How do I figure out rent vs buy calculations?
May 20, 2020 10:04 PM   Subscribe

How do I figure out rent vs buy calculations? I own now.

My apartment is too small and has too many problems. I need to move to a larger space, preferably a house. I live in an extremely expensive city in Canada.

I need help figuring out the following scenarios:
Rent out my current apartment and rent something.
Rent out my current apartment furnished and rent something
Rent out my current apartment furnished and rent something
Sell my current apartment, invest at 1.5% fixed rate, rent something
Sell my current apartment and buy something

I need to stay in my current city so that I preserve doctors/medical and other supports from our city's health authority and other special supports.

I am finding these scenarios overwhelming:
Risk of getting taxed on rental income and losing various government benefits
Renting again sounds potentially terrifying and maybe we would get evicted
I could only afford the absolutely cheapest houses or townhouses for sale
Renting a house is expensive
Worried that rental income would be treated as income, even though I'm renting a home that costs more, and might affect stuff like support from my kids' other parent
I have a very small mortgage now and all the other options involve much higher amounts of money

I own a business and it appears I will be working from home.

I tried to talk to accountants about this before but it didn't seem to be within their knowledge of medical/government supports. I'm unsure why they couldn't figure it out, but maybe I went to the wrong people. It was a few years ago and I decided to stay where I am.

I'm not quire sure where to go to help figure out scenarios. Maybe I could do it myself if I knew what to include. Thanks.
posted by Chaussette and the Pussy Cats to Work & Money (12 answers total) 1 user marked this as a favorite
How do I figure out rent vs buy calculations? I own now.

You have to cost everything - the best, and worst, case possibilities for each of your scenarios. This means that you need a lot of information. I don't know how much you already have but, at minimum, you need to know if you could still pay your apartment mortgage, and rent/mortgage on another property, for the downtimes between tenants. Would a bank lend you enough to buy a second property? Do you have a buffer to cover repair costs of your own apartment and these 'cheapest' townhouses.

Honestly, in your situation, I'd be researching the hell outta medical services and supports in cheaper cities. Being able to move to a cheaper location will give you so much more bang for your accommodation buck.
posted by Thella at 12:24 AM on May 21, 2020 [2 favorites]

For each benefit and for spousal/child support what is/isn’t considered income and how that is computed could be different. These details are normally the expertise of social services, support groups, family lawyers, not accountants. They just help you work through your tax situation.

To do this you want to rule out options one after the other and then only work through the detailed numbers for the remaining scenarios.

Make a list of all benefit and support payments you receive and any other accommodations you have that depend on either income or assets like savings/owning property.

As a start, can you afford to be a landlord? That is a question of liquidity. You should only become a landlord, if you can afford to pay for all repairs landlords have to take care of out of pocket. This includes your share of work done on common areas. And you also should be able to pay your mortgage for a couple of months, if you’re between tenants or your tenant fails to pay rent. Your bank may force you to change to a different, higher rate mortgage if you’re not an owner occupier, which makes that payment higher. If any of these payments would mean you can’t pay your rent or mortgage on your residence or pay utilities you can’t afford to be a landlord. I’d be less adamant about this, if you were a person without dependents or a less anxious sounding person (not saying that’s a bad thing but you don’t want to have sleepless nights over the rental property). But in your case, as described here, unless you can find the cash to do these things without significant pain you shouldn’t become a landlord.

Some other considerations to help narrow things down.

Does having a rental property make you ineligible for anything?

Does having savings above a certain amount, e.g. after selling your flat make you ineligible?

Does re-investing the sales proceeds into a new main residence, as opposed to savings, make a difference?

By answering these questions you can probably rule out a lot of scenarios already and then you can work out how to crunch the numbers for what’s left. So that’s where I’d start.
posted by koahiatamadl at 3:09 AM on May 21, 2020 [3 favorites]

Since you have so much equity in your current place, could you take a little bit of that money and put it toward making your existing apartment have fewer problems and be more space efficient? It should at least be something that you add to the calculations.
posted by rockindata at 3:38 AM on May 21, 2020

When we bought our house, we discussed with our realtor the scenario of later keeping it as a rental if we move out of the city (mainly out of a risk of the housing market falling/if we'll want to wait to sell/because I like to think through every possible scenario). The answer was essentially that rental income can be used as income towards purchasing a second property. So this might be something worth discussing with a realtor/mortgage broker -- they were incredibly helpful with going over our finances before we even committed to them, because if we were going to buy and how we were going to do it was in large part depending on finances.

But also: My apartment is too small and has too many problems
When/if you do sell, you'll generally get more money if you fix these problems prior to selling. If you rent the apartment, you'll get more rental income if you fix the problems / alternately, you'll need to have cash available to fix the problems later if something that's "inconvenient" turns into "unlivable/emergency".
posted by DoubleLune at 7:57 AM on May 21, 2020

Thanks. I just want to clarify that I have ample emergency savings. And my apartment would not be too small if a different family lived here. We have a number of disabilities to manage that make this space less workable than for persons with different needs. This is also a city where a townhome costs over a million so I won't be purchasing a second property. lol
posted by Chaussette and the Pussy Cats at 10:11 AM on May 21, 2020

Have you tried asking the government benefits people who you should talk to?
posted by aniola at 10:38 AM on May 21, 2020

In the US, the housing market is a bit depressed because of Covid, maybe now is a good time to buy if you can keep the apartment as a rental until prices recover, which they will. Yes, absolutely repair things and paint if you sell.

The money issues are discussed. But it's also about how you and your family feel. I live in a house, should probably have kept the old real estate for rental, but I love not being a landlord anymore. I want to own so I can have a garden, a dog, paint, whatever. Housing is a big investment, but it's also home, and those emotional considerations have weight.
posted by theora55 at 1:40 PM on May 21, 2020

Yes, I have and they are completely unhelpful. These are not scenarios they have experience with and it's unusual to have such a complex case.
posted by Chaussette and the Pussy Cats at 1:41 PM on May 21, 2020

I would have thought there is some sort of accountant or financial professional who does this.
posted by Chaussette and the Pussy Cats at 1:53 PM on May 21, 2020

Have you talked to any financial planning professionals? You're right that this kind of complex situation is out of scope for an accountant. I don't have any specific recommendations, but look for a financial planner who will charge a flat fee (something in the hundreds of dollars) for a consultation, and ask ahead of time that they can advise you on your specific circumstances.
posted by serelliya at 4:39 PM on May 21, 2020 [1 favorite]

You might try looking for a financial planner or maybe a lawyer who has some familiarity with special needs trusts. It's not quite the same situation, but they would both understand the intricacies of government services and have experience handling more complicated financial situations than your typical disability benefits advisor.

I think making sense of how all this impacts your particular government benefits is going to be the most specialized and convoluted part. Crunching the numbers on different buy/rent scenarios and figuring out what you can afford are relatively simple in comparison.
posted by yeahlikethat at 5:45 PM on May 21, 2020 [1 favorite]

Thanks. I think you are right!
posted by Chaussette and the Pussy Cats at 2:45 PM on May 25, 2020

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