Own Versus Rent

THE BUY VERSUS RENT DECISION

written by Sean Cleary and Stephen Foerster

In May 2013, Rebecca Young completed her MBA and moved to Toronto for a new job

in investment banking. There, she rented a spacious, two-bedroom condominium for

$2,500 per month, which included parking but not utilities or cable television. In July

2014, the virtually identical unit next door became available for sale with an asking price

of $520,000, and Young believed she could purchase it for $500,000. She realized she was

facing the classic buy-versus-rent decision. It was time for her to apply some of the

analytical tools she had acquired in business school to her personal life.

While Young really liked the condominium unit she was renting, as well as the

condominium building itself, she felt that it would be inadequate for her long-term

needs, as she planned to move to a house or even to a larger penthouse condominium

within five to 10 years – even sooner if her job continued to work out well.

Friends and family had given Young a variety of mixed opinions concerning the buyversus-rent debate, ranging from “you’re throwing your money away on rent” to “it’s

better to keep things as cheap and flexible as possible until you are ready to settle in for

good.” She realized that both sides presented good arguments, but she wanted to

analyze the buy-versus-rent decision from a quantitative point of view in order to

provide some context for the qualitative considerations that would ultimately be a major

part of her decision.

FINANCIAL DETAILS

If Young purchased the new condominium, she would pay monthly condo fees of $1,055

per month, plus property taxes of $200 per month on the unit. Unlike when renting, she

would also be responsible for repairs and general maintenance, which she estimated

would average $500 per year.

If she decided to purchase the new unit, Young intended to provide a cash down

payment of 20 percent of the purchase price. There was also a local...