Why I am renting instead of buying
Decided to write a post showing an example of why renting can make sense.
40M, 2 kids, live in the GTA. Recently separated (common law) from a very long term relationship. I have a fairly high income, and could buy. But I prefer to rent and here is why.
We bought our first property in 2017. All renos/repairs done with cash. No LOC. Rolled the gains into another property 2 years ago. We sold it 3 months ago. Lost 60k in equity, then another 60k via realtor commissions. That wiped out a good amount of the gains from our 1st property.
In looking back, here is the performance of my non real estate investments vs real estate.
Non real estate TFSA, RRSP, unregistered
In 9 years, my total contributions have gone up 40%
Real estate
In 9 years, my total contributions dropped 19% (without including loss, commission, and my ex getting her half)
In my situation, I contributed almost 100% of all housing costs. Repairs, maintenance, property tax. It all adds up. I'm not handy, so any electric work, plumbing.. required paid service.
Previous costs 7500/mo
Mortgage, prop tax, upkeep, insurance.
This number balloons to nearly 13k/mo over the next 5 years as we considered finishing the basement, redoing the kitchen, 2 bathrooms, and the backyard (cash or LOC)
Current costs 7200/mo
Rent, lower insurance, child support
This number balloons to 12k/mo over the next 5 years if you include my lump sum spousal payment (paid via house equity and selling other securities)
So both scenarios I'm somewhat even.
However with owning a home, the costs are unpredictable, and sometimes very large. With renting, there is so such risk. The risk with renting is rent going up slightly, or having to find a new home.
Now for retirement.. peple tell me that if I buy now, my lodging costs would be significantly reduced for retirement.. but my response is.. would they?
Lets say I am 58, retired, no more child support, house paid off. I'm still paying property taxes, repairs, renovations, I run the risk of a huge repair (roofing). You could easily argue that I need to budget 2-3k/mo for housing even without a mortgage. My rent now is 3500 for a house with room for my 2 kids. Maybe by 58 I don't need such a big home. Maybe a 2 bedroom townhouse where I live will cost 3000-3500.
To top it all off.. my non real estate investments have done so much better than housing. I know we will all see an eventual big drop in our investments (recession), but as of now, my investment strategy is to increase my investments and rent for the foreseeable future.
TL:DR owning a home by retirement doesn't mean you don't need to budget for housing costs. It's more than you think. I'm budgeting rental costs for the rest of my life and for me it makes mathematical sense