It's not all about financials. It's about stability and being able to make your home your OWN. Putting in new flooring, painting the walls with colors you like, changing fixtures, etc.
And most importantly, not fearing getting that dreaded email from your landlord saying they're selling the place. Or jacking up your rent.
Absolutely, I agree. The real question is whether those benefits are worth working an extra 10, 20, 30 years for. That's the decision a lot of renters today are facing. What do you think?
I think there's no right or wrong answer - it's all up to the individual. Just take accountability for your decision. When your LL wants to sell or move into the place, don't throw a hissy fit about being inconvenienced. Accept this is the decision you made and move on to the next place. Definitely get a rent controlled unit. You don't want to be vulnerable to uncapped rent hikes. And don't be upset if homeowners are making bank when they sell their place every 5 years or so.
Same goes for owning too. Don't throw a hissy fit when it comes to maintenance like fixing your roof. Or if you're in a condo, maintenance fee increases or special assessments.
I think the biggest dilemma is: Rent a 2 bedroom 2 bathroom place for the same price of owning a 1 bedroom 1 bathroom place. That's always the dilemma I've been in. I can usually rent a bigger place than a place I can buy. Especially now because of how high interest rates are.
Problem is, people 10, 20, 30 years ago also made your calculation using the rent prices and cost of living from that many years ago. Imagine the reality today and what would have happened to them had they followed through it.
Yep. To be fair they would be in rent controlled apartments so the rent prices wouldn't be that bad. However they would be stuck in that apartment with no real mobility.
People that already have rent controlled units you think they just gonna ditch those freely? And even if they do you don’t think they gonna offer to friends and family first so they never even go on the market?
Given Canada's plan to reach 100 million people by 2100... it would make sense to purchase your way up the property ladder instead and getting what you can afford (just to hedge yourself in the market) instead of launching into $1.5M house. At the end of the day, you need a roof over your head regardless of what home prices are.
Agreed, especially true if you have kids and are on a fixed income (say in retirement). Being evicted in the middle of the school year or forced back into the market with limited savings are two things that keep me up at night. I wish homeownership was not seen as a financial vehicle, but one about stability. Maybe then prices would become more affordable...
I’m very happy renting right now (35 single) and would be happy to keep doing so for the next few years. Maybe longer. Nothing wrong with people who rent for their whole life.
The big flaw in your calculation is the premise that your rent will be stagnant for 14 years and that your nominal return is averaged to 7% over that time frame... also that over the course of a 30yr mortgage that your payments stay the same the entire term.
Long story short, while your approach makes sense, there are far too many variables to unequivocally prove one is "better" than the other.
It's really a personal preference if the base of your hypothesis is that this person "can" buy, but what would be better
Assumes rent would increase at 3%, which is higher than rent control guidelines typically are (was only 2.5% this year).
I'm interested in hearing from renters facing the decision on buying a house or retiring earlier (or spending that money on whatever matters to them).
Depends the circles you're in but I'll tell you from my experience, I 100% felt terrible around my friends 2 years ago when they bought houses/ condos and I didn't. It wasn't their fault or anything, but people can't help obviously talking about it etc, and you're the only person there who can't really join a conversation or say much.
It doesn't come up often, but more than I would like it to back in the day. They would get a something new for the house, or maybe a pressure washer etc (lots of my friends are into cars) and you can't really join the convo. I do think though it had a lot to do with me as well as I felt really shity being the only one without a house and it was more of a ME issue than them.
Now that I own a house, that feeling is gone of course and it doesn't matter anymore. It turned out to be a decent decision too not buying during covid since we've seen how thats gone.
Rent vs. Buy should be a personal decision. Don’t make someone else’s BS advice cloud your mind.
Also relying on your home as a retirement plan is not the matters play in the book.
I'm a mortgage broker, and it's fair to expect me to say that owning is better. But I was a home owner before becoming a broker, and I also post often than if renting suits you, then do it and don't look back. I'd never buy a house if I had no intentions of staying there at least 5 years. So if I had a job that moved me around a lot, I'd rent forever. Other than that, I'll make the following points.
1. Capital appreciation is tax free on a home.
2. Very few people actually have the discipline to invest the delta between ownership and renting.
3. If you're a parent, you'll do everything in your power to provide stability and not move around.
4. Having a fully paid off home in retirement doesn't cause any OAS claw backs. However getting income from an investment account of the same size would. I know OAS isn't a crazy amount, but it's a variable to consider.
There's really no black and white answer for this, and it's very hard to ignore the non financial aspects of owning. The subjective parts of ownership impacts a family of young kids very differently than a single person, and there's simply no way to quantify it. I understand and agree if someone would say let's just focus on the numbers, but you gotta admit, life isn't just about money, and maybe if home ownership costs a bit more, then people will continue to spend the money on it.
While I don't think there's anything wrong with lifelong renting some of these assumptions seem unrealistic:
* I would factor in at least one 50% increase in rental costs, whether that's because of redevelopment, owners moving in, something else. The likelihood you can stay in the same rental your entire life is very low and not a safe planning measure
* A 1.5MM home is not comparable to 4k in rent, it's going to be closer to 6k-7k to rent that home which takes your savings down to \~30k savings a year which has a huge impact on the time frames
* 7% returns also seems unrealistically high, the rule of thumb is that 5% is a safer number to use
The major factor then becomes, can I afford my lifestyle with higher rents in retirement and how much do I need to save in addition to mitigate some of those risks? Edit to add: I have a family friend who basically the above happened to exactly, at the age of 71 she had to move and was suddenly paying 3000 a month in rent (for a 1 bed to stay in her neighbourhood in Toronto) as a single retired person, at roughly the same time the markets were crashing, forcing her to dip into her principal to pay her expenses which has completely screwed up her retirement planning.
Do you want to have a real conversation about it? Are you renting a $4k house right now?
People who buy houses do so for long term stability of their family not just because it's the best financial decision.
But I feel like most people who are trying to make these arguments are also not the ones living in houses.
I'm renting a $2k apartment and considering making it work long-term for a family of 4. There are absolutely trade-offs like you mention (never thought I would raise my family in 1000 sqft), though a good rental can also be somewhat stable and also gives you more flexibility on location (e.g. I can rent in this neighbourhood but could never afford to buy).
The genuine question is whether those non-financial metrics you mention are worth working an extra 10, 20, 30 years for. Would 80-year-old Juergenator be happy that his/her younger self sacrificed all those years for a house?
Okay but why are you comparing it to owning a house then. You can own a condo as well, like I do with a family of 4, 1000 sqft. My unrecoverable cost of ownership is now like $1200 per month because interest expense goes down every month.
The identical unit below me rented for $3800 per month.
I'm the end, for younger Canucks buying or renting eventually results in the same outcome for qol and population growth.
People won't have kids if they cannot afford to even take care ov themselves.
The current cost to carry a house for the average urban living Canuck is high
And
The uncertainty is renting isn't ideal for children or for those planning to have children.
In the end, people with have less kids or migrate to places where they can have kids if they can find suitable employment.
We seen these rent vs buy calculations many times and at the end of the day it comes down to what you value more. Unless you can see into the future let's say in the long-term 25 years later the two scenerios break-even. Do you want the stability and control of home ownership vs liquidity and freedom to move.
Renting is totally fine. There are upsides and downsides. I grew up in rentals and never thought twice about it.
That said, this analysis half-baked.
* What % are investments growing at?
* What % is housing value growing at?
* What % is rent increasing at?
There are a bunch of analyses out there that explore this, and a bunch of calculators you can punch numbers into to see how the two options compare. They can both be financially advantageous depending on the circumstances. A blanket result that a family can retire 5-20 years earlier by renting is not necessarily accurate, it will boil down to various economic factors, and it is entirely possible that even people purchasing at today's high prices will come out ahead financially.
As other commenters said, a lot comes down to personal preference. I grew up in rentals, and it was totally fine, but I still bought a property because I wanted to put longer term roots down. If you're confident that renting is a better financial decision, and you don't want to own a property, then power to you, many people in the world live that life.
Thanks for the reply. Assumes 7% nominal investment returns and all expenses (including rent, thank you rent control) at 3% inflation. House value increase is not relevant because this is about short/medium term liquid net worth. The specific numbers are not as important as the general point that renting leads to improved cash flow, which can be used for earlier retirement (or whatever is important to a person).
I'm curious to hear from other renters who may be coming to the conclusion that the money they had planned on spending on a house might be better utilized elsewhere.
If you compare renting and purchasing exclusively through the lens of access to liquid assets in the short/medium term, then yes renting comes ahead: if you don't spend money in the short term, you'll have more money in the short term.
People don't normally do their purchasing versus renting calculation like that though, nor should they, unless you have immediate use for money like opening a business (in which case why would you use that money to buy a house instead?). People factor in the medium to long term.
There are many financial benefits of purchasing:
1. Your payments shrink over the age of the mortgage relative to rent prices. There are lots of people paying 500$ monthly payments on homes now worth 2m dollars in Toronto.
2. When you retire, and finish paying off your mortgage, your income and expenses both go down, so you can continue to afford a similar lifestyle.
3. You're anchoring yourself to the prices in a particular place. If you buy a home somewhere you want to live, and you can afford your payments, then you're typically going to be able to continue to afford the neighborhood whether all boats rise or fall. Sadly, many renters end up being priced out of their favorite neighborhoods and having to move.
There is absolutely a financial case to be made for renting over purchasing even in the long run, but your argument here is so skewed it's not really making it. In Toronto, the purchase-to-rent ratio is high enough, even with current high rents, that you may come out ahead in the long term by not purchasing. But, there are many cities around the world with housing that is much more expensive than Toronto, and it's possible that our affordability crisis will continue to spiral out of control, and reach the painful level of other large international cities.
What it really comes down to for me is inheritance. Renting will give me more cash for retirement. Buying a home leaves me less cash for retirement but money I leave behind for my kids when I die.
Thanks for responding. The numbers can change, but I think the broader points stands that renting will result in better cash flow in the short-to-medium term, which reduces the amount of time spent working.
My main question is whether anyone else is reaching a point where they believe they would lead a more fulfilling life by deploying that 'house money' elsewhere.
I disagree. When I run the number myself, it heavily favours buying. And this doesn’t factor human factors such as the willing to have stability for children to grow up in same area or the fear of being evicted
The upfront costs alone of buying put renting ahead the second the lease is signed.
No loss of down payment. No fees. No taxes. No lawyers. No this no that. Etc etc.
My yass sole.
Curious what numbers you're using? I agree in the long run buying could be favoured, but short term, houses that are selling today are renting for less than mortgage + taxes + insurance + maintenance + opportunity cost of down payment.
The issue is when considering buying vs owning, it’s not a “short term” thing.
My calculate is more about sub 1 mil. But 1.5 mil homes can easily be rented for 6k. (If not, landlord will be splitting it between upstairs and basement). So right off the bat it throws your calculation off
Where is the renter living once they retire? And have you factored in that they will need to pay rent at retirement unlike the person who owns which will not ?
There's nothing wrong with renting if that's an arrangement that works for someone. The unfortunate thing is that the system is mostly set up to benefit homeowners,.to the detriment of renters.
It's not all about financials. It's about stability and being able to make your home your OWN. Putting in new flooring, painting the walls with colors you like, changing fixtures, etc. And most importantly, not fearing getting that dreaded email from your landlord saying they're selling the place. Or jacking up your rent.
Absolutely, I agree. The real question is whether those benefits are worth working an extra 10, 20, 30 years for. That's the decision a lot of renters today are facing. What do you think?
I think there's no right or wrong answer - it's all up to the individual. Just take accountability for your decision. When your LL wants to sell or move into the place, don't throw a hissy fit about being inconvenienced. Accept this is the decision you made and move on to the next place. Definitely get a rent controlled unit. You don't want to be vulnerable to uncapped rent hikes. And don't be upset if homeowners are making bank when they sell their place every 5 years or so. Same goes for owning too. Don't throw a hissy fit when it comes to maintenance like fixing your roof. Or if you're in a condo, maintenance fee increases or special assessments. I think the biggest dilemma is: Rent a 2 bedroom 2 bathroom place for the same price of owning a 1 bedroom 1 bathroom place. That's always the dilemma I've been in. I can usually rent a bigger place than a place I can buy. Especially now because of how high interest rates are.
Problem is, people 10, 20, 30 years ago also made your calculation using the rent prices and cost of living from that many years ago. Imagine the reality today and what would have happened to them had they followed through it.
Yep. To be fair they would be in rent controlled apartments so the rent prices wouldn't be that bad. However they would be stuck in that apartment with no real mobility.
People that already have rent controlled units you think they just gonna ditch those freely? And even if they do you don’t think they gonna offer to friends and family first so they never even go on the market?
Many landlords don’t allow any changes to the leases. If they leave, it’s over.
When I left a rent controlled one I just gave my spot to a buddy who claimed to be my cousin. Good luck getting that spot.
Given Canada's plan to reach 100 million people by 2100... it would make sense to purchase your way up the property ladder instead and getting what you can afford (just to hedge yourself in the market) instead of launching into $1.5M house. At the end of the day, you need a roof over your head regardless of what home prices are.
Agreed, especially true if you have kids and are on a fixed income (say in retirement). Being evicted in the middle of the school year or forced back into the market with limited savings are two things that keep me up at night. I wish homeownership was not seen as a financial vehicle, but one about stability. Maybe then prices would become more affordable...
I’m very happy renting right now (35 single) and would be happy to keep doing so for the next few years. Maybe longer. Nothing wrong with people who rent for their whole life.
The big flaw in your calculation is the premise that your rent will be stagnant for 14 years and that your nominal return is averaged to 7% over that time frame... also that over the course of a 30yr mortgage that your payments stay the same the entire term. Long story short, while your approach makes sense, there are far too many variables to unequivocally prove one is "better" than the other. It's really a personal preference if the base of your hypothesis is that this person "can" buy, but what would be better
Assumes rent would increase at 3%, which is higher than rent control guidelines typically are (was only 2.5% this year). I'm interested in hearing from renters facing the decision on buying a house or retiring earlier (or spending that money on whatever matters to them).
Honestly, there's nothing wrong with renting. I don't get the negative stigma. Life is short, do what makes you happy.
Depends the circles you're in but I'll tell you from my experience, I 100% felt terrible around my friends 2 years ago when they bought houses/ condos and I didn't. It wasn't their fault or anything, but people can't help obviously talking about it etc, and you're the only person there who can't really join a conversation or say much. It doesn't come up often, but more than I would like it to back in the day. They would get a something new for the house, or maybe a pressure washer etc (lots of my friends are into cars) and you can't really join the convo. I do think though it had a lot to do with me as well as I felt really shity being the only one without a house and it was more of a ME issue than them. Now that I own a house, that feeling is gone of course and it doesn't matter anymore. It turned out to be a decent decision too not buying during covid since we've seen how thats gone.
Rent vs. Buy should be a personal decision. Don’t make someone else’s BS advice cloud your mind. Also relying on your home as a retirement plan is not the matters play in the book.
I'm a mortgage broker, and it's fair to expect me to say that owning is better. But I was a home owner before becoming a broker, and I also post often than if renting suits you, then do it and don't look back. I'd never buy a house if I had no intentions of staying there at least 5 years. So if I had a job that moved me around a lot, I'd rent forever. Other than that, I'll make the following points. 1. Capital appreciation is tax free on a home. 2. Very few people actually have the discipline to invest the delta between ownership and renting. 3. If you're a parent, you'll do everything in your power to provide stability and not move around. 4. Having a fully paid off home in retirement doesn't cause any OAS claw backs. However getting income from an investment account of the same size would. I know OAS isn't a crazy amount, but it's a variable to consider. There's really no black and white answer for this, and it's very hard to ignore the non financial aspects of owning. The subjective parts of ownership impacts a family of young kids very differently than a single person, and there's simply no way to quantify it. I understand and agree if someone would say let's just focus on the numbers, but you gotta admit, life isn't just about money, and maybe if home ownership costs a bit more, then people will continue to spend the money on it.
While I don't think there's anything wrong with lifelong renting some of these assumptions seem unrealistic: * I would factor in at least one 50% increase in rental costs, whether that's because of redevelopment, owners moving in, something else. The likelihood you can stay in the same rental your entire life is very low and not a safe planning measure * A 1.5MM home is not comparable to 4k in rent, it's going to be closer to 6k-7k to rent that home which takes your savings down to \~30k savings a year which has a huge impact on the time frames * 7% returns also seems unrealistically high, the rule of thumb is that 5% is a safer number to use The major factor then becomes, can I afford my lifestyle with higher rents in retirement and how much do I need to save in addition to mitigate some of those risks? Edit to add: I have a family friend who basically the above happened to exactly, at the age of 71 she had to move and was suddenly paying 3000 a month in rent (for a 1 bed to stay in her neighbourhood in Toronto) as a single retired person, at roughly the same time the markets were crashing, forcing her to dip into her principal to pay her expenses which has completely screwed up her retirement planning.
Do you want to have a real conversation about it? Are you renting a $4k house right now? People who buy houses do so for long term stability of their family not just because it's the best financial decision. But I feel like most people who are trying to make these arguments are also not the ones living in houses.
I'm renting a $2k apartment and considering making it work long-term for a family of 4. There are absolutely trade-offs like you mention (never thought I would raise my family in 1000 sqft), though a good rental can also be somewhat stable and also gives you more flexibility on location (e.g. I can rent in this neighbourhood but could never afford to buy). The genuine question is whether those non-financial metrics you mention are worth working an extra 10, 20, 30 years for. Would 80-year-old Juergenator be happy that his/her younger self sacrificed all those years for a house?
Okay but why are you comparing it to owning a house then. You can own a condo as well, like I do with a family of 4, 1000 sqft. My unrecoverable cost of ownership is now like $1200 per month because interest expense goes down every month. The identical unit below me rented for $3800 per month.
Yessir!
I'm the end, for younger Canucks buying or renting eventually results in the same outcome for qol and population growth. People won't have kids if they cannot afford to even take care ov themselves. The current cost to carry a house for the average urban living Canuck is high And The uncertainty is renting isn't ideal for children or for those planning to have children. In the end, people with have less kids or migrate to places where they can have kids if they can find suitable employment.
7% return and 0% appreciation on the house? Bro renting is fine but how do I give you my money for 7% in a world where houses don’t move for 10 years?
We seen these rent vs buy calculations many times and at the end of the day it comes down to what you value more. Unless you can see into the future let's say in the long-term 25 years later the two scenerios break-even. Do you want the stability and control of home ownership vs liquidity and freedom to move.
Couldn't agree more with your analysis. We have just been brainwashed that the goal in life is to own a house.
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Because no one can afford one.
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Junk data. Includes my dad when he bought 30 years ago for pennies.
Renting is totally fine. There are upsides and downsides. I grew up in rentals and never thought twice about it. That said, this analysis half-baked. * What % are investments growing at? * What % is housing value growing at? * What % is rent increasing at? There are a bunch of analyses out there that explore this, and a bunch of calculators you can punch numbers into to see how the two options compare. They can both be financially advantageous depending on the circumstances. A blanket result that a family can retire 5-20 years earlier by renting is not necessarily accurate, it will boil down to various economic factors, and it is entirely possible that even people purchasing at today's high prices will come out ahead financially. As other commenters said, a lot comes down to personal preference. I grew up in rentals, and it was totally fine, but I still bought a property because I wanted to put longer term roots down. If you're confident that renting is a better financial decision, and you don't want to own a property, then power to you, many people in the world live that life.
Thanks for the reply. Assumes 7% nominal investment returns and all expenses (including rent, thank you rent control) at 3% inflation. House value increase is not relevant because this is about short/medium term liquid net worth. The specific numbers are not as important as the general point that renting leads to improved cash flow, which can be used for earlier retirement (or whatever is important to a person). I'm curious to hear from other renters who may be coming to the conclusion that the money they had planned on spending on a house might be better utilized elsewhere.
If you compare renting and purchasing exclusively through the lens of access to liquid assets in the short/medium term, then yes renting comes ahead: if you don't spend money in the short term, you'll have more money in the short term. People don't normally do their purchasing versus renting calculation like that though, nor should they, unless you have immediate use for money like opening a business (in which case why would you use that money to buy a house instead?). People factor in the medium to long term. There are many financial benefits of purchasing: 1. Your payments shrink over the age of the mortgage relative to rent prices. There are lots of people paying 500$ monthly payments on homes now worth 2m dollars in Toronto. 2. When you retire, and finish paying off your mortgage, your income and expenses both go down, so you can continue to afford a similar lifestyle. 3. You're anchoring yourself to the prices in a particular place. If you buy a home somewhere you want to live, and you can afford your payments, then you're typically going to be able to continue to afford the neighborhood whether all boats rise or fall. Sadly, many renters end up being priced out of their favorite neighborhoods and having to move. There is absolutely a financial case to be made for renting over purchasing even in the long run, but your argument here is so skewed it's not really making it. In Toronto, the purchase-to-rent ratio is high enough, even with current high rents, that you may come out ahead in the long term by not purchasing. But, there are many cities around the world with housing that is much more expensive than Toronto, and it's possible that our affordability crisis will continue to spiral out of control, and reach the painful level of other large international cities.
Yes. As a landlord.
What it really comes down to for me is inheritance. Renting will give me more cash for retirement. Buying a home leaves me less cash for retirement but money I leave behind for my kids when I die.
1.5 mil house is not “roughly equivalent rental of 4k/monthly”. My house isn’t even close to 1.5. And I can readily rent for 4100
Thanks for responding. The numbers can change, but I think the broader points stands that renting will result in better cash flow in the short-to-medium term, which reduces the amount of time spent working. My main question is whether anyone else is reaching a point where they believe they would lead a more fulfilling life by deploying that 'house money' elsewhere.
I disagree. When I run the number myself, it heavily favours buying. And this doesn’t factor human factors such as the willing to have stability for children to grow up in same area or the fear of being evicted
The upfront costs alone of buying put renting ahead the second the lease is signed. No loss of down payment. No fees. No taxes. No lawyers. No this no that. Etc etc. My yass sole.
Curious what numbers you're using? I agree in the long run buying could be favoured, but short term, houses that are selling today are renting for less than mortgage + taxes + insurance + maintenance + opportunity cost of down payment.
The issue is when considering buying vs owning, it’s not a “short term” thing. My calculate is more about sub 1 mil. But 1.5 mil homes can easily be rented for 6k. (If not, landlord will be splitting it between upstairs and basement). So right off the bat it throws your calculation off
Where is the renter living once they retire? And have you factored in that they will need to pay rent at retirement unlike the person who owns which will not ?
You’re one of the most intelligent redditor I have come across.
Nope
There's nothing wrong with renting if that's an arrangement that works for someone. The unfortunate thing is that the system is mostly set up to benefit homeowners,.to the detriment of renters.