Tag Archives: renting

Buying a House in Canada: Why I couldn’t wait to NOT be a Homeowner

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By Kyle Prevost, MillionDollar Journey

Special to Financial Independence Hub

By the end of the summer of 2021 I was no longer 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. Continue Reading…

Tips for moving out of your Parents’ House

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Photo via Pixels/Ketut Subiyanto

It’s about that time in your life when you feel like you need a change of pace and want to move out of your parents’ house. Now, this isn’t as simple as just moving out. There are a lot of steps you need to take in order to be prepared for this new venture in life. Taking on these few tips can help with a smooth transition when moving out of your parents’ and into your new home.

Finding a New Place

Once you’ve decided to move out, you’ll next have to decide if you want to rent or buy a place of your own. Many people lean toward renting since it’s a much quicker and easier way to get a place. Although renting may be easier, buying is typically the more financially responsible route to take.

As a potential new home buyer, you’ll want to do some research on tips for buying your first home. Although there are more hoops to jump through, you’ll be investing your money into real estate and a place to live, instead of throwing your money away by renting someone else’s place.

Before starting your home hunt, ask yourself “how much house can I afford?” Establishing this ahead of time will allow you to know exactly how much you have available to go toward a payment for your new home. Consider working with a real estate agent to help with your home search. They will know the ups and downs of the market and help you find the home that’s right for you.

Decluttering and Reorganization

Many people could agree that moving out of your parents’ house is when the most decluttering needs to happen. You have clothes from all different points in your life, trinkets, and memory boxes galore. Prioritize a day or two to declutter and get rid of the things you no longer need. Then once you start packing you’ll need to move a lot less.

Decluttering prior to your move will also ease the reorganization process in your new place. Researching organization tips can help you find the best ways to do this. Buying organizational cubes, stackable containers, and any storage-type product can help keep all your items in the right place and avoid new clutter.

Developing Financial Independence

Moving out on your own means being financially independent. You’re not relying on your parents to buy the groceries or pay the utility bill. Most expenses are now on you to deal with, and you’ll want to know how you can find your financial independence. Continue Reading…

How Millennials have shifted Homeownership Trends

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By Beau Peters

Special to the Financial Independence Hub

Many millennials prioritize homeownership. And today’s real estate market presents myriad opportunities for millennials to make their homeownership dream come true.

Research indicates U.S. home sales rose 7% month over month in September 2021. Meanwhile, the total housing inventory fell 0.8% month over month. In addition, the median existing price for homes totalled US$352,800, which represented a 13.3% year-over-year increase.

The aforementioned data highlight the rising demand for U.S. homes in 2021. They also illustrate home prices are increasing, which is making it difficult for millennials to pursue their homeownership dream.

At least one study shows some North Americans under the age of 40 have given up on their dream of homeownership. However, it is not too late for millennials to update their homeownership goals. With a clear understanding of home buying trends, millennials can fine-tune their approach to the real estate market. From here, millennials can work diligently to make their homeownership dream a reality.

Now, let’s look at four notable home buying trends and what they mean for millennials.

1.) Most Millennials are pursuing a Home for the first time

Most millennial homebuyers are entering the real estate market for the first time. As such, they may rely heavily on a real estate agent who can help them find a residence that matches their expectations.

When it comes to partnering with a real estate agent, millennials should choose carefully. It helps to select an agent who has extensive real estate industry experience and expertise and knows the ins and outs of the local housing sector. Plus, this agent should have no trouble negotiating on behalf of a millennial homebuyer.

Of course, it pays to work with a real estate agent who values communication. This agent can respond to a millennial homebuyer’s concerns and questions at any point during their quest to acquire their dream home. That way, the agent can help a buyer make an informed home purchase.

2.) Millennials are open to buying “Fixer-Upper” homes

“Fixer-upper” homes tend to be more affordable than other properties. Thus, they frequently generate significant interest among millennial homebuyers.

For millennials who pursue fixer-uppers, buyers beware. There are many reasons why fixer-upper homes are available, so it pays to conduct comprehensive research before purchasing one of these houses. This ensures a millennial home buyer can weigh the pros and cons of a fixer-upper and decide if it is worth investing their time, energy, and resources to upgrade the home.

If a millennial home buyer moves forward with buying a fixer-upper home, purchase the right tools for house improvements. For instance, waterproof wood glue, wall spackle, and other home improvement tools make it simple for a buyer to upgrade a residence without breaking their budget. These tools are generally easy to use and won’t require a buyer to hire a home improvement professional to upgrade their house, either.

3.) Millennials want to limit their Carbon Footprint

Research shows most millennials feel personally responsible for having a positive impact on the environment. As part of this responsibility, many millennials are committed to owning and maintaining sustainable houses.

There is no shortage of opportunities available to millennials who want to buy a house and minimize their carbon footprint. For instance, millennials can compost at home. They can set up home compost piles where fruits, vegetables, and other food products can decompose. Continue Reading…

Renting vs Buying Property while living abroad: Which is best for Financial Independence?

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By Emily Roberts

For the Financial Independence Hub

Financial independence means different things to different people. It has an impact on your life planning and whether renting is preferred over buying property. If you’re planning to go abroad and live elsewhere like continental Europe, Eastern Europe, or south-east Asia, then plans may be different again.

In this article, we look at whether renting is better than buying when you’re financially independent (or working towards it).

What Does Financial Independence mean to You?

Financial independence is possible at various levels. People refer to it by different names including Barista FIRE, CoastFIRE, FI, and others.

One approach is to reach a modest level of financial independence to provide a minimal income from investments, and to let them grow from their current level for a decade or longer while working an easier, low-paid job. Another approach is to wait until you have enough and then retire, but with the occasional freelance or consulting gig too.

Financial independence doesn’t necessarily mean retirement, which generally speaking refers to stopping working as a primary source of income. Different strokes for different folks.

Advantages of Renting

When still working, renting comes out of your paycheck and reduces what you can invest for future financial independence. Some people decide to live and work abroad to reduce their living expenses, to allow them to save faster.

Renting in the US

Americans can rent places Stateside but have to be careful of the long-term leases and associated fees along with any restrictions on tenants.

Depending on the city, renting has become quite expensive, causing some to look abroad.

Renting Abroad

Renting abroad can save you considerable money compared to back home.

For instance, PropertyGuru provides rooms for rent in Kuching, Malaysia. They have rooms for under $100 a month, studios for greater privacy, and larger multi-bedroom apartments in newly constructed buildings too. Their team can locate suitable rental accommodation close to major facilities and transport links, so whether you’re working there, planning to retire, or just on vacation, they can find something suitable.

Advantages of Buying

Purchasing real estate is something that appeals to many people. When they don’t like the idea of not owning where they live, then they lean far more towards buying.

Owning property domestically is possible when the prices are affordable. Unfortunately, cities with the most jobs typically also enjoy robust real estate markets with high prices to match. Sinking most of the next egg into a home makes retirement difficult. The ongoing ownership costs aren’t cheap either. Continue Reading…

36% of non-Home-Owners under 40 giving up on buying first home, but others still plan to buy, RBC poll finds

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By Amit Sahasrabudhe, Vice-President, Home Equity Financing, RBC

(Sponsor Content)

The road to home ownership isn’t always an easy one and the pandemic has made it even more complex, bringing new challenges and opportunities for prospective homebuyers. For some, lifestyle changes have created opportunities for increased savings. Others find themselves priced out of the housing market.

RBC conducts an annual Spring Housing Poll to learn more about Canadians’ attitudes around home buying and the housing market. This year’s results show that despite some Canadians – especially non-homeowners under 40 – reporting they have given up on the dream of home ownership, there has been an increase in those who say they’re likely to buy in the next two years.

Even amidst an increasingly expensive housing market, most Canadians feel that housing continues to be a good investment and that it is still better to buy than rent.

Should you buy now or buy later?

The first step in knowing whether it is the right time to buy is understanding how much you can realistically afford. This includes having a full picture of your current financial situation and how it may change in the future. It is also important to consider external factors like the overall housing market and economy, as they can also have a big impact on your ability to purchase a home.

In fact, our research found that many Canadians are planning to wait to purchase a home because of the state of the economy, concerns about their job security and affordability, especially in hot housing markets. For others, historically low interest rates and the fear that housing market will become increasingly unaffordable are motivating the decision to purchase a home sooner.

While Canadians now have a lot more factors to consider when buying a home, they don’t have to embark on this journey alone. Buying a home is one of the most important decisions you will ever make and there’s no substitute for doing your research and receiving expert advice on how to fit your home purchase into your overall financial plan. RBC Mortgage Specialists are available to help you with your home buying journey from start to finish, and appointments can be booked virtually, by phone or in-branch.

Saving for a down payment

When it comes to purchasing a home, saving for a down payment can often be the biggest barrier to entry. While everyone’s financial situation is different, some Canadians have taken advantage of reduced spending during the last year to build up their savings. Our research found that most Canadians who are likely to buy in the next two years are setting aside monthly savings to put towards purchasing a home, saving an average of $789 each month. Continue Reading…