The debate between renting and buying a home has been ongoing for years. Many believe that owning a property is the ultimate financial goal, while others argue that renting provides more flexibility and financial freedom. But what happens when we compare both options over 25 years?
Let’s break down the numbers and see which path leads to a better financial outcome.
The Renting Scenario
Imagine renting a one-bedroom condo in Toronto for $2,500 per month. Rent typically increases by 2.5% every year, and most tenants move every five years, which often results in an even bigger rent jump.
Here’s how rental costs evolve over time:
However, some argue that renting allows for investing the money saved from not having a mortgage. If renters invested the difference between renting and homeownership costs into the stock market, could they come out ahead?
The Buying Scenario
Now, let’s consider buying a $600,000 condo with a 20% down payment ($120,000) and a 4.5% interest rate on a 25-year mortgage.
The total monthly costs for homeowners include:
Over 25 years, the total cost of owning this property (including mortgage payments, interest, taxes, and maintenance) adds up to $1.45 million. However, at the end of that period, the home is completely paid off and has likely appreciated in value.
Investment vs. Home Appreciation: Who Wins?
One of the biggest arguments for renting is that renters can invest the difference between their rent and a homeowner’s total expenses.
For example, if a renter invested their initial $135,000 down payment (including closing costs) plus the extra money they save on homeownership costs, they could potentially see significant returns—but only if they consistently invest.
Comparing Growth Over 25 Years
With an average annual return of 5-7%, an invested down payment + savings could grow to over $2 million. However, this assumes:
✔️ The renter actually invests consistently.
✔️ The market performs well for 25 years.
✔️ No major economic downturns impact returns.
On the other hand, real estate prices historically appreciate at around 5-7% annually in Toronto. If the purchased home follows this trend, its value could grow to $2-3 million over 25 years.
The Catch: Reality vs. Theory
While numbers suggest that renters could come out ahead if they invest wisely, there’s a big catch—many renters don’t invest. The extra money often goes toward lifestyle expenses, unexpected costs, or general living expenses.
Meanwhile, homeownership acts as a forced savings plan—every mortgage payment builds equity, and property values tend to rise over time.
Final Verdict: Should You Rent or Buy?
The answer depends on your financial habits and goals:
If you struggle to save and invest, buying is likely the better choice since it ensures you build wealth over time.
If you’re disciplined with money and investing, renting could potentially lead to a better financial outcome—but it requires consistent investment discipline.
If you can’t afford to buy in a high-priced market like Toronto, renting might be the only realistic option in the short term.
No single answer fits everyone, but understanding the long-term impact of each choice can help you make the right decision.
Let’s break down the numbers and see which path leads to a better financial outcome.
The Renting Scenario
Imagine renting a one-bedroom condo in Toronto for $2,500 per month. Rent typically increases by 2.5% every year, and most tenants move every five years, which often results in an even bigger rent jump.
Here’s how rental costs evolve over time:
- Years 1-5: Average rent = $2,814 per month
- Years 6-10: Rent increases to $3,330 per month
- Years 11-15: Rent reaches $3,839 per month
- Years 16-20: Rent jumps to $4,580 per month
- Years 21-25: Rent peaks at $4,880 per month
However, some argue that renting allows for investing the money saved from not having a mortgage. If renters invested the difference between renting and homeownership costs into the stock market, could they come out ahead?
The Buying Scenario
Now, let’s consider buying a $600,000 condo with a 20% down payment ($120,000) and a 4.5% interest rate on a 25-year mortgage.
The total monthly costs for homeowners include:
- Mortgage payments: ~$2,700 per month
- Condo fees: ~$500 per month
- Property taxes: ~$250 per month
- Maintenance & home insurance: ~$225 per month
Over 25 years, the total cost of owning this property (including mortgage payments, interest, taxes, and maintenance) adds up to $1.45 million. However, at the end of that period, the home is completely paid off and has likely appreciated in value.
Investment vs. Home Appreciation: Who Wins?
One of the biggest arguments for renting is that renters can invest the difference between their rent and a homeowner’s total expenses.
For example, if a renter invested their initial $135,000 down payment (including closing costs) plus the extra money they save on homeownership costs, they could potentially see significant returns—but only if they consistently invest.
Comparing Growth Over 25 Years
With an average annual return of 5-7%, an invested down payment + savings could grow to over $2 million. However, this assumes:
✔️ The renter actually invests consistently.
✔️ The market performs well for 25 years.
✔️ No major economic downturns impact returns.
On the other hand, real estate prices historically appreciate at around 5-7% annually in Toronto. If the purchased home follows this trend, its value could grow to $2-3 million over 25 years.
The Catch: Reality vs. Theory
While numbers suggest that renters could come out ahead if they invest wisely, there’s a big catch—many renters don’t invest. The extra money often goes toward lifestyle expenses, unexpected costs, or general living expenses.
Meanwhile, homeownership acts as a forced savings plan—every mortgage payment builds equity, and property values tend to rise over time.
Final Verdict: Should You Rent or Buy?
The answer depends on your financial habits and goals:
If you struggle to save and invest, buying is likely the better choice since it ensures you build wealth over time.
If you’re disciplined with money and investing, renting could potentially lead to a better financial outcome—but it requires consistent investment discipline.
If you can’t afford to buy in a high-priced market like Toronto, renting might be the only realistic option in the short term.
No single answer fits everyone, but understanding the long-term impact of each choice can help you make the right decision.
