Renting vs Buying in Downtown Toronto

By Wayne Chung

Written December 29 2015

I have crunched some numbers for you to see how much buying will cost, not all homes are created equal. The focus of this article is the purchase of a 1 million dollar 2 1/2 storey semi-detached brick home in downtown Toronto. This is for those who can qualify for a mortgage on a 1 million dollar home without relying on the rental income of the property to help qualify.

If you live in a 1 bedroom downtown condo and are paying $1700/month in rent you can do better with your money.

With a $136,000 downpayment (10%) you can own a 3 unit 1 million dollar home in the downtown core (south of bloor, west of yonge, and east of dufferin). This is typically a 2 1/2 storey brick semi-detached house.

Breaking down the financials:

$100,000 downpayment leaves you with $900,000 mortgage + $36,000 closing costs.

25 year mortgage at 2.5% is $4031/month mortgage payment.

Rent out the 1 bedroom 700 square feet unit in the basement which usually goes for $1000/month.

Rent out the 2nd and 3rd floors 3 bedroom, 1 kitchen, 1 living room, 1 bathroom unit for $2800/month.

This leaves you with $3800/month in rental income. You live in the 1 bedroom, 1 living room, 1 kitchen, 1 washroom unit on the first floor with backyard access.

Total expenses are roughly $1100/month for taxes, heat, insurance, hydro, garbage and water.

In this typical scenario you are paying $1331/month to live in prime downtown in a 1 bedroom unit with a backyard.

If you want to live in the 3 bedroom unit on the 2nd and 3rd floor and rent out the 1 bedroom on the first floor.

you get $1700/month rent for the first floor with the backyard. It will cost $2431 per month to occupy the 2nd and 3rd floor 3 bedroom unit instead.

In the meantime your tenants are paying most of your mortgage and in 25 years it will be yours free and clear.

Yes you will have to deal with tenants but I think it is totally worth it. Do your due diligence with checking tenant credit, referral and work history. This should minimize the number of bad tenants.

If the housing market goes down rents usually do not change much, rents trend up consistently. Below is what happened in the USA as i couldn’t find a good one for Canada but it is similar.