Purchasing vs. Renting in Toronto

Deciding whether to rent or buy is more complicated than any single formula can work out. There are costs associated with moving. What resources you have available, your current real estate situation, and whether you can find homes for sale in Toronto to meet your needs are just a few important factors. However, the following formulas can give you a solid place to start.

The Rule of 15 or 5%

When it comes to making the rent or buy decision in any city of the world, experts often suggest following one of two rules.

The Rule of 15

The Rule of 15 works by breaking down how long you might rent a place versus how much equity you might build by choosing to buy instead. First, you take what you plan to spend on rent and multiply it by 15. Then you take this number and see if it’s close to what you might need to pay off a similar house.

If the number is greater than or equal to the price of a similar home, buying is your best option. If the number is less, choosing to rent is better. However, this rule assumes you want to stay in the area long-term. If you’re planning to stay for less than a couple of years, renting is almost always your best choice.

The Rule of 5%

This rule takes the Rule of 15 a step further. Now not only are you looking at the total cost of renting or buying, but you’re also adding property tax, interest, and maintenance costs into the equation.

This is done by taking the cost of a property you would be interested in buying and multiplying it by 5%. Then you take that reduced number and divide it by 12. This is what it should cost to pay for and maintain a given home for a month. If you can rent something similar for less, then renting is the better deal. That’s the rule of 5%.

What Makes Toronto a Unique Place to Rent or Buy

The average cost of rent in Toronto is the highest in all of Canada. It sits around $2,200 per month for a single bedroom. If you can use either of the formulas above and your own research to come up with a property that you can buy, you may be sitting on a valuable asset.

You may also want to consider looking for a place with more rooms than you can use. For example, choosing to buy a three-bedroom house when you only need one bedroom will often work out better using the formulas above. You then have the potential to rent out those extra rooms.

Should You Rent or Buy in Toronto?

In most situations, renting is the best short-term option, from a purely financial standpoint. Unless you’re looking to invest in a home or stay for more than seven years, the costs associated with renting are often less than buying.

Still, it’s always possible to find a deal in real estate if you look hard enough. If you’re set on buying, take your time and keep your eyes open.