So you may never own a home. Here’s why maybe that’s ... a good thing?
The federal government recently announced changes to the borrowing limits on the RRSP Home Buyers’ Plan and introduced 30-year amortized mortgages for first-time homebuyers purchasing new homes, moves meant to make home ownership more affordable.
These measures don’t bring unreachable housing prices down, nor do they bump up household salaries required to support higher mortgage interest rates. In the most expensive markets in Canada, including the GTA, households need to earn well over $215,000 to buy a very basic property — we’re not talking yards, views and pools.
While it’s easy to feel owning a home is a life goal, it might not be a bad thing to consider forgetting it altogether. Here are some benefits of being a lifelong renter:
There’s geographic flexibility in being a renter
You can consider working in places where you’ll be paid the highest for the kind of work you love doing. Homeowners are literally bound to their properties and thus their local work opportunities. If higher wages aren’t the key driver for moving, maybe a better lifestyle is. Moving closer to nature, or to a location that’s better for your mental health and maybe even your pocketbook, is always on the table for a renter. You can end your lease, pack up and plant roots elsewhere.
You don’t have to get your hands dirty as a renter
Life can be less complicated. You won’t have to spend time, money and energy repairing a leaky roof, fixing a cabinet, worrying about nearby zoning changes or stressing about higher utility costs or mortgage payments. And just imagine all the extra time you’d have to invest in growing your income or playing with your kids, if you weren’t always DIY-ing another house project.
You might end up with a lot more free cash flow
The total costs of renting (rent, utilities and tenant insurance) can be way less than the costs of home ownership (mortgage, utilities, taxes, maintenance, repairs, insurance, etc.) for a nearly identical place. Try running the numbers on your scenario. Here’s how I look at it.
If, for example, you buy a condo for $550,000, and put 20 per cent down (that means you need to come up with $110,000 plus closing costs), and you take out a 25-year mortgage at 5.3 per cent, the monthly payments are about $2,650. I like using CMHC’s mortgage payment calculator, btw.
If condo fees are $500, taxes are $200, insurance is $100 and utilities (hydro is commonly paid even in condos) are $100, plus a small reserve fund for future repairs of $100 are tallied up to $1,000, that will bring the total costs to run that property to $3,650 per month.
A comparable rental might cost $2,200 per month in total ($2,050 for rent and another $150 for utilities and insurance), and you don’t have to come up with a big down payment or closing costs.
This comparison might reveal you’ll have a lot more cash flow than a homeowner. That money could be used for adventures, travel, debt reduction, savings and more diverse investment activities.
Less debt as a renter
Homeowners often find themselves in need of fast cash, and use a home equity line of credit to “borrow” against the equity they have in their home. Homeowners just need to cover the interest, typically, but don’t necessarily have to pay the principal money back until they sell the home. Sounds nice, right? Think again — many owners have basically turned their homes into ATM machines, scooping out huge portions of equity for roof repairs, renos, debt consolidations and car purchases, and have no plans to rebuild that equity. Many hope for higher appreciation on their homes to build equity (a risky proposition) by the time they sell, rather than paying down their mortgage debt (a conservative way to build wealth).
The upside for renters? They don’t have access to these loans to begin with.
If after reading this you’re still feeling bad when someone a lot older than you says, “You’ll never build equity by being a renter,” know that you can create an almost equal playing field financially by saving and investing more. Some renters like to sock away the difference in value between rent versus the full cost of home ownership, on top of their regular savings. Others take a more balanced approach. A really good financial planner or money coach can prepare a long-term financial projection, and help get this money working for you.
This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.
