Renting V Buying

[Guest]

Its all relative.

I bought it 20 years ago for $225000 and had a big mortgage for the time.

 

But eventually you pay it off.

Some things along the way like redundancy payout and an inheritance helped pay it off.

But get in the market and own your own home by the time you retire should be everyone's goal.

 

My dad's house has just gone up for sale for £145k, he bought it for £3k 45 years ago and lived in it 20 years (i.e. since he retired) 'rent free' - it made me think for sure - he only has a state pension but lives very comfortably and that's a nice position to be in. If you don't buy then you're renting until you die.

[Wooba]

I don't see how it can be better.

 

I now own my home worth over $1M. If I rented I wouldn't own anything.

 

Sure, if you spend every other penny you have. They important detail is to invest and over the long term (especially in a high priced market like it currently is) you'll come out way ahead.

 

 

This discussion was recently on local blog I read. While it's talking about Toronto, Australia and Canada are virtually mirror images of each other when it comes to the economy and real estate market. For the saving of time, I'll just paste what I wrote there, so please don't be confused by the reference to David.

 

 

 

 

What about opportunity cost if the person invests the down payment instead and makes regular contributions to a portfolio? I appreciate that many people don’t have the discipline, patience or perhaps the courage to invest, but those that do can reap big rewards.

 

 

I sold my place just over 3 years ago and I’ve been renting since. I took my proceeds and invested pretty much all of it. It was the best financial move I’ve ever made. While there is a particular area I would have liked to purchase a bungalow in if the prices were reasonable I’m no longer interested in that.

 

 

About 2 or 3 months ago I asked David for the sales data in my old building to see what units like mine were selling for. I believe the best case scenario was that I would have got about an extra $5000 if I were to sell then instead of 3 years ago. My investments have made me a lot more than $5000. A LOT more.

 

 

I know what my landlord pays in condo fees and taxes. It’s just under half of what my rent is. That’s money thrown away regardless if I own or rent. I make more than enough money in dividends to cover the rest. I effectively make money by renting. On top of that I have levels of disposable income I could only dream about previously. I’m not a big spender, but I am a big traveller. I’ve been on several amazing trips all around the globe, most of which I most definitely would not have been able to afford to go on if I were still an owner.

 

 

I had opposition from friends and family to me becoming a renter, especially my dad. But he’s seen what I’ve done and now he’s a believer too.

 

 

Not everyone’s situation is the same, but for some people renting is the right choice. For me, owning just doesn’t make sense right now. In fact if I won the lottery tomorrow, I still wouldn’t buy a place. It would be “throwing money away”…

[Parley]

It may be legal but I don't see how it's legitimate. It's just an accounting device to smooth out the balance sheet, but it has disadvantages for housing. Landlords can claim for depreciation of their asset while having no incentive to repair that depreciation. If they could claim capital repairs as expenses instead of slowly as depreciation, then landlords would be more likely to keep their properties in repair.

 

It was introduced for housing by a government to please some of their MPs who were landlords.

 

If you have some philosophical objection against depreciation, it certainly didn't stop you claiming it every year on all your investment properties.

You were not compelled to claim it but of course you did every year.

[Gbye grey sky]

Sure, if you spend every other penny you have. They important detail is to invest and over the long term (especially in a high priced market like it currently is) you'll come out way ahead.

 

 

This discussion was recently on local blog I read. While it's talking about Toronto, Australia and Canada are virtually mirror images of each other when it comes to the economy and real estate market. For the saving of time, I'll just paste what I wrote there, so please don't be confused by the reference to David.

 

 

 

 

What about opportunity cost if the person invests the down payment instead and makes regular contributions to a portfolio? I appreciate that many people don’t have the discipline, patience or perhaps the courage to invest, but those that do can reap big rewards.

 

 

I sold my place just over 3 years ago and I’ve been renting since. I took my proceeds and invested pretty much all of it. It was the best financial move I’ve ever made. While there is a particular area I would have liked to purchase a bungalow in if the prices were reasonable I’m no longer interested in that.

 

 

About 2 or 3 months ago I asked David for the sales data in my old building to see what units like mine were selling for. I believe the best case scenario was that I would have got about an extra $5000 if I were to sell then instead of 3 years ago. My investments have made me a lot more than $5000. A LOT more.

 

 

I know what my landlord pays in condo fees and taxes. It’s just under half of what my rent is. That’s money thrown away regardless if I own or rent. I make more than enough money in dividends to cover the rest. I effectively make money by renting. On top of that I have levels of disposable income I could only dream about previously. I’m not a big spender, but I am a big traveller. I’ve been on several amazing trips all around the globe, most of which I most definitely would not have been able to afford to go on if I were still an owner.

 

 

I had opposition from friends and family to me becoming a renter, especially my dad. But he’s seen what I’ve done and now he’s a believer too.

 

 

Not everyone’s situation is the same, but for some people renting is the right choice. For me, owning just doesn’t make sense right now. In fact if I won the lottery tomorrow, I still wouldn’t buy a place. It would be “throwing money away”…

 

This all works out fine while you are earning a good salary and when investments are rising. I own a house and also have shares (the two are not mutually exclusive). I have done well with the shares over the past 5 years but they were poor before that. I recognise that there are dividend receipts but to apply one index (the FTSE100), this is actually lower than it was in 1999. House prices in general in the UK have risen substantially since 1999 and certainly in the south east where I lived.

 

This person has made money on shares over the past 3 years but there are no guarantees with this. At least if house prices fall you still have somewhere to live, if the stockmarket bombs you may not especially if you are no longer working. It does seem like short term thinking. I paid a mortgage for 25 years which sucks but now I have no mortgage and can live rent free. It has given me the freedom to stop work at the age of 54 and move permanently to Oz.

[Parley]

Capital gains on your home are tax free also which is an important factor.

[Wooba]

This all works out fine while you are earning a good salary and when investments are rising. I own a house and also have shares (the two are not mutually exclusive). I have done well with the shares over the past 5 years but they were poor before that. I recognise that there are dividend receipts but to apply one index (the FTSE100), this is actually lower than it was in 1999. House prices in general in the UK have risen substantially since 1999 and certainly in the south east where I lived.

 

This person has made money on shares over the past 3 years but there are no guarantees with this. At least if house prices fall you still have somewhere to live, if the stockmarket bombs you may not especially if you are no longer working. It does seem like short term thinking. I paid a mortgage for 25 years which sucks but now I have no mortgage and can live rent free. It has given me the freedom to stop work at the age of 54 and move permanently to Oz.

 

It doesn't have to just be shares. A balance portfolio will include bonds.

Personally, what matters to me are dividends. The goal is to never touch the shares and live only on the dividends only with established, well run companies. No speculating. Once I'm at a happy level, the ups and downs of the market are irrelevant. I look at downturns as boxing day sales.

Over the last ten years a balanced portfolio in Canada has produced about 7% return per year on average. This is including the global financial crisis. Sure, homes have jumped here just like Australia, but even so, portfolios have outperformed most real estate.

I don't know the data for the UK or for Australia, but I can tell you that for recorded history the markets in Canada have consistently beaten real estate gains over the long term. Quite handily. As Australia is just as real estate obsessed as here, I suspect it might be true there too.

 

I'm not saying you should never buy real estate. But TODAY, I think anyone buying real estate in Canada is out of their mind. Based on everything I've read about Australian real estate you're pretty much on a par. If I move to Australia I won't be buying there either.

[Wooba]

Capital gains on your home are tax free also which is an important factor.

 

They are here too (primary residence only). But because of how taxes work on dividends, you can make about $55,000 in dividends here before you start paying tax. I have no idea how that works in Australia though.

[VERYSTORMY]

The thing with shares is you are still just investing in a gamble.

 

A few few years ago there was a massive mining company called Western Mining. One of the biggest most respected companies in oz. payed very good dividends year in year out. They no longer exist. If you had shares in them, your share cert is worthless. They went bust pretty much over night.

 

In 2007. Many people had very safe shares in a number of banks that are now worthless.

 

As other say, if you don't have a property paid off by retirement then you are in potential brown stuff. Particularly in oz where it is a very safe bet the government will be looking to phase out state pensions as we are all supposed to have a healthy super fund.

[Wooba]

The thing with shares is you are still just investing in a gamble.

 

A few few years ago there was a massive mining company called Western Mining. One of the biggest most respected companies in oz. payed very good dividends year in year out. They no longer exist. If you had shares in them, your share cert is worthless. They went bust pretty much over night.

 

In 2007. Many people had very safe shares in a number of banks that are now worthless.

 

As other say, if you don't have a property paid off by retirement then you are in potential brown stuff. Particularly in oz where it is a very safe bet the government will be looking to phase out state pensions as we are all supposed to have a healthy super fund.

 

As I said, a balanced portfolio. Cherry picking bad stocks is as useless as cherry picking good ones. Again, I can't say about Australia or the UK, but in Canada a balance portfolio has always beaten real estate long term.

 

When I compare to my friends who without exception, believe what everyone else does about real estate being the best investment (I used to believe it too). I can say that for almost all of them it's far more likely that I'll be able to buy a house for cash, with money left over when they pay off their mortgage with pretty much nothing else in the way of assets. On top of that, I go on more holidays in a year than many of them go in a decade. It's not like they are not well paid either.

 

Paid off homes are nice to have, but they don't pay bills. Income does. Something almost nobody thinks about unfortunately.

[Parley]

What rubbish.

Western Mining was taken over by BHP.

It didn't go broke at all.

[Peach]

As I said, a balanced portfolio. Cherry picking bad stocks is as useless as cherry picking good ones. Again, I can't say about Australia or the UK, but in Canada a balance portfolio has always beaten real estate long term.

 

When I compare to my friends who without exception, believe what everyone else does about real estate being the best investment (I used to believe it too). I can say that for almost all of them it's far more likely that I'll be able to buy a house for cash, with money left over when they pay off their mortgage with pretty much nothing else in the way of assets. On top of that, I go on more holidays in a year than many of them go in a decade. It's not like they are not well paid either.

 

Paid off homes are nice to have, but they don't pay bills. Income does. Something almost nobody thinks about unfortunately.

 

You might as well be saying "don't get a mortgage, become a premier league soccer player or form a boy band -- both of these offer a better return than property investments". You idea is great in theory, but not everyone is arm chair share market expert.

 

"balance portfolio has always beaten real estate long term" what about since the GFC? It really depends on when you "long term" starts and ends...

[akiralx]

The thing with shares is you are still just investing in a gamble.

 

No, you are investing in a company - providing funds for them to invest in new projects, expand and create jobs.

 

With property you are not investing in anything. Just locking your money away in a building, crossing your fingers that its value will go up.

 

'Investment property' is a bit of a misnomer - it should really be 'speculation property'.

[Wooba]

You might as well be saying "don't get a mortgage, become a premier league soccer player or form a boy band -- both of these offer a better return than property investments". You idea is great in theory, but not everyone is arm chair share market expert.

 

That's a pretty absurd thing to say. You're comparing something as rare as winning the lottery to sound life decisions. There seems to be a focus on the share market from the replies here. Yes, that's part of a balance portfolio but not all of it.

Additionally, you don't have to do all the work yourself. While I do it myself, you can find yourself a good - and this is key - FEE BASED financial advisor. Someone who doesn't actually sell anything.

 

"balance portfolio has always beaten real estate long term" what about since the GFC? It really depends on when you "long term" starts and ends...

 

If you read back to my first or second posting, you'll see that I mentioned that over the last 10 years - which includes to GFC - the average return in Canada is about 7%.

Those that sold at the bottom of the dip, as many, many people did lost their shirts. Those that stayed the course were about even within 2 years and those still invested today have done very well indeed.

[Peach]

While I do it myself, you can find yourself a good - and this is key - FEE BASED financial advisor. Someone who doesn't actually sell anything.

\\

 

The man who gets wealthy in a gold rush, is the one that sells the shovels.. Good luck with your chosen path.

[akiralx]

\\

 

The man who gets wealthy in a gold rush, is the one that sells the shovels.. Good luck with your chosen path.

 

By the same token, the only people who make money from the current property market are estate agents...

[Gbye grey sky]

As I said, a balanced portfolio. Cherry picking bad stocks is as useless as cherry picking good ones. Again, I can't say about Australia or the UK, but in Canada a balance portfolio has always beaten real estate long term.

 

When I compare to my friends who without exception, believe what everyone else does about real estate being the best investment (I used to believe it too). I can say that for almost all of them it's far more likely that I'll be able to buy a house for cash, with money left over when they pay off their mortgage with pretty much nothing else in the way of assets. On top of that, I go on more holidays in a year than many of them go in a decade. It's not like they are not well paid either.

 

Paid off homes are nice to have, but they don't pay bills. Income does. Something almost nobody thinks about unfortunately.

 

I agree with you about buying real estate solely as an investment. There are better options. But when I buy my home I do not consider it as primarily an investment. It is about a stable base for the family, putting down roots, being part of a community, adapting the home to suit the family's needs, not being at the whim of a landlord. These are intangibles but should not be dismissed. People who see everything in terms of dollar signs really are pretty soulless.

 

As I said before there can be little doubt that renting beats buying over a 7 year or a 3 year period. I have my doubts that for most people it will be better over 50 years.

[Peach]

By the same token, the only people who make money from the current property market are estate agents...

 

Agreed. My house is a home, only becomes an asset when I fall off the perch...

[Wooba]

\\

 

The man who gets wealthy in a gold rush, is the one that sells the shovels.. Good luck with your chosen path.

 

Thanks, but I'm invested long term. Like I said, downturns are good news to me. History is on my side.

[Wooba]

I agree with you about buying real estate solely as an investment. There are better options. But when I buy my home I do not consider it as primarily an investment. It is about a stable base for the family, putting down roots, being part of a community, adapting the home to suit the family's needs, not being at the whim of a landlord. These are intangibles but should not be dismissed. People who see everything in terms of dollar signs really are pretty soulless.

 

As I said before there can be little doubt that renting beats buying over a 7 year or a 3 year period. I have my doubts that for most people it will be better over 50 years.

 

I don't disagree with pretty much all you said but I don't think it's fair to call me soulless. With reasonable prices I would buy (I've owned 3 places already) and still invest, just less. But the prices here make no sense (and Australia from what I've read). No matter how amazing a house might be, I'm not going to sacrifice my life to get it (which is what many people are doing here to afford the massive mortgages they taking. When prices are reasonable again, I will buy.

Ask millions of Americans who bought 10 years ago if they thought it was a good decision. Many of them will never be able to retire because of the massive ponzi scheme they created. A correction is likely both in Canada and Australia. There's a good chance it will be slow and painful to many people..

[Peach]

I don't disagree with pretty much all you said but I don't think it's fair to call me soulless. With reasonable prices I would buy (I've owned 3 places already) and still invest, just less. But the prices here make no sense (and Australia from what I've read). No matter how amazing a house might be, I'm not going to sacrifice my life to get it (which is what many people are doing here to afford the massive mortgages they taking. When prices are reasonable again, I will buy.

Ask millions of Americans who bought 10 years ago if they thought it was a good decision. Many of them will never be able to retire because of the massive ponzi scheme they created. A correction is likely both in Canada and Australia. There's a good chance it will be slow and painful to many people..

 

Makes perfect sense now, you're talking down the market in the hope you can snap up a bargain. Nice work champ.

[Wooba]

Makes perfect sense now, you're talking down the market in the hope you can snap up a bargain. Nice work champ.

 

hahaha. That's funny!

I'm not that important.

 

EDIT: Btw, even if a correction started today I couldn't see myself buying for a good 6 or 7 years. I'm not hoping for a bargain. I'm just want something that make financial sense.

Edited August 12, 2015 by Wooba

[Gbye grey sky]

I don't disagree with pretty much all you said but I don't think it's fair to call me soulless. With reasonable prices I would buy (I've owned 3 places already) and still invest, just less. But the prices here make no sense (and Australia from what I've read). No matter how amazing a house might be, I'm not going to sacrifice my life to get it (which is what many people are doing here to afford the massive mortgages they taking. When prices are reasonable again, I will buy.

Ask millions of Americans who bought 10 years ago if they thought it was a good decision. Many of them will never be able to retire because of the massive ponzi scheme they created. A correction is likely both in Canada and Australia. There's a good chance it will be slow and painful to many people..

 

I know nothing about Canada but if you believe a major correction is imminent I agree that holding back makes sense. But if prices are going up madly then your decision to sell 3 years ago would have been a bad one, wouldn't it? I also agree that nobody should try to buy that amazing house that they cannot really afford which is the cause of the problem really. There are all sorts of Ponzi investments out there to catch the unwary (or the greedy), not just property.

 

You commented earlier I believe that you would not even buy a home if you won the lottery which I thought a bit of a strange comment. I assume that you must be single because most people's perspective on owning their own home changes when they start thinking about having a family for the reasons in my previous post.

[Wooba]

I know nothing about Canada but if you believe a major correction is imminent I agree that holding back makes sense. But if prices are going up madly then your decision to sell 3 years ago would have been a bad one, wouldn't it? I also agree that nobody should try to buy that amazing house that they cannot really afford which is the cause of the problem really. There are all sorts of Ponzi investments out there to catch the unwary (or the greedy), not just property.

 

 

I've been expecting a correction for a while. Prices have been insane for years. We have a govt. that's been keeping the party going far longer than it should. They are in an election campaign now and keeping the market afloat is vital if they want to have a hope of winning again.

The state of the market is part of the reason I sold, but certainly not the only reason. When I moved I felt that it was a terrible time to buy. As for the decision, as I said earlier it was one of the best I've ever made. The place is only worth about $5000 more than I sold it for. I'm considerably ahead of that where I am now.

 

You commented earlier I believe that you would not even buy a home if you won the lottery which I thought a bit of a strange comment. I assume that you must be single because most people's perspective on owning their own home changes when they start thinking about having a family for the reasons in my previous post.

 

Simply because it's grossly overpriced. Just because I can afford to buy something, doesn't mean I should if the price stinks.

I'm not single. I have a common-law (defacto) partner who sees eye to eye with me. It's not that hard if you break out a pencil and a calculator.

[flag of convenience]

Renting is Australia can be a rip off but in rent controlled places in Europe, it is quite common to rent all your life.

 

 

Both things are rip offs in Australia. Although rent certainly wins through when crunching the figures at the moment. We certainly do need modern rent laws in place. Hardly much fun to be had paying a mortgage, for a good portion of ones life in a house that has lost almost a third of its value either. A far from not impossible scenario in the not too distant future.

[flag of convenience]

I've been expecting a correction for a while. Prices have been insane for years. We have a govt. that's been keeping the party going far longer than it should. They are in an election campaign now and keeping the market afloat is vital if they want to have a hope of winning again.

The state of the market is part of the reason I sold, but certainly not the only reason. When I moved I felt that it was a terrible time to buy. As for the decision, as I said earlier it was one of the best I've ever made. The place is only worth about $5000 more than I sold it for. I'm considerably ahead of that where I am now.

 

 

 

Simply because it's grossly overpriced. Just because I can afford to buy something, doesn't mean I should if the price stinks.

I'm not single. I have a common-law (defacto) partner who sees eye to eye with me. It's not that hard if you break out a pencil and a calculator.

 

Canada or parts of appear to mirror Australia. Your Vancouver would equate our Sydney in house super inflation. Both cities being highly attractive to overseas Far Eastern investment and requiring a far more than average income to get a foot in the door.

 

Very wise to stay clear and allow others to gamble. You certainly done the right thing getting out before it hit the peak.