The Case For Renting A Home Part 1 | Common Sense Investing

Canadians really like real estate. It’s hard not to be excited when prices in hot markets like Toronto and Vancouver have been making global headlines. Around two-thirds of Canadians own their home, and the perception is generally held that owning your home is a smart investment.

In this episode of Common Sense Investing, I’m going to tell you why renting a place to live is not a waste of money. I’ll be talking about a lot more common sense investing topics in this series, so subscribe, and click the bell for updates.

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[tomohawk]

My wife and I are moving into a condo. The cost represents a little under 30% of our net worth. I consider owning a waste of money but divorce is also a waste of money, which would happen if I insisted on renting forever. :-D

[Villgaxx]

I am so happy, I discovered you, I thought I was alone in this thinking. Tired of people telling me to buy a home. Bless you!

[smokinghot]

now i don't know what to do anymore

[afl]

My mind is blown.

I didn't believe it so I did the maths with my parents house that they stayed in 13 years, and I'm shocked.

[brotherbill]

As a home owner who is thinking about buying a revenue property but having ethical problems with becoming a rent seeker, this video makes me see things a little differently. Thanks

[robinimpey]

More great food for thought. I have always been a promoter of home ownership, but your video makes me rethink that. Ready for Part 2! Thanks again!

[Alfram]

I think it made a lot of sense back in the day when people didn’t move as much. Now days though, younger people are moving always looking for better oppurtunities across the country and even within the city to reduce commute or reduce rent etc. I think renting is cool when stable

[relayernj]

Great video! Although I'm a home owner, I wouldn't consider the house so much as an investment, but a home, and as someone here mentioned, it's the quality of life (from one's personal taste) that is the reward. Doing what you want with greater freedom and privacy on your own property is an advantage that trumps having a landlord overhand your lifestyle, while having a better portfolio to look at in your hands imo. But that's really not as much the point from your video.

From an investment standpoint, you also have to factor in market risks, which can be more volatile, compared to certain real estate over time. And at least in the US, there's tax deductions for your interest that you do not get as a renter.

[mikaelbirger]

I freaking LOVE your videos! It gives such insight in a world I thought I did not like. But the thought of starting investing in index funds, stock and such is now very exciting! You have a tremendous good case for house renting! It makes me want to rather put my money in stocks/index funds and make my fortune there!

[moonboy]

I’m going to rent and invest in the S&P 500.

[ohdjrp]

In my country, many people desire to have their own house & lot. Most of us, I believe do not consider owning a house & lot an investment per se. What we believe in purchasing the property is the security of having a roof over your head (maintenance, government taxes -- we are aware, so no issues on that). At least when paying (the mortgage) the property, it is already fixed (includes interest, & what have you...) whereas versus renting, the rent amount could change after a year or so; and if your income can't catch up, it's trouble and depending on the market climate; rent amount tends not to go down but always up faster than the cashflow. But hey! Congrats it's a great video!

[Skilliard]

I'd argue 2 cases for owning a home:

1. Control against potential rising real estate costs. Rent isn't guaranteed long term, it can be hiked at any time, but a mortgage payment is generally flat for 30 years.
2. Privacy and freedom(non financial). With a rented home, you have limits on what you can do with the property. With your own home, your only limit is what the local government/HOA says you can/can't do. Then there's the idea of your landlord having keys to your home that can be unsettling for some.

[andreasdoerig]

While I have never conducted a full analysis - as you have - I have always believed that once all the costs are added up, homeowners are lucky to break even. The unpredictability of home ownership is overlooked and never a consideration because, and especially in markets such as Toronto, the windfall is so large. The other consideration with the idea that a home is an investment is that it goes against basic investing principles, namely diversification. Having 50% + and in some cases closer to 75% of your net worth tied up in one investment is ludicrous. And finally, a home offers no liquidity, which is going to become even more important when interest rates rise. Keep up the good work!

[dp]

I have done some research on my own, and decided to continue to be a renter for a while. Like you mentioned in the video, even when the home is paid off, there are recurring costs of owning the property like property taxes (1.1% from where I live), random maintenance (estimated 1%), and home insurance. So it's not free like most people think. Apart from cost, house maintenance can sometimes be a real headache (leaky roof, broken appliances, etc.) Renting frees up your mind from those troubles, since landlord takes care of it most of the time.

[philb]

Thanks for your videos Ben, good work

[SuperFlamethrower]

3% is the return before accounting for leverage. It's equity_fraction * return + debt_fraction * (return - cost_of_capital). Because it's cheap to borrow the leveraged return, the one the homeowner actually got, can be substantially higher.

[RicoCordova]

Just so you know, you're causing me a lot of headaches. These are the same things I've been telling people for years - even doing the math in front of them. Everyone always told me I was wrong, so I assumed I was missing something. Now I have to fire my financial advisor and do my own investing. Damn you.

[antbar]

The one great thing about owning is control. You decide when to sell and you are not at the mercy of the landlord. Most people I know that rent move every couple of years. Rent hikes, or the owner decides to sell. Great video!

[yourmarketingsage]

Hi Ben, love your videos and presenting style.

I'd like to say that the ability to become a successful investor is not determined by your housing status ie homebuyer or renter and being either will not hold you back. In fact, it's your personal qualities, attributes and general outlook on life that play a much bigger part in the success game.

You can "rent" your way to wealth just like you can "own" your way to wealth. The a big plus of being a homeowner is the sign that you are able to save a deposit and take on a big commitment . But that's no guarantee of success as most homeowners will not move past that stage, they never become investors believing that home ownership is the ultimate goal and that they don't have to do any more.

Let's look at the 2 STEPS to WEALTH CREATION :

1. INCOME GENERATION. ( salary, commissions, wages, businesses income etc. )
2. CONVERTING THE INCOME INTO INVESTMENTS like real estate stocks and bonds etc.

Unfortunately most people will never progress past phase 1, either not earning enough to do more than put food on the table and cover basic living expenses or not taking the next step to investing.

Being a homeowner is a huge advantage when it comes to becoming an investor as you have equity to draw on. However you you also have to have the right mindset, knowledge and appetite for risk .

Many homeowners are risk averse and will not consider using their "castle" as collateral, interestingly enough it's also the same p who won't blink when it comes to putting a new car, holiday or swimming pool on the mortgage. This mentality keeps them in the income generation mode until they can no longer work or get a job.

The big secret to creating any level of wealth is to INVEST and the first and best investment you will ever make is to INVEST in yourself.

[lokeyfunny]

I love your videos. I just wished I was a bit smarter to understand them in their entirety 😀