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

[Trials]

I guess I must be a log and mineral rights people.

 

[xfactor]

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.

Timing the market to pull out and push in is great if you have that kind of skills. As a savvy investor I'm sure you know that it's next near to impossible and most of us don't want to be traders. As you have used the perfect analogy of rising tide, I'll continue with that: To me, the Real estate is the best of the rising tide scenario, as it's passive and I can click and forget and watch the equity build up over time, while also putting a life expense (the need for shelter) into building that equity. I know enough people in my circle who own 30+ properties and some of them don't really care about the macro and only look at cash flow. To them the market going down and up are not of concern. There are others who through hook or crook can time the markets and sell high and buy low. So the skill of timing things can be utilized in real assets also.

One thing that RE also allows the savviest of investor to take advantage is leverage. If you want to use leverage in the options world to do puts and calls is much more riskier proposition than to realize the equity you have in your primary residence and cash out x% and use that to get you a self sustaining rental property, which is a substantially less risky play.

So coming back to your scenario, would you have realized the same equity when you sold your home, if instead you would of bought SPY or some other liquid asset instead of putting it into a house and saving on the monthly cost while building that equity and cashing out to pursue your lifestyle? Maybe yes and maybe no, but you did buy a house at that time cause, well why not as I think it's the smart play on the risk/reward scale.

I think smart people can make money in any market using any asset, and RE is just one form of that. I know enough people who have lost millions in both types.

Good luck gents and as an advise, these are all formulaic and quantitative analysis questions. So open your fav number crunching tool and put in the numbers. Compounding is your real friend.

 

[Hardwrkr13]

All I can say is I personally don't know anyone who's done well financially and is still renting their primary residence. I'm sure it can be done and I can see how it can be done but I personally haven't seen it. Keep in mind I've never lived anywhere like Toronto with a ton of condos.
I'm currently building my dream 5200sq.ft. home +1300ft garage and it will be my 4th home and likely last. It's what I've been striving for and in the exact place I've sought (my wife's dream house, my dream garage/location). There's zero chance I could afford it if I hadn't done so well on the 3 houses I owned before it. My mortgage will be the same as the first home that was 1400sq. ft.
Numerous friends have rental properties but I'd rather build-to-sell and avoid renter crap so this will be my route after my residence is completed. No putting it in family members names or other shady stuff, I accept the gains hit.

 

[Lightcycle]

As you have used the perfect analogy of rising tide, I'll continue with that: To me, the Real estate is the best of the rising tide scenario, as it's passive and I can click and forget and watch the equity build up over time, while also putting a life expense (the need for shelter) into building that equity. I know enough people in my circle who own 30+ properties and some of them don't really care about the macro and only look at cash flow. To them the market going down and up are not of concern. There are others who through hook or crook can time the markets and sell high and buy low. So the skill of timing things can be utilized in real assets also.

One thing that RE also allows the savviest of investor to take advantage is leverage. If you want to use leverage in the options world to do puts and calls is much more riskier proposition than to realize the equity you have in your primary residence and cash out x% and use that to get you a self sustaining rental property, which is a substantially less risky play.

So coming back to your scenario, would you have realized the same equity when you sold your home, if instead you would of bought SPY or some other liquid asset instead of putting it into a house and saving on the monthly cost while building that equity and cashing out to pursue your lifestyle? Maybe yes and maybe no, but you did buy a house at that time cause, well why not as I think it's the smart play on the risk/reward scale.

I think smart people can make money in any market using any asset, and RE is just one form of that. I know enough people who have lost millions in both types.

Good luck gents and as an advise, these are all formulaic and quantitative analysis questions. So open your fav number crunching tool and put in the numbers. Compounding is your real friend.
View attachment 42870

I don't disagree with you at all.

I am just responding to the one-sided opinion that owners will always come out ahead of renters, which is not true. As you said:

I think smart people can make money in any market using any asset, and RE is just one form of that.

So coming back to your scenario, would you have realized the same equity when you sold your home, if instead you would of bought SPY or some other liquid asset instead of putting it into a house and saving on the monthly cost while building that equity and cashing out to pursue your lifestyle?

No, I will readily admit Toronto real estate outperformed the SPY in the specific period after I sold out. I outperformed Toronto RE because of my specific stock picks. Plus housing has held up better than the market during the last 8 weeks. However, there have been many discussions arguing against cherry-picking both location and timeframes and drawing unwarranted conclusions from such short periods. I don't think it's fair to choose such a specific and non-representative time-frame for Toronto RE from 2000-2020 and then compare it to a broader Canadian market composite index. It's not an apples-to-apples comparison.

I do think it's fairer to compare the historical returns from the composite index to the historical returns of real estate. The math has been done countless times and the numbers always favour stock market returns (3.5% RE vs 7% market).

Stretch the timeframe far enough back and it smooths out all of the variances and discrepancies in short-term returns.

Take for example my parent's place in Scarborough. They bought a SFH in 1980 for $199,000. Today it's worth roughly $1MM. Over forty years, that's a ~4% YoY return which shows that even with the blip in housing prices over the last decade or so, given a long enough investing horizon, the numbers will revert to the mean.

I think it's smart to choose the investing vehicle that fits your personality, your aptitude and your lifestyle. If you know you're not going to move for 20 years, and you tend to blow your entire paycheque on motorcycle parts, then maybe owning a home and building equity via forced savings is the correct methodology for you.

But my point was that it's not the right answer for everyone.

 

[ChrisCBR]

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.

Mike I tried showing this very thing in the other thread and their excuse was I didnt understand TVoM (funny since I passed a professional exam whose core topic is TVoM).
Over the past 20 years in the GTA the renter gets crushed (much of because property has become expensive and interest rates have lowered). Even if you take land transfer tax and the cost of selling (RE fees) the owner of an average GTA house comes out several hundred thousand ahead.
By the time that average $250K in 2000 mortgage hit the 3rd and 4th 5-year renewal term(25 year mortgage) the payment would be sub $1000 vs the renter who would be renting $2000-$2500 for that home. Its a mistake to assume the renter always pays less and that they can invest the difference in an index fund. The renter did pay less initially (but not by much). In fact if one had renewed every 5 years but kept using 25 year terms due to the cheap debt offered by rates here (especially the last 10 years) the payment would be $619 a month from 2015-2020.
Even after property taxes and maintenance, from 2010 to 2020 the home owner would be ~$1000 a month on average ahead. Imagine putting that in the S&P.

Renting isnt better when rates are low and the housing market climbs several points above inflation year after year.
I dont expect it to be quite as favorable the next twenty years. With low rates and therefore low increases in salaries I dont see how the average home ($910k in GTA) could gain 264% like it did the past 20 years. That would put it at $3.31m

 

[Lightcycle]

Over the past 20 years in the GTA the renter gets crushed

Why choose 20 years? Wouldn't a longer period be more indicative of a trend?

See my example of a 40 year SFH reverting to the mean.

 

[ChrisCBR]

I do think it's fairer to compare the historical returns from the composite index to the historical returns of real estate. The math has been done countless times and the numbers always favour stock market returns (3.5% RE vs 7% market).

It all depends on which real estate market we are talking about. RE is also a leveraged investment and one needs to participate in the market either as a renter or buyer. You cant live in your car and just invest in the S&P.

Take for example my parent's place in Scarborough. They bought a SFH in 1980 for $199,000. Today it's worth roughly $1MM. Over forty years, that's a ~4% YoY return which shows that even with the blip in housing prices over the last decade or so, given a long enough investing horizon, the numbers will revert to the mean.

The average home price in Toronto in 1981 was $90K, today its over $900K, even in Vaughan its the same, houses are 10X what they were in 1980.
Not sure how the return has been that much poorer in Scarborough

 

[ChrisCBR]

Why choose 20 years? Wouldn't a longer period be more indicative of a trend?

See my example of a 40 year SFH reverting to the mean.

I figured 20 was a valid comparison. Go back further and Im confident you will find the same result.
Houses are 10x what they were in 1980, not 5x.

 

[AllistonGT]

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...

One important thing missing. Once the house is paid for you pay neither rent or mortgage. Rent is permanent. A mortgage isn't.

 

[ChrisCBR]

In 1963 you could buy a detached for $16750 at Finch and Leslie
https://i.redd.it/5smrpqt6no721.jpg

 

[Evoex]

One important thing missing. Once the house is paid for you pay neither rent or mortgage. Rent is permanent. A mortgage isn't.

its relative, house ownership has upkeep costs. it's not black and white.

 

[shanekingsley]

One important thing missing. Once the house is paid for you pay neither rent or mortgage. Rent is permanent. A mortgage isn't.

While a mortgage may be paid off, property taxes are permanent. If someone in the GTA is owning a condo then maintenance fees are also permanent. Renting has neither cost. Granted these ownership fees are less then most rent prices, but they still exist nonetheless.

Mortgages don't also need to be really costly as some think. Our mortgages are both below the cost of renting the same spaces. We rent out a condo at below market rent because the rental income makes the property a neutral item each month. Our tenant could buy a house, but his rent is too cheap. It's great that he can save money while renting and we can save money while owning the exact same property!

Before I bought my first place my Dad and I talked about renting vs buying. He crunched the numbers looking at renting vs buying the 4 properties he owned in the GTA while I was growing up and said he came out dead even over 30 years! His advice to me was that in his particular experience, the hassles of owning a home made the lifestyle of renting a more attractive long term life strategy. I decided to buy and have been lucky with my choices.

As mentioned, to rent or to buy is such a layered decision that varies greatly from person to person. I always get a kick out of reading staunchly defended opinions that are so rooted in bias the writer can't even distinguish it.

All that said and back on topic - how will Covid affect rent and home prices in the GTA in the coming months and years?

I hope to my detriment that both rental prices and home prices come down, significantly, because young people have a more difficult financial journey ahead of them than I feel is reasonable.

 

[GreyGhost]

its relative, house ownership has upkeep costs. it's not black and white.

And property tax and insurance is much more. Realistically, on a 1 million house you can probably get down to 1250 or 1500 a month for maintenance/insurance/tax once mortgage is paid off.

 

[Evoex]

And property tax and insurance is much more. Realistically, on a 1 million house you can probably get down to 1250 or 1500 a month for maintenance/insurance/tax once mortgage is paid off.

now lets talk about renovations, additions, etc, etc.

 

[Evoex]

While a mortgage may be paid off, property taxes are permanent. If someone in the GTA is owning a condo then maintenance fees are also permanent. Renting has neither cost. Granted these ownership fees are less then most rent prices, but they still exist nonetheless.

Mortgages don't also need to be really costly as some think. Our mortgages are both below the cost of renting the same spaces. We rent out a condo at below market rent because the rental income makes the property a neutral item each month. Our tenant could buy a house, but his rent is too cheap. It's great that he can save money while renting and we can save money while owning the exact same property!

Before I bought my first place my Dad and I talked about renting vs buying. He crunched the numbers looking at renting vs buying the 4 properties he owned in the GTA while I was growing up and said he came out dead even over 30 years! His advice to me was that in his particular experience, the hassles of owning a home made the lifestyle of renting a more attractive long term life strategy. I decided to buy and have been lucky with my choices.

As mentioned, to rent or to buy is such a layered decision that varies greatly from person to person. I always get a kick out of reading staunchly defended opinions that are so rooted in bias the writer can't even distinguish it.

All that said and back on topic - how will Covid affect rent and home prices in the GTA in the coming months and years?

I hope to my detriment that both rental prices and home prices come down, significantly, because young people have a more difficult financial journey ahead of them than I feel is reasonable.

nailed it.

in the end i'm not anti-ownership, i'm anti 1 million dollar mortgage and shredding my paycheck as soon as it's put in my hand.

we're discussing ownership for next year before we get married since we've already paid for that (in cash). We haven't decided on renting it out or moving in and honestly i couldn't care either way.

 

[ChrisCBR]

And property tax and insurance is much more. Realistically, on a 1 million house you can probably get down to 1250 or 1500 a month for maintenance/insurance/tax once mortgage is paid off.

How much does it cost to rent a $1m house currently in Toronto though? $2750-$3250 minimum. Heck a 1 bedroom condo is $2000 a month. I live in a basement apartment in Vaughan. House is worth $2.75m afaik, landlord gets $8000 per month for whole house all inclusive. Rent isnt cheap. The house was worth $400K in 1994.
Property tax in Toronto for a $1m home is $6147.70 which is $512.31 per month.
Insurance is $1500-$2000, so lets take the high end at $2k = $166.67 per month.
If its a fairly new house and you refrain from doing unnecessary upgrades, maintenance is usually $1 per sqft, lets say you really like taking care of the home so $2 per sqft per year. $1m home = 2000 sqft = $333.33 per month.

So total is $1012 per month,
Sounds alot better than $2750-$3250.

 

[Evoex]

How much does it cost to rent a $1m house currently in Toronto though? $2750-$3250 minimum. Heck a 1 bedroom condo is $2000 a month. I live in a basement apartment in Vaughan. House is worth $2.75m afaik, landlord gets $8000 per month for whole house all inclusive. Rent isnt cheap. The house was worth $400K in 1994.
Property tax in Toronto for a $1m home is $6147.70 which is $512.31 per month.
Insurance is $1500-$2000, so lets take the high end at $2k = $166.67 per month.
If its a fairly new house and you refrain from doing unnecessary upgrades, maintenance is usually $1 per sqft, lets say you really like taking care of the home so $2 per sqft per year. $1m home = 2000 sqft = $333.33 per month.

So total is $1012 per month,
Sounds alot better than $2750-$3250.

1 million dollar new home? surely you jest.

 

[ChrisCBR]

1 million dollar new home? surely you jest.

St. James Town Real Estate - Houses for Sale in St. James Town | Point2

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or north on the subway line

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8,657 homes for sale in Toronto, ON. View photos and listing details of Toronto, ON real estate, get open house info, find new properties and read Toronto, ON local guide, real estate news and market trends.

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Those will go for $3500 minimum a month.

Im not saying buying is always better. But I think you will find that it has been better historically in large North American cities.

 

[Evoex]

St. James Town Real Estate - Houses for Sale in St. James Town | Point2

51 homes for sale in St. James Town, Toronto, ON. View photos and listing details of St. James Town, Toronto, ON real estate, get open house info, find new properties and read St. James Town, Toronto, ON local guide, real estate news and market trends.

www.point2homes.com

or north on the subway line

Toronto Real Estate - Houses for Sale in Toronto, ON | Point2

8,657 homes for sale in Toronto, ON. View photos and listing details of Toronto, ON real estate, get open house info, find new properties and read Toronto, ON local guide, real estate news and market trends.

www.point2homes.com

Those will go for $3500 minimum a month.

Im not saying buying is always better. But I think you will find that it has been better historically in large North American cities.

Interesting I'll look at them in the morning, but right off the bat, townhome. Likely co dominion or attached to a condo. That's fail.

 

[AllistonGT]

And property tax and insurance is much more. Realistically, on a 1 million house you can probably get down to 1250 or 1500 a month for maintenance/insurance/tax once mortgage is paid off.

That seems high. Though I'm not in the city. On my $900000 house, insurance and taxes are about $520/month. Renters are paying those costs for the owner on the property.
Maintenance cost would be very difficult to nail down to a monthly cost. Could be next to nothing for years then be quite high. Depends on the quality of the house and if things have been neglected.