Buy vs rent for singles

What is different for one income

A single buyer carries the whole payment and all the ongoing costs alone. There is no second paycheque to cover a month of lost work, an unexpected repair or an increase at renewal.

At the same time, singles often have more freedom in where they live and how long they stay. A job change or a relationship change can shift plans quickly, so the realistic horizon may be shorter than for a family.

Because of that, singles usually look at smaller homes, and condominiums are a common choice. The extra line item to model is the monthly condo fee.

An illustrative condo purchase

Suppose a $400,000 condo with 20% down ($80,000), compared with renting a similar one-bedroom at $1,900 a month. The assumptions: a 4.5% mortgage rate, a 25-year amortization, a $400 monthly condo fee, home insurance of $600 a year, maintenance at 0.3% of value a year, $100 a month for extra utilities, 3.5% yearly appreciation, 3% rent growth, and a 5.5% return on the renter's investments. These are illustrative inputs only.

The day-one cash need is about $86,020 including closing costs. The owner's first-month cost is about $2,638 compared with $1,925 for the renter.

With those inputs, the buyer is ahead by $66,309 after 10 years and break-even is about 3.75 years. A short stay still matters, though: after 3 years the renter is ahead by $6,273, and after 5 years the buyer is ahead by $14,242.

The condo fee is the biggest lever

Condo fees grow over time and can rise sharply, and they do not build equity. A modest change in the monthly fee can flip the outcome, which is why it deserves more attention than almost any other input.

The table keeps everything the same except the fee, and shows the result after 10 years.

Special assessments and down payment size

A special assessment is an extra charge when a building needs a major repair that the reserve fund cannot cover. If you model a reserve of $1,500 a year for that risk, the 10-year lead falls from $66,309 to $44,822 in this example.

A smaller down payment also changes the result. With 10% down ($40,000), the buyer is still ahead after 10 years, by $52,582, and the insurance premium is about $11,160. The break-even point moves to about 5.25 years.

A single buyer should pay particular attention to cash reserves. Putting every dollar into the down payment can leave you exposed if your income changes, which is a real cost even if the calculator does not show it.

• Run the numbers with a higher fee than today's, since fees tend to rise.
• Include a yearly amount for special assessments.
• Keep cash outside the down payment for emergencies.

When renting can be the better fit

Renting looks stronger when your plans are uncertain, when your savings would be nearly exhausted by a purchase, or when the rent in your area is low relative to prices. The earlier example shows the renter ahead at a 3-year horizon, which matters if a job change or a move is a real possibility.

Renting also leaves your money invested and liquid. If you are disciplined about contributing to a TFSA, RRSP or FHSA, the savings can compound tax-free or tax-deferred. Renters can use those accounts as well, as covered in rent and invest the difference.

A short checklist for solo buyers

Before you make an offer, check each item below, and speak with a mortgage professional about your own borrowing capacity. The mortgage stress test requires you to qualify at the greater of your contract rate plus 2 percentage points or 5.25%, which can reduce the amount available to a single income.

• Can I carry all costs, not only the mortgage, if my income dips for a few months?
• How long do I realistically expect to stay?
• What is the condo fee, and how has it changed over recent years?
• How much cash remains after the down payment and closing costs?
• What would I do if I needed to sell in two or three years?