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Should you Rent or Buy in Airdrie?



There are pros and cons to buying, just like there are pros and cons to renting and the best options is dependant on your specific situation and goals. We're going to go over the month to month expenses, investment potential, as well as lifestyle differences of both scenarios.

 

As a baseline, we're going to assume that whoever is asking themselves this question has the ability to buy a home. Many first time home buyers choose a minimum 5% downpayment and for this example we're going to use a purchase price of $500,000. Right now in Airdrie, that will get you a smaller 3-4 bedroom detached home likely built from the late 90's to early 2000's or a newer freehold duplex or townhome.



MONTLY EXPENSES


Firstly for a similar rental property like we mentioned, the monthly expenses would be anywhere from $2,800-$3,000 for rent, let's say $3,000. The city utility bill (water and sewer) averages $100-$150 and your electricity would cost about $300. We'll also take into account contents insurance which is approximately an additional $50 per month. So, all in you'd be right around $3,500 a month to rent a property valued at $500,000.


Next, to buy and own a $500,000 home we'll say the interest rate is 5.25%. Some are going to lower and some higher, but this is a fairly realistic number to land at currently. This is also going to be based on a 25 year amortization, so that totals $2,950. Now adding gas and electrical ($300), city utilities ($150), home insurance ($150), property taxes ($280). We'll also budget in monthly maintenance , which is typically 1% of the home's value each year, so $400 a month. This doesn't necessarily mean you'll be spending that every month, but it's a good idea to put aside this amount and save it for when bigger maintenance items come up. So, all in on monthly expenses for owning that home is $4,230.



INVESTMENTS


Now for the investment financials of both scenarios, starting with renting. As mentioned before, we'll consider that you have that 5% or $25,000 in your bank ready to go towards stocks. The S&P over the last 30 years has seen on average a return of 7.5%, so for 25 years that equals $152,000 or a gain of $127,000 over that time.


For the buying side of things, the appreciation of the real estate market over the last 40 years has gone up 2% each year. Keep in mind that's on $500,000, meaning at the end of the 25 year term with the mortgage paid off, the home will be worth $825,000 or a gain of $320,000. We also need to factor in the mortgage pay down, which is $800 a month of the total expenses we talked about. That goes directly to your mortgage to owe less and therefore have more equity in your home. With every payment more and more goes to towards principal and less to interest. By the end of year one, $840 will go towards principal, by year 5 it will be $1,000, and year 10 looks like $1,300. So, you could end up with a $825,000 asset that you've paid for outright.


To keep it as fair as possible, since we know an owner is paying $700 out of pocket a month, let's say the renter puts $700 a month into the S&P. That renter after 25 years would have a portfolio of $583,000, which we can directly compare to that $825,000 for the same monthly output from both parties.



LIFESTYLE DIFFERENCES


Now for the lifestyle differences, with renting you have no long-term commitment to a place and if you want to move around a lot or aren't sure where you want to settle down, then renting could be the right choice for you in this stage of life. You also don't have to worry about ongoing upkeep of the home. There is however a lack of security with renting, as you never know when your landlord will want to sell the property or raise rent and if you have pets, finding a place can be extremely difficult.


The main pro for buying is the stability you have knowing you won't have to move if you don't want to and you can make any changes you want. The other is the equity you build, so when you want to upgrade you can do so with that forced savings account. A con would be that it is harder to just pick up and move, as you need to prepare the home and have extra costs associated with selling and a sale takes longer. Another con is the responsibility of maintaining that home in addition to regular bills.


 

Check out my YouTube video below where I go over everything in this blog post and subscribe to my channel if you want to see more Airdrie related content!


- Brad Walker




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