Toronto Condo

Is it Better to Buy a Condo in Downtown Toronto or Outside the City?

In the long run, where we live can be less important than how we live.  Depending on how you live you can greatly reduce your daily living and transportation expenses.  The amount we spend just to be able to live and/or to get to work can add up to a large sum.
    We ran three different scenarios on our spread sheet.  The first one was buying a condo downtown Toronto, which was close to work and close to all amenities.  This individual does not own a car and can walk mostly anywhere or take the subway/city bus if needed.   The other two scenarios involve buying a condo in Burlington and either taking the Go-Train or driving to work in downtown Toronto.
    It wasn't until we had a TFSA that we could illustrate annual expenses and potential savings with a long term view.  Being able to take taxes out of the equation really simplifies the spreadsheet results.  One of the biggest surprises was that it wasn't whether or not buying in Toronto or Burlington was the right choice, it was how you got to work that mattered most.  The two employees that didn't have a car had close to the same net worth over a thirty-five year period.  It was the employee that was driving to work that was left behind.
    This simulation had the individual remain single or at least didn't have any kids throughout the thirty-five year period, but you can see the results of selling the condo at any five-year interval.  For a shorter review on whether buying downtown or out of town is better for you, just look at the 5, 10 or 15 year numbers.


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The Three Scenarios

If you work in downtown Toronto in the financial district, then you might be better off buying a condo downtown even if the purchase price is considerably more than buying outside the city.  Below we have three scenarios with three different results depending on whether you buy a condo downtown Toronto, buy in Burlington and take the Go-Train, as well as buying a condo in Burlington and driving to work.
    The Burlington condo has a $234,900 purchase price, $1,705 in annual property taxes, $229 in monthly condo fees and it is a one bedroom condo.  The condo is a 45-minute walk, 7-minute drive or a short bus ride to the Appleby Go-Station.  There is a grocery store and other stores within walking distance of the condo.  The Go transit pass to get to the Union Station five days a week is $338 a month, the drive to work would be $500 a month (gas, insurance, maintenance, financing) and the cost to park would be $250 a month.
    The downtown Toronto condo has a $344,500 purchase price, with $2,400 in annual property taxes, a monthly condo fee of $276 and it is also a one bedroom condo.  The newly built condo is a seven minute walk to the financial district, a short walk to a Metro grocery store and close to the Union Station.
    The down payment will be the same for both condos at $20,000, the amortization period on the mortgage will both be 25 years and both will have the same 2.64% mortgage rate.  The individual that bought the Burlington condo will have their spare cash flow put into a TFSA so that we can see the cumulative net difference after each year.
    Using our Mortgage Calculator we determined after the CMHC and transfer taxes that our mortgage would be $336,182 and the original monthly payments would be $1,529.52 a month for the Toronto Condo.  For the Burlington condo the mortgage would be $222,636 and the monthly payment would be $1,012.92.
    For the scenarios below the assumptions we made were;
a 3% annual increase in property taxes, in the condo fees, Go-Train passes and car expenses;
a 6% return on the TFSA;
the annual savings were only deposited into a TFSA at the end of the year (to make it easier to create a spreadsheet);
a 2% annual increase on the value of the condo;
an interest rate increase to 3.5% and 4% after 5 and 10 years to show the effect of increased mortgage rates;



Buying a Condo Downtown Toronto

Extra Annual Expenses: Is the additional monthly expenses between buying the condo downtown Toronto and taking the Go-train from Burlington.
Home Equity: It is the end of the year value of the downtown condo minus the mortgage debt balance.


Year

Condo Value

Extra Annual Expenses

Home Equity

1

$351,390

$3,402

$24,851

5

$380,366

$3,051

$95,020

10

$419,944

$3,043

$188,578

15

$463,652

$2,690

$294,734

20

$511,909

$2,016

$419,114

25

$565,189

$1,235

$565,189

30

$624,014

($6,591)

$624,014

35

$688,962

($7,641)

$688,962



Buying a Condo in Burlington and Taking the Go-Train

TFSA Difference: Is the balance amount after a 6% return on the previous year's balance and the additional annual savings from living in Burlington.
Net Worth Difference: Is the net worth year end difference between buying the downtown condo in Toronto or taking the Go-train from Burlington.


Year

Condo Value

TFSA Difference

Net Worth Difference

1

$239,598

$3,402

$1,899

5

$259,349

$18,261

($6,374)

10

$286,342

$42,819

($12,639)

15

$316,145

$73,892

($16,563)

20

$349,049

$111,903

($19,615)

25

$385,378

$158,630

($21,180)

30

$425,489

$177,350

($21,176)

35

$469,774

$196,837

($22,351)



Buying a Condo in Burlington and Driving

Extra Expenses: Is the additional annual expenses when comparing living, parking in Toronto, driving from Burlington or buying in downtown Toronto.
TFSA Difference: Is the balance amount after a 6% return on the previous year's balance and the additional annual expenditures from living and driving from Burlington or buying the downtown Toronto condo.
Net Worth Difference: Is the net worth year end difference between buying the condo in Burlington and driving to work, or buying the downtown condo.


Year

Extra Expenses

TFSA Difference

Net Worth Difference

1

$1,542

($1,542)

($3,045)

5

$2,513

($11,230)

($35,865)

10

$3,408

($30,835)

($86,293)

15

$4,788

($64,308)

($154,763)

20

$6,653

($118,986)

($250,504)

25

$8,815

($203,616)

($383,426)

30

$18,242

($369,165)

($467,690)

35

$21,148

($606,106)

($825,294)




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About the Numbers

There were a lot of assumptions made, and even a small adjustment can tilt the numbers.  Net worth wise, the first two scenarios are very close.  If the TFSA was getting a 6.33% instead of a 6% return, then the Burlington condo owner would be slightly ahead after 35 years.
    We didn't put any value on time and convenience.  The Toronto condo owner would save a lot of time and convenience, the one taking the train would spend more time and have less freedom, while the condo owner that drives would take slightly less time away and would have the convenience of going anywhere and whenever he wanted, if he could afford it.
    Not all expenses are created equal either.  In the first year the Burlington condo owner that took the Go-Train had an additional $3,402 in free cash flow when compared to the owner of the downtown Toronto condo.  The Toronto condo owner did however pay an additional $3,256.96 off their mortgage balance when compared to the Burlington resident and that only increased each year until the mortgage was paid off in full.
    Important Note:  The above is for illustrations purposes only and does not guarantee you that buying a condo in downtown Toronto is right for you.  Also, some small differences from our assumptions and the actual results will be different then our numbers.