Downsizing from a house? Is it better to rent or to buy?
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Transcript of the Podcast
If you’re ready to sell your house and consider apartment style living, are you better off renting or buying a condo? That’s what we’ll examine on this episode of Winnipeg‘s Real Estate podcast.
You’re listening to the Bo Knows Real Estate podcast. Tips and advice for home buyers, sellers and owners with award winning Remax agent Bo Kauffmann.
I will work from time to time with elderly clients who, for a variety of reasons, have decided to sell their houses. Take a look at the option of living in a high rise, whether it’s an apartment or a condo. Some of those reasons might include that the houses have become too big. Too many stairs, too much upkeep, too much yard work, too much maintenance. Or perhaps a change in lifestyle where the people want to move to live in the states for three, four months, five months, a year. And then the house becomes kind of a liability because you have to come have to have somebody come into the house every couple of days to check the furnace and make sure that everything’s fine for your insurance. So the question comes up, what’s better? Should we rent an apartment and take the money we get from the house and invested or should be buy a condominium? So there are two facets to answer this question. One is purely financial, which is which is cheaper to do. And I will look at that. And the second one is what about quality of life, which will offer you better options and more happiness throughout the year that you are here living in either an apartment or a condo. So for our purposes today, I’m going to be looking at two similar style living quarters. One. One is a two bedroom, one bath apartment, about eight hundred square feet and a 40 year old building in a decent neighborhood. It does not have in laundry. It does, however, have underground parking. And of course, there are no upfront costs to this. Comparing that to a similar condo, same size, but a $200000 upfront cost that you have to buy, two bedrooms, one bath with ensuite laundry and a much newer building, about five years old. And again, with with an indoor parking spot. The numbers I’m going to use, the prices and fees are actual real life numbers in Winnipeg at this time.
I know that you can get cheaper apartments. You can get more expensive condos and the other way around. But this is just for illustration purposes. I’ve picked two buildings that are somewhat similar. So let’s start by looking at the apartment rent in this apartment is thirteen hundred and forty dollars a month, which adds to a shade over sixteen thousand dollars a year. Utilities are fully included in this. So heat, hydro and water. Of course, I’m not counting tel- television and cable vision because you have to buy that anywhere else. And it’s the same no matter where you are. So that’s not really become part of the equation. Insurance you’re going to want content insurance. In this case, it’s about $250 a year to insure your content. It’s a good idea in case something happens. Could be a break in. Could be a water damage from a neighboring suite. You want to make sure that your contents are insured. But now we have something to offset against this expense. Remember, with an apartment, you don’t have to take that two hundred thousand that you would spend on a condo. You can take that money and invest it. Now, if you are in your 60s, 70s, certainly in your 80s, I personally probably would not recommend anything high risk. Talk to your financial adviser about that. But let’s be on the conservative side. Let’s say you can get a GSE and currently you can get a GSE for three and a half percent. So $200000 GMAC, a three and a half percent per year will earn you $7000. Also, forget about for a minute that you may or may not have to pay income tax on that money. Let’s say you don’t. Let’s say that that’s seven thousand. You have enough write off enough deductions that it’s all your money. So that goes off against that offsets the $16000 plus rent, which means that at the end of the year your total cost of apartment living is nine thousand two hundred and fifty dollars. So let’s take a look at how that compares against buying a condo. So this particular corner that I have in mind, the property taxes are twenty four hundred a year. And the as the homeowner, you again get a seven hundred dollar discount just like you did with the house. So you’re net property taxes per year are seventeen hundred dollars while water is included, heat and hydro are not. So an estimated to heat hydro bill for a high rise, a newly constructed, fairly, fairly efficient high rise. I’m going to put on an eight hundred dollar. So what? Sixty five dollars a month for you? Heat and electricity. Your content insurance end up being roughly the same as an apartment because you’re not insuring the whole building. Building insurance is included in your condo fees. So let’s say another 250 for your content insurance. And then the big one, of course, is the condo fees. In this particular case, they are thirty four hundred dollars a year for for your condominium fees. So now you do not get the deduction that GHC income that you had with the apartment because remember, you had to take that $200000 and actually buy this condo. So what does all this add up to? The total expenses right now then are going to be 61 50. So that’s about $3000 less than the rental. So that’s the financial side of the equation. Buying and investing that two hundred thousand dollars into a condo will save you approximately $3000 a year. But there are other considerations. We’ll get to those who right after this.
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People find it to be very restrictive. The owners of the apartment could tell you what to do, what not to do.
You can’t do anything in the suite to change anything. Sometimes even you have to ask permission before you do any kind of like painting or anything like that. You are also subject to rent increases and those two tend to go up to 3 percent a year on average. My mother in law lives in the block in north north caldonia and she’s looking at about $30 a month every year and have no ownership benefits, which means you can’t borrow money against the apartment. You might even have trouble getting a roommate to move in or if he wanted to sublease it, you have to get permissions from the apartment building ownership. So there are those restrictions. And last, you can’t make any renovations. I’ve had several clients say that they are allergic to carpeting. And if the apartment comes with carpeting, you probably won’t be able to change that to hardwoods or laminate if you want to upgrade, if you don’t like the old kitchen that you’re that you that you’re looking at every day. You won’t be able to upgrade those kind of things unless they give you permission. And then it’s not yours. You don’t own it. So let’s take a look at a similar condo. Condo life is semi restrictive phenomena. They’re gonna they’re gonna prevent you from hanging your underwear off the balcony. Those kind of things. But for the most part, what you do inside your suite is entirely up to you. There are no rent increases. You bought it. You own it. Now you’re not subject to monthly or yearly increases. You can get condo fee increases. And that’s usually the case every every year, every couple of years. They also go up. But that’s only according to what? What the expenses are. So if your condo fee includes heating the hallways, if he goes up, you’re kind of he’s got to go up. You are also subject to market fluctuations. So if you’re in the condo for three years and it’s gone up, well, then you benefit. But if it’s gone down, you owe your estate will lose some of that money that you’ve invested. There are, however, ownership benefits. So if you own your condo, you can certainly borrow money against it. You can rent it out. There are lots of things that you can do with it that you could. Do with rented space. And of course, interior rentals are okay within reason. You will probably have to get permission. You may not be able to remove some walls because there might be structurally important to the building. However, if you want to change the paints, the flooring, if you want to put in a different tub, change the kitchen, whatever you want to do. Generally, you are allowed to make those changes on the inside of your unit. Now, I hope you found this helpful. Please keep in mind these are just some very general observations. And every family and every person, it’s a different situation. So if you’re in this position where you’re looking at selling your house and thinking of either renting or buying a condo, please call me anytime. I’d love to sit down for a consultation with you and and see what your best options are. What fits? One person doesn’t necessarily fit the next person in the same way. So please call me anytime. It’s Bo Kauffmann RE/MAX performance realty direct sellers 2 or 4 3 3 3 2 2 0 2 where you can e-mail me at Bonos Homes at G-mail dot com.
You’ve been listening to Bo Kauffmann of RE/MAX performance realty, are you thinking of buying or selling a house or a condo in Winnipeg called Bo at 2 0 4 3 3 3 2 2 0 2?
Remember, Bo knows real estate.