Housing during SARS-CoV-2 lockdown, before, during and after - Renting vs Owning

[GreyGhost]

If it works the tax free capital gain on the 1.1 mil home will be more than the gain on the 650 k one. Speculation drives the market up and will have to be dealt with at some point. If you have cash wait for a crash, buy a formerly 3 million dollar home for half price and wait it out. It beats buying a million dollar home that only dropped a hundred thou. In tough times modest homes fare better than the high rollers. The guy losing the 3 million home will move down to the one million. The 1.1 mil owner has far fewer options to move down and more likely to stay put.

A large number of Canadians have no mortgages and would be ****** if the capital gains rules got changed. They could be grandfathered in while new buyers could opt for a tax deduction on interest but pay capital gains when the sell out or downsize. Oh wait, that won't work because people will allow for the interest kickback and buy a bigger home.

Gotta do something. Canada will need money in the times to come. Going into this our debt was 800 Billion IIRC and JT's benefits will go into trillion territory PDQ.

One regulation can't cover all of Canada. A dump in TO is worth more than an executive house in ditchwater on the prairies. Where do the lines get drawn and who draws them?

I think a national cap on primary residence capital gain tax is a great idea. Probably something like 1M. If you did better than that, ok, pay tax on your earnings like everybody else. If JT actually cared about environmental footprint, encouraging a retired couple to live in a 7000 sq ft house is idiotic.

 

[shanekingsley]

I like the forced savings of a mortgage.

When I was renting I was spending everything I made. 12 yrs into our mortgages and I'm still spending my entire paycheck, but will have something to show for it that I would have otherwise squandered on who knows what.

Renting or first time buying in today's markets in the GTA is not a pretty picture no matter how you look at it.

 

[Trials]

... something to show for it that I would have otherwise squandered on who knows what.

Motorcycles ?

 

[Mad Mike]

Real life numbers for a house across the street as I know a lot of the numbers and/or can closely estimate based on my costs for my similar house.

Fully renovated house was being rented for 4K a month.
New owners paid $1.7M for it and moved in.
So it is based on renting at 4K verses buying at $1.7M.

Calculation includes (Toronto):
20% down
Land transfer taxes at purchase (Toronto).
Closing costs (buy and sell).
Real estate fees at selling.
Property tax indexed to inflation.
Maint costs indexed to inflation.
Rent index to inflation.
Insurance indexed to inflation (renter and home owner)
Investing the down payment and the monthly delta.
Property appreciation.
3% mortgage rate over the duration.
etc. etc.....
Everything includes the TVofM where appropriate.
Cashing out at each point (selling all assets), net assets.
As real world as it can be....

The renter in this example is further ahead until 2029 (9 years)--crossover then--after that that point the home owner is further ahead. So if your plan is to own the same place longer than nine years you are in the black in this example, if you sell before then the owner loses and renter wins.

View attachment 42866

Numbers based on Toronto, expect some minor shifts for different areas as 905 has lower land transfer by higher property tax.

Selling could be for any reason, lifestyle change, job move, job loss, divorce, death, upgrade, downgrade...does not matter. Nine years is or is not a long time.

Of course totally ignored is the monetary value of the perceived lifestyle and stability advantages and disadvantages for both cases.

How can one sway these numbers for owners, well you can buy a house that needs updating and repair and do the work yourself. Sweat equity. I still say this is the COVID-19 real estate opportunity as flippers move to the sidelines.

Or you can rent out the basement, grow op, whatever...

Neat, but I'm not sure it's something I would plan by. If you look at things from a historical, not forward looking, you will see a very different picture. Here is exactly what would have happened to Roger and Owen ir Roger bught a house in Markham in 2000 for $250K and his brother rented same house next door for $1K/mo.

Fast forward 20 years.

Owen would have paid $480K for principal, interest, taxes, and maintenance over a 20 year period. He would have a property worth $1.5m, and a mortgage of $65K. If he sold his house he would have selling and closing costs of $85K for a net cash gain of $1.35M.

Roger would have started paying rents at $1000, but today at an average rent increase would be paying $3500 for same house today. His initial equity of $35K + investing the difference between OWN and RENT ($80K) at an average 7% rate of return would net him $340K after same 20 years. Deduct capital gains of approx $60K for a net gain of $280K, -- more than a million behind Owen.

Now, at about year 10 Roger was paying less monthly than Owen as Owen's rents climbed at a rate of 7% annually Roger's PIT stayed relatively stable. So the tables turn ed at year 10 and Owen's rents started costing more than Roger's carrying costs, and that gap continually widens as time passes. If Owen used the same strategy of investing the difference between his OWN costs and his bro's RENT costs and managed the same rate of return as Roger, he would have an additional $100K over Roger.

 

[nobbie48]

The real estate hopping game is a fun question.

Someone says "I am in a million dollar home with only a 100K mortgage. I started with one I bought for 100K and sold for 200K,then bought for 500 and sold for 900K. Then I bought my current home". Ok then, so what is the first place worth now (deafening silence). Let's look it up, it just sold for 750K. So you have paid lots of interest and huge closing costs multiple times, are you really ahead financially over just staying in your first house? "I have a million dollar house with a 100K mortgage and I don't want to talk to you anymore".

One of the downsides of the house investment concept is that the house is never a home. We moved 40 years ago from an almost paid for semi in a noisy area into a detached in a far better area. Took on a mortgage = two years salary @13% and paid it off. We're in a good area if it comes to hunkering down, TTC and Mississauga Transit a couple of minutes away, hospitals and basic necessities nearby. We are content.

We had two fireplaces and they were useless. I took them out and made the rooms more livable. A friend freaked out because a fireplace adds $XXX to the price of a house. So what. The house as a house is better off without them.

We're up likely about $250K but happy. The old place may benefit from the covid situation in that it backed onto the 401 near the airport. Anyone viewing it today wouldn't hear as much noise.

Over the years we missed out on a couple of deals that we weren't ready for and didn't want to leverage. No on died because of it.

 

[mimico_polak]

We had two fireplaces and they were useless. I took them out and made the rooms more livable. A friend freaked out because a fireplace adds $XXX to the price of a house. So what. The house as a house is better off without them.

I'm more curious as to what you did to get rid of them. I have 2 as well...and although they're nice...I can see the benefit or getting rid of both of them as they go through the center of the house...and it would REALLY open up the living room.

 

[Evoex]

Neat, but I'm not sure it's something I would plan by. If you look at things from a historical, not forward looking, you will see a very different picture. Here is exactly what would have happened to Roger and Owen ir Roger bught a house in Markham in 2000 for $250K and his brother rented same house next door for $1K/mo.

Fast forward 20 years.

Owen would have paid $480K for principal, interest, taxes, and maintenance over a 20 year period. He would have a property worth $1.5m, and a mortgage of $65K. If he sold his house he would have selling and closing costs of $85K for a net cash gain of $1.35M.

Roger would have started paying rents at $1000, but today at an average rent increase would be paying $3500 for same house today. His initial equity of $35K + investing the difference between OWN and RENT ($80K) at an average 7% rate of return would net him $340K after same 20 years. Deduct capital gains of approx $60K for a net gain of $280K, -- more than a million behind Owen.

Now, at about year 10 Roger was paying less monthly than Owen as Owen's rents climbed at a rate of 7% annually Roger's PIT stayed relatively stable. So the tables turn ed at year 10 and Owen's rents started costing more than Roger's carrying costs, and that gap continually widens as time passes. If Owen used the same strategy of investing the difference between his OWN costs and his bro's RENT costs and managed the same rate of return as Roger, he would have an additional $100K over Roger.

Interesting but let's project that Roger the renter did not incur the aforementioned rent increases.

Many renters (like myself) have not incurred increases. Our landlords appreciate good tenants who pay on time and in full and create no drama over being greedy.

Let's run the numbers again and say it leveled off at $1750

 

[GreyGhost]

Interesting but let's project that Roger the renter did not incur the aforementioned rent increases.

Many renters (like myself) have not incurred increases. Our landlords appreciate good tenants who pay on time and in full and create no drama over being greedy.

Let's run the numbers again and say it leveled off at $1750

Where are you renting a markham house for 1750? Yes, landlords value good tenants but there are good tenants willing to pay an extra $20,000 a year.

 

[nobbie48]

I think a national cap on primary residence capital gain tax is a great idea. Probably something like 1M. If you did better than that, ok, pay tax on your earnings like everybody else. If JT actually cared about environmental footprint, encouraging a retired couple to live in a 7000 sq ft house is idiotic.

One can't just use a dollar value. A million dollar house in Gimli Manitoba is 4000 SF waterfront with all the trimmings. Occasional service by Air Canada when they're short on fuel but little else. They play badminton using the mosquitos as shuttlecocks. A million in TO is a 3 bedroom in the burbs or a fixer upper row house in the trendies. Some formula has to be worked out.

 

[Evoex]

Where are you renting a markham house for 1750? Yes, landlords value good tenants but there are good tenants willing to pay an extra $20,000 a year.

Who said I live in Markham?

For the record I have a 2 bedroom town house in North York for less than $1,500. (Yes I know I'm the exception). My rent has also not increased a penny for 4 years.

People are paying $3k+ in Markham? They really are sheep...

 

[GreyGhost]

Who said I live in Markham?

For the record I have a 2 bedroom town house in North York for less than $1,500. (Yes I know I'm the exception). My rent has also not increased a penny for 4 years.

People are paying $3k+ in Markham? They really are sheep...

Mm's scenario was based in markham.

 

[Evoex]

Mm's scenario was based in markham.

I saw. But again we're discussing potential savings, so let's cut both ways.

 

[GreyGhost]

One can't just use a dollar value. A million dollar house in Gimli Manitoba is 4000 SF waterfront with all the trimmings. Occasional service by Air Canada when they're short on fuel but little else. They play badminton using the mosquitos as shuttlecocks. A million in TO is a 3 bedroom in the burbs or a fixer upper row house in the trendies. Some formula has to be worked out.

Who cares about the house? The concept is the amount you can make before you get taxed. Either location you made 1,000,000 and paid zero tax. If you want to cash out the million you made on a dump in toronto before you were 50, fine, go live in a mansion in gimli with the proceeds if that makes you happy. Or rent and pay the capital gains tax on investment gains instead of house gains. Taxing at a vastly different rate based on what you invested in is stupid.

 

[Mad Mike]

Interesting but let's project that Roger the renter did not incur the aforementioned rent increases.

Many renters (like myself) have not incurred increases. Our landlords appreciate good tenants who pay on time and in full and create no drama over being greedy.

Let's run the numbers again and say it leveled off at $1750

It's not a practical argument -- that's the price of a basement apartment in a neighborhood with +1M homes. Even if that was the case, Roger's equity after tax would jump by $100K -- still less than 1/3rd of Owen.

.... Now, if you really need proof, start making a list of everyone you know over age 55. Estimate their net worth then mark which ones are renters and which are owners. Tell us how the list sorts out.

 

[GreyGhost]

It's not a practical argument -- that's the price of a basement apartment in a neighborhood with +1M homes. Even if that was the case, Roger's equity after tax would jump by $100K -- still less than 1/3rd of Owen.

.... Now, if you really need proof, start making a list of everyone you know over age 55. Estimate their net worth then mark which ones are renters and which are owners. Tell us how the list sorts out.

You've got to be careful with those lists. The whole correlation causation mess. Many of the owners will also be public sector workers with guaranteed benefit pensions and incredibly stable jobs.

 

[Evoex]

It's not a practical argument -- that's the price of a basement apartment in a neighborhood with +1M homes. Even if that was the case, Roger's equity after tax would jump by $100K -- still less than 1/3rd of Owen.

.... Now, if you really need proof, start making a list of everyone you know over age 55. Estimate their net worth then mark which ones are renters and which are owners. Tell us how the list sorts out.

It may be less but that's what I'm saying, are we laughing at 100k now? Sheesh.

What do I need proof of?

Everyone I know 55 or older is enjoying their lives because while they had to grind for the down payment they weren't living paycheck to paycheck like plenty of people who buy homes are today. To me that's not living and I don't care how you end up 25 years down the road.

 

[Mad Mike]

You've got to be careful with those lists. The whole correlation causation mess. Many of the owners will also be public sector workers with guaranteed benefit pensions and incredibly stable jobs.

Could be, but I'm not sure that would impact the outcome. Owen and Roger could both drive busses for the TTC, the math won's change.

 

[Lightcycle]

To make a blanket statement like owners will always come out ahead of renters is self-selection bias due to your own successes.

Have you actually tried the other way? I have.

Almost 20 years as a homeowner, mortgage paid off. Took the capital, invested it and rented for the last 8+ years.

I missed out on the hockey stick curve of Toronto real estate of the last 8 years, but instead rode the longest bull market in history.

This rising tide has lifted all assets: real estate and stocks.

Personally, for me, having the liquidity to either participate in rallies or sit out pullbacks, as well as having the choice of which sector or equity to invest in, I have experienced superior year-over-year returns (on a percentage basis) than if I had stayed locked into a fixed asset like real estate during the last 8 years. Even after capital gains taxes. I know this because I've continued to track the value of my home that I sold, so I have a solid basis to compare my returns against.

I know my situation is an individualized case. I know most people would probably blow all their income if they didn't have the obligation of a monthly mortgage. I know some people would have lost money in the stock market, even during a broad-based bull market like we have had.

But to say owners will always come out ahead of renters is ignorant to the opportunities of having liquidity and choice, if your investing habits are inclined that way.

 

[Evoex]

To make a blanket statement like owners will always come out ahead of renters is self-selection bias due to your own successes.

Have you actually tried the other way? I have.

Almost 20 years as a homeowner, mortgage paid off. Took the capital, invested it and rented for the last 8+ years.

I missed out on the hockey stick curve of Toronto real estate of the last 8 years, but instead rode the longest bull market in history.

This rising tide has lifted all assets: real estate and stocks.

Personally, for me, having the liquidity to either participate in rallies or sit out pullbacks, as well as having the choice of which sector or equity to invest in, I have experienced superior year-over-year returns (on a percentage basis) than if I had stayed locked into a fixed asset like real estate during the last 8 years. Even after capital gains taxes. I know this because I've continued to track the value of my home that I sold, so I have a solid basis to compare my returns against.

I know my situation is an individualized case. I know most people would probably blow all their income if they didn't have the obligation of a monthly mortgage. I know some people would have lost money in the stock market, even during a broad-based bull market like we have had.

But to say owners will always come out ahead of renters is ignorant to the opportunities of having liquidity and choice, if your investing habits are inclined that way.

Well said.

How's that quality of life vs being tied to property btw?

 

[Lightcycle]

How's that quality of life vs being tied to property btw?

Loving it!

Some people are house people. We've figured out we're lifestyle people.

To each their own!