Buying vs. Renting a Condo in Retirement

Why This Question Matters

For many Canadians, owning a home is one of life’s greatest financial achievements. It provides security, stability and, over time, often becomes the largest asset they will ever own.

But there comes a point when priorities begin to change.

The children have moved out. The family home that was once full of activity now feels larger than necessary. Maintaining a detached house, shovelling snow, cutting the lawn and keeping up with ongoing repairs may no longer be as appealing as they once were.

For many homeowners, this is the time to simplify life.

Some choose to downsize because they want less maintenance and greater convenience. Others want to unlock the equity they have built over decades of home ownership. Some pay off their remaining debt, while others simply want greater financial flexibility for the years ahead.

Whatever the reason, selling a long-time family home creates an opportunity to ask an entirely different set of financial questions.

Instead of asking,
“How can I accumulate more assets?”

Many people begin asking,
“How can I make the best use of the assets I already have?”

That is a very different conversation.

After helping hundreds of families buy and sell homes over the years, I’ve noticed that the questions people ask evolve as they move through different stages of life.

First-time buyers usually ask how much home they can afford. Growing families ask whether they need more space. Investors ask about rental income, appreciation and long-term returns.

But homeowners who have sold their family home often ask something entirely different.

“I’ve sold my home and now have enough cash to purchase a condominium outright. Should I buy one, or would I be better off renting a similar condominium and investing the money instead?”

There is no universal answer.

The right decision depends on your finances, lifestyle, investment objectives, tax considerations, estate planning goals and, perhaps most importantly, how you want to live.

This isn’t the first time I’ve written about the important decisions homeowners face as life evolves. In my earlier articles, Retirement in Ontario: Downsize, Stay Put or Plan Ahead? and The Pursuit of Wealth and Happiness, I explored why many people begin rethinking their priorities. This article builds on those ideas by examining one specific financial decision in greater detail.

Once you’ve decided to simplify your life and unlock the equity in your home, what should you do next?

This article doesn’t attempt to persuade you to buy or rent, nor does it try to predict the future. Instead, it presents a simple financial case study using one consistent set of assumptions to compare two reasonable housing strategies.

My hope is that it helps you better understand the trade-offs involved and encourages meaningful discussions with your family, financial advisor, accountant and REALTOR® before making one of the most important financial decisions of your life.

The Case Study

To answer this question fairly, let’s use one simple and realistic example.

Assume a homeowner has recently sold their detached home and, after paying any remaining debt, moving expenses and transaction costs, has approximately $650,000 available.

The goal is to choose a comfortable condominium while making a sound financial decision for this stage of life.

To keep the comparison fair, CPP, Old Age Security, pensions, RRSPs, TFSAs and any other retirement income or investments are assumed to be the same under both strategies.

Everyday expenses such as groceries, utilities, transportation, travel and healthcare are also excluded because they would generally be similar whether the person buys or rents.

This case study focuses on one decision only: how to make the best use of the same $650,000.

The Financial Assumptions

Every financial projection is only as reliable as the assumptions on which it is based.

Change the assumptions and the outcome will change as well.

No one can accurately predict future real estate prices, stock market returns, inflation or interest rates over the next twenty-five years. Rather than trying to forecast the future, this case study simply applies one consistent set of assumptions to both strategies so they can be compared fairly.

The objective is not to prove that buying is better than renting, or that renting is better than buying.

The objective is to compare two reasonable financial decisions using the same starting point, the same planning horizon and the same economic assumptions.

These assumptions are not predictions or guarantees. They are simply the framework used to compare the two housing strategies.

Some readers may believe that future real estate appreciation will be higher than 5.5% annually. Others may believe long-term investment returns will be lower or higher than the 7% assumed in this case study.

Those are perfectly reasonable opinions.

In fact, changing just one or two assumptions could produce a very different outcome.

Now that we have established the assumptions, we can compare the two strategies and see how they perform over the same twenty-five-year period.

Where Does the Money Come From?

For many people, the biggest concern is not simply whether buying or renting produces the better long-term result. The more immediate question is how the ongoing housing expenses will be paid.

“If I use my $650,000 to buy a condominium, how will I pay the ongoing ownership expenses? If I rent instead, can my invested capital help pay the rent?”

🏠 If You Buy the Condominium

You use the full $650,000 to purchase the condominium. Your capital is now held in your principal residence rather than in a financial portfolio.

Although there is no mortgage payment, ownership still comes with property taxes, condominium fees, insurance and maintenance expenses.

This works out to approximately $1,442 per month. These ongoing costs may be paid from Canada Pension Plan (CPP), Old Age Security (OAS), pension income, RRIF withdrawals or other personal savings.

Everyday expenses such as groceries, transportation, utilities and healthcare must still be planned for separately. The condominium may appreciate over time, but its market value does not normally provide monthly cash flow unless the owner sells, borrows against the property or uses another financial strategy.

🏢 If You Rent a Similar Condominium

Instead of purchasing the condominium, you keep the same $650,000 invested and rent a comparable home.

For illustration purposes, this case study assumes an average long-term investment return of 7% annually. On $650,000, that represents an illustrative return of approximately $45,500 per year, or about $3,792 per month, before taxes, investment fees and market fluctuations.

In this simplified first-year example, the assumed investment return is greater than the estimated rent and tenant insurance. CPP, OAS and any other retirement income would also remain available to help pay everyday living expenses.

However, investment returns are not guaranteed and do not arrive evenly every month. Some years may produce strong gains, while others may produce little growth or a loss. Paying rent may therefore require withdrawing investment income, selling part of the portfolio or using other retirement income.

Where Could Each Strategy Leave You After 25 Years?

Under the assumptions used in this case study, both individuals begin with the same $650,000. The only difference is how that money is used.

🏠 If You Buy the Condominium

Your $650,000 becomes your home.

During the first year, you pay approximately $17,300 toward condominium fees, property taxes, insurance and maintenance. These costs are assumed to be paid from retirement income such as CPP, OAS, pension income or other personal savings.

If the condominium appreciates by an assumed 5.5% annually, it could be worth approximately $2.48 million after 25 years.

🏢 If You Rent and Keep the Money Invested

Your $650,000 remains invested instead of being used to purchase a home.

At an assumed long-term return of 7% annually, the investment portfolio has the potential to generate income that can help pay the rent.

As long as withdrawals remain sustainable, the remaining capital can continue working for you. Actual results will depend on investment returns, taxes, fees, inflation and the amount withdrawn over time.

Beyond the Numbers

A financial projection can estimate future values, but it cannot measure peace of mind or happiness.

Some people sleep better knowing they own their home outright. Others feel more comfortable knowing their savings remain accessible and invested.

The numbers can compare the financial possibilities. Only you can decide which lifestyle will give you greater comfort and peace of mind.

This case study is intended to provide a starting point, not personal financial advice. Consider sharing it with your financial advisor, accountant or banking professional. They can adjust the assumptions to reflect your income, taxes, investments, expenses, estate plans and tolerance for risk.

If you are considering selling your family home and deciding whether to buy or rent a condominium, I would be pleased to help you understand the real estate side of the decision. Together, we can compare suitable condominium options, current market prices, rental opportunities and the practical considerations involved in each lifestyle.

If this case study encourages you to think more carefully about your next move, it has achieved its purpose.

Two Ways to Use the Same $650,000

This simple visual summarizes the two housing strategies discussed in this case study. Both begin with the same amount of capital, but the money is used in very different ways.

Questions to Discuss Before Deciding

This case study can be shared with your financial advisor, accountant or banking professional. They can adjust the assumptions to reflect your income, taxes, investments, expected expenses and estate plans. A REALTOR® can then help you evaluate the housing side of the decision, including current condominium prices, rental options and the practical realities of each choice.

This visual is provided for educational purposes only. It is based on the simplified assumptions used in this case study and should not be interpreted as financial, tax, legal or investment advice.