Why You May Not WANT to Own
Posted by Gail | Filed under Home Buying
I was yakking with an old editor on Facebook the other day and asked how her cute little house was. She told me she’d sold and gone back to renting. Too much work, she said. And it got me to thinking just how many people buy homes because they think they should only to find that they are in no way suited to home ownership.
Owning a home is the “big dream” for so many people. But you know what? Sometimes home ownership is a pain in the arse. Like when your shingles blow off in a windstorm. Or the furnace breaks. Or you’re trying to sell and no one wants to buy so you can’t move and get on with your life.
Before anyone buys a home, they should have to take a test to see how committed they really are to home ownership; not the dreamy, picket-fence home ownership, but the paying for all the crap that happens home-ownership.
Y’know, money isn’t everything. Peace of mind, ease of movement and a sense of balance are all important things to have too. And home-ownership as an investment isn’t a sure thing, no matter what The Spurts say.
Take this test:
1. Do you have a variable income?
Do you find that in slow periods, you have trouble making ends meet? For most people you’re a variable income, unless it’s very high, they find budgeting difficult. Take on home ownership – a mortgage, taxes, insurance, utilities, maintenance – and you take on a ton of stress.
2. Do you work in an industry where employment is seasonal or erratic?
Ditto above. Unless you really sock it away while you are working, you may find it hard to keep up with the financial demands of ownership.
3. Do you have the time and skills – and perhaps more importantly, the desire – to deal with home maintenance?
There is always something to be done on a house. There are lawns to be cut, gardens to be weeded, walls to be painted, plumbing to be fixed, snow to be shoveled, carpets to be cleaned, curtains to be replaced, roofs to be repaired, furnaces to be maintained… the list goes on and on and on. Home maintenance can be expensive. As a rule of thumb, you should set aside between 3-5% of the value of your home every year to keep it in tip-top shape. So on a $200,000 house you’d need to include between $500 and $833 a month in your budget for maintenance. If you can DIY, you’ll save on labour. If you must pay someone else…
4. Do you have extra money to pay for repairs or improvements, taxes, insurance, and larger utility bills?
People are under the gross misconception that home ownership costs the same as renting. It does not. When you compare renting to owning a home in the same area, of the same quality, home ownership is more expensive. Just being able to make the mortgage payments isn’t enough. If you don’t add up all the other costs with which you’ll be faced, you may find yourself house poor.
5. Will buying a house wipe out all your savings?
Some people will do ANYTHING to get into a house. Once they’re there, expenses start cropping up and they have no safety net in place to see them through. If buying a house eats every red cent you have to hit together, you should wait until you can own a house AND have a safety net.
6. Do you move often?
I often get letters from people who are in the military, or who work in careers that have them relocating often. Nomads live in tents for a reason, people. Getting in and out of home ownership (sales commission, closing costs) can wipe out any equity you’ve built up, assuming the market has been going up in your area. And you know what they say about assumptions!
7. Can you afford to own in an area in which you would want to live?
This one slays me. For the sake of home ownership, people move far away from friends and family, from their jobs, from the lives they love. They become house-poor in a place they don’t even want to live. And they add huge commuting costs – both in terms of money and time. As if life isn’t stressful enough. One woman I know bought “what she could afford” and then spent her life worrying about her kids walking to and from school “in a bad neighbourhood.” Jeesh!
8. Are you financially responsible?
You’d think this would be a given, wouldn’t you? Not so much. I’ve met lots of people who are clueless about their money who have bought homes. They haven’t had the discipline to save up the down payment. They don’t even know for sure how much they make each month. They don’t pay their property taxes on time. And they haven’t given a thought to what they’ll have to do to keep the place from falling down.
9. Do you love being able to write a cheque for rent and then not sweat the details?
If you’re a gad-about or hate routine, home ownership may not be for you. Ditto if you’d rather travel than buy furnace filters, shop for shoes than snow shovels, or go back to school than refinishing the floors. If home ownership is going to get in the way of other things you want to do with your life and your money, you’ll only end up resenting your house. So if Saturday morning in a café with a latte is more attractive than heading out to cut the lawn, stick with renting.
People buy houses for the wrong reasons. You father says you should. The media says you should. Your sister says you should. What do YOU want? If you don’t want the responsibilities of home ownership, don’t let anyone push you into it. Make the choice that’s right for you. Home ownership isn’t for everyone. Some folks are happier and better off renting. There’s nothing wrong with that choice. And don’t fall for the crap that you’re throwing your life and money away. Just point out that of your best-friend’s $2,100 a month mortgage payment, $2,084 is going to interest at least for the first five years or so.
Yes, home ownership brings the opportunity to grow equity over time, but if you rent and invest wisely, you can achieve much the same end. Being house poor, stressed out on time, and lonely in a far-away place isn’t the price you must pay to have money for retirement. There are other ways. Go find them.
May 27, 2009 at 7:54 am
Well said Gail. We really need a paradigm shift with regard to whether or not we should own a house, the type of home that we have and when we need to sell said house.
Gail said it best whether we should buy or not. But what’s up with the houses being built today with all the rooms? Houses today have more toilets in them than people. Apparently our computer needs its own room. We need at least 2 rooms for our couches and 2 rooms for dining – the breakfast nook in the kitchen and the dining room for Christmas day. There are never enough bedrooms, even though our families have gotten smaller. Then again, there is the slim possibility that we may have guests. Builders are now putting lofts upstairs – quick, go buy yet another couch. And apparently, even our clothes need their own rooms as heaven forbid we don’t have enormous walk-in closets. If that wasn’t enough, we have an entire basement that we simply have to finish into yet more rooms. Enough with the rooms!
As your home is most likely your largest investment, it astounds me the number of folks who do not plan to one day sell it. They want to retire and stay in their home as long as they can, with most wanting to die in their homes. How do you ever realize the investment if that is your plan? How many seniors in this wonderful country are house rich and cash poor? How many seniors can’t afford to heat their homes and to maintain them, yet would never even entertain the thought of selling the house? It doesn’t make sense to me. Sell the house, rent and enjoy the proceeds from the house.
May 27, 2009 at 8:33 am
THANK YOU for this article. I work at a bank and I’ve been going through hell debating on whether or not I should buy a home. Rates are historically low and everyone keeps telling me, “you’d be stupid not to buy with these rates” and “Why should you pay someone else’s mortgage?” But I enjoy the lifestyle of appartment living, am so far from handy its not even funny, and logically, what would one person need with an entire house? And Condos with their scary fees are a whole-nother ball game.
The equity argument almost won me over and I was seriously considering buying. I’m really interested in how you think that investing wisely can build up in ways equal to home equity. I’d love it if you could expand on this for us Renting Dwellers.
May 27, 2009 at 8:58 am
Personally home-ownership is not all that it’s cracked up to be. I own a condo and between mortgage, condo fees, (astronomical) property taxes, electric bill, cable bill, phone bill, etc., etc., it’s too much.
I personally should have rented the condo. If I could afford a townhome or semi-detached, I would have purchased it. At least you don’t have to put up with the cr*p in a condo.
Right now I’d debating on selling my condo because the “renters” in my condo building are destroying the place…which is ticking me off royally.
Can you tell I’m mad? and what’s even worse is that the Property Management company doesn’t do anything about the complains…and the Condo Board members don’t even live in the building.
Out of 10, my frustration level is at 15!!.
I may even go back to renting my parents’ basement apartment…at least I wasn’t being ignored…silly me.
p.s. I only purchased my condo because “it’s the right thing to do”.
May 27, 2009 at 9:01 am
Thank you so much for this, Gail. You’re a breath of fresh air. I’m 27 and many of my friends already own or are looking to buy. A part of me wonders if I should attempt to invest in real estate as soon as I am able. My biggest deterrent is the fact that I move around a lot. I’m still far from settled. I’ve moved around on average once or twice per year in the last 8 years. Now I”m contemplating going back to school or working in a different country. And with the job market the way it is, I’m starting to become open to the idea of moving for a job, once again. I remind myself that I am not ready to invest in a home until I can guarantee that I will be there for the long haul. In the meantime, I’m sure there are other investments that make more sense.
People act like investing in real estate is risk free and always makes sense. Sometimes it doesn’t. You always remind me that there are no inveseting rules or laws that are guaranteed to make you money – it’s different depending on your own personal circumstances and you have to do what makes sense for you.
May 27, 2009 at 9:28 am
Thank you for this post Gail! There is so much social pressure to buy a home it is hard sometimes to stay true to your own goals and not question yourself occasionally. My husband & I have been renting for 6 years now, and have never been in a position to buy yet. It obviously didn’t make sense while I was in school, and this past year as I’ve started my career the goal has been to pay off the student debt.
It astounds me how many people buy a house before their debt is paid off. People somehow classify home debt as different from other debts. But really, if buying a home means t hat your student or consumer debt is going to take twice as long to pay off and you end up paying twice as much interest, it seems to me that you would be “throwing away your money” or “paying someone else’s mortgage” in more ways than if you just waited until you could truly afford it.
I definitely feel the need to justify myself sometimes, which is outright annoying. When people visit our home for the first time, they almost immediately ask us if we own it. Why that is relevant to them I do not understand. Our home is what it is because we make it our home and take care of it. There is such a stigma to renting that sometimes I just feel like lying. But I don’t, I just talk openly about our financial goals and how renting saves us tons of money (we found really cheap rent for our area and would easily be paying double what we currently pay if we were to own).
Anyway, thanks Gail. You are one of the few who really look at the benefits of renting.
May 27, 2009 at 9:32 am
I live in an area that is perfect for me and my wife: across the street from the subway station, 30 minutes door-to-door to work, a park and river across the road, big mature trees everywhere, and young families pushing strollers as far as the eye can see. Veggie markets, cafes, and shops are all within walking distance. We rent a one bedroom for $1,100.
To buy a two- or three-bedroom home in this neighbourhood would cost anywhere from $500,000 to $700,000, and if we were ever able to get 5% down, the mortgage payment would be over $2,500 a month, nevermind the costs of maintence. It is simply out of reach for us. Of course, we could buy a house for $375,000 or $400,000, but that would take us away from our favorite neighbourhood, the subway (adding another 20 minutes each way on my commute) and make us long for the place we both love.
Renting just makes sense for us. We can save the entirety of my wife’s salary living where we do. That wouldn’t be the case if we had a monthly mortgage payment of $2,500 or $2,700. Nevermind if rates ever reached 10% — we’d be pooched.
Long live renting!
May 27, 2009 at 9:47 am
So interesting… If I’d read this three years ago, I don’t think I’d be living in my house right now. I didn’t know Gail’s wisdom back then, and consequently we probably bought prematurely and suffered a bit at the outset. We wiped out our savings to move and pay the downpayment and closing costs, and then dove in to renovations the day we got the keys. Things were quite tight for a while. Yikes! If you won’t take it from Gail, take it from me-buying is WAAAAAY more money than renting.
Thankfully, things are running smoothly now, and we’re quite happy being homeowers most days, but DH is tiring of all the DIY (the whole reason he wanted buy rather than rent I might add) and wants to move to a bigger more “done” house after barely 3 yrs in our current home. Anyway… off topic, but just wanted to offer some experience in buying without the safety nets in place that Gail has kindly pointed out-just say no!!
May 27, 2009 at 9:59 am
Candice:
Building equity while renting:
Calculate 35% of your take home pay. Subtract you rent and housing expenses. Invest the rest (MF, GIC, …). If house prices increase on average 4% (guessing) while the stock market increase on average 10% (guessing), then you could be ahead in the LONG run.
May 27, 2009 at 10:20 am
Dave – I know what you mean. I used to live in the Beach and loved it. Renting was perfect – I was able to enjoy living right on the water, when a home there would have cost upwards of $800,000 – 1 million +.
May 27, 2009 at 10:28 am
Thank you so much for this post! I am going to bookmark it, and direct my friends to it when they start talking about how buying a place is the most important ‘investment’ you can make. Amongst my demographic (25-35, living in the GTA), the pressure to buy is INTENSE. It is seen as the “only way” to invest in your future. Renting is commonly referred to as “throwing money down a big hole” (usually by people who really ARE throwing money down a big hole by spending it on stupid things they don’t really want anyway). I’m tired of arguing with people about why renting is not necessarily a bad thing.
As a single person on a relatively small income, there is simply no way I can afford to buy a place in Toronto. I love living downtown, and I love the lifestyle it gives me. I refuse to even consider buying until I have a 20% down payment, which would be AT LEAST another 10 years before I could save that much (I am saving, but I know it’s not going to come quickly). AND I refuse to pay $400-600 a month in condo fees, in addition to a mortgage and all the other responsibilities of home ownership. I have recently been thinking about the reality that I will be a long-term renter – and I think that will be ok with me. I love the idea that if something breaks in my apartment, I simply call the super to come fix it. I like being free to move around when I feel like it (I love to travel). I have no debt, an emergency fund, and several investments that I contribute to religiously. I may not have a fancy home to show off, or ‘home equity’, but I also have a much better quality of life than people who spend 2 hours a day commuting simply so they can own a house in the suburbs. My life circumstances may change in the future, but for right now, I’m quite happy being a renter.
Thanks Gail!!
May 27, 2009 at 10:30 am
This is a great post Gail, and I think your message applies to more than just home ownership.
With any large (or small) purchases, we really have to ask ourselves if this ‘product’ is right for us. If it makes life sense, heart sense, and financial sense.
I personally am very eager to own my own home. My partner and I are saving agressively for a down payment (20% is the goal) as well as saving for the renovations that will need to be done. It will take a long time, but in the next 3-5 years, I hope to be buying.
I am the person that would much rather mow the lawn then go for a latte a Sbucks, or watch my kids (eventually) play outside in the safety of our yard, then wonder about safety somewhere else.
May 27, 2009 at 10:50 am
Its good to know that as a landlord there are so many people who are still willing to rent!
May 27, 2009 at 11:17 am
Thanks Gail, this is good food for thought. I currently live with my partner in a condo he owns (I pay him “rent” as my contribution to our living costs – it’s significantly lower than I would pay in a comparable place in our area, but makes it really easy for him to afford a place he’d be paying for anyway). We’ve talked about buying a place together, and he’s pretty keen on it, but I’m not in a financial position to be able to carry a mortgage until I’ve paid off my student loans. This article gives me pause for thought on whether I even want to do it then – I’ve always rented and really enjoy not having to stress about home maintenance, not to mention mortgage debt – I guess I just figured that part of growing up financially and socially was owning a home. But you’re right – there are definite plusses to renting, and I imagine that with the right investments you could build wealth at least as effectively. Case in point – the fridge stopped working last week. I arranged for the repair person to come fix it, but money’s tight right now and while I could have paid for it out of my emergency fund, I took considerable pleasure in not being on the hook as the home owner for the $250 in parts and labour – my partner was really not thrilled and I don’t blame him. In the long term, I may have to compromise – my guy loves owning his own home! But there’s excellent food for thought in this article, and if nothing else it’s worth thinking carefully about the kind of life you want to live so you can at least try to arrange it so you get most of your druthers
May 27, 2009 at 11:19 am
Sharlene, I’m with you. One of my renters gave notice last month because she and her boyfriend bought a house WAY out in suburbia. She’s already dreading the commute.
May 27, 2009 at 11:25 am
There are many joys to renting. When I moved to Vancouver to start a new job I rented an apartment downtown that was a 15 minute walk to work and a 5 minute walk to Stanley Park. I was in heaven. I didn’t need a car as I walked everywhere. I didn’t have to worry about upkeep or major repairs. I paid my rent, telephone and cable bill every month and that was it. I walked to the grocery store and had my groceries delivered to my kitchen by the supermarket. I didn’t have to mow the grass, plant the garden, paint the house…..no maintenance whatsoever. It was great.
I now live in the ‘burbs in a home that we bought and yes, I am enjoying that also. But, I now have to spend time mowing, planting, painting, building, shoveling, cleaning, cleaning, cleaning, commuting, changing, fixing, filling up, emptying, lugging out garbage…you get the picture. All of this is consuming so much of my time and my money.
Having done both I have learned this. Shelter is shelter. Period. But the costs of the type of shelter that you chose can be enormous. While most of us know how much our shelter costs when we are renting, very few of us know the same when we buy our shelter. I think that most of us would be shocked to find out.
P.S. About 8 months after we bought our current new home, an identical home several houses down sold for $80,000 more than we paid for ours. Seriously thinking of selling ours, I opened up a spreadsheet and itemized everything that we spent on our new home. Drapes, land transfer, fence, lawyer’s fees, new light fixtures, upgrades, appliances…anything that you normally have to pay for an include when you sell. Imagine my surprise when the total came to $36,000! Add in property taxes, mortgage payments and a realtor’s commission and guess what – that 80 grand didn’t look as profitable anymore. As Gail as demonstrated so many times, track your spending and you will be surprised. We were.
May 27, 2009 at 11:29 am
Ug. As a 26 year old with serious house lust I’ll toss my 2 cents in.
Make sure to consider ALL the variables. I want a house because I adore DIY. All I want to do is putter. Putter, putter, putter! I’ve totally out puttered my parents’ condo and none of my l.
But that’s the only thing about owning a house that makes sense for me. I’ve looked at every other variable from every possible angle. No dice. It’s so easy to get fixated on my desire to re-face cabinets and re-finish floors that I forget about my student loans, the fact that I like my apartment building, and my nebulous career path where mobility is a big plus.
May 27, 2009 at 11:50 am
One point that is never mentioned (however, Colin did beat me out a bit to it) in the buy-yes-rent-no argument is the fact that a person/family has all this money “invested” in a place but when they die, rarely is that money actually seen as in other investments (i.e. bonds, stocks, etc.), which at some point is more likely utilized. If anything, it becomes money (inheritance) for the children. So really, when one thinks about it, home ownership is really just more expensive rent with more headaches disguised as a “smart” strategy. Not that there is anything wrong with “home ownership” – backyard, porches, etc. – but at least call a spade a spade, and don’t be fooled by the theoretical arguments. Of course, if one is smart and actually sells their house when older (and the house is fully paid), then lives a rent-filled remaining days, then you’re cashing in on your “investment”. Then, as another perspective, home ownership is no different, or becomes, a forced-savings program. At the end of the day, housing is no different then stocks – sometimes it’s hot, sometimes cold – just look at Apple Inc. now compared to Apple in the 90’s.
As always Gail, thanks for the balanced opinion that runs contrary to what all the sheep in the world bah over.
I say viva la rent!
May 27, 2009 at 11:51 am
Interesting post Gail. I whole heartedly agree that the decision to buy versus rent should be well thought out. In the last three years in Calgary we were in such a boom that apartment building owners were converting everything to condominiums and people were unceremoniously being booted out of their rental units (through 300% rent increases!). There was such a shortage of affordable rentals that many renters had few options available and decided to buy – often spending more than they could afford.
Now those same “condo conversions” are being rented out for cheap as those owners who were looking to turn a quick resale profit find themselves stuck with units that can’t sell.
I myself bought a condo in Calgary in 2007. I own another condo which I rent out in another town. For renters looking to buy apartment style condos in order to supposedly build equity I offer some things to consider:
1. Condo fees always increase. The building will age and ultimately needs repairs over time.
2. For new condo buildings the developer always takes a hit on the fees to sell the units. Once all the units are sold the Condo Board will discover it is not receiving enough in fees to cover the building utilities and maintenance so expect the fees to double or even triple. You might even have to shell out a few thousand in special assessments to cover utility bills. Plan for it.
3. Remember – in an apartment condo all the units are more or less identical. When it comes time to resell your unit you will be competing with dozens of units that look almost the same as yours. This can make your unit more difficult to sell, particularly if others in the building undercut your selling price.
As an aside I love my condo because I don’t plan on moving anytime soon, but I do keep a healthy savings account for the unexpected.
Cheers!
May 27, 2009 at 11:55 am
Oh, and Candice, as Marie pointed out (and the Wealthy Barber pointed out as well) – to both of which I agree with – invest the difference on a monthly/biweekly/weekly basis in a low-MER, diversified mutual fund and you’ll be set in the long run.
May 27, 2009 at 1:47 pm
Thank you for this post Gail. It has come at a good time for us.
We bought our home in 1975, raised our kids here, and now on the brink of retirement are deciding we think we want to sell and rent from now on – in a larger centre. Our property is 136′ x 136′ so that is mucho grass to cut and there is always mega snow as well (I’m thinking of hubby getting OLDER )
For 16 months starting Sept. 2001 we lived in a lovely condo kitty-corner across the street from the old Maple Leaf Gardens downtown Toronto while hubby was seconded for EQAO. We had a great time!
Hubby would put our home on the market tomorrow…me? I’m dragging my feet a bit as this has always been my soft place to fall.
May 27, 2009 at 1:49 pm
Being in Calgary we were also feeling the pressure. We had mulled buying for a while and were growing frustrated with our neighbours, it had become a socially poisonous environment for us to continue renting our townhouse (But we rented for 6 years). Our rents were jumping, the landlord no long was including utilities, repairs weren’t happening etc, then shortly after tax time my parents decided they were selling their house. We took our tax refund, negotiated a very good price, eliminated ALL our debts (the bank demanded it, we weren’t allowed any outstanding balances on close, a godsend when I later got laid off) and bought the house. At the time it made sense. We projected our costs vs rent increases out five years and figured in 8 we’d come out ahead. Then the market slid. We we’re okay, as we had bought our house 50k below market, and put 10% down so we’re still sitting pretty.
To be honest though, if it weren’t THIS house, we would still be renting. We’re both well aware that buying this house was more an emotional one than a Financial one. I grew up here. I proposed in the living room, my Dad, brother and I renovated the entire house, there’s lots of memories here. Financially did it make sense? Maybe not, we might do better else where. If the market jumps in 5-20 years we’ll be laughing as we’re in an area that’s more inner-city than suburb and getting denser all the time, so a lot split isn’t out of the question in the next decade. But ultimately, we bought our house because it was our home, not because it was a sure investment.
Sometimes, and I’m sure Gail would back me up on this, it’s okay to buy because of emotion, as long as you’re not digging a financial hole at the same time.
May 27, 2009 at 2:50 pm
My husband and I started our marriage as teenaged parents, so in the past 18 years together home ownership has never been an option for us. We are lucky enough to live in a beautiful rental home in our desired neighbourhood – a home that would be well beyond our price range if we ever did decide to buy. We enjoy all of the benefits of living in a great neighbourhood – good schools, great neighbours, safety, convenience – without the cost and worry of maintenance. Sure we take care of the garden, power wash the driveway and regularly clean the carpets, but when it comes to fixing the broken oven or replacing the worn out pool heater all it takes is a call to our landlord and “magically” it’s fixed!
It also provides us with a great deal of comfort to know that if one of us was to lose our job, we could easily downsize to a cheaper apartment in order to stay on our feet financially.
May 27, 2009 at 2:53 pm
Hi Gail! I loved this post. My boyfriend and I are currently renters, both debt free and well on our way to a successful financial future. We are also the only couple out of our close friends who have not yet bought a home and often feel the pressure buy. We love the freedom that renting allows us, especially right now, with major lay-offs occuring across Canada, we are only a month’s notice away from being able to move to where the jobs are. We are both able to walk to work, we don’t pay condo fees and we are not on the hook if anything needs to be replaced or repaired.
May 27, 2009 at 3:53 pm
What a great article! We bought our current house shortly after we were married. Hardly any money saved, but both sets of parents that it was a good idea so they helped with the downpayment. Fast forward 18 years and we only have $1,084 left to pay. Would I love a new house, you bet, but only when I get house envy from looking at show homes and when I think about what size of mortgage we would have even after selling ours. Bought ours 18 years ago fully furnished for a mortgage of $83,000, today we would be looking at $150-180,000 mortgage. Sure our house needs work, but it is only cosmetic. We have fixed major things when needed. Our kids are all teenagers, hopefully they will LEAVE one day. The one nice thing is that my husband grew up in a smaller home with only using the top floor for many years and I grew up in a home approximately the same size of ours. I am terrible at housecleaning, so why would I want to clean an even bigger space. Any renos would not amount to $25,000 from top to bottom. I feel sorry for those starting out, especially in the last 2 years for what they had to pay for a house. Sure mortgage rates are low, but I know one couple who are paying close to $2,000 a month.
The one thing that saves me whenever I am in the mood to house shop or splurge or do anything really stupid with my money, for some reason I now have a little voice in my head that says, “What Would Gail Say” and for some reason after reading blogs and watching the show, I know exactly what she would say.
Here’s a question – why does it seem that for some people once their kids are gone they go out and buy a new and sometimes bigger house!!???
May 27, 2009 at 4:09 pm
You know home ownership isn’t all bad. I love our house in central Toronto and it’s hard to find a nice home to rent in a good part of town. You can find a floor or you can find an apartment but an actual house is going to run you about $2K. Plus I don’t have to deal with a nosy landlord and am building equity – and Toronto house prices are only a half % off what they were a year ago – whether it stays this way is beyond me but thats what they are at now. Gail’s article isn’t totally against home ownership (she owns) but merely pointing out that there’s good and bad with it. The comments above are a little bit biased towards the bad and I love love love our cute little backsplit.
May 27, 2009 at 4:56 pm
Do you have a similar test for having children? Kids are very expensive… You know it, but you don’t really take that seriously until you have to start paying! I wouldn’t trade my kid for a million bucks, but it would have helped to be more financially prepared for that investment! And we are a two parent/two income family with only one child…
May 27, 2009 at 5:41 pm
Colin – My neighbour accross the street wised up to his equity just in time. His wife had passed away after a long and expensive illness, then he rented out his main floor and made a basement apartment to live in (not a very nice one). He struggled and fretted and it looked like he wasn’t able to keep up with repairs and mantainence. Then suddenly he put the for sale sign in the yard! He said he just woke up one day and realized his house was paid for but he was poor until he unloaded the house! He made enough money to live comfortably for a long while in a modest apartment near his favourite hang-out spot. Last time I ran into him he look WAY happier as a renter!
For myself, though home ownership may cost more than renting, I don’t regret it. The vacancy rate is below 1% in this town so options are limitted and with a family and pets ownership is the only way to get what you want out of your shelter. We had good timing, we bought our place 10 years ago JUST before the market out west here ballooned outrageously. We love the neighbourhood and the home is cozy. We take pride in caring for it and improving it as the budget allows. I don’t think there is any way we could start from scratch breaking into this area right now, in fact if we had waited even two years we could not have gotten nearly the house we have and would have not found home ownership worth it at all!!!
Renting isn’t all rosy either though. My mom had a landord that never got around to replacing her broken fridge, my friend had a landlord that didn’t think the roof was worth replacing and my sister had plug in heaters all over her place when the landlord didn’t want to fix the furnace.
The worst was when a good friend of mine had a townhouse she was renting suddenly go for sale. It was listed for more than they qualified for and there were showings and tours all the time, and they ended up having to leave because the place was sold and they found themselves homeless with 3 kids in a town that had no good (or affordable) rental options vacant! They had an easier time finding a place to buy even at their low eligibility amount, than a place to rent!!! What a pickle! Now she feels trapped in the place she is in because she owns it, and wished she was renting again when the plumbing got eaten by rats last winter!!! From bad to bad!
May 27, 2009 at 5:52 pm
Home ownership isn’t all bad!
My fiance and I are students, and we bought a house. Crazy, right?
Looking at rent for a one bedroom apartment in Hamilton, it was going to be about $700 a month minimum for a nice one. We tried the student house thing, but you get to a certain point in a mature relationship and you can’t stand sharing a kitchen with 8 other people.
We had an inheritance, about $15 000. So we decided to put it down on a house. We found a 3 bedroom semi that needed some cosmetic work for just under $75 000. Sure, it’s not the best area of town, but it’s not the worst by far. Although our neighbourhood has a reputation for being rough, one look at the well-manicured gardens says otherwise.
Right now, our mortgage is amortized over 35 years because of our lower income. When both of us leave school in a couple of years and enter the wonderful world of engineering, we’ll be able to adjust that and have it paid off in full within 5-10 years, no problem. In the meantime, we are paying $300 a month for our mortgage. That plus our utilities still comes below the $700 we were going to pay for an apartment. Plus, we’re building some equity! When we have any extra, we sock it away to put a chunk into our house every year.
We love owning. We are masters of our own domain. If we want to rip down a wall, or paint the walls lime green, we can. We have a place that is our own.
We’ve been told time and time again that we are too young to own a house, that we can’t handle the responsibility. One look at our bank accounts, though, and the naysayers would have to agree! On a combined income of less than $40 000, we’re managing to put away 250$ a month into savings and mutual funds. We don’t have any consumer debt, and no student debt either (even with about $20 000 a year going into tuition and books). It takes living frugally (no spring break trips to Cuba for us!) but we are in a better situation than a lot of “adults” are.
Bottom line; home ownership is not for everyone. But renting is not for everyone.
May 27, 2009 at 6:54 pm
I’m with Manda!
I’m 26 and my husband is 31. We purchased our first home in 2001 for $150000 on his $40k salary (to support a family of 6 he now makes closer to $60k by working more hours, but all the OT goes straight into RRSP – anywhere from $500-$1500 per month) and rent out the basement suite for $500 currently (lower by $125 for family). We now have 4 kids and squeeze ‘cozily’ into the upstairs.
In 2004 we began trying to purchase a second property. We have no consumer debt, my husband can fix anything and find all the parts he needs for little or no money, and were aware that we risked losing both places because we were using the equity from our home to buy the 2nd house. At our ages, we thought we were in a good financial position to try it and would still be able to recover and purchase ourselves a home again in a reasonable amount of time versus doing it later in life. We had also been paying as much on our mortgage as we could, so it was sitting at about $100,000 owing and with the market upswing had more than doubled in value to $360,000.
The bank wouldn’t even look at us.
After a year of trying them out with different houses we wanted to purchase and being rejected time and again, we threatened to move our mortgage to another bank that would finance a 2nd house for us. Yay, victory!
So in summer of 2005 we purchased a somewhat run-down duplex (2bdrms per side) for $200,000.
Until this past 6 months when both sides moved out and we have been doing complete renos (at least it’s done for a while) we received rent regularly and have not had any trouble with the tenants. Cost since December: $20,000. Current value: $300,000. And every month had been a few hundred dollars in the black for the past 4 years, all costs considered!
The point of all this rambling? Yes, I liked Gail’s post and it makes sense for some to rent. For us, to be renting a home big enough for the family would cost at least $1500 per month for a modest home. In our current situation, we pay $1000 per month minus the basement rent, plus the duplex makes us some extra (we don’t use it for us, though.) We could NEVER AFFORD to rent!
May 27, 2009 at 8:10 pm
I like how the article challenges conventional thinking. However, in our case home ownership was the right choice:
In 2005 I put $25,000 down on our home, and now we have approximately $150,000 in tax free equity even with the big drop in house prices here.
Our variable mortgage is pretty cheap, we pay 1.450% interest which puts SEVENTY SIX percent of our payments into the principal in the 4th year of our mortgage.
I think the 2-5% maintenance costs are overstated, unless someone has a very old house that is absolutely falling apart.
May 27, 2009 at 9:58 pm
To Dave above; sounds like you live in High Park/Bloor West – I’m in exactly the same location/situation.
May 27, 2009 at 10:52 pm
Stories like Kathryn’s always make me a little envious because my down payment was more than the cost of her house. And then I had to add another $30k on top to furnish my home…and yet my walls are still bare.
May 27, 2009 at 11:40 pm
You know what, Gail? I was pressured from my family to buy, and part of me has so sincerely missed renting, it’s not even funny. Part of the other reason I wanted out was because I ended up renting a townhouse that was between two warring neighbours, but that was ONE instance. I know that where I want to live would cost me more than I can afford to buy in, but there are always townhouses for rent there.
My financial life crumbled when I took up owning, whereas it was supposed to be saving me money, right? And I don’t know if I care to have that kind of equity in a house that, while I love it, isn’t my “dream home” by far, or in an area I’m sure I’m not going to end my days in.
Yet, all my life, I’ve been told owning is the only one true way…Thank you for giving me something else to think about!
May 28, 2009 at 6:46 am
We moved from our starter home to a larger home about 2 years ago. Our mortgage increased by about $200, but we doubled our living space, which may be a pain to clean, but we’ve now got a veggie garden AND flower beds and we were able to put in a pool last year (on LOC, but it’s 1/2 paid down now..I was reading Gail at the time, but the kids and husband won the battle that time). Yes, there’s more house to clean, and God knows it’s bigger than what I grew up with when I was a kid of 5 in a 3 bedroom house with my grandfather living with us (and 1 bathroom…3 older stinky brothers…blech).
Now, that said, we are definitely using our house as an investment and will sell when the kids are ready to move out. But we have sooo many brand new couples living around us in the same size of home, no landscaping, sometimes not even curtains on the windows (they’ve all been in their homes for 2 years too!). I don’t get why people would ‘move up’ or make their first purchase such a big home when they can’t even afford to beautify it…or COVER the bloody windows! I’m sorry, but if I was still exposing myself to the neighbours every night for 2 years, I’d put the ol’ 4 Sale sign out! Might as well take your money and move into something you can afford to purchase AND maintain.
May 28, 2009 at 10:27 am
We’re doing well as owners, only because we were very conservative. My husband has a job in a small town, and we bought a lot in the village next door, only 10k’s away. We bought an old trailer. We’ve had the wiring inspected, which was a concern of mine with trailers. Another concern is their notorious problems with leaky roofs, so I inspected the ceilings inside the cupboards and closets, which still had the origional paint.
All’s been ok these last years with the trailer, and both it and the lot are paid for, which is great. But any one thinking of doing this should check at the municipal office to see if their zoning allows single-wides, or if there is an age restriction on the proposed trailer. The moving, permits for and building porches, digging for gas and water hook-ups, could cost as much as 15 – 20 thousand dollars – IF you don’t need to put in your own telephone pole.
One thing that I didn’t know, was how expensive it is to landscape. We live in an area known as “Canada’s little desert,” and my lot is all sand on gravel. Beware if you’re buying an unlandscaped lot on poor soil, especially if you want to garden. Topsoil is nonexistant in this area. I came from Vancouver, and if anybody had told me 15 years ago that one day I’d be spending oodles of money on dirt, I’d have said they were crazy. I’ve bought ties for garden edges, spent countless days on landscaping the hillsides which wouldn’t support anything but weeds, and each hole I dug for fruit trees or grapes took a couple of days to dig, because of the boulders that are under the sand and gravel – can’t even get a shovel in the ground; have to use crowbars!
Everything I’m growing is edible, which will offset the costs eventually, and inbetween gardens I’m making rockways, so we won’t need a lawnmower. We could be on water meters one day, and I hope to have the soil ammended by then so we won’t have to worry too much about that. Weeding is a constant thing here. Just wanted to warn any body who’s looking at a weedy lot and seeing an oasis, put a shovel in the ground, and if it’s all heavy clay or rocky as a hillside in Greece, you’ll want to think about this. The landscapers out here charge as much as an electrician, and DIY is backbreaking work!
May 28, 2009 at 10:31 am
One more thing I thought of to consider is this:
Taxes are still cheap in a lot of rural areas, but this can change dramatically, if you’re in an area where a lot of people are starting to move out from the city. They tend to push prices upwards, so your property taxes can increase, especially if enough of them come out, and if they start getting on council and vote for things like road widening.
May 28, 2009 at 10:41 am
Ann,
Don’t be too envious. We completely and absolutely lucked out on the house. We went away the long weekend of February 2001, came back to the in-laws (we were living with them) and they told us they found us a house. Their old insurance salesman knew someone who wanted to sell everything lock stock and barrel because he had no kids, was a widow and was moving into a lodge. At the time we had been married 6 months, I was 3 months pregnant and living with the in-laws.
We have struggled, but there is a light at the end of the tunnel now. After the mortgage, braces are paid off at the beginning of September and then on to the next thing. My goal is to be debt free by the time I’m 50, if not sooner (I’m 47)
May 28, 2009 at 10:51 am
Great post Gail…it gives a lot of food for thought. I’ve been scouring all these ‘expert’ opinions on the real estate market…from doomsdayers to optimists. My question is: do you or others think the real estate market will ever recover to what 2007 prices were like?
May 28, 2009 at 12:59 pm
Shannon – Toronto house prices are down a half % compared to May 2008. I also know far more people who are trying to buy a house than are trying to sell one (at least a 5:1 ratio). Now this may be because people who would otherwise sell are putting it off or whatever, but that’s the situation here in the big smoke anyway. It’s hard to say. I prefer to time my life and not try to time the market. We bought because we were living in my 3rd floor walkup one-room (not bedroom, one big room) condo and my wife was 9 months pregnant.
May 28, 2009 at 4:22 pm
I am torn… I love co-owning a house (with the bank
) but OH MY the work involved is endless and costly. I would urge anyone buying a house to take Gail’s word literally – set aside 3%-5% of the market price for repairs. Figure that into your budget before you buy. If you don’t, you will get behind like I am now. Also, make sure that you have a building inspector and pay close attention to the costs that may be involved with any renovation recommended. I bought my current house because it was in the neighbourhood I wanted but I have had to replace the furnace (when I moved in due to the oil tank and the age of the furnace) and reseal the basement so while the initial price looked good, it actually cost me about $12,000 more.
Any house I have purchased has always been based on emotion, ie the first one because my husband (ex) needed to be REALLY close to his family, the second I bought three days after my mother died (in my home town but I didn’t live there and rented it out) and finally, my current house was when my first grandchild was announced and I wanted them to be able to run and play throughout the entire house without bothering anyone else. Haphazard, yes; good business sense, no; success on current house, still evolving!
May 30, 2009 at 12:14 am
Hannah
Have you heard of the “no dig garden” permaculture do a search its very popular here in australia its the way to garden with no dirt heaps cheaper than buying dirt and as it says there is no digging.
Just put in some kind of a border and then layers of newspaper, kitchen waste, animal manure, compost, straw you can do it gradually as you get it or do it all in an afternoon.
I have gardened this way for years its great with the drought we have here at the moment as there is hardly any watering.
Smothers the weeds so no weeding its the way to go for me.
Hope this helps
June 1, 2009 at 8:02 pm
Thanks for confirming what I’ve known all along: home ownership is NOT for me. Luckily I never bought into that line of thinking. It doesn’t make sense based on what I want. I don’t know where I want to settle down (or even if I want to do so at all), I’m not at all handy, and I like to live in city centers – hence insane property prices.
June 5, 2009 at 1:28 pm
Psychological reasons are even more important than money. We always rented but at early retirement felt pressured by media hype of increasing rents and never being able to afford to buy. Worst mistake of our lives. When you buy, you are absolutely stuck for at least a year until you can sell and hope to break even. The costs to sell are easily $20,000. You have at least the same problems — noisy neighbours etc: but when renting you know you could leave at any time. And the quality of purchased housing is no higher than rental and there are new problems in a condo: politics! negative! We are not suited to buy and are renters at heart. The quality of purchasing housing is no better than rental and even with a home inspection, the largest financial decision of your life is based on a few minutes and there will be problems! Let the landlord handle the job of ownership as a business; I want to be avoid that hassle. (This is based on more than one condo and more than one house.)
August 15, 2009 at 3:36 pm
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