw looking for housing 200-250k range if that makes any difference.) Thanks for the light shed!

[Ferra]

while its true that if a person waits it out and buys for 60% of the cost, he is laughing,

what if the reverse happens? and prices go up 40%? he would never be able to own anything, and thus will be paying rent for the rest of his life.

pick your poison, pay a high price now, or wait it out and possibly an even higher price later, or possibly a lower one, its like gambling on stocks.

:werd:
Most of the people I know who kept saying vancouver housing price is gonna crash (for whatever reasons), are the same people who have been saying the EXACT same thing since 2005/2006...
Truth is, no one knows the answer. Like gambling, it could go down 30% in the next few years or it could go up another 30%

Financially, renting vs buying always come down to the return you made on your money/investment (when you are renting) VS the rise/fall of your house value (when you are buying).
either way, no one knows what's the future return will be like for certain. They are all guesses
Anyone can make up some numbers and examples to support one choice vs the other.

Personally, i think it should come down to whether you take enjoyment out of owning your very own place, or whether you prefer the flexibility and hassle-free of renting.

Buying vs Renting is more of a lifestyle choice than a financial one.

[Ferra]

I think it's better to discuss how much more can it increase?

In historic norm, houses have been around 3x the average yearly income. Let's say that Vancouver carries a premium of being the *best place on earth* of 5x the yearly income. Where is Vancouver now? about 11x.

So, at 11x the yearly income, where and how do we get people to buy at even higher price?

Lower interest on mortgage - BoC is already at the absolute bottom

Higher income - With the job market being tight and unemployment being high, wages have no pressure to go up. Not to mention our real wage have been in steady decline over the past decades.

Foreign investors - these investors would ultimately want to unload their holdings onto locals, but if the price plus the premium that they want to charge is at a price local can't pay, investors would stop buying.
Property Prices Index (http://www.numbeo.com/property-investment/rankings.jsp)
Compared to other cities from around the of the world, vancouver housing price to income ratio is not too bad...but then again the culture and income equalities here is very different from Asia and other European cities, so it is not a fair comparison

Maybe vancouver will turn into the Aspen of US? :fuckthatshit:


Also, what I found is a lot of my friends in vancouver (late-twenties) are all wanting and waiting for a chance to buy their own place. (i.e. waiting for price to fall a bit) It seems like there are so many young first-time buyer on the line I doubt those condos in the 300-500k range will ever fall much in prices.

edit*btw...i dont' own any property in vancouver... I don't even live in vancouver now, so I don't think I biased toward a particular trend or choice. Just telling what I see as an outsider...

[AWDTurboLuvr]

I did the math and i talked to the bank about mortgages and stuff, learned a lot! Really eye opening! The video helped me ask the right questions and took a huge rock off my shoulders.

Now the argument of renting vs buying. I understand what the video says about it and reading the other posts i see what the people agreeing with Khan are saying. But i also see what the other side is saying and its completely logical and understandable too. Is there no definitive science behind it? For my situation renting vs buying my monthly payments are approx the same, i would just be losing out on the initial lawyer notary stuff, house inspector, property tax which might be about 3k? I mean if my monthly payments are similar is it still foolish to buy? (btw looking for housing 200-250k range if that makes any difference.) Thanks for the light shed!

Budget about 1% of the value of the home a year for maintenance and don't forget mortgage interest over the length of your term.

[Gridlock]

I watched the video, and appreciate it, BUT..as was said, its a very specific scenario.

Run that math out 10 years. As soon as you hit the stride in mortgage repayment where you are now making a dent in principle, and it gets a little different.

We have a woman in one of our buildings that lived in that apartment since 1988. I ran some rough math. She should own it outright. But she doesn't. Plus, although maintained impeccably for her duration(it really is a beautiful apartment), it looks the exact same as it did in 1988.

Now, you get to the point where you want to retire, and you are stuck paying out rent until the end of time. Whereas, she should be able to say, I own my place, I pay a $200-$300 strata fee and a power bill and I'm done. Whatever she makes from CPP and RRSP should be more than enough to live on comfortably.

There are a lot of scenarios to look at. Here's the deal on owning a house. You shouldn't be moving every 5 years. I look at it like owning or leasing a car. If you want to be in a new car every 3 years-don't buy it! If you want to have it for 10 years-then buy the thing.

[Gridlock]

OK...so this has bugged me a bit, because I don't think the scenario rang true.

So I decided to play with something a bit closer to home. I'm not a mortgage broker, so take this as a what if, and don't slam it in people's faces, because they may just poke some holes in it.

Oh, and I didn't make a fancy video with my soothing voice walking you through it.

My scenario. I found a building, here in New West that has a unit for sale, and a similar unit for rent. Apples and kind of apples. In question, we have a 2 bed, 2 bath unit in a newer building. The ad for the purchase unit says that it needs some work...carpets and a couple of doors and some paint. Perfect...That's a part of home ownership right.

Purchase price: $300,000(rounded up)
Strata: $279
Rent: $1600
Strata: Included
Interest: 4% both for investment and mortgage.

A few notes...didn't include anything like mortgage insurance for the less than optimal down payment and I guessed prop tax. It's just a straight up excel amort schedule.

Here's a more likely deal. You have $10,000 and your parents are willing to loan you $20,000. If you rent, you invest 10k, if you buy it goes to closing and whatever is left buys you some new doors.

The rest of the assumptions are listed on the spreadsheet. Sorry, its kind of ugly.

http://i.imgur.com/MoEog.jpg

There are only a couple of numbers I'm interested in.

1. I wasted $17000 more on renting vs. the money "wasted" on owning(strata, prop.tax and interest)
2. Even after "wasting" less on owning, you also "earn" either 36,000 or 16,000 depending if your parents want their money back or not.

Keep in mind, this has NOTHING to do with the value of the apartment going up or down over the first 5 years of ownership. AND...those numbers get worse if the landlord increases the rent. It's highly unlikely that the rent would stay the same over 5 years.

[Gridlock]

I'm going to add..here's the responsible decision. Rent less. If you drop your rental budget by $300 but still pay that $300 into an investment...you are laughing.

In my realistic New West scenario, $1300 gets you a very decent apartment. You may not be in a new condo, or a condo at all, you may be in an older, but renovated apartment but very decent place.

So that's where the argument comes in on forced saving, because for most people that "extra" $300 will be burned anyway.

[vl_86]

Hey Gridlock,

Your assuming that if you buy, your initial balance will be 280k with the parents helping out, if you wanted to compare apples to apples you should have done the same thing for the investment side for renting, or not done the helping out at all


Also it seems like your interest rate is being calculated at around 4%, which is historically very low, you might be able to get away with that within the first 5 years or so but i do not think that is very sustainable. With that in mind a 1% increase could increase your payments by $250

So all in all you might be saving within the first 5 years, but what about the follow up mortgage renewals? with a 2% prime rate swing it could change the outcome drastically. In my opinion, whether you gain or lose out is too closely linked to the prime rate, which is just a educated guessing game, very similar to investing in the stock market

[Liquid_o2]

In an MBA class I just finished taking, our final project was; what is the better investment, purchasing condos or investing in a REIT. Even though we were looking at the Toronto market, Vancouver would be very similar. After running all the models, the REIT came out on top for every scenario, owning a condo as an investment gave very little yield no matter how we played with the numbers over a long term period. And this is with using very low interest rates. The only reason to invest in a condo right now would be for a certain type of lifestyle that you are looking for.

[d1]

Lets say at this point you already own the $1M property - would it better to sell it and rent or to keep it?

[Bahhbeehhaaaa]

His example is for one very specific scenario ONLY.

+1, still need to include appreciation.

Anyone know what's the property transfer rate?

[Hehe]

IMHO, buying a condo unit is never a good investment no matter how you want to put it. Because your long term cost is increasing (maintenance+strata) while the value goes down (two condos building in the same location, the new one is almost always more valuable than old one)

The only exception is when RE market is going nuts and you can sell and gain big bucks in very short time.

In the long run, RE investment only makes sense if you own the land. As my parents would say, there can be old houses, but never old land.

Buying a condo essentially gives you a license to live somewhere on a perpetual basis. (assuming you pay your fees+maintenance+being freehold)

[Gridlock]

Hey Gridlock,

Your assuming that if you buy, your initial balance will be 280k with the parents helping out, if you wanted to compare apples to apples you should have done the same thing for the investment side for renting, or not done the helping out at all


Also it seems like your interest rate is being calculated at around 4%, which is historically very low, you might be able to get away with that within the first 5 years or so but i do not think that is very sustainable. With that in mind a 1% increase could increase your payments by $250

So all in all you might be saving within the first 5 years, but what about the follow up mortgage renewals? with a 2% prime rate swing it could change the outcome drastically. In my opinion, whether you gain or lose out is too closely linked to the prime rate, which is just a educated guessing game, very similar to investing in the stock market

Yes, we can all sit here and shoot holes in scenarios. For me, the one illustrated in the video didn't ring true, so I changed it to something that seemed more likely to me.

In my scenario, the parents help is for buying only, which I think is very likely. Most parents aren't going to just hand you over money to invest for yourself.

I decided to end it after 5 years, the period for a standard first mortgage. YOu can sit there and either say" its going to be fine, or its going to be doom and gloom". That's really your call to make, and decide right from the start if you want to run that risk.

Also after 5 years, you will be making more(hopefully) more established in a career and blah blah blah.

I guess my end point here is this: I can easily change that scenario to make it that renting comes out ahead. Drop the downpayment to the absolute minimum and increase the interest rate a bit and you are dead even.

The main lesson is on renting. If you are making the decision to rent instead of buy, do it smartly. Don't spend a mortgage payment in rent. Drop it down and invest the difference.