Buying a House in Canada – Why I Can’t Wait To NOT Be a Homeowner

By the end of the summer I will no longer be a homeowner.

In many countries that statement would be a simple matter of personal finance. Selling an asset, paying off a loan (mortgage) and moving on to another living space.

But not in Canada.

No, in Canada selling our house means that my wife and I are making a massive change to our identities. A core shift in our very essence.

Many would say we are taking a careless step backward on the path to living a fulfilled “real adult” life.

Several friends and family will likely believe that we are crazy for tossing away “the best investment one can ever make”.  

The absolute obsession with homeownership in Canada continues to astound me. The emotional connection between Canadians and their real estate has been well documented, but that doesn’t make it any more logical! Even though my wife and I have owned a home for years, this was much less because we subscribed to the traditional “own at all costs” mentality, and more due to the fact that rural Manitoba housing vs rent decisions are quite different than most places in Canada.

We’ll certainly miss some of the small luxuries (goodbye big garage) of our old home, but here’s some of the reasons why we believe selling our house will be a weight off of our shoulders.

1) Endless Fear of Hearing a Strange Noise

Is that the furnace taking its last breath?  

Perhaps it’s the water treatment system deciding to spring a leak?  

Is that rain I hear – is it possible our septic system is backing up?!

My dad loves fixing stuff.  His day is not complete until he has improved the physical world around him.

I am not my dad.

My lack of handyman skills has now become a joke that I’m comfortable laughing at, but for years I was incredibly self-conscious about possessing nearly zero masculinity-affirming fix-it ability. You want someone to work hard doing menial chores such as cutting lawns, raking leaves, shovelling snow, or lifting heavy things from Point A to Point B – I got you covered.  

Anything that requires technical skills or mechanical problem-solving ability… not so much.

Because my father’s handyman-dominant brain was not passed down to his oldest son, I lived in perpetual fear of things breaking when I owned a home. I never really got this “pride of ownership” thing. For me it was definitely more of a “fear of ownership”. I had so much of my net worth tied up in this one asset – that required constant maintenance – and I really had no idea what it was doing. “Learning by doing” constantly scared me as errors were quite costly.

Hiring any specialized help on something like an air conditioning unit always seemed to cost triple what was estimated, so that just exponentially added to my anxiety levels around maintenance.  

Renting = not my problem!!!

2) Renting is Simply a Better Financial Decision Than Buying – in 2021 Canada.

I know… that’s a big statement.  

It’s probably worth an article all on its own.

It will probably lead to crazy comments (as all real estate articles in Canada do).

But it’s quantifiably true.

We’ll get into the “fringe” elements of why owning can be so expensive in a second, but for now let’s just look at the direct dollars and cents comparison.

Before we get too deep into this, I don’t want to argue with you unless you have viewed the following content by some of Canada’s smartest personal minds.

i) Preet Banerjee compares renting a house and renting a mortgage and then explains why he is a renter.

ii) John Robertson (my vote for most underrated personal finance philosopher – and it’s not even close) tells you why he is a renter and presents the best rent vs buy calculator that I’ve ever seen.

iii) Here’s Ben Felix’s 5% rule in action. I personally believe that Ben is shooting a bit high on real estate estimates (today’s giant houses are not comparable to historical returns data he quotes), and a bit low on property taxes + maintenance costs. He also isn’t factoring in closing costs (which are a pretty big deal when you move the number of times the average Canadian does), nor the difference between renters insurance and home insurance. I do like his methodology, but the 5% rule of thumb for non-recoverable costs is pretty badly slanted towards real estate due to the factors mentioned above. I could probably live with a 6% rule – but find a 7% rule to be a much more true measure (speaking as a soon-to-be former homeowner of ten years).

iv) I’ve talked to many real estate experts who claim “the 1%” rule of thumb is a great filter for a potential landlord looking to add a revenue-generating property to their real estate portfolio. That means that if you can’t get at least 1% of your purchase price in monthly rent, then it’s not really worth considering the property. The flip side of that is that if you’re renting for substantially less than 1% of the purchase price of a comparable home – then you’re getting a good deal. Bryce over at Millennial Revolution explains his rule of 150 which comes to similar conclusions.

Those are all great looks at accurately comparing financial costs vs benefits of purchasing a house to live in.

So, let’s use them to look at a few options across Canada at the moment.  

Toronto Real Estate

The average price of a property sold in the GTA in May of 2021 was $1,108,453 (a massive 28% gain over a year earlier) while the average rent is closer to $2,100 (down 14%).

  • Our 1% rule of thumb says that a $1,100,000 house better get you $11,000 per month in rent – or it’s not a good buy.
  • Using John’s or Preet’s calculators we see that renting is WAY ahead given these parameters. 
  • My modified Ben Felix 7% rule tells us that if we can rent for $6,466 – then it’s a pretty good deal to rent.  If we stick to his original 5% rule, we need to rent for less than $4,618 to be a good deal.
  • Bryce’s preferred rule of 150 means that the $2,100 rental average, would dictate a mortgage payment of $1,400 as a good measuring stick for if they should buy.  A $1,400 mortgage (HAHA – good one) would correlate to a purchase price of roughly $350,000 (depending on a few variables.

Conclusion: By any measure… this makes no sense.

Buying a House in Calgary

Maybe this is just a Toronto thing. Let’s go to a city that has seen its housing market really fall on tough times as a result of the oil collapse, PLUS rent has actually gone up over the last year.

The average rent in Calgary is roughly $1,200 and the average cost of a property is $510,000. Those stats might be skewed a bit by average home type in the rental world vs average home type in the purchase world. Let’s say average rent for comparable might be $1,500.

  • Our 1% rule of thumb says that a $510,000 house better get you $5,100 per month in rent – or it’s not a good buy.
  • Using John’s or Preet’s calculators we see that renting is substantially ahead given these parameters. 
  • My modified Ben Felix 7% rule tells us that if we can rent for under $3,000  – then it’s a pretty good deal to rent.  If we stick to his original 5% rule, we need to rent for less than $2,125 to be a good deal.
  • Bryce’s preferred rule of 150 means that the $1,500 rental average, would dictate a mortgage payment of $1,000 as a good measuring stick for if they should buy or not.  A $1,000 mortgage would correlate to a purchase price of roughly $230,000.

Home Prices in Halifax

Ok, enough of these “big city places”. We all know that house prices are way cheaper on the East Coast, so let’s run the numbers for Canada’s semi-hidden gem of a city.

The average rent in Halifax is about $1,600 per month and the average cost of property is $465,000.

If we adjust upward to $1,800 in allowing for comparable properties (I checked, you can rent a solid single-family unit for 1,800 in Halifax – even better in Dartmouth, Nova Scotia) then we get the following analysis.

  • Our 1% rule of thumb says that a $465,000 house better get you $4,650 per month in rent – or it’s not a good buy.
  • Using John’s or Preet’s calculators we see that renting is substantially ahead given these parameters. 
  • My modified Ben Felix 7% rule tells us that if we can rent for under $2,700  – then it’s a pretty good deal to rent.  If we stick to his original 5% rule, we need to rent for less than $1,937 to be a good deal.
  • Bryce’s preferred rule of 150 means that the $1,800 rental average, would dictate a mortgage payment of $1,200 as a good measuring stick for if they should buy or not.  A $1,200 mortgage would correlate to a purchase price of roughly $280,000.

…that’s why I’m not afraid to be a renter the rest of my life and why I’m not worried about “hopping off” the property ladder.

If you’re still not convinced, here are a few more stats for you.

  • Canada’s current price-to-rent levels are 574% higher than they were in 1970.  
  • Since 1970, Canada’s price-to-rent level has risen at roughly 21x as quickly as the USA’s.
  • Canada’s current price-to-rent levels are substantially higher now than the USA’s was before their 2008/09 housing crash.

3) Opportunity Cost of Being Rooted Into Place

I grew up in a single house – owned by a homeowner. (My parents were unique in that my dad built his own house on a very cheap piece of rural land and never took out a mortgage. Feel free to try and copy that strategy in 2021.)

It was really nice. I get that there can be some very pleasant reasons to own the house/condo that you live in.

But let’s be honest about the big picture here – there are some large trade offs involved.

Buying a home makes you much less likely to move in order to accept a promotion or career opportunity. That’s impossible to quantify, but it’s a really significant consideration. One of the quickest ways to climb in any industry (or even make an advantageous jump to a new industry) is to be willing to move to where the opportunity is. The cost to your career of feeling as if you are anchored to the house you worked so hard to get into could be massive!

4) Our Brains Work Differently When We Think About Renting a Place to Live vs “Buying a Forever Home” – Lifestyle Inflation is Almost Inevitable.

Funny things begin to happen as we approach the leap from renter to homeowner.  Suddenly, cost-benefit calculations we were doing about third bedrooms or fancy kitchens fly out the window… only the best will do for our “forever home” after all.

Weird mantras like, “We’ll grow into it,” begin to creep into our heads and suddenly we’re looking at fancy countertops, upgrading bathrooms, etc.

I’m not sure whether to blame HGTV and the homeshopping shows or what it is, but there is no doubt that most of us look at properties completely differently whether we are renting or buying. Keeping up with the Joneses becomes so much more important (is this what “being a real adult” is truly all about?) when you’re buying and furnishing a house.

One thing that we have learned from moving overseas is that we can be 98% as satisfied in a two-bedroom apartment as we were in our large bungalow. Now, I hear you that things might be different if you have a young family. I’m sure this equation changes substantially when adding children to the picture, but when you look at the smaller average house size that the larger families of yesteryear were raised in, it raises some interesting questions about how much room we all need to be happy.

5) “Drive Until You Qualify” = Too Much Driving

I have consistently found that we underestimate the cost of driving – in both lifestyle and dollars!

There have been many studies done on how spending time in the car can really impact your physical health in a myriad of ways.  It doesn’t take a genius to figure out that the more time you spend sitting by yourself (often stuck in frustrating traffic) the less healthy and happy you are likely to be.

Maybe this work-from-home thing is going to reduce these financial and physical costs… but I have my doubts as to how many people this will actually affect a few months from now.  

When calculating how much your commute will cost you, one needs to factor in depreciation and repairs, in addition to the price of gasoline (or perhaps electricity) and possibly parking. The government of Canada believes it costs about $0.59 per km to drive, while CAA posts similar estimates. At 260 work days per calendar year, every km you move further from your workplace will cost you over $300 per year! If you have two working adults that are both commuting in your household, it doesn’t take long for those numbers to really add up.

6) My House is Definitely NOT the Best Investment I’ve Ever Made

If the real estate boosters didn’t try to burn down this website after reading the rent vs own comparison earlier in this article, they will surely reconsider after reading this.

If I’ve heard it once, I’ve heard it two hundred times: “My house is the best investment I’ve ever made.”

While I have written extensively on this topic (and had to explain the point to many parents in the course of teaching personal finance over the years) there is simply no debating the following considerations about owning your home from an investment perspective. Note: We’re not talking about owning a rental property here – that’s a much different conversation.

  • There are many reasons why the Holy Grail of investment advice is Thou Shalt Diversify. Tying up all of your cash (and then borrowing huge amounts of money that tie up all future earnings) is NOT diversification. Having your entire net worth determined by one building in one location is not a smart risk management decision.
  • Why is it that when people borrow money to invest in the stock market (known as leverage) it’s considered inherently risky, but when people borrow 9x their downpayment on a house it’s considered “common sense”?
  • When we think about how much money we’ve “made” on our home, we often forget to include all of the non-recoverable costs involved such as taxes, maintenance and repair costs, transaction fees to buy & sell, renovations that cost way more than they added resale value, etc.
  • The Case-Shiller Housing Index has stated that between 1928 and 2013, the average annualized rate of return for American housing was 3.7%. The average annual rate of return for American stocks was 9.5% during that time period. Canadian housing and stocks track much the same path.
  • The National Association of Home Builders in the USA has stated that the average home in 1950 was 983 square feet, and by 2015 it had nearly tripled in size to 2,740 square feet! When you adjust for this fact, the actual increase in value per-square-foot of house is much smaller than the 3-4% number that is commonly tossed around in both Canada and the USA. Likely more in the 1.5-2% territory.
  • If you think that the last few decades have been the “golden age of Canadian real estate” then you might be surprised to find out that since 1982, Canada’s house prices have only gone up an average of 1.7% per year (vs an average inflation rate of 2.46%).
  • House values do NOT always go up – no matter what your friend in Toronto says. Go back and ask a Floridian in 2008 or a Calgarian in 2014.

Remember, these considerations are looking backwards at record return decades for Canadian real estate. We are now likely close to the top of that mountain (if not at the peak), so going forward…

Alternative investments to Canadian real estate:

View my recent post about how to buy stocks in Canada or our guide about Canada’s best dividend stocks if you want to learn more about beginner-friendly ways of investing your money into safe non-real-estate assets.

7) Freedom to Travel… Forever

Ok, so this one is likely somewhat unique to us.

I get that not everyone wants to spend years travelling without a fixed address.

That said, I think most Canadians would be amazed at how cheap it is to travel months on end if they don’t have to pay a mortgage back home, and don’t have to fly during the peak weeks of the year. I know that my wife and I were astounded when we went down the digital rabbit hole and found out just how many people were “slow travelling” 12-months per year for under $25,000 CAD.

I don’t think we’re quite as frugal as many of these veteran travellers, but after some pretty extensive research and many conversations with people actually living the “digital nomad” or “FIRE” lifestyle, we think we could pretty easily mix 6 months in relatively expensive countries like Canada, the USA, Western Europe, etc, with 6 months in cheaper countries centred on Eastern Europe and SE Asia, for $40,000 CAD.

Beyond the obvious fun of seeing more of the world, we love the idea that we will get to spend more time with friends and family that don’t live close to where our 9-to-5 jobs were in rural Manitoba.

AirBnb and competing rental platforms have really changed the game when it comes to attempting to live this “no fixed address” lifestyle. With monthly discounts and competition keeping prices low, finding a place to live for 1-3 months has never been so convenient or affordable. If you want to be responsible for someone’s pets, there are even more affordable travel opportunities available!

It’s OK to Own a Home – and It’s OK NOT to Own One Too!

It’s odd to say, but that makes it no less true: Owning your home in Canada is such an emotional decision tied to middle-class identity.

Because the decision is so important, no one likes to think that they chose the “wrong” path. Consequently, there are very few rational conversations to be had when it comes to home ownership. Like most issues that cut to the core of our identity, we usually choose our side, and then selectively look for arguments or data to support the decision we made.

I’ve been on both sides of the home ownership debate and the only thing that I can decisively say is that for some people owning a home makes sense – but for many others it simply does not.  

Hey, if you are 80%+ sure that you’re going to be rooted in the same area for 10+ years, and you derive a lot of enjoyment out of handyperson fixes/renos, then the benefits of home ownership might make it the perfect choice for you.

That said, judging by all the “buy at all costs” talk I continue to hear from coast-to-coast, I think we really need to examine the bigger picture when it comes to home ownership.

And if you’re on the fence, I think it’s safe to say that as we emerge out of Covid isolation, there has never been a better time to become an ex-homeowner!  

Don’t worry, there is still plenty of room on the bandwagon.

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Kyle Prevost

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Steve B.
6 days ago

Hello Kyle,

I am a renter (and CFP®) and agree with your points.

For many people, perhaps their home IS their best investment because their other investments were high-fee under-performing mutual funds, or they were active stock traders who bought high and sold low, or they owned GICs forever. Who knows. As one of the other commenters pointed out, a forced savings plan isn’t the worst thing for a lot of people.

Compare the trajectory of the S&P 500 with home prices in Canada and it’s not even close.

Finally, the biggest under-estimation people make when it comes to home ownership is the cost of maintenance, repairs, upgrades/renovations, and special assessments/special levies from their condo/strata board. Most people cannot foresee ever needing to put any money into their home ever again (Oh, we did a renovation last year for $50,000 so we are fine for 10 years), when in fact every structure is in a constant state of deterioration.

I could go on about affordability and people buying too much home, not being able to save for retirement, etc. but I’ll leave it here.

It’s great to have these conversations and for people to know that renting is an excellent choice in many situations.

Steve

WatCran
7 days ago

This blog is full of true statements, but there is one key problem with this argument regarding the numbers. For people who read this column, it could be 100% correct. It’s ‘spreadsheet correct’ for some. Who are they? Those that rent well and invest the difference equally as well. But, a vast swath of Canadians aren’t interested in following a Personal Finance Blogger and don’t invest well. What do they do with what they have? They spend it. 

For them, a house likely IS the best investment they ever made because it will be the ONLY investment they ever made (or at least the only one with enough wood behind the arrow that it makes a material difference in the end). Give the non-financial savvy person some money, and they spend it. 

For those not interested, poor with math, or just too short-term centric in their thinking, buying a house is simply forced savings that they can live with and understand. Like rent, paying the mortgage is the first priority and they can naturally do that much easier than invest in anything. Within this group of non-financial thinkers you will find by age 60 A HUGE net worth difference between those that rented and those that owned. Perhaps it’s sad, but it is true. 

The spreadsheet actually needs 3 scenarios – RENT and INVEST, RENT and SPEND, and OWN.

Vancouver Movie Maven
8 days ago

After 41 years in their fully paid for house, my parents sold in Vancouver for a ridiculous amount in 2016 and downsized. They generously gave my siblings and me what would amount to approx. $370,000 today hoping I would put it towards buying a condo so my mother could be assured I was “settled” before she died! Yep, it’s a generational thing…

Instead, I used the money to top up my RRSP and TFSA then invested almost the entire amount in Canadian dividend stocks which now earn almost $1,100 a month. That goes a long way towards the $1,800 p/m I pay in rent I to live here.

Two months ago the fridge in my apartment packed it in and within 5 hours my landlord had a new one installed. While I think rents in Vancouver are high (I’m in a 1 bedroom in a 1970s purpose-built rental high-rise so on the low end for this city), I have been lucky to keep my job during the pandemic and see my rent freeze without the yearly increase as an added bonus (though I know the increase is coming…). Homeowners are still on the hook for maintenance and rising property taxes.

Plus, when I finally get to start travelling again, I just lock my door and don’t worry about all those “strange noises” Kyle mentions and leave that to my building manager!

Vancouver Movie Maven
7 days ago
Reply to  Kyle Prevost

Hi Kyle, definitely a “budget rent” – no dishwasher, in-suite laundry, or Concierge but I manage!

Potato
12 days ago

Thanks for the kind words, Kyle.

Toronto: “Using John’s or Preet’s calculators we see that renting is WAY ahead given these parameters.”

An important caveat: if markets (housing & stock) are somewhat sensible going into the future, it should turn out that way.

Using a bunch of fairly reasonable assumptions, renting looked like a better deal 10 years ago in Toronto, too. I’ve got a post hoc article in the works but TLDR (and no surprise) if you went ahead and believed prices would moon in Toronto, you ended up doing better buying 10 years ago. It’s very hard to believe we’re going to get another decade where house prices double again — and we don’t need a crash for renting to come out ahead financially, just a cooling. But if the future is not sensible, and we get another decade where rates that appear to already be at the zero bound somehow find a way to go even lower, where house prices that already appear to be as high as they can possibly go find a way to go even higher, it could work out that buying now once again comes out ahead.

We’ve already seen that in the past year. There were lots of reasons for Toronto housing to crash in 2020: it was already over-valued in 2019, and then the pandemic introduced a bunch of economic uncertainty, people started to leave the city with remote work, borders were closed… and none of that mattered. It turned in one of the strongest years ever in spite of all that.

So all that to say, I’d just change “is” to “should be, if sanity returns to the world”.

Last edited 12 days ago by Potato
Liam
12 days ago

Your average home prices vs. average rent figures are misleading. You are not accounting for the composition of the two. Average rents are skewed far lower by the fact that most rental units are condos, townhouses etc. Average home prices include more large SFH’s. So to compare the two and say “this is the average home price and the average rental price” and draw conclusions from that is misleading.

Larry Bodge
7 days ago
Reply to  Liam

It’s a good point Liam. In Toronto, instead of $2100/month rent we can use $4500/month which is the rent for a nice detached single house, 4 br (from a listing on point2homes.com). But even with that, buying a house still fails the 1% rule.

Larry Bodge
6 days ago
Reply to  Kyle Prevost

Too true!
Following the 1% rule, that 4br detached house should be selling for $450,000. What does a 4 br detached sell for these days in TO? $1.5M? $2M? Anyhow this just shows how jaw-droppingly askew the house prices are.

edward david
13 days ago

Whether owning or renting is better depends on where you are in the ownership cycle. Right now I would agree that renting is better than buying, but if your mortgage is paid off, or substantially so, then going forward a lot of the risks associated with buying in a low interest rate/high price environment don’t apply. If you’re concerned about lost opportunity of your equity, then you can always borrow against it for things like stocks, which provides tax advantaged diversification.

David
19 days ago

A house is not an investment and never has been. A real property investor would at least buy a duplex and live in one unit. I started buying multi-residential properties in 2001 by putting a third down as I have always been a non-resident of Canada. The benefit comes from never paying down the mortgage. If you bought a $1,000,000 property in 2001, with a mortgage on two-thirds of the value ($666,666) at the rate of 5% (a cost of $33,333 on principal each year), you only needed about 4% ROI to carry the property. I was getting about 8% ROI at the time. Needless to say, my 8% ROI ($80,000) more than covered my mortgage costs. A return of $80,000 a year on an original investment of $333,333 is about 24%! However, when you factor in the close to 300% increase in value the property has realized over the past 20 years, there is simply no better way for a small-time investor to make money. I would have had to get 10X from the stock market to do what I did with multi-residential property in Canada. Yes, I agree that a house is not an investment but property is.

David
19 days ago
Reply to  Kyle Prevost

I must admit that my wife doesn’t allow me to talk about property investing because I was such a fanatic in the past. Many friends told me to shut up about property investing, but a few listened and they all became multi-millionaires.

When I left university in 1990, property prices in Ontario were through the roof?. I ended up going overseas and spent about 20 years in the UAE and Qatar. These are tax havens which usually provide expat packages that include housing as an employment benefit. I figured that anyone who lives for free should put the equivalent amount of money they would have had to spend on housing into a property investment. Fast forward 10 years and the Ontario property market had bottomed out. Yes, these booms end. My timing was impeccable.

How did I pick winners? First, I bought in beautiful neighbourhoods. I would never buy a property that I wouldn’t live in myself. Next, The ROI had to be 3% higher than the interest rate I was paying at the bank, that is, if I was paying 6% to the bank, I would want a million-dollar property to return at least $90,000 per year (net). If the property market tanked, I would still be able to pay my bills as long as the renters could cover the rent.

I do not want to get too deep into the weeds here, but Canada has had an unprecedented boom in property due to a number of factors. The artificially low interest rates have really pushed prices into the stratosphere. The lower the interest rate, the higher asset prices climb. If and when the interest rate goes up, asset prices will fall. In addition, unlike Japan (my current home), where the abysmal birth rate cannot be supported by immigration, Canada has managed to add 50% to its population in the past 30 years. This has done wonders for the Canadian property market. In Japan, however, you can buy a house for $500! All countries following Anglo-Saxon Capitalism have experienced massive property booms over the past 20 years. People have been voting with their feet and cash to get a foothold in these nations. Will this continue? I do not know, but there is a great deal of momentum pushing this juggernaut forward. What happens when the correction comes? Your guess is as good as mine.

David
19 days ago
Reply to  David

The weird question mark in the second paragraph is supposed to be an emoji.

David
17 days ago
Reply to  Kyle Prevost

I had to keep it a secret that I was Canadian during my sojourn in the Middle East because I was constantly being solicited for advice on how to immigrate to Canada. I vividly remember seeing people lining up around the block to get into the Canadian Embassy in Abu Dhabi. Canada is up there with Toyota and Apple when it comes to international brand appeal. As long as immigration continues as it has in Canada, I am pretty bullish on property.

Yes, my ROI focus was totally on net income. My biggest mistake was to have not borrowed a billion dollars when I realized I could get a 10% return in ROI while paying the bank 5.9%. I was far too conservative. I didn’t know that governments around the world would bail out the global economy twice in less than a generation. I didn’t know interest rates would fall almost to zero!

Would I borrow the money now? If I could find good properties paying an income in excess of the interest rates, it might make sense. We are definitely seeing a bubble in the asset markets right now, but that doesn’t mean the bubble is anywhere close to popping.

Remember, the Japanese economy was on a huge tear until 1989. The house I currently Iive in was worth $4,000,000 at that time. You wouldn’t get a million for it today. Nothing is guaranteed.

David
16 days ago
Reply to  Kyle Prevost

Property is a nice way to have a good mix of assets in your portfolio. I will never forget the day when I learned that the majority of the large multi-residential and commercial properties in my mid-sized Canadian city were owned by foreign pension funds. If I was in my 20s again, I would be thinking a basket of ETFs and multi-residential properties.

Nelson
21 days ago

I’d recommend Kyle double check his numbers in point two. He’s using average apartment rent and comparing it to average house prices. He’s not comparing apples to apples. He should be using average condo prices, which are around $250k in Calgary. Also, keep in mind $1,200 is the average price of a 1-bedroom rental in Calgary. A 2-bedroom will set you back closer to $1,500. I don’t know enough about Toronto or Halifax to confirm the accuracy of those numbers.

$1,500 rent on a $250,000 asset changes the discussion a bit, although I’d probably argue on a pure dollars and cents perspective renting still makes sense.

I’d also argue the 1% rule is outdated in a world where you can borrow money at less than 2%. If there’s property available that meets that criteria even in a medium-sized city, I’ve yet to find it.

Kyle’s renting experts all used their genius rent vs. buy calculators to miss out on the great Toronto bull market of 2010-2021. Heck, Preet sold in 2013. How’d that work out for him? There’s a joke on #fintwit — do you want to be right, or do you want to make money? The renters might be right, but the owners are making the money.

Look, I’m tired and arguing in comment sections is stupid. If people want to rent, then rent. And most people do a crummy job of estimating their ownership expenses. But in a world where most people don’t save much of anything, the average reader of this site is much better off with the forced savings plan of buying a house. Even if it’s less efficient than living below their means and putting every spare nickel into an index fund.

Court @ Modern FImily
22 days ago

Nice post Kyle. Like you said it really is a personal and emotional decision. Where we’re located (just outside Calgary), the numbers make sense to buy vs rent. For example, our townhouse that we purchased for $315,000 in 2016 is being rented out for $1,750. Not crazy good but better than the examples above. Our home, with a mortgage of $1344/mo, would rent for $2,500/mo. Many places where home prices have skyrocketed buying just doesn’t make sense.

Court @ Modern FImily
20 days ago
Reply to  Kyle Prevost

We tried to sell the townhouse last September (2020). Our realtor suggested to list for $299k but that was too low for us. We listed for $311k and had 0 interest (3 showings over the span of 3 weeks and no offers). We listed it for rent and within 1 week we had over 50 people contact us at $1750. Clearly we could have bumped up the rent price but it was nice to have options and screen tenants. We could easily rent it now for $1850.

Around that same time is when we purchased our home for $395k. The markets have come up since then.

We reached out to our realtor about a month ago and said we could now sell the townhouse for $329k and a similar home would sell for ~$440-450k in today’s market.

Court @ Modern FImily
19 days ago
Reply to  Kyle Prevost

We’re ready to sell it now haha. We (sadly) just want to break even on the townhouse. Hearing stories of friends who bought elsewhere the same time as us and seeing their places appreciate by $300k+ is mind blowing.

If we can sell for $329k that will put us right around $315k after fees. Our rental goes through mid-October so will have to reassess then. We likely will try to sell in Spring/Summer 2022.

While the income coming in is nice, we also want to be completely debt/mortgage free when we FIRE so the proceeds will pay off the remaining mortgage balance on our primary home. That’s a whole separate “does that make sense?!” topic which math wise we’d be better off investing the proceeds/continuing to rent out the townhouse but we’ll sleep better at night knowing we don’t owe anyone anything.

Laura
22 days ago

I absolutely love this article. One of the financial goals my husband and I have always agree up on is that we will help our kids either get into a home or something when its time for them to move. I recently lobbed the idea that our daughter, in particular, would be much better off as a renter than an owner and my husband is really struggling with letting go of this idea that you MUST strive to own your own home. There is so much helpful info and links in this article that I feel we might make progress towards a paradigm shift!

Laura
22 days ago
Reply to  Kyle Prevost

I don’t mind you asking about this. I think people need to spend a lot of time talking about financial goals and that includes plans for the children if there are any.
We started RESPs for them when they came along, didn’t do any crazy amount of investing but just saved consistently with a view to help them through school so they didn’t come out crippled by debt. That has worked. The housing thing is basically, if we could fairly painlessly, over many years, earmark funds for helping them get into a home, it seemed like a sensible thing to do. When I graduated university you could get a reasonable job (late 80s) fairly easily and buy a home for under $100000. Things have really changed. We both come from large, poor-modest family backgrounds and it was important to us to help our kids more than our own parents could. It just wasn’t possible for them so we both struggled in the beginning. So, yeah, its a mindset. Not to say we hand everything to our kids. Early on in my financial education I read “The Millionaire Next Door”. Even though its a book set in the USA, people are people everywhere and there are some excellent lessons in there. A big one was, you don’t help your heirs by handing them everything. Also, we had our kids very late, so had already been working for quite a while and had a few more resources than a couple in their 20s. That being said, I still don’t want to my kids to have to wait for us to die before they can benefit from our estate. We would rather help them now and have them inherit much less. Like you say, its very individual and its very helpful if you and your partner can be on the same page.