I am a Realtor of just over 3 years, with experience as a mortgage broker and am currently standing as a Director on the Brampton Real Estate Board. I am also a successful Real estate investor and landlord/ property manager of not just my own rental properties but that of my clients as well. I take my profession and this industry very seriously and I endeavor to always work in the best interest of my clients whether it is to suggest purchasing now or to wait in a few years whenever it is best for their very specific situations. With that being said rarely do I come to the conclusion that a family or individual would be better off renting if they can afford to purchase and are planning on living in the home for more than 5 years!
I stumbled along Rob Carricks articles and was interested at first but then dismayed at the assertions and assumptions that were made. I found the claims to be oddly biased and unproductive. I do applaud him for drawing peoples attention to the issue and i agree people should be more aware of the benefits and costs of ownership, but i believe my applause stops there.
Mr. Tristani’s and Rob Carricks assertions that renting is a safer bet then owning real estate.
1. Speculation: Rob Carrick has speculated that the Market will crash or
decline in a way where you will lose money from ownership and that you are better off trying to time the market to avoid high prices now and buy when it “stabalizes”. (You can see this in his Ms. Bold article)
I want to address this by drawing your attention to the historical trend in real estate. Even when you
compare the recession of 2008 in Canada the market was affected by a few percent and rebounded
in less then 2 years! It is now back on it’s historical trends and everyone one who invested and held
were completely unscathed! It is my opinion there is much more risk and speculation involved in
owning a portfolio of invisible shares of investments that you have no control over, cannot have a
say in and requires a short lifetime to understand and for most people, are not willing to learn. It is
my experience it is much easier to understand and, more importantly, to be excited about investing
in homes because it is something tangible and something you can get involved in. You don’t need a
Professor to help you understand it. (Plus timing the market is a concept even the best investors fail to execute
Further, there is no proof that the market has hit it’s ‘ceiling’ at all. I believe it is our country and our
cities that drive immigration and foreign investment, keeping our Real Estate market strong and growing. I agree that the condo market in Toronto has a great deal of speculation and some of the developers are building hastily, however they are simply reacting to the growing demand. But when you are referring to freehold properties, I am more then confident that you will not see a decline in market values at all! I suggest this because Canada and Toronto are a hub for international investment and immigration. We attract people to move from their homeland, to come here, just from the promise of our opportunities. I think you will see those people stop coming well
before any real estate crisis. Too many people want to become Canadian and live in our land of opportunity. So no I do not see this glooming market crash in our future. I think people like Frank Tristani and Rob Carrick are just trying to sell newspapers, and draw attention to themselves. But for sake of argument if Rob’s article still concerns you, consider the chart I have attached on my website and stick to a long term investment strategy. A great deal of risk is mitigated when you set your sights long-term.
2. The Second question that Mr. Tristani brings up is that of the profitability of renting vs owning. He believes that Investing your money in stocks and bonds will earn you more over time. Mr. Tristani asserts that
paying rent instead of buying a home and paying a mortgage, and investing the difference if any in the stock market is more profitable. in order to do this they are suggesting you would require and can maintain a steely savings discipline! That and you start off with $100,000!
First of all, I would strongly discourage someone from trying to save $100,000 before buying! Even more
so saving 25% before making the move. That is absurd to me. The cost of living in your own home can
sometimes be less than renting when you factor in basement apartments and other forms of leveraging
your house as an asset (i.e. income properties) This is my favorite way to invest in real estate. But even if you
want the home to yourself you have to consider all the benefits of owning! First off every payment
you make is going to paying down that mortgage, plus the appreciation of the asset, which if you go
back to just 1995 to present day the long-term return per year is an average of $16,000 to $20,000 for a
home between $300-400k. So if you invest only 5% instead of Frank’s suggested 25% your return is 5
times greater! Ahah!, Leverage at work my friends! :^) The reality is that Frank uses these constraints
because he knows that his numbers can never work when compared against the ability for the average
person to buy and leverage hundreds of thousands of dollars at interest rates unheard of in any other
way. This is the true way to start your wealth building. Further, the assumption that you will continue to
pay off the mortgage is a poor one. By all means pay off the mortgage if you like, but if you want to be a
‘savvy investor’ refinance and reinvest once your equity has surpassed 35%. Refinance down to 20% to
avoid further CMHC expenses and use that 15% to purchase an investment property or if your want to
then take a shot at intangible investments like Frank promotes in the first place. Who is to say you cannot do both. But use the money you have first on an asset you can live in.
The possibility’s are endless with real estate. I'm a REALTOR® and I love selling homes but
not just because it makes you ridiculous amounts of equity over a short period of time. Rather, it allows an avenue for the poor to reach the middle class in a fair amount of time. Stocks and lending your money is more suitable when you have large quantities of cash available, you already own your home and are leveraging the banks funds and you don’t want to be a landlord! Then I’d say sure invest away. But make sure you learn the complicated world before you jump in. Many people don’t see the returns promised by the guru’s, which is why so many turn back to real estate in the first place.
Some more numbers that I do not agree with in Mr. Tristani’s scenario are the maintenance
expenses. I see homes being prepared for the market every day and I do the suggesting as to where
money can and should be spent. The reality is that the buyer is lucky if the seller invests 1.5-2% of the
houses value on renovations prior to the sale. I have rarely if ever come across someone spending 1.5-
2% per year on normal maintenance never mind 4%! That number is absurd and totally unrealistic.
Oh and interest rates now are at historical lows, are Rob Carrick and Mr. Tristani suggesting you wait
until mortgage rates are so high that once you save your money for a downpayment of 25% your incomes won't even be able to get you qualified anymore. (referring to the TDS and GDS ratio’s)
Here are a few of the reasons outside of the financial benefits you would want to own a home rather than rent one:
-You're buying into a piece of the country you live in and the Pride of ownership you get from it!
-Paying down your mortgage rather than someone elses
-The ability to renovate, decorate, and re-create your dream home while reaping the benefits of your
-To Live and gain the benefit of enjoying your own investment, no need to run to a computer screen to make sure it’s still there!
-You won’t get evicted from a home you own (barring the rare occurrence of expropriation). In contrast with
renting, you can be evicted for a variety of reasons, even if you pay regularly and are a good tenant.
-Last, but not least, Buying allows you into locations where perhaps rentals are prohibited or none are
available. I can easily rouse a seller from a neighbourhood with a willing and able buyer.
I close my response with some concessions as to when renting is an appropriate alternative to ownership to appease those nay sayers:
For example: Job instability, Economic Uncertainty, Bad credit or can’t buy, frequent job relocations, some requirement to retain liquid assets (Ex. Health issues), short term living in a location, New to the area and looking to find the right location or neighborhood prior to purchasing, frequent travelling.
However one reason not on this list and shouldn't be is that renting is a better alternative financially in the long term (5yrs or more).
Oh and one more thing. Even after Mr. Tristani’s assertions that renting is a superior alternative, he admits to owning rather than renting. So i thought i’d take the opportunity to lend a helping hand and offer to purchase his home or sell it and rent it back to him. That is if he truly believes he would be better off. I, like Mr. Tristani believe in homeownership and plan on buying my third home this coming year, perhaps it will be his….?
Rob Carricks articles