Is a lifetime lease truly an unfavorable choice?
In the bustling urban centres of Toronto and Vancouver, a trend has emerged that sees young Canadians taking the plunge into homeownership, even when the numbers don't quite add up. This is according to a growing chorus of voices, including that of Vancouver real estate agent, Owen Bigland.
However, Bigland offers a different perspective. He advocates for a gradual reduction of a mortgage to build net worth and benefit from future appreciation in property prices. His advice is based on the premise that a lifelong renter could potentially spend upwards of $1.3 million by the age of 65, without accounting for rent increases or inflation.
This perspective is echoed in the book "The Wealthy Renter", penned by Alex Avery. Avery, an author and real estate expert, argues that renting remains cheaper and less risky than buying a house. He does not consider real estate a safer investment than others, and advises against relying on your home as an investment, especially if you're counting on it to fund your retirement.
Avery's book was born out of a "speculative bubble" in the housing market. He suggests that instead of relying on your home, Canadians should consider investing in other avenues such as RRSPs, TFSAs, and even TFSAs for children.
But what about the first-time buyers? Bigland recommends considering older buildings near public transportation for potential future appreciation. He also suggests renting in certain situations, such as when expecting a job change, to avoid the financial burden of homeownership.
The costs associated with homeownership can be substantial. They include notary fees, real estate agent commissions, regional taxes, mortgage interest, property tax, insurance, and various maintenance and repair fees. Even if monthly rent were cheaper than a mortgage, many Canadians might spend their savings rather than invest and grow their wealth.
This approach is not without its risks. According to Sébastien Betermier, an associate professor at McGill University, both renters and homeowners are exposed to significant risks due to the high percentage of homeowners' wealth being tied up in houses. This makes it difficult to access funds for other investments or emergencies.
Despite these risks, homeowners are increasingly relying on the net value of their property to fund their retirement. They can use their home as collateral if they need to borrow against its value, with most mortgages from major banks including an integrated home equity line of credit at a favorable rate.
In the end, the decision to buy or rent comes down to personal circumstances and financial goals. The principal residence exemption, according to Bigland, is the only true financial shelter in Canada. So, whether you choose to rent or buy, it's essential to plan for the future and ensure you're making the best financial decision for your unique situation.
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