When Does Buying a House Make Sense?

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Buying vs renting seems to be an on-going debate.  Some people swear that buying is the only logical way to go as you aren’t “throwing away your money”.  Others argue that by renting, your costs are lower and more predictable.  While both have their pros and cons, the decision whether to buy or rent can depend on many factors.

Often, when they can financially, people prefer buying in order to have a place that belongs to them and that they can customize to their needs.  They see buying a condo or a house as an investment.  Although this can definitely be true, it is important to consider both options before purchasing.

Non-Financial Aspects

Putting money aside, renting has the advantage of not being responsible for any repairs.  If a pipe bursts or a toilet overflows, it is the landlord’s responsibility to fix the problem.  Should the same thing happen in a house or condo you own, you will need to fix it yourself or find a plumber or specialist.  Unfortunately, the fact that a landlord must fix the problem does not guarantee their responsiveness and it may take a while to fix things. Overall renting is much more worry-free and you have less responsibilities.

Another main difference between buying and renting is that rentals are often less renovated and modern, as tenants often don’t treat apartments with as much care as they would their own house.  If you are looking for a nice renovated kitchen and bathroom, un-scratched floors and walls that aren’t banged up, you may have more luck looking into buying.  While it is definitely possible to rent “nicer” apartments, they will come with a premium price-tag.

Since renting is usually advantageous if you only stay for a short amount of time, renting allows you to explore different cities or neighborhoods to find an area you would like to live in for longer.

Cost of Buying vs Renting

The main deciding factor for whether it makes more financial sense to buy or to rent is the amount of time you will stay in your home.  As a rule of thumb, if you stay somewhere more than 5 years, you are better off buying if you can afford it.  Of course, this will vary a lot from one situation to the next.

Being curious whether our decision to buy our condo 6 years ago was a good one, we decided to make a spreadsheet to compare our actual costs vs the cost had we rented.  Of course, we would need to estimate what our rent would have been for a similar place.  Here is a summary of our exercise so you can go through the numbers for your own situation.  Download & fill out the Spirit of Saving – Buying vs Renting excel spreadsheet to see how your situation compares!

1)      Calculate all the one-time fees & expenses

When buying a new property, there are a lot of one-time fees and expenses.  For example, the following were most of our one-time expenses:

  • Welcome tax $ 2850
  • Notary Fee $ 900
  • Home inspection $ 250
  • Movers $ 250
  • Electrician $ 840
  • Dishwasher $ 581
  • Plumber $ 345
  • Paint & supplies $ 500
  • Extra rent (left before end of lease) $ 1470

If you did any renovations or had any big expenses on your house, this would be where you should add them in.

2)      Calculate the yearly expenses

The next thing you will need to determine is your yearly home-owning expenses.  The main expense is the mortgage interest (as you should get the principal back when selling). If you are calculating for your current situation, you can look at your mortgage statement to get your yearly interest fees.  If you are projecting for a future purchase, you can use one of the many mortgage payment calculators to determine how much you would pay each year on interest.  A quick estimation would be your mortgage amount multiplied by the interest rate (e.g. 300 000$ * 3% = 9000$/year).  Of course, the mortgage interest decreases as the years go on and you pay off your principal, so the most accurate tool would be a mortgage payment calculator such as this one from Tangerine.

The other expenses in this category are our condo fees and taxes (school & municipal taxes).  I did not include heating or electricity as we would have to pay these even if we were renting.

Since the mortgage interest changes from year to year, I created a column in my spreadsheet for each year up to 10 years.

3)      Determine the cost of renting

You now have to consider what the cost would be to rent instead of buying.  You can research rental properties in your city online on sites like Kijiji or Craigslist to get an idea of prices in the size & style apartment that would be most representative.

We know that one of our neighbors rents out their condo which is nearly identical to ours for about 1600$/month.  If we were to rent however, I don’t think we’d be willing to pay as much and would likely be looking for something closer to 1200$/month.

4)      Selling your house

When considering buying a property, you also need to consider selling it.  Of course you hope to sell at a profit, but in some cases, even selling at the purchase price or at a loss may still end up being profitable.  You also need to consider agent fees as this is calculated on the selling price of the property.  The agent fees are typically around 5-6% of the selling price and can be negotiated.  Of course, if you decide not to use a real estate agent, this cost can be eliminated, but should only be considered if you feel comfortable with all the legal paperwork that is required to sell a house.

5)      Summary

I have created a spreadsheet you can download here that will walk you through the various elements of the calculation mentioned above.  Once all the information is entered, you will be able to see if it is beneficial to buy or rent depending on how long you plan to stay at the property.  You will also be able to see at what point it becomes beneficial to purchase a property rather than renting.


In our situation, buying became beneficial at the 6-year mark, which we just passed a few months ago!  Of course the more we sell if for the better it will have been!  In most situations, buying becomes beneficial around 5-6 years, but as mentioned above it varies greatly depending on the alternate rent, the increase in value of the property and any high fees involved when owning a property (new roof, major renovations, large condo fees, etc.).

Calculation spreadsheet: Spirit of Saving – Buying vs Renting

What do you think?  Do you find it better to buy or rent? Was the spreadsheet helpful to determine your next move?

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One thought

  1. These are all great points. Although I really want to buy a house and start gaining equity, the fact that I move every several years has always tilted me towards renting. With the housing markets increasing in value I always wonder why I’m renting, but as your post points out, there are also certain expenses that would have been incurred had I owned vs. rented and who knows how it would have ended up. As your post mentions, until I know where I’ll be for several years I’ll probably continue to rent. And hopefully not wonder too much 🙂

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