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I like the conclusion, but I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500). And so have a f

I like the conclusion, but I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500). And so have a few very intelligent friends. It almost NEVER works out in favor of buying except for some crazy flukes like pandemic accelerating prices in Toronto. I think it's largely cultural? Canadian's (more than any of my American friends) are fed the idea that owning a home is the best financial decision and the holy grail of life. It may happen to be the best financial decision for them, but because they lack the information that it's not and wouldn't otherwise invest very well. Even in spite of that information, I still want to spend money and buy a house. I've been asked for vacate my apt for property sale more than once, and faced +800/mo rent spike (NYC...), and I'm over it.

paconbork 5y ago
Yeah that's basically where I'm at. The ability to not have to move and the ability to improve the place and keep the value of my improvements are worth a large premium to me.
Sohcahtoa82 5y ago
> I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500) [...] It almost NEVER works out in favor of buying I can't see how that's possible. Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot. For my house, Zillow estimates the monthly rent value at $2,400/month, which is almost exactly what my mortgage payment (including property tax) is. And in 10 years, that payment will become ~$570 once the mortgage is paid off and all that's left is property tax. Meanwhile, if I chose to rent instead, after 10 years, my rent would probably be well $3,500/month. Yeah, owning means I'm paying maintenance and repair costs, but those certainly don't add up to anywhere near what the rental payment would be. I fully reject any claims that in the long term, renting could ever possibly be better than buying from a purely financial perspective. A mortgage is constant (Unless you fell for the scam that is an ARM) and eventually goes away. Rents perpetually go up and don't leave you with an asset.
- wnolens 5y ago
  Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house costs more, but you get more. You'd have to rent out part of your home and be a landlord to trade that extra space for cash flow. I value my time and privacy at a non-zero dollar amount :) This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe. anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. [0] https://precondo.ca/canada-real-estate-statistics/#:~:text=The%20Canadian%20Housing%20Market%20has,yearly%20appreciation%20over%2015%2Dyears&text=These%20numbers%20are%20based%20on,Canada%20across%20all%20property%20types https://precondo.ca/canada-real-estate-statistics/#:~:text=T...
  - Sohcahtoa82 5y ago
    > anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
    - 5y ago
CPLX 5y ago
Your models are almost certainly missing something. In a perfect world that would be true but in the actual world where lending is subsidized and tax-preferenced and the supply of housing is artificially constrained buying is just clearly a better scenario if you can do it. Some people do this by comparing a 5:1 leveraged portfolio of the S&P 500 against a home purchase or something but that's not a real comparison that exists as a choice in the real world.
- cmrdporcupine 5y ago
  Mortgage lending is not tax-preferenced in Canada like it is in the US. But our housing market is ridiculously overheated for other reasons.
- wnolens 5y ago
  I would love to find out what I'm missing (honestly, I spend a lot of time thinking about it). I'm working on publishing it as an interactive page. ETA soon. The principal residence sale tax free thing is a huge deal in Canada, so as an individual I can see it in many cases (though you need to sell to access it). That still doesn't help investors at all - which is confusing to me. It doesn't seem worth it to me to be a landlord of a standard duplex/triplex in Toronto. The comparison against a leveraged portfolio is only true at day one. You are continually de-leveraging yourself. At the end of the mortgage term, it's comparable 1:1, no?
cmrdporcupine 5y ago
Many Europeans (including my aunt&uncle in Germany) rent for decades without any similar concerns about stability because the landlording laws are written better. And tenants can and do have their own kitchens and other improvements that are typically "perks" reserved for homeowners here. Renting has a bad name in North America because it is associated with insecurity, low-income situation, exploitation, etc. But in reality most people here are just paying rent to the bank. Housing prices in southern Ontario are so high that there's no way most of these people will ever truly "own" their home outright.
- liketochill 5y ago
  Paying rent to the bank ends after 25 years though.
  - cmrdporcupine 5y ago
    It won't for most of the young people buying today, because they'll have to keep refinancing to afford what they've bought.
    - liketochill 5y ago
      In addition to thinking that banks should be smart and act in their own self interest of not lending money to people who can’t pay it back, there are government mandated stress tests for qualifying for mortgages at higher interest rates. While rates are historically low and a return to the rates of the 80’s would cause a lot of defaults, I think the market has tuned itself for maximum extraction of labour from those buying houses. You will pay as much as you can afford out of the income of your career to live in a desirable place. There are many undesirable places with cheap land, few jobs near by, no amenities, schools, restaurants, etc. so everyone pays as much as they can afford because it is worth it. But they are only allowed to afford what they can pay off with a 30 year amortization and meeting the stress test. I’m considering moving to the Yukon.
      - wnolens 5y ago

paconbork 5y ago

Yeah that's basically where I'm at. The ability to not have to move and the ability to improve the place and keep the value of my improvements are worth a large premium to me.

Sohcahtoa82 5y ago

> I've created some elaborate financial models to compare buying versus renting (+ investing the difference in S&P500) [...] It almost NEVER works out in favor of buying I can't see how that's possible. Rent is pissing away money, and from the rates I've seen, the monthly rent on a house is often very close to the monthly mortgage payment, so the "investing the difference ins S&P500" ends up being moot. For my house, Zillow estimates the monthly rent value at $2,400/month, which is almost exactly what my mortgage payment (including property tax) is. And in 10 years, that payment will become ~$570 once the mortgage is paid off and all that's left is property tax. Meanwhile, if I chose to rent instead, after 10 years, my rent would probably be well $3,500/month. Yeah, owning means I'm paying maintenance and repair costs, but those certainly don't add up to anywhere near what the rental payment would be. I fully reject any claims that in the long term, renting could ever possibly be better than buying from a purely financial perspective. A mortgage is constant (Unless you fell for the scam that is an ARM) and eventually goes away. Rents perpetually go up and don't leave you with an asset.

wnolens 5y ago
Houses in the GTA are about 1.6M, resulting in about 7k/mo all-in. Chances are you're not paying 7k/mo as a renter, so it's a bit of apples-oranges. The house costs more, but you get more. You'd have to rent out part of your home and be a landlord to trade that extra space for cash flow. I value my time and privacy at a non-zero dollar amount :) This source [0] states annual appreciation to be about 6.11% for real estate. In my models I use 6.5% as a safe return rate for the S&P500. In the long term, you are no longer leveraged so that's a fair comparison I believe. anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. [0] https://precondo.ca/canada-real-estate-statistics/#:~:text=The%20Canadian%20Housing%20Market%20has,yearly%20appreciation%20over%2015%2Dyears&text=These%20numbers%20are%20based%20on,Canada%20across%20all%20property%20types https://precondo.ca/canada-real-estate-statistics/#:~:text=T...
- Sohcahtoa82 5y ago
  > anecdote: My parents bought a house 35 years ago in a suburb of the GTA. Purchase price was around 250K I think. It was a lot for the time, too! And now it's probably worth 1.8-2M. Amazing! Except 250k @ 6.5% over 35 years is just over 2.2M. Right...but if you're using that to compare it to renting, the renter still comes out behind. WAYYYY behind. The buyer (using your example) : Spends $250K on a house. After 35 years, they have a $1.8-2M asset, for a net gain of $1.55-1.75M. The renter: Put $250K into the S&P500 which returned 6.5%/year. After 35 years, they have $2.2M. Meanwhile, they've been paying rent. How this ends up working out depends on the rent. $1,000/month is $12,000/year. For 35 years is $420,000. A net gain of $1.78M. That sounds good, but we all know the rent isn't $1,000/month. If the house is currently $1.8-2M, then the rent on that is going to be at least $4K. I don't feel like doing the math on how much you would spend on rent if you had a 6% rent increase every year, but even if I'm generous and say that over the course of 35 years, your rent averaged $2K/month, the renter CLEARLY comes out way behind. They'll have made $1.95M in the stock market, but spent $840K in rent, for a net gain of only $1.11M.
  - 5y ago

CPLX 5y ago

Your models are almost certainly missing something. In a perfect world that would be true but in the actual world where lending is subsidized and tax-preferenced and the supply of housing is artificially constrained buying is just clearly a better scenario if you can do it. Some people do this by comparing a 5:1 leveraged portfolio of the S&P 500 against a home purchase or something but that's not a real comparison that exists as a choice in the real world.

cmrdporcupine 5y ago
Mortgage lending is not tax-preferenced in Canada like it is in the US. But our housing market is ridiculously overheated for other reasons.
wnolens 5y ago
I would love to find out what I'm missing (honestly, I spend a lot of time thinking about it). I'm working on publishing it as an interactive page. ETA soon. The principal residence sale tax free thing is a huge deal in Canada, so as an individual I can see it in many cases (though you need to sell to access it). That still doesn't help investors at all - which is confusing to me. It doesn't seem worth it to me to be a landlord of a standard duplex/triplex in Toronto. The comparison against a leveraged portfolio is only true at day one. You are continually de-leveraging yourself. At the end of the mortgage term, it's comparable 1:1, no?

cmrdporcupine 5y ago

Many Europeans (including my aunt&uncle in Germany) rent for decades without any similar concerns about stability because the landlording laws are written better. And tenants can and do have their own kitchens and other improvements that are typically "perks" reserved for homeowners here. Renting has a bad name in North America because it is associated with insecurity, low-income situation, exploitation, etc. But in reality most people here are just paying rent to the bank. Housing prices in southern Ontario are so high that there's no way most of these people will ever truly "own" their home outright.

liketochill 5y ago
Paying rent to the bank ends after 25 years though.
- cmrdporcupine 5y ago
  It won't for most of the young people buying today, because they'll have to keep refinancing to afford what they've bought.
  - liketochill 5y ago
    In addition to thinking that banks should be smart and act in their own self interest of not lending money to people who can’t pay it back, there are government mandated stress tests for qualifying for mortgages at higher interest rates. While rates are historically low and a return to the rates of the 80’s would cause a lot of defaults, I think the market has tuned itself for maximum extraction of labour from those buying houses. You will pay as much as you can afford out of the income of your career to live in a desirable place. There are many undesirable places with cheap land, few jobs near by, no amenities, schools, restaurants, etc. so everyone pays as much as they can afford because it is worth it. But they are only allowed to afford what they can pay off with a 30 year amortization and meeting the stress test. I’m considering moving to the Yukon.
    - wnolens 5y ago