For many homebuyers, the first step on getting onto the property ladder is purchasing a condo apartment. While they aren’t as plentiful in smaller towns or cities, when they do exist they are almost always the cheapest option if you’re considering buying a home of your own.
For much of 2024, we’ve seen very elevated levels of condo apartments for sale. As of December 20, 2024, there are 9,671 condo units for sale within the Greater Toronto Area. If you’re wondering if that’s an unusually high level of options for condo buyers, the answer is a definitive yes. We’ve currently got almost twice as many condo apartments for sale now compared to a couple of years ago.
With such high levels of supply and relatively few buyers on the demand side of the equation, there are many opportunities for getting a great deal on a condo apartment these days. If you’re currently renting and are wondering if buying might make sense, then we’d say the answer is a definitive yes. Let’s go through the math and explain why we think now is the time to get on to the property ladder!
What’s it cost?
While your specific situation will be different than the average, we gathered a bunch of data in order to be able to analyze the differences between renting and buying on an overall level. We’ll make our assumptions clear as we go.
When we pull the data for the average cost to rent or buy a one-bedroom or two-bedroom condo unit in Toronto and beyond, here’s what we see.
The above chart uses data for the average rent and purchase price for Q3 (July to September) 2024. We had to exclude Dufferin from this analysis as there just isn’t enough data to be reliable.
With an average rent in the GTA of about $2,500 for a one bedroom unit, or just over $3,200 for a two bedroom unit, it isn’t cheap to rent a condo apartment these days. On the buy side, a one bedroom goes for about $578,000 in the GTA and a two bedroom costs about $200,000 more at around $782,000.
Durham is the cheapest place in the GTA to supersize your condo, as going from a one bedroom to a two bedroom condo adds just $77,000 on average. Compare that against Halton, where buying a place with a second bedroom adds a whopping $250,000 on average.
OK, but what is the cost to carry a condo if you buy at those prices?
In order to do an apples to apples comparison, we ran the numbers to see how much it cost in each area to own that one or two bedroom condo unit. Before we get to the results, let’s clearly state our assumptions:
- We assumed a 20% down payment, so there are no CMHC insurance costs, and we calculated the mortgage cost using a 4.99% interest rate with a 25 year amortization period.
- We put maintenance fees at $550 per month for the one bedroom units, based on the idea that such units are typically in the 500 to 600 sf range, and maintenance fees of close to $1 per sf are common these days. For the two bedroom unit, we upped that to $750 per month, based on the idea that they will be a couple of hundred square feet larger than the one bedroom units.
- We assumed a 0.07% mill rate for the property tax as that is a reasonable rate across the various municipalities in the GTA. We used the actual average price as the assessed value but given MPAC is always a bit behind (and currently very, very far behind), our estimates for property tax will be on the high end. Better to assume it will cost more than too little!
Obviously, any changes to the above assumptions will impact the end result, but we wanted to use some base calculations to be able to compare across the different areas and for the one and two bedroom condo options. Here are the results.
Let’s see how those monthly carrying costs compare against the different markets and for one and two bedroom condo units.
We can see that it costs between about $750 to $1,150 more per month to own a one bedroom condo compared to renting it. Peel has the lowest percentage difference at just 32% more per month and Toronto and York are tied at 45% more per month to own compared than renting.
For two bedroom condo units, the range goes from about $1,050 to over $2,000 per month. In percentage terms, Peel once again has the lowest difference, where it costs just 35% more to carry a two bedroom condo than it does to rent one, and Halton is the worst area, where it costs 68% more to own a two bed unit than it does to rent one.
While this tells us which markets get the best results if you buy versus rent, it also tells us that if you’re an investor, Peel is your best option. If the difference between what you can charge for rent and what you have to pay to own is the lowest, it means you don’t have too much of a spread to cover. An investor who put down more than 20% would quickly approach a cash flow neutral or positive property if they bought in Peel.
It still seems like renting is cheaper.
There is one part of the rent versus buy calculation that is often overlooked, namely the percentage of the mortgage payment that is principal repayment. This is important because while the monthly mortgage payment is money you as an owner need to have available, a portion of that payment is effectively a forced savings plan.
At the 4.99% mortgage rate and 25 year amortization we used for our mortgage payment calculation, the payment is about 28% principal repayment and about 72% interest payment. That’s from the first payment and the way mortgages work means that every subsequent payment is slightly higher principal repayment and slightly lower interest payment. For each of the markets we can calculate the effective monthly mortgage cost and get a revised effective monthly cost. This isn’t what you’d pay each month, but it is the number if you recognize that more than a quarter of your mortgage payment is building your equity in the unit.
Here’s how that math works out, when we calculate the principal repayment and what the effective mortgage payment is once you remove that forced savings aspect.
If we take that effective monthly mortgage payment and add in our other costs, we get an effective monthly cost to own, which we can compare against the actual rent. Doing so means that we see the difference between what it costs to rent versus own shrink tremendously.
For one bedroom condo units, the effective difference between renting and owning is as little as $97 a month in Peel, up to $345 per month in York.
With two bedroom units, Peel is just $222 more per month (effectively) to own a unit and Halton is the worst option, at $944 more per month.
Anything else to consider?
The final part of the buy versus rent calculation is appreciation. While the condo market has been very tumultuous over the last couple of years, the historic average for condo units appreciation has been about 6.29% per year. That’s a significant equity gain that you don’t receive if you are renting, but at the same time, you haven’t invested the 20% down that we used in our calculations, and that money could be appreciating if you invested it.
We consider this part of the conversation to be out of wheelhouse, as forecasting appreciation in a given market is very challenging, and we can’t speak to likely returns on invested funds in the stock market at all! In a very general sense, we’ll just say that if you own a condo unit, when you eventually sell it, you will either benefit from market appreciation, or lose out on market depreciation. Historically, we’ve seen real estate appreciate and we believe that will continue, but we’ll let you decide on what you think will happen with this aspect.
Put it all together and we see the buy versus rent question as having a clear answer.
The high rent being charged in the GTA, when contrasted against relatively low sale prices for one and two bedroom condo units, means that the difference between the costs for owning and renting have narrowed considerably. When you take into account the principal repayment portion of your mortgage payment, the difference can be as little as about $100 per month in certain markets. Even at higher differences between the effective carrying costs when you own versus renting, the gap is nowhere near as extreme as many people think.
If you have a significant down payment available, you like the idea of building equity in your own home versus your landlord’s income property and you think real estate will appreciate over time, then now is a great time to buy a condo. If that sounds like you, then get in touch with us so we can run the numbers for your specific situation!
