<prompt> Human: IntroductionHi all, Id like to have a conversation about how buying a housecondo is a better investment than renting and investing into the market. Ive done a lot of research, calculation and seen a lot of my entourage buy and sell houses. SituationI keep seeing people promoting home ownership as the path to wealth but from my research and experience the real gains that come from owning a home to rent it andor sell it later doesnt bring as much money as people think. Often times, resulting in a net loss. CalculationsI will take Torontos market since this is what most people refer to as the holy grail of home ownership. Return before fees without inflationIn Toronto the average house price was 300K in 1992 and around 850K in 2017 which is a 283 return before inflation. An increase of 4.25 compounded annually for 25 years.The SP500 was worth around 700 in 1992 and was around 2.8K in 2017 which is a 400 return before inflation. An increase of 7.6 compounded annually for 25 years. ResultsIf you look at the results here the SP500 beats Torontos average house price increase. Now lets try to compare buying vs renting including all the fees. House CondoLets assume the year is now 2017 and consider two situations. One in which you rend and one in which you buy. I selected a random toronto condo that was for sale at 500k and also for rent at 2.2kmonth.Sale link: Rent link: - Price 499K - 20 down payment - 3.29 Mortage rate - Amortization of 25 years - 4 broker fees - 650 condo fees - Rent 2.2K BuyYou would need at least 133k 100K down payment, 20K broker fees, 13K land transfer up front and a monthly payment of 3.1K 2K mortgage, 400 taxes, 650 condo fees with an extra 50 for random expenses like insurance. Rent and InvestYou rent this condo for 2.2K, invest a lump sum of 133K in the market and also invest an extra 900 per month. Result OwningAfter 25 years, you would have paid a total of 1,063,000 133K up front 3.1Kx12x25 to own the condo that was worth 500K at the time of purchase.Your house is now worth 1,412,544.98 if we assume a 4.25 annual growth. A nice profit of 350K, if we dont take into account any extra expenses or repairs.If you assume a monthly condo fee of 0 instead, your total expenses would have been 868,000 133K up front 2.4Kx12x25 for a total profit of 544K. RentingAfter 25 years, you would have paid a total of 660,000 2.2Kx12x25 to rent the condo.Your investments are now worth 1,631,645.61, if we assume a 7.6 annual growth. A nice profit of 1,2m. Owning vs RentingOwning would have cost you almost twice as much but in the end, assuming no major repairs in 25 years, you would end up with a smaller profit without even taking into account the other 4 that you have to pay when selling the house which would be around 56K. You would also have had less liquidity all this time while making the payments on the house, you would not have been able to move for your career, etc. Tax advantages when renting:Now lets take a look at our tax advantages when renting and investing. Details- You start with the same 133K cash- Add an extra 900 per month to invest Total of 10.8K per year- You make 80K per year- RRSP contribution room increase by 14.4K per year 80k 0.18- TFSA contribution room increase by 6K per year TFSA- You dump 60K of your 133K into your TFSA- You make a contribution of 3.3K rrsp return per year to your TFSA RRSP- You make a contribution of 10.8K per year to your RRSP, return of 3.3K. CASH- You dump the remaining 73K of your 133K into your cash account Results TFSAAfter 25 years of growth at 7.6, you now have have 620K in your TFSA. A profit of 477,500 620K-60K3.3K×25 that is not taxed. RRSPAfter 25 years you have 800K in your RRSP. A profit of 530,000 800K-10800×25 that is taxed at the time of withdrawal. CashAfter 25 years you have 455K in your CASH. A profit of 390,000 455K-65K that is taxed as capital gains taxed at only half of your rate at the time of withdrawal. TotalAfter 25 years, you end up with a profit of 477,500K that is not taxed and 455K that is taxed at half of your rate and 800K that is taxed at your rate.Your profit will change based on your income at the time of withdrawal. - Very high income, you withdraw your 455K profit with a tax rate of 24 highest possible, over 160K income and 800K with a tax rate of 48, you end up with a total profit of:1,239,300 - High income, you withdraw your 455K profit with a tax rate of 15 income of 80K and 800K with a tax rate of 48, you end up with a total profit of: 1,424,250 - Low income, you withdraw your 455K profit with a tax rate of 10 income of 40K and 800K with a tax rate of 20, you end up with a total profit of: 1,527,500 You total profit will vary depending on your withdrawal rate, you will end up with a total gain of 1.2m to 1.5m. Tax advantages when buyingNow, lets assume that your house is completely tax exempt Canada Principal Residence Exemption. ResultsYou end up with a profit of 350K. ConclusionFor owning to be as profitable than renting and investing, we would need to make a gain of at least 1.2m after all the fees no taxes. We would need to sale the condo for, at least, 2.26m over 4.5 times the prices you paid for it. To be able to sell the condo at that price we would need an average compounding increase of 6.25.In the best case scenario Torontos market, no repairs on the house, no taxes when selling buying vs renting investing yield very different monetary gains. Renting investing beats buying by at least 3 times. Renting and owning both have pros and cons that are not monetary and personnel for each person free to move, free to renovate, etc. Extra - The last 10 years Year 2008Now if we take SP500 at its worst crash high in the last 10 years with the price of Jan 1 of 2008 at 1.6K and compare it with the price 2017 at 2.8k, the average compounded increase is 5.85 annually.If we compare, for the same time span the average house price of Toronto which was around 400k in 2008 and compare it with the price of 2017 at 850K, the average compounded increase is 7.8 annually.Now if we take the same house, same expenses, same rent, and same investments:If were buying: The new value of the house after 25 years with an average increase of 7.8 per year will give you a total profit of 1.5m 2.6m - 1.1m in expenses.If were renting: The new value of the investment after 25 years with an average increase of 5.85 per year will give you a total profit of 500k 1.16m - 660k in expenses. Year 2009Now if we take SP500 at its worst crash bottom in the last 10 years with the price of 2009 at 0.9K and compare it with the price 2017 at 2.8k, the average compounded increase is 12.5 annually. If we compare, for the same time span the average house price of toronto which was around 400k in 2009 and compare it with the price of 2017 at 850K, the average compounded increase is 7.8 annually. Now if we take the same house, same expenses, same rent, and same Investments. If were buying: The new value of your house after 25 years with an average increase of 7.8 per year will give you a total profit of 1.5m 2.6m - 1.1m in expenses. If were renting: The new value of your investment after 25 years with an average increase of 12.5 per year will give you a total profit of 3.5m 4.2m - 660k in expenses. Conclusion We can always find a small period of time where buying can be more profitable than renting and investing but on average, over long period of time, renting and investing is more profitable. Notes Let me know if I forgot something or made a mistake somewhere. Im also interested in seeing whenwhere buying beats investing. Let me see your point of view. --Sources: Assistant: With all due respect, theres some issues with your analysis.1. Youve assumed youre NEVER going to have a rent hike in 25 years. Thats plain old wrong. 2. Youre looking at a very specific market Toronto3. Youre time frame is too short 10 years. 4. Some of your info is wrong. You would need at least 133k 100K down payment, 20K broker fees, 13K land transfer. - You dont NEED 100K down payment. Even today, you can do it with as little as 3 to 5.Finally, youve ignored risk to make this work. A major reason of owning in retirement is so that you cant get evicted, so your rent cant go up, so on and so on. Youve just assumed your landlord is going to keep renting to you the same place for 25 years, while never doing an eviction to remodel, update, or sell. You cant assume that much protection even in heavy rental control markets. Human: If you put down only 5 you have an extra insurance to pay and you end up with an even smaller profit. I do understand this. If rent increase at 1 per year, after 25years you end up paying an extra 600. You would have paid 26.4K in rent the first year. You would have paid 26.6K in rent the second year. ... You would have paid 33.8K in rent the last year. The increase is very minimal and shouldnt affect the total profit of renting vs buying. Another point, taxes increase will follow rent increase and any house repair will cost you more than the rent increase. So, even if rent increase eat up from the renting profit, the extra cost of owning eat up more profits.Assistant: And if a unicorn poops on your lawn, you can sell that for massive profit too. If you are going to run hypotheticals like this, you have to use reasonable assumptions. 1 rent increases are not a reasonable assumption to make. At bare minimum your rent should be kept at pace of inflation, and in many areas it will be much higher than that. Human: Sure but then you would also have to take into account house taxes raises, house repairs, etc. But even if you take a more reasonable increase, the profits will still be bigger when renting.  <response>: Its almost as if this is a complicated discussion that could really go one way or the other depending on the unique circumstance, right?So making a hyperbolic statement about how renting is always better than buying while blatantly skewing the data model towards your chosen belief is not adding any value to the discussion. 