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

[GreyGhost]

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

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.

I was just doing rough numbers. They can change quite a bit based on where the house is and what it has (eg pool adds ins and maintenance costs). I used 6000 tax, 4000 insurance and maintenance of ~4000. Some years may be lower, other years much higher.

Obviously it is more to rent than own once the mortgage is clear, the point was it is not zero to own, it still costs an decent amount of money just to keep the asset. If lightcycle wants to take off to Thailand for a year, he rents a storage locker in he boonies for $200 a month and still has $~12000 in his annual travel budget that the homeowner would be spending just to keep the house. His investments continue to grow with no carrying costs.

As the discussion goes on, we have had good arguments on both sides and some decent modeling showing outcome over time. I think it is reasonably clear at this point that either option can win financially by cherry picking time and place or equities. They key to financial freedom is save your money and get it compounding somehow. You will be ok. As for renting vs buying, I have a clear preference for me but it is based more on personality and risk aversion than being the financially optimal decision.

 

[Trials]

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

Or you could buy a 250 acre waterfront lot in Kennebec Township.
... but you pay higher taxes on waterfront so you need to be careful with that.

 

[GreyGhost]

Or you could buy a 250 acre waterfront lot in Kennebec Township.
... but you pay higher taxes on waterfront so you need to be careful with that.

What's that worth now? My parents were deciding between an acre in the beaches or many more acres well east of the city for even money in the 70's . They went with land and are happy with their choice, but financially it wasnt even close. TO property probably close to 300% better return.

 

[Trials]

What's that worth now? My parents were deciding between an acre in the beaches or many more acres well east of the city for even money in the 70's . They went with land and are happy with their choice, but financially it wasnt even close. TO property probably close to 300% better return.

Tax roll on that vacant lot now would rate its value at around 37 grand but you could likely sell for more then the tax base value.

 

[AllistonGT]

I was just doing rough numbers. They can change quite a bit based on where the house is and what it has (eg pool adds ins and maintenance costs). I used 6000 tax, 4000 insurance and maintenance of ~4000. Some years may be lower, other years much higher.

Obviously it is more to rent than own once the mortgage is clear, the point was it is not zero to own, it still costs an decent amount of money just to keep the asset. If lightcycle wants to take off to Thailand for a year, he rents a storage locker in he boonies for $200 a month and still has $~12000 in his annual travel budget that the homeowner would be spending just to keep the house. His investments continue to grow with no carrying costs.

As the discussion goes on, we have had good arguments on both sides and some decent modeling showing outcome over time. I think it is reasonably clear at this point that either option can win financially by cherry picking time and place or equities. They key to financial freedom is save your money and get it compounding somehow. You will be ok. As for renting vs buying, I have a clear preference for me but it is based more on personality and risk aversion than being the financially optimal decision.

Very well stated.

 

[crankcall]

Two kinds of people, those understanding compound interest and those paying it

 

[Trials]

Two kinds of people, those understanding compound interest and those paying it

Three kinds, I don't pay interest on squat so I don't understand it or pay it.

 

[blackcamaro]

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.

Considering you have gone both routes I’m curious, do you think you would of had as much success going the opposite way? Using your original down payment and investing it for 20 years with regular contributions would you have then been able to buy a house in the southern Ontario market for cash after 20 years?

 

[Mad Mike]

...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

hard to say. If you bought the house I mentioned in 1980 it would have cost $80k. Selling it 20 years later in 2000 would have more than tripled equity.

Supply and demand are at play. They aren’t making more land in the GTA so demand will continue to grow and supply will continue to tighten.

Toronto is a desirable destination for wealthy immigrants as well. I’m guessing wealthy immigrants will continue to flock to the GTA for decades. Finally, wealth gets Divided and passed down, making expensive real estate accessible to following generations.

the bottom line is the tax and financing system in place are geared to provide financial advantages to home owners over time.

 

[Mad Mike]

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 have a couple of issues wit this post. First, my parents modest SFH Scarborough (Dorset Park) home sold for $86k in 1980. It’s listed for sale now at $1m. Your parents would have been a fine Scarborough home to sell at $199k in 1980 — methinks that would be a $2m house now.

Next, remember buying fixes housing costs, some immunity to rental rate increases. Consider the impact of investing the surplus as income increases. Also remember that adjusting mortgage payments to match rental rate increases (or investing surplus income) will make you rent free for life after 15-20 years.

 

[nobbie48]

Three kinds, I don't pay interest on squat so I don't understand it or pay it.

I think you understand it very well. So well that you don't have to consider it.

 

[Mad Mike]

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.

20 years is a practical period at that is the point when the average home owner could be mortgage free. For most people, having housing costs of $500-800(tax and maint) / mo is an acceptable and comfortable end game.

 

[nobbie48]

Loving it!

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

To each their own!

IMO most home owners are better off because the house was a forced savings plan. If they rented instead and had a monthly RRSP withdrawal or similar forced savings plan where the monthly difference between a mortgage and rent gets locked away into a forgotten account they would be OK. Add the down payment as a starter and things look pretty good if they keep their fingers out of the till. Ten grand a year for 40 years plus interest / gains plus CPP and OAS would keep a person out of the cat food aisle.

One of the reasons RRSPs work well is that the government slaps you pretty hard if you withdraw funds.

If you are disciplined either will work.

I'm a house person. If I was in a rental I'd have to buy a cottage or industrial condo so I could throw around hammers. I'm not happy unless there's sawdust on the floor somewhere.

Don't let Madison Avenue psych you into making their clients rich and you'll be OK.

 

[GreyGhost]

IMO most home owners are better off because the house was a forced savings plan. If they rented instead and had a monthly RRSP withdrawal or similar forced savings plan where the monthly difference between a mortgage and rent gets locked away into a forgotten account they would be OK. Add the down payment as a starter and things look pretty good if they keep their fingers out of the till. Ten grand a year for 40 years plus interest / gains plus CPP and OAS would keep a person out of the cat food aisle.

One of the reasons RRSPs work well is that the government slaps you pretty hard if you withdraw funds.

If you are disciplined either will work.

I'm a house person. If I was in a rental I'd have to buy a cottage or industrial condo so I could throw around hammers. I'm not happy unless there's sawdust on the floor somewhere.

Don't let Madison Avenue psych you into making their clients rich and you'll be OK.

Theres another step in this process that hasn't been brought up yet. If renting, you can start investing the down payment from the beginning. If really pushing for home ownership, many dont want to put the downpayment money anywhere where it may drop. That gives the renter a few more years of growth over most homeowners.

 

[Lightcycle]

Considering you have gone both routes I’m curious, do you think you would of had as much success going the opposite way? Using your original down payment and investing it for 20 years with regular contributions would you have then been able to buy a house in the southern Ontario market for cash after 20 years?

If I had started out renting back in the mid 90s and invested the down payment and delta between rent and a mortgage+ownership expenses, would I have been able to buy the same place that I had for the price that I sold it in 2012?

Mathematically: yes.

Realistically: no.

I've mentioned before that I bought my place when I was young and immature. If I had rented back in the 1990s, by 2000, I probably would have had a kick-ass car in the garage and $0 in the portfolio. I didn't develop the maturity to save and invest until much later. And even then, I didn't learn about how to *properly* invest until even later than that. First stock I ever bought, I lost pretty much all my money - gambling it away on a "hot stock tip".

I'm glad that having a mortgage forced me to save and build equity at a time when I didn't have the self-discipline to do so myself. I'm glad that I was able to dip my toe into investing and make mistakes when the dollar amounts were not as high-stakes as they are now.

I've always maintained that mathematically, a renter will outpace an owner if they were the type of person who had the discipline and diligence to save and invest.

Back then, I was not that guy.

 

[Evoex]

If I had started out renting back in the mid 90s and invested the down payment and delta between rent and a mortgage+ownership expenses, would I have been able to buy the same place that I had for the price that I sold it in 2012?

Mathematically: yes.

Realistically: no.

I've mentioned before that I bought my place when I was young and immature. If I had rented back in the 1990s, by 2000, I probably would have had a kick-ass car in the garage and $0 in the portfolio. I didn't develop the maturity to save and invest until much later. And even then, I didn't learn about how to *properly* invest until even later than that. First stock I ever bought, I lost pretty much all my money - gambling it away on a "hot stock tip".

I'm glad that having a mortgage forced me to save and build equity at a time when I didn't have the self-discipline to do so myself. I'm glad that I was able to dip my toe into investing and make mistakes when the dollar amounts were not as high-stakes as they are now.

I've always maintained that mathematically, a renter will outpace an owner if they were the type of person who had the discipline and diligence to save and invest.

Back then, I was not that guy.

Soooo many variables, but to flat out say no it's not possible? not buying it.

agreed.

 

[blackcamaro]

@Lightcycle thank you for the answer. I'm a little bit surprised that mathematically it would've worked out, I thought real estate during that time would've appreciated quicker then other investments.

I don't regret the path I took and likely would do it the same way again but to me it is interesting that it could work going either way.

 

[crankcall]

This has been a very interesting discussion to follow. How many of our decisions are also based a bit on culture, ethnicity and back stories? With my parents it was pretty much a 'given' that people that didnt own homes lacked responsibitity and renters were somewhat lesser achievers. No facts behind it at all, thats just how my family thought about things.
Partly because owning property in the old country was hard at the time, estate was considered success.
It formed my opinion that rent was money wasted, at that time.
I also had no clue growing up on a farm that regular people could travel the world, work part time to top up the travel fund, own vacation homes, motorcycles like the ones in magazines, not beaters, or yachts.

Stuff I wish somebody told me was possible when I was 10

 

[Deleted member 50930]

In my case, if I can survive a 30-40 minute commute or just find another job it might be worth it to buy.

New rent rates are ~$300 to $1,000 more for a similar-sized apartment now before parking fees, utilities, insurance fees etc. So the monthly income to savings ratio is pretty crappy.

House is risky though too. ~$80k downpayment only leaves ~$5k for an emergency fund. If COVID-19 didn't happen then MAYBE I would gamble because one of our jobs is very secure but not anymore

I'm under 30, I went to University, make decent money and I don't spend too much on dumb stuff.

Being a grown-up kind of sucks ><

 

[ChrisCBR]

hard to say. If you bought the house I mentioned in 1980 it would have cost $80k. Selling it 20 years later in 2000 would have more than tripled equity.

Supply and demand are at play. They aren’t making more land in the GTA so demand will continue to grow and supply will continue to tighten.

Toronto is a desirable destination for wealthy immigrants as well. I’m guessing wealthy immigrants will continue to flock to the GTA for decades. Finally, wealth gets Divided and passed down, making expensive real estate accessible to following generations.

the bottom line is the tax and financing system in place are geared to provide financial advantages to home owners over time.

I mostly agree with this. The way I see it is that salaries have risen at about 2% per year here since 1980. Twenty years from now the median salary is going to be around $90K. With small homes at $3.3m and 1-bed condos at 1.5+ I fail to see how any new buyers can get into the market.
At $1.5m for the condo, it follows rent should be $5500, which is not affordable for anyone making anywhere near $90K gross, maybe not even for $150k gross.
Something is going to have to give. Either that or its going to be only wealthy immigrants and old money that can buy here.
People like to make the argument sometimes that Toronto and Vancouver are expensive but not as much as SF, NYC or London but if you look at salaries they are much higher there.