After kids have moved out, some home sellers will want to sell and move into either an apartment (renting) or a similar style condo (owning). The high-rise lifestyle can be attractive for a variety of reasons: perhaps the house is now too big, too much upkeep, too much yard-work etc. Or the new empty-nesters want to spend more time travelling, and an empty house has become an insurance liability. For whatever reason, the big question now is: Renting an Apartment or Buying a Condo? Which is better, renting or buying?
To answer this, I believe there are two factors to examine: one is the purely financial aspect ie: which is cheaper in the long run? The second factor is the ‘quality of life' aspect. Which will make you happier, renting or buying?
Renting or Buying: The Financial Picture
Let's take a look at this first aspect. In order to compare apples to apples, I've selected two actual buildings in our city with the following features.
Both are similar size, with 2 BR, 1 bath in decent neighbourhoods. The condo is newer, and includes in-suite laundry, and both options come with indoor parking. The condo requires an upfront cost of $200,000, and for our purposes here, we are assuming that the buyer (who has recently sold their home) has this money and does not require a mortgage.
So lets take a look at the costs involved in renting an apartment:
As we can see, the rent adds up to $16,000 per year. Utilities such as heat, electricity and water are included, but content insurance is recommended.
Since the renter does not have to purchase anything upfront, they could invest that $200,000 (which would be required if purchasing the similar condominium) into a GIC or other ‘safe' investment. Currently these are available at 3.5% per year, which means a return of $7,000 per year. You can use that to offset the rental costs.
So at the end of the calculations, the apartment will cost about $9,250 per year.
Let’s look at the Condo costs
The largest portions of this are the up-front payment (in this case $200,000) and the ongoing condo fees. These following are actual numbers of this particular condo project:
This all adds up to $6,150, so about $3,000 less than the apartment rental every year.
Consider this: If you RENT a home, you're paying the same as OWNING your own place, PLUS a little PROFIT for the landlord.
So for the financial question between renting or buying, the path of buying your own condo is actually cheaper. Now how about the ‘quality of life' aspect?
Buying vs Renting; Which is ‘nicer’?
While condo living does come with some restrictions, they are not nearly as far reaching as when you rent an apartment. Lets look at this:
Some of the biggest advantages of condo-life over renting are the ownership benefits and the fact that you can renovate your space.
Ownership Benefits of Condo Living
Owning a condo brings the same benefits as owning a house: You can borrow money against your title, you can rent it out, sell it anytime, get a room-mate, etc etc…
If you don't like the carpets, you can change them. Change the kitchen, bathrooms, paint, lights etc. (In most cases you will need to get permission before making major structural changes, for safety reasons).
These observations are a general answer to a very complicated subject. Every situation is unique.
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Bo Kauffmann: 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 weren't listening to Winnipeg's real estate podcast with Bo Kaufman of remax performance realty, answering questions of buyers and sellers of houses and condos in Winnipeg. So 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, uh, live in the states for three, four months, five months, a year, and a 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.
Bo Kauffmann: So the question comes up, what's better Should we rent an apartment and take the money we get from the house and invest it, or should we buy a condominium. So there are two facets to answer this question. One is purely financial, which is we just 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 800 square feet and a 40 year old building in a decent neighborhood does not have in suite laundry. It does, however, have underground parking. And of course there are no upfront cost to this.
Bo Kauffmann: Comparing that to a similar condo, same size, but at $200,000 upfront costs that you have to buy. Two bedrooms, one bath within sweet laundry in 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 to help us decide which is better: renting or buying. So let's start by looking at the apartment. Rent in this apartment is $1,340 a month, which adds to a shade over $16,000 a year. Utilities are fully included in this, so heat, hydro and water. Of course, I'm not counting a telephone, 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 ensure your content. It's a good idea in case something happens, it could be a break in, there could be a water damage from a neighboring sweet.
Something to offset against this expense. Remember, with an apartment, you don't have to take that 200,000 that you would spend on a condo. You can take that money and invested. Now, if you are in your sixties, seventies, certainly in your eighties, I personally probably would not recommend anything high risk, uh, talk to your financial advisor about that. But let's be on the conservative side. Let's say you can get a GIC, and currently you can get a GIC for three and a half percent. So $200,000 GIC at three and a half percent per year will earn you $7,000. Now, that's 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 7,000. Do you have enough right off enough deductions that, um, it's all your money. So that goes off against that offsets the $16,000 plus rent, which means that at the end of the year, your total costs of apartment living is $9,250.
So let's take a look at how that compares against buying a condo. So this particular corner that I have in mind, uh, the property taxes are 2,400 a year. And as the homeowner, you again get a $700 discount just like you did with the house. So your net property taxes per year or $1,700 while water is included, heat and hydro are not. So an estimated to heat and hydro bill for a high rise, a newly constructed fairly, a fairly efficient high rise, I'm going to put on an $800. So about $65 a month for your heat and electricity, you 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 254 your content insurance. And then the big one of course is the condo fees. In this particular case, they are a $3,400 a year for, uh, for your condominium fees.
So now you do not get the deduction, the GIC a income that you had with the apartment, because remember, you had to take that $200,000 and actually buy this condo. So what does all this add up to Your total expenses right now then are going to be 61 50. So that's about $3,000 less than the rental. So that's the financial side of the equation. Uh, buying and investing that $200,000 into a condo will save you approximately $3,000 a year. But there are other considerations. We'll get to those right after this.
Are you looking to buy a house or a Condo in Winnipeg? Work with the agent who takes the time to explain the process to you, guiding you through every step. For service beyond the sale. Book your home buying consultation with Bo Kauffmann of remax performance today. Bo knows real estate.
Bo Kauffmann: That was most typical apartments. 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, 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% a year. On average. My mother in law lives in a block in north North Kildonan and, and she's looking at about $30 a month. Every year. You have no ownership benefits, which means you can't borrow money against the apartment. Uh, you might even have trouble getting a roommate to move in or if you want it to sublease, said you have to get permissions from the apartment building, uh, ownership. So there are those restrictions.
Bo Kauffmann: 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 are 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 kinds of things. And unless they give you permission and then it's not yours, you don't own it. So let's take us, look at a similar condo. Condo life is semi restrictive and I'm in, they're gonna, they're gonna prevent you from hanging your underwear off the balcony, those kinds of things. Uh, but for the most part, what you do inside your suite is entirely up to you. There are no rent increases. You've bought it, you own it. Now you're not subject to a monthly or a yearly increases.
Bo Kauffmann: 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, uh, what the expenses are. So if your condo fee includes the heating, the hallways, if he goes up, your corner of has 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 or your estate will lose some of that money that you've invested. There are, however, a ownership benefits, so if you own your Condo, you can certainly borrow money against it. You can rent it out. There are, there's lots of things that you can do with it that you couldn't do with rented space. And of course, interior rentals are okay within reason, you will probably have to get permission.
Bo Kauffmann: You may not be able to remove some walls because they might be structurally important to the building. Whoever, if you want to change the paints, the flooring, if you want to put her in a different tub, changed the kitchen, whatever you want to do, generally you are allowed to make those changes on the inside of your unit. No, 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 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 bold, Kaufman, remax performance realty, direct sellers to oh four three three two two zero two or you can email me at Boknows [email protected] till next time. Bye Bye.
We hope you've enjoyed this episode of Winnipeg's real estate podcast. All episodes are available on iTunes, stitcher, and Google play when you are ready to buy or sell a house or a Condo in Winnipeg call Bo Kauffmann of remax performance realty at (204) 333-2202 or email Bono's homes at dot com Bo knows real estate.