Ontario renters feel they're wasting their money: poll

Renting in the long run is a suckers bet.

Renting is only a decent idea during a super real estate bubble (these happen only every 20 years or so so I wouldn't hold my breath expecting one tomorrow), when you are just starting out (building the downpayment) and when you plan to move cities in the next 3-4 years without a company paying your moving costs (because they typically do cover house sale costs).

I read the articel this article refers to and it had several common misconceptions about real estate purchases. One big point it made was that real estate only typically grows by inflation making it a poor investment. I agree real estate in the last 60 years has only manged an average of 3% growth per annum (similar to inflation in that period). However what they don't discuss is how good that is for the owner and bad that is for the leasee. If I put 10% down and my property appreciates 3% in the first year I just made 30% return, not 3%. At the same time the renter can expect their lease costs to climb by 3% so he loses 3%.

Another issue the article had was the supposedly "knowledgeable" financial individual used cashflow to determine which method is better. Things he failed to note included that a portion of the mortgage each month will go against debt so part of your mortgage payment each month is an investment, not a cost. On my mortgages even in the early years this amounts to 35% of my mortgage each month so my true cost is only 65%. Also as the debt declines and the payment stays the same this amount will only increase. Also he made no calculation for the fact that you pay a morgtage for 25 years but you rent for life.

But for me the biggest issue is do renters think landlords are financial idiots? I have a couple of rental properties and I rent all of them at a profit. Who is going to rent properties to them at a loss? With the stigma to buying a place and the limitations to obtaining financing there is always a nice little margin in renting to people.

Case in point. 5 years ago I bought a little 2 bedroom rental for 150K. I put 10K into renovations. Did I mention I used a prior rental property as collateral so my cash cost on this was $0. My monthly mortgage is $755, utilities are $30, condo fees are $185 and the interest on the line of credit for the renos is $50. My total cashflow cost is $1,020 but my mortgage also drops about $270 a month so my financial breakeven point is $750. The same month the renos were completed I rented it to a nice couple at $1,200 a month. They stayed for two years. By that time I had $4,320 extra in my pocket and had paid down the mortgage about another $6,500. So I made $11,000 off them in 2 years. The kicker was the property went in value from 150K to 205K (I had an unsolicited offer at that amount but declined). Since then I have only gotten about $1,050 out of it on the average month (counting empty months) but It is now worth 225K.

The best time to buy real estate was 10 years ago. The next best time is now!

The annual increase without a wage increase eventually puts a dent in your personal budget = not good value for your money.

Hey Western Guy,

You hit the nose on the head. I too have a property that is close to a University, and have had it now for 1.5 years, and my net cash flow per month after expenses is around $400 - 500 each month.
So after 2 years of saving, I'm around $12K in cash and also the equity of property appreciation. I have gotten my initial downpayment back as I only put 5% down, and now my return is infinite.

I have another property on the go for March next year that I am looking at.

People, this is definitely worth owning a house and renting out a portion of it. Just watch Income Properties on Home and Garden channel to get a better idea.

Also, there are a lot of tax breaks available, so that essentially you are getting all of this money tax free. :D That's the best part.

For me, being an accountant and going into real estate investing has been the best thing going on right now, with mortgage rates so low also.

Good luck to everyone.

Remember, your financial well being is not a spectator sport.

a survey by OREA....not TOO unbiasedand self serving....and judging by the comments that are already posted, this will become a blog for justifiably nervous real estate investors and inept agents trying to convince themselves that we're not in a hyperbubble that is about to burst...therby ending their free ride and forcing them to get a real job....if there are any jobs left when this bubble pops !

Western Guy you are absolutely correct that owning a property and renting out makes sense as there always will be renters. They will pay your mortgage and you have extra cash left over plus the equity build up. People should learn more about how to purchase their homes as there are different options for the first time buyers for their down payments and other associated costs.
One more point I want to make is that with owning a home you are forcefully saving in the form of mortgage payment part of which goes directly towards your principal and the appreciation of house value. Some people buy duplex or triplex since they can get rent money to pay their mortgage and when they need they can refinance the property to get cash for what ever reason.

Western guy you are kinda right what you havent considered is in the next few years house prices may drop dramaticly. I say this only as an opinion, but myself and couple other guys i am friends with who bought many properties in the early to mid 90's and sold them in early 2007 and made a few million dollars think that way. People cant afford the houses they live in and its why the econnomy sucks. I also noticed you didnt talk about any tax implications when you did your math. You are comparing rent paid with post tax dollars to your income of pre tax dollars for a true comparison you must take into account the taxes paid.

Good points realist. First off for disclosure I am also an accountant and work as a tax specialist so I have a pretty decent handle on the tax situation of renting. There are several very reasonable expenses that you can claim against multiple rental properties that you own yourself (home office, reasonable travel etc) that can greatly help to offset rental income. Additionally with that property I disclosed above with a careful eye to the tax act and good timing I completed the renos in November and was able to write off most of them as expenses (replacement versus upgrade) thus giving me a 10K tax credit in the first year of owning the property (3K back in taxes). Add to that when I sell the property any gains I have are only taxable at 50% (capital gain rule) the tax situation of this is actually quite beneficial (I reno it and get 100% deduction then when I sell it in the future any gain (which obviously includes gain because of the renos) is only taxed at 50%.

As to realitys discussions on the market and potential bubbles that really is dependent on where in Canada you have invested. If my properties were in Vancouver right now I could see being a little nervous (the factors driving that market are very complex and could shift quickly). Where I am at there is virtually no unemployment and the economy is picking up steam (currently there is 97% occupancy in our area) every month so Im pretty reasonablly happy that it doesn't look likely to tank soon. I actually originally moved here because of the potential and it hasn't let me down so far.

If real estate does tank I simply batton the hatches and ride it out (I am only 31 which means there will be lots of time for the market to rebound above where I am at now and at the lows there will be even better investment opportunities). Again as I am renting for postive cashflow and haven't any issue filling my rentals (I cater to a certain clientele that are both prompt paying, are longterm, and take good care of my units). If all else fails my mortgages are all long-term locked in and while my housing real estate portfolio makes up almost 60% of my capital holdings (yes I am diversified) it only represents 15% of my gross income (before expenses) so a lean year or two wouldn't be the end of me.

Whenever in the last 6 years I have made an economic decision there has been somebody standing nearby saying its crazy and the market is about to crash. Now I understand that someday one of those people will be right (eventually things will tank) but in the meantime there are some great opportunities that I am not going to miss. When the market does tank I'll take a 20% haircut but my remaining 80% will probably be 20X what the guy that has waited to act for 10 years because of the expected crash. Already my networth is 15X the national average for people under 35.

western guy. just one more quick inquire, when you said you used a prevoius rental for collateral that made me think about something. whenever i was buying rental properties (and i havent owned any in canada since 2007) the banks always required 25% down did that change? If you used the other rental as collateral was it something you bought and it appreciated that much cause if so i have been told in the past that if i realize a gain on a rental property that i own even if i havent disposed of the propery i am liable for the taxes on that gain. This was deffintly the case a few years ago when i did exactly what you did so my investment was not $0 but it was the tax paid. Not that its a big deal cause you cant avoid death and taxes and when i did dispose of that property i was able to use the "adjusted price" for figuring out my capital gains. BTW i just turned 40 and wonder what my net worth is compared to the rest of the country where do you find that info

We're not talking about owning to rent to someoneelse but renting rather than owning. There's no deductibility in other words which changes the equation. The house price to rent ratio is a key inmdicator and provides one of the strongest signals of overvaluation in the Canadian housing market. While skewed higher by a handful of very bubbly cities and market segments, it nevertheless remains elevated in most parts of the country. There are lots of good arguments as to why younger homeownerrs need not be in a hurry to jump in.