My unpopular opinion on the housing market.

It seems like so many people are obsessed with owning a house lately, but what's wrong with renting? I see people still diving into the housing market at todays prices and interest rates and can't help wonder why.

I have spent some time looking at properties for sale nowadays and comparing to the cost of renting a similar property, and just sharing some of my findings.

When you rent, you avoid many responsibilities, such as property taxes, interest rate hikes, and expensive home repairs.

What happens if you need to move and the market is at a low point? While it's true that you can build equity over time by owning a house, but can't the same can be achieved through renting and investing your savings?

A Real-Life Example: Downtown Vancouver Condo

There is a listing right now at 1289 Hornby St, Vancouver for 1 bedroom 1 bath condo.

Price is: $899,000.

The first hurdle is coming up with a down payment. Let’s assume you put 20% down. That’s $179,800 cash.

You will also need a hefty income to qualify for a mortgage this size.

Mortgage payment: $4285/ Month ($719k mortgage, 5.25%, 25 year)

Strata fee: $425/ month.

Property Tax: $170/month.

Repairs & Maintenance: $100/ Month

Total monthly cost of ownership: $4980/ month.

You can rent a very similar unit in the building for $3500/ month.

Difference being: $1480/ month.

There is another example at 89 Nelson St vancouver where the monthly savings of renting vs owning is $1350 per month.

So, to buy the $899,000 condo, you need to come up with $180k for your down payment and then it’s going to cost you around $5000/ month, or you can rent a similar unit for $1400 per month less, and keep the $180k cash.

Now, In your first 10 years, you would have paid off approximately $184,000 of your mortgage. Assuming a 3% annual property appreciation, your place would be worth around $1,200,000 in 10 years. This means you would have gained $665,000 in tax-free equity.

Now let's compare this to renting the same condo for $3,500 per month. The difference between renting and owning is $1,400 per month, which you can save and invest. You also have $180,000 in cash that you were going to use for your  down payment. Assuming you invest in a tax shielded account like your RRSP and TFSA, and receive a 10% annual return from the general market, your down payment plus $1400 per month would equate to $717,000 in savings.

If you kept going, in 30 years this would be $5,200,000.

This sounds pretty great, and you would have had the flexibility to move whenever you wanted over that time.

It's true that there is still the risk for renters as rent usually increases over time, while a locked-in mortgage rate remains constant during your term.

Changing the Homeownership Mindset:

Many people have grown up witnessing the remarkable growth in housing prices and have developed a fear of missing out on that growth. But it's crucial to remember that this level of growth isn't normal. A house doesn't keep increasing at 20% per year forever.

The key is to save and invest the difference between renting and owning responsibly. Instead of spending that extra $1,500 per month on dinners out and other luxuries, consider setting it aside to grow on its own.

There are obviously many other factors that go into making your decision:

-Interest rates or house prices could go down which makes your monthly expenditure go down.

-The ratio between rent and purchase price costs could be different in different housing markets. I only used Vancouver as an example.

-Maybe you're horrible at saving and need that equity growth.

-Maybe you just really want to own a house, have little projects to work on, have different ways of growing equity faster.

-Maybe you can buy a house with a suite and receive some rental income.

There are a million other things to factor in when making this decision, but In my opinion, it's time to think twice about the homeownership obsession and think about the benefits of renting and smart investing as an alternative.

Make sure you do your own research and get advice from your own set of professionals before making a decision. This is just my opinion on where the markets at nowadays. If you see a market or specific property that its cheaper to own, let me know.

Original post on my LinkedIn