# Purchasing a condo vs renting when monthly payment is very similar

Basically my mother wants to move closer to us and rents range from \$1900-\$2000/month for a 2br place. Condo's similar size with mortgage, insurance, taxes, hoe, etc come out to be \$2k-\$2.2k/month.

She's 66 so assuming she lives another 10 years in where ever she moves that's \$240k in rent paid or \$264k paid out if she buys (counting everything). After the ten years she has \$0 to show for renting it but should have ~\$55k in principle plus any appreciation with the condo. Not sure if I should count this but since we're in the 33% tax bracket if I'm on the loan I can deduct the mortgage interest and get back \$3500/year in tax too contribute to the condo which brings the monthly payment down right back down to the cost of renting. It seems like a no-brainer to buy if we can but I'm worried I'm missing something. Does this math work out, what obvious things am I missing?

• I don't have a good answer, but the arguably popular book Rich Dad, Poor Dad discusses this. In case of buying, what about maintenance and repair costs incurred on the home in the 10 year span ? Also inflation ? Commented Jan 12, 2016 at 14:45
• Repairs are an extra expense and inflation happens whether you rent or own. Nothing stops the rent from jumping 20% the next year where a mortgage is fixed. Commented Jan 12, 2016 at 15:51
• @RyanDetzel the risk of owning is infinitely more than renting. Equating the two is not realistic. Commented Jan 12, 2016 at 16:09
• @PeteBelford - but isn't buy vs rent a natural decision? I agree the risk profiles are very different but I think you exaggerate by a factor of 2 or so, give or take. Commented Jan 12, 2016 at 16:23
• Where does the ~\$55k in principal come from? Sorry I'm lost. Commented Mar 10, 2016 at 18:34

One thing you may be missing is the possibility of a special assessment on the condo. If the foundation cracks, you may be looking at tens of thousands to cover it. This would largely depend on the condo board's reserve funds.

Speaking of reserve funds, have you remembered to factor in condo fees?

You may also be forgetting to factor in property taxes and closing costs (legal fees and realtor fees). The latter, you'll have to pay when buying and when selling.

Now, ten years is a good length of time. If your mother really will live in the condo for ten years, there's a very good chance it does indeed make more sense to buy than to rent. It's very possible you already factored in everything I mentioned above.

• In Australia we pay legal fees in and out (unless you do the conveyancing yourself, which my wife does) and you only pay realtor fees when you sell (unless you use a buyers agent when buying, which is very limited here). We sold a unit in 2014 and paid the realtor 1.65% for their commission. I am amazed that you guys pay realtor fees in and out. Commented Jan 12, 2016 at 22:05

What you haven't mentioned is the purchase risk.

You say that she will buy but then say you will be on the loan. If you are on the loan, essentially you will be purchasing a rental property and renting to your mother.

So that is the analysis you need to consider. You need to be financially able to take on this purchase and be willing to be a landlord.

The ten year timeline looks good on paper. This may not be realistic, especially with an aging parent. What if after 4 years, she can't stay in that condo?

What renting buys is flexibility. If she needs money for any reason, it is not tied up in an asset and unavailable. She is able it move if necessary. If she won't need the money, she should buy in cash. That, by far, gives her the best deal.

The other thing that you may or may not be considering is the fact that when she moves or otherwise ceases to live in that condo, you could then rent the unit out to others at the inflation adjusted rent price for the area. You could continue to build equity in the property for a fraction of the cost, and it would continue to be a tax write-off once your mother is not living there. While you have more maintenance and repairs cost when renters live there (typically, anyway), if inflation continues to carry on at about 4-5%, then you would be potentially renting the unit out at between \$2,500 and \$2,850 by the 10th year from now. Obviously, there are other considerations to be made as well, but those are some additional factors that don't seem to have been addressed in any of the above comments.

• Inflation rates haven't passed 4% since the early 90's (~90-91?). I think it would be a much safer bet to shoot conservatively than higher on the spectrum when considering what your inflation-adjusted monthly income from rent would be. Commented Mar 10, 2016 at 18:38
• I want to clarify, they have been higher than 4% in a certain month, or maybe quarter even, but not yearly averages. Commented Mar 10, 2016 at 18:39