To Rent or to Buy?
The rise of the renter/investor
A few months ago, the New York Times podcast, The Daily, put out an episode called: Should You Rent or Buy? The New Math.
This got us thinking about a topic that many millennials have been struggling with: the guilt that many people feel renting, especially when the traditional timeframe of "settling down" in your 20s and early 30s is passing you by.
So we thought we'd write a little about where that guilt comes from for many of us, and why we feel that society's definitions of what it means to settle down should be updated for the modern world.
The costs of traditional home ownership
Since Guiker is an investment platform, we thought we'd start with the financial side of the equation.
The rap against renting is typically that you're throwing money away by writing a check to a landlord every month that doesn't go toward building any equity. This is true.
But is renting always a much worse financial decision than buying?
In a future post, we'll discuss the rent-ratio (a rule of thumb for making a rough comparison between the cost of renting vs buying), but for now, suffice to say that this feeling of throwing money away is not unique to renting.
Many people forget that buying property comes with many thousands of dollars in fees that don't go towards building equity in a home. Broker fees and taxes can be tens of thousands of dollars.
Other fees like interest payments on your mortgage and repairs come out of your return every month.
The way that mortgages are structured - especially long-term mortgages, like the 30-year mortgages being proposed by various homebuilders associations in Canada - means that the for the first few mortgage payments, all you're paying is interest. None of this is building equity in your home.
The average home price in Montreal at the time of writing is well over $500,000. In Toronto, it's over $1,000,000. A 20% down payment would mean $100,000 and $200,000 in each respective case.
Even for those who can afford a downpayment in the current market - many sink a significant portion of their net worth into their homes, which leaves them less diversified and more vulnerable to market fluctuations or life changes.
It's true that this money (mostly) is going towards equity in an appreciating asset, but we should remember that there are many ways to invest your money with comparable performance to real estate. Over the course of history, the stock market has actually grown faster than house prices.
There are a lot of financial benefits to buying your home, but as long as you aren't keeping your savings under a mattress while you rent, there's no reason to see the rent & invest model as a less financially sound strategy.
There's no one-size-fits-all investment strategy
As investors, we tend to think of things on purely financial terms. Will this investment provide a better return than the alternative?
The reality is more nuanced. The right investment for one person might not be the right investment for another and in some cases, the best financial decision may not be the decision that works the best for our lifestyle.
And that's okay.
In the past, families were started younger, there was less global mobility, and you needed to be physically present in the city you worked. The underlying economics of home ownership just made more sense.
Many of these realities have faded, but our model for home ownership has remained unchanged.
As the world has become more global, the concept of settling down has taken on a different meaning for many people. The idea of committing to one place in your 20s or 30s for the rest of your 30s, 40s, and 50s has become less and less attractive to many people, and no longer feels like the only option.
The rise of the renter/investor
Some people (like me) have decided not to buy, not because it's unaffordable, but because they don't feel ready to settle down. They don't know where they'll be in 5 years, let alone 20 or 30. They want to see more of the world and be able to pack up and leave when an opportunity calls, like a new job or an exciting adventure.
The ability to work remotely in many industries and the cost of travel have opened doors to new lifestyles that break the mold of tradition.
In the last 10 years, this rent/invest strategy has been increasing in popularity, especially among millennials. These renter/investors are helping to prove that you can still build generational wealth while renting.
It's time we updated our assumptions around what's investment strategy is best for everyone.
Home ownership can be a great thing, and there are many cases where purchasing your home is the right decision, both financially and personally.
But, in investing, there's no one-size-fits-all strategy, and the decision to rent or buy your home shouldn't be based on societal pressures or guilt.
Propsharing for the new investor
We created Propsharing out of a desire to make it easier for more people to diversify their portfolios into real estate and change the narrative around traditional home ownership.
We believe that most people should have some real estate in their investment portfolio but know that the high cost of entry, lack of flexibility, and long term commitment keep many people out of the market.
Propsharing is a means of giving more people the ability to participate in real estate without having to compromise their lifestyle.
So, go forward and be happy renting or buying. As long as it works for you.
* Disclaimer: Guiker provides information for educational purposes only and does not offer investment advice. Individuals are responsible for their own investment decisions and should consult a qualified financial advisor before making any investment choices.