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House or condo: What’s the better buy?

Lauren Souch,

It's no secret that condos, especially in big cities, are much cheaper than houses — but simply finding the most affordable property isn't always the best idea.

While living in—or close to—a major metropolis is an exciting prospect, it can also end up being quite expensive if you're planning to buy your own home. In many cities, including Toronto, houses in the downtown core are few and far between, and the ones that do exist come at a premium price.  In addition to the financial considerations, there's a variety of lifestyle tradeoffs you'll want to think about when weighing the decision between owning a condo and owning a home.

B.C. Mortgage Broker Dara Fahy believes condos can be the ideal choice for a young, urban professional on a budget.  "In Vancouver you can get a condo for so much less than a house, so it's easier to get into the housing market," he said, "and you're buying prime real estate in the heart of the city."

In order to get a better idea of the cost of home ownership in your dream area, it's a great idea to scour various real estate listings and compare different properties, keeping in mind what features and costs best fit your lifestyle and budget.

Here's a look at what different types of properties in and around Toronto might cost you.

Location Yonge/Eglinton (18 Merton St.)

Spadina/Richmond (438 Richmond St. West)

Weston & Lawrence (8 Arthur St.)

Yonge/Eglinton (202 Manor Rd)
Property Type 2-bedroom condo 1+1 bedroom condo 3-bedroom house 3-bedroom house
Price $369,000 $384,000 $399,800 $949,400
Sq. Ft. ~750 ~650 ~1,200 ~960
Cost/Sq. Ft. $492 $591 $333 $988
Monthly Mortgage* $1,703 $1,772 $1,845 $4,383
Monthly Maintenance Fees $581 $426 N/A N/A
Combined monthly outlay $2,284 $2,198 $1,845 $4,383

A small, 650 square foot 1-bedroom condo in the heart of Toronto costs roughly the same amount as a 3-bedroom house in the northwest end of the city. In this case, by giving up a prime downtown location with the condo you'd be almost doubling your space and purchasing a house.

In midtown Toronto in the Yonge and Eglinton area, a small two-storey, 3-bedroom house costs just under $1M, while a 2-bedroom condo costs $369,000. While the house does cost more than double what the condo does, it's a tradeoff for both increased living space and the advantage of owning land.

While the price of a potential home should never be the only factor you look at, it does play an important role in the purchasing process.  When shopping around for your perfect house or condo, it's a good idea to crunch the numbers through a mortgage affordability calculator to determine which choice may better fit your budget.

The cost of home ownership

In addition to the monthly mortgage and maintenance fees, there are a number of additional costs that come along with home ownership—such as your land transfer tax, home insurance, property taxes, and mortgage insurance—and many of these numbers can vary depending on whether you own a house or a condo.

"Insurance costs are significantly different," said Fahy.  "Typically, your monthly condo maintenance fees include insurance for things like fires and flooding, whereas insuring a house for these kinds of things can be expensive on your own."

According to Toronto-based realtor Andrew LaFleur, there are also additional types of insurance to consider with a house.  "When you're buying a house, you're buying a structure—so you need insurance for that whole structure, the whole building," said LaFleur, "You'll need to think about things like sewage back up and weather related incidents; whereas with a condo you just need to worry about [your contents]."

Since property taxes, LTT, and CMHC mortgage insurance are calculated with a mathematical formula dependent on the value of the mortgage, the amount you're paying can vary between a house and a condo thanks to the value—or cost—of each property.

"In my experience, the assessed value of a condo tends to be a lower percentage of the actual market value on a condo than on a house," said LaFleur.  "The average Toronto property tax rate on a house is around $3,000 a year, whereas the average Toronto condo is more like $2,000 per year."

In addition to the price tag and associated purchase costs, a condo is also low-maintenance when compared to a house: with a house comes land, and with land comes shoveling, mowing the lawn, and maintaining and repairing your property.  A condo takes care of all of that for you, though it is at a monthly cost, included in your maintenance fees.

"There's a belief that maintenance fees in condos are taking money from you and not going anywhere, and that you're better off buying a house," said LaFleur, "but that's one of the biggest myths in the home-buying universe."

LaFleur cautioned buyers that the maintenance on a house—especially an older one—can come with a hefty price tag.  To put it into perspective, you might pay $400 a month in maintenance fees for your condo, which adds up to about $5,000 a year, but a house could end up costing you much more.

"Five grand, when spent on a house, will disappear really fast on any major repair or upgrade," said LaFleur.  "If you need a new roof, that's five grand.  New windows, that's ten grand.  Simple landscaping in your backyard can easily cost ten, fifteen, twenty grand.  There are all these little things that can go wrong in a house, and people are often amazed at how much a home can cost to upkeep."

Fahy agrees there is a greater potential for repairs and associated costs when buying a house, but stresses these costs are not on an ongoing basis which, for many, can be a good thing since more cash stays in your pocket.  "A condo will affect your monthly cash flow steadily as you're paying maintenance fees, but you won't be getting huge repair bills," said Fahy.

Investment potential

From an investment standpoint, a house—which comes with land—is typically considered a better future investment according to Fahy.  "There's a lot of value in buying a piece of property and land, especially in urban areas where land is at a premium — there's a very good chance for appreciation."

LaFleur agrees.  "The problem with condos is they have a shorter lifespan than homes—their value tends to peak within the first 10 years.  Condos are commodities, and people want the newest thing.  As a condo building ages, the unit becomes less attractive and under performs compared to newer buildings."

According to TD Canada Trust's annual Condo Poll, in Toronto alone, 39% of condo buyers see their property as a long-term source of income by renting it out, and 37% say they plan to eventually move into that same rental condo when they're ready to downsize from a house later in life, allowing them to enjoy the best of both worlds throughout their years.

In fact, just over a quarter (26%) of Canadian condo buyers own a property that is not their primary residence.  A home equity line of credit, which allows you to access and utilize the equity from your primary residence, can be a great way to finance an investment property.

However, LaFleur believes a house is the fiscally better choice as an investment property.  "A freehold home preforms better if you're looking for an income-producing property," said LaFleur.  "You'll get a better return on your investment with a house or duplex, but the tradeoff is it's also more work as a landlord.  The great thing about condos is they're very low maintenance. You just put a tenant in there and the money starts coming in."

Consider your lifestyle — and the future

Once you've assessed your budget and considered all things financial, spend some time thinking about the lifestyle tradeoffs that come with each type of property, and what things are most important to you.

Do you like being able to walk, bike, or take public transit everywhere, or do you own a car or prefer to drive?  How much control do you want over your property, renovations, and landscaping?  Do you value your privacy, or do you prefer having other people nearby all the time?

Choosing a condo often puts you in the heart of the city, but you're giving up a certain amount of privacy and space for that prime location.  You could move out of the city center and into the suburbs, where homes become more affordable, but you're trading the convenience of city life to get that price point.

In addition to thinking about what kind of life you lead now, both LaFleur and Fahy agree you also need to think long-term when making such a large purchase.

"This is where the lifestyle factors really tie in to the financial factors," said LaFleur.  "If you're planning on getting married, having kids—you need to think about those things while shopping around.  Can you make a condo work in a couple years if your family situation changes?"

Yonge/Eglinton (202 Manor Rd.)

3-bedroom house[1]