If you’re looking to buy a home, the current real estate environment can be very daunting.Between the pandemic, rising inflation, and the housing crisis, becoming a homeowner seemsmore unattainable than ever. In this article, you will find an overview of…
Is It Better to Buy or Rent in Montreal?
Montreal is one of the most vibrant Canadian cities to live in, rich in culture, nightlife, food, and great people. And unlike other big cities in Canada, the price tag on its housing market is a little more manageable. So, with cheaper housing in mind– should you buy or rent in Montreal? Ultimately, it will depend on your situation. If you’re young and single, you might think renting is the best option. If you’re looking to start a family, buying might seem like a better choice. In this article, we give you a breakdown of buying vs renting in Montreal to help you weigh your options and make an informed decision.
- In 2022, the average cost of rent in the city reached approximately $1,515, which is more than $300 cheaper than the national average.
- The average price of a home in Montreal has increased by 2.8% between October 2021 and October 2022.
- When thinking about long-term investments, buying a home is almost always the more economical and lucrative option.
When deciding between buying and renting, your personal situation and financial circumstances are what will determine the best option for you. Here is a holistic overview of buying vs renting in Montreal to help guide you in this important decision.
Renting in Montreal
The price of rent is the most obvious advantage of renting in Montreal. In 2022, the average cost of rent in the city reached approximately $1,515, which is more than $300 cheaper than the national average. For reference, Montreal is the second largest city in Canada, but ranks 16th in rent prices. In contrast, the other big Canadian cities– namely, Toronto and Vancouver– top this list.
The table below depicts the average rent in some of the most popular neighbourhoods in Montreal in December 2022.
At first glance, you’re probably thinking that renting in Montreal is the cheaper option, especially if living in a central location is important to you. And in the context of a short-term outlook, you might be right. However, when thinking about long-term housing (looking 5 or even 10 years ahead), buying a home is almost always the more economical and lucrative option.
Buying in Montreal
It is no secret that the cost of housing is going up and Montreal is no exception. The average price of a home in Montreal has increased by 2.8% between October 2021 and October 2022. With the ongoing rate hikes by the Bank of Canada, buyer hesitancy is at an all time high; the fact that people are reluctant to buy in this market makes sense, but don’t let rate-anxiety stop you! The market is constantly changing, but will always remain active whether you are looking 5 years ahead or 10 years ahead, which means that property also remains a great investment (not to mention all the equity you’re building by living there). Basically, when you consider the bigger picture and adopt a 5 year outlook, buying a home is the smarter move, even now.
In the last quarter of 2022, we continue to see rate hikes by the Bank of Canada and while that does increase mortgage rates, we are also seeing home prices go down. The slower and less competitive market also allows for other advantages, such as allocating time for a home inspection and less bidding wars. Despite higher rates, potential buyers should still try to take advantage of these benefits in 2023.
Moreover, home prices in Montreal vary drastically between districts and municipalities, many of which are close to or right outside the downtown core. If you are determined to buy, but can’t afford anything in Downtown Montreal or its more luxurious areas, expanding your search to parts outside of the downtown area will definitely offer a larger volume of affordable options.
Rent vs Buy: Homes in Montreal
When comparing renting to buying, the main advantage that renting has is flexibility. If you are planning on moving soon or are not ready to settle in one place, renting gives you a level of freedom that buying will not. Along those same lines, renting gives you a small amount of financial freedom by transferring maintenance costs to your landlord or building management. In the short-term, this sounds like the sweeter deal, but that is not necessarily the case.
When you buy a home, you have the potential to build equity over time as your property value increases. This means that if you decide to sell your home later on, you can make money and put it towards another investment. Also, when you purchase a property in Montreal, you can also take advantage of incentives like the Home Buyers Plan (HBP). The HBP allows first-time buyers to withdraw up to $25,000 from their RRSP without any tax penalties—and that goes for each person who is eligible! Plus, mortgage payments tend to be easier on your wallet than rent payments because they remain relatively stable over time.
There are more benefits to buying than just financial ones! When you own your own home, there is no fear of being kicked out with short notice due to an increase in rent payments or for any other reason. You can also customize your space however you want and create memories with family and friends as part of creating your own unique lifestyle. In addition, owning a property has its perks when it comes time for filing taxes; depending on where you live, homeowners can get deductions and credits that renters aren’t eligible for.
The 5% rule
When comparing the cost of renting to the cost of buying, people are quick to equate monthly rent payments to mortgage payments to justify that rent is a waste of money, but these payments do not have a one-to-one relationship. The 5% rule provides a more accurate comparison by including unrecoverable costs into the calculation. Unrecoverable costs are the money you spend that you cannot get back. For renting, unrecoverable costs are straightforward: it’s the money you spend on rent every month to continue living in your home. For a home you own, these costs are: property taxes, maintenance costs, and costs of capital (mortgage interest + opportunity costs). These three usually add up to 5% of the value of your home that you are paying in unrecoverable costs.
After that, the calculation is simple. Multiply the value of your home by 5% and then divide by 12 to find out the monthly unrecoverable costs. For renting, it’s somewhat of a reverse calculation: multiply your monthly rent by 12 and then divide by 5% to find out the financial equivalent in terms of buying a home.
Best Places to Rent or Buy in Montreal
If you are thinking of moving to Montreal or within Montreal, here is a quick list of popular neighborhoods in the city and a summary of whether to rent or buy in that area.
The busy downtown area brings together shoppers, office workers and students from McGill and Concordia Universities. Buying a condo in downtown Montreal is a very popular investment for young professionals, but it’s worth noting that a majority of people living in the downtown area are renting their apartments.
Median home price: $528,225
Average rent price (1 bedroom): $1,750
Cote-des-Neiges / Mount Royal
Cote-des-Neiges and Mount Royal are great neighbourhoods to buy a house, namely because of the diversity in property types (houses, townhouses, condos, etc.) and their proximity to the downtown core. Some of the older apartments in these areas are rentals,
Median home price: $550,723
Average rent price (1 bedroom): $1,408
Plateau / Mile End
The Plateau and the Mile End district are definitely two of the most charming areas of the city of Montreal. They are known for their older buildings and walk-up staircases. While there are many homes and units for sale in this area, the Plateau and the Mile End are popular rental spots for younger people.
Median home price: $899,840
Average rent price (1 bedroom): $1,666
Once one of Montreal’s most up and coming neighbourhoods, Griffintown is now an incredibly popular neighbourhood for young professionals and young families. While there are some great rental options here, this is a fantastic place to buy a condo, whether you are single, a young couple, or looking to start a family.
Median home price: $380,824
Average rent price (1 bedroom): $1,650
Outside the city center
If you are looking to buy, but can’t afford to live in the downtown area of Montreal, there are still some great options for you. Areas like Ville St-Laurent, Pointe-Claire in the West Island, Ahuntsic-Cartierville, and Verdun are still on the island of Montreal with easy access to the downtown core, while also boasting a quiterer, suburban feel.
For even cheaper home prices, many buyers venture off the island of Montreal towards towns in the North Shore (for example, Laval) and the South Shore (for example, Longueuil).
Here are some frequently asked questions about renting or buying in Montreal.
Is renting better than owning in Montreal?
Even if rent prices have not surged in Montreal the way they have in other big cities in Canada, owning a home is an investment and will save you more money in the long-term than renting will.
What is the 5 percent rule when choosing to rent vs buy?
The 5% rule provides a more accurate comparison by including unrecoverable costs into the calculation. Unrecoverable costs are the money you spend that you cannot get back. For renting, unrecoverable costs are straightforward: it’s the money you spend on rent every month to continue living in your home. For a home you own, these costs are: property taxes, maintenance costs, and costs of capital (mortgage interest + opportunity costs). These three usually add up to 5% of the value of your home that you are paying in unrecoverable costs.
There are plenty of reasons why buying real estate in Montreal is beneficial both financially and lifestyle-wise. From stability and long-term investments to tax deductions and greater freedom when it comes time for customization—the pros outweigh the cons when it comes down to deciding between renting or buying in Montreal! So if you’re looking for stability and potential returns on investment in the future—it might be worth taking the plunge into homeownership today.
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