Great question, and one that makes today a fantastic day. Why? Because today we get to go virtual house shopping. And hopefully, after reading this post, you’ll ditch your rental, find a realtor, and go LIVE house hunting!
How much do you pay in monthly rent? I’m going to use $1,500/month since that is what my friend and her partner pay in their cute 2 bedroom, centrally located condo in Halifax. Utilities aren’t included in her rent so to keep this as simple as possible we won’t include them in the monthly expenses of the house options either.
The following 3 options that I chose are all multi-unit houses within a 5-minute drive of her current condo, decently updated, and with a main unit that is similar in size and amenities of her condo.
Option #1 – Duplex in need of some main-level love
- Asking Price: $339,000
- Location: North end of the Halifax peninsula
- Size: 3-bedroom main unit + bachelor suite in basement
- Condition: Could use some cosmetic updating of main unit
- Monthly mortgage (at 3.5% interest rate over 25-year amortization period): $1,672/month
- 5% down payment: $16,950 (split between 2 people = $8,425 each)
- Income from bachelor unit: $700/month
Net monthly cost to live in upper 3-bedroom house: $1,672 - $700 = $972/month
Option #2 – Cute character triplex
- Asking Price: $399,000
- Location: North end of the Halifax peninsula
- Size: Two 2-bedroom suites and 1-bedroom basement suite
- Condition: Move-in ready main suites with minimal updating needed for basement suite
Monthly mortgage (at 3.5% interest rate over 25-year amortization period): $1,968/month
5% down payment: $19,950 (split between 2 people = $9,975 each)
Income from top 2-bedroom unit: $1,300/month
Income from bottom 1-bedroom unit: $700/month
Total income = $2,000
Net monthly cost to live in middle 2-bedroom suite: $1,968 - $2,000 = -$32/month (uhhh, you’re getting PAID to live here!!)
Option #3 – Move-in ready Duplex
Asking Price: $409,900
Location: North end of the Halifax peninsula
Size: 3 bedroom main unit + 1 bedroom suite
Condition: Both units move-in ready
Monthly mortgage (at 3.5% interest rate over 25-year amortization period): $2,022/month
5% down payment: $20,495 (split between 2 people = $10,248 each)
Income from 1-bedroom suite: $1,000
Net monthly cost to live in upper 3-bedroom house: $2,022 – $1,000 = $1,022/month
In hindsight, I should have titled this post, "What can I buy for LESS money than I currently pay in rent" ;) As you can see from the above 3 options, each of the houses actually cost her significantly less per month than her current rent. They range from actually making her $32/month, to costing her $1,022/month. That’s far less than her current $1,500/month in rent, and in each case, for a larger main unit than she has now.
Which option would you choose?
Of course, in order to keep this post simple, I didn’t include the additional expenses that come with owning a house, like property tax, water, insurance, and maintenance costs. However, even adding all of those costs in, they likely wouldn’t add up to much more than an additional $500/month. Check out my previous post on “Running the Numbers” to get the full break down of income versus expenses that come with owning a house.
Also of significance to note is that rather than just throwing your money into thin air each month through renting, by owning a house you are paying down your mortgage. What this means is that each month that you pay your mortgage you are actually building equity in your house.
The final plus with owning a house versus renting is that you can create additional value through small upgrades over time. Things like paint, flooring, new appliances, new windows, etc. And if you’re REALLY lucky, you may even experience passive added value over time by owning a property in an increasing real estate market. Don’t bank on a potential market increase however, because if it doesn’t happen, or worse, the market plummets, you’re SOL if this is your sole investment strategy.
By my count, that’s FOUR good reasons to become a home owner.
1. Paying less per month in ‘rent’
2. Paying down your mortgage to build equity
3. Creating active equity through renovations
4. The chance of passive equity over time.
If it’s the down-payment amount that’s holding you back, partner with a friend or a family member to make it easier. Also, if you don’t need 3 full bedrooms in your main unit and want to make even more money, rent out one of your empty bedrooms (or Airbnb!) each month.
So, whose putting in their rental notice and going house shopping this week!?
