The Case For Never Buying A House

After years of being a home owner, I’ve recently became a renter.

It went something like this. My lady and I spent nearly a year abroad and then came back to a new city. We ventured out to buy a house, saw nothing we liked for under $300,000 (this is a small city with cheap real estate, for those of you who just scoffed at our tiny budget), and were then left with a decision to make. Should we find a place to rent, or buy a place that was out of our price range.

A few days later we toured an apartment that was brand new, plenty big enough for us, and was a reasonable price. We signed the papers and it was done.

It’s now a few months later, and I’m loving renting life. While I do plan on eventually buying a house, here’s why I’m in no hurry to saddle myself with an expensive mortgage.

One cost 

Each month I cut a cheque to my landlord and I don’t have to worry about any other bills since my apartment includes power, heat, water, and internet. The only other monthly bill I have is my cell phone.

Compare that to a home owner. I’d have separate bills for power, heat, water, phone, internet, cable, insurance, taxes, the mortgage, and probably other things I’m missing. There’s a price I’ll gladly pay for simplicity.

Lower monthly cost

Let’s compare the monthly cost of my apartment to a $250,000 house.

If I put down 5% on the house, I’m looking at a monthly payment of approximately $1,135 per month for a 25-year mortgage at a 3% interest rate. Even though I’m 100% sure I’ll have to renew at a higher rate at some point in the future, let’s assume the payment will stay steady throughout the 25-year loan.

But it isn’t just interest that a homeowner has to pay. There’s property taxes and house insurance in there, which I’m going to assume cost a very reasonable $300 per month. There’s also maintenance, which I’ll be conservative and assume only costs 1% of the value of the house each year, or about $200 per month.

Suddenly, the $1,135 mortgage payment balloons to $1,635 per month. Add in other costs like increased utilities and the time I’d spend shoveling snow and cutting grass, and the comparison isn’t even close. My $1,500 in rent ends up being a far better deal.

Better returns

While Canadian real estate has been a terrific investment over the last ten years, over the last century it’s only beaten inflation by about 1% per year. While that’s not a bad return for owning something you get to use, it pales in comparison to the return on other assets like stocks.

Because renting is often cheaper than buying — just look at my example if you don’t believe me — that leaves me with more capital I can stash into stocks, bonds, and other assets that are likely to return more than residential real estate in Canada over the next few decades.

More diversity

One of the issues with buying a house is your total net worth becomes hugely exposed to just one asset. What happens if you’re unlucky enough to buy a place right before the largest employer leaves town?

If you really want to overload your portfolio with real estate, Canada has dozens of real estate investment trusts (REITs) which own everything from apartments to office buildings. Plus, they tend to pay generous dividends while owning a house generates no cash flow.

Should you ever own?

At some point I’ll buy a house again. It’s only a matter of time.

While I’ve spent a bunch of time focusing on the negatives, there are positives to owning. As time goes on, a mortgage payment gets smaller in inflation-adjusted dollars, while rent tends to creep up. Having a yard is nice, especially when you have kids. And not having to deal with a landlord is a nice bonus, especially if you get one that’s a little cheap on making repairs.

But notice how those a lot of those are non-monetary reasons? In fact, if you look at the arguments for owning a house, they mostly end up to be more qualitative in nature, rather than quantitative. Essentially, the numbers tend to favor renting but the emotional aspect favors buying.

This isn’t to say that folks should avoid buying a house, because emotions are powerful things. But remember, when it comes to making an investment, a place to live probably won’t do as well as a diversified basket of stocks. Buying a house is more like a purchase, not an investment. There’s nothing wrong with buying a place to live, just treat it accordingly. But ultimately, both renting and buying is really just exchanging money for a place to live.

Keeping Your Investments Safe During a Turbulent Stock Market

To say that we are experiencing a turbulent stock market would be a gross understatement. When it comes to annual gains the ship has all but sunk. The meltdown in the US economy several years ago was almost enough to push the country from a recession into a depression, which would have been economically devastating. Since then we have been experiencing a phenomenal rebound when it comes to the housing market, extending credit, dwindling unemployment, and dirt cheap interest rates. However, all good things must come to an end. Between the uncertainties in Greece, China, and the Middle East, the stock market simply doesn’t have the stomach to resist the many possible signs of a slowdown in global economic growth. If you are one of the worried investors who are on the sidelines watching their portfolio’s take a hit, then pay attention, because there are some actions you can take to counteract the spiraling market and ride out the storm.

Taking advantage of currency spreads can be a great way to stave off the decline in equities. Leveraging risk with currency markets is not a new concept, in fact, it’s been an oft used tool for combatting uncertainties when it comes to stocks. We have seen the US dollar strengthening against just about every currency out there, which means this could be a great time to use your dollar to buy other currencies. Technology has made this a simple and easy task. Just find a reputable trading platform that has some basic training tutorials and you should be good to go.

Commodities have long been used to fend off violent market swings. For years the US dollar, and some other currencies, were backed by the gold standard. When countries began to move away from scarce precious metals in order to make currency they began to switch to paper. The value of paper was only as good as the metal it was back by, which was typically gold! Gold is scarce and limited in supply, and overtime we have seen it increase. By investing in gold, in either physical form or via the market, you can help stabilize your overall portfolio. Gold is a precious metal that and is certainly finite in supply, and whenever you have something both precious and finite it lends itself to being an appreciable asset.

It’s really hard to say how much lower stocks are going to sink. We simply don’t know if we are trading on fear or experiencing a genuine correction in the market. Furthermore, if this truly is a correction, then how much lower can it go? Even the shrewdest of investors don’t know the answer to that. Though many are betting that oil stocks and oil prices are at unsustainable lows. After all, oil powers heat, energy, and transportation! We know it is only a matter of time until we see oil prices, and the stocks associated with them, start to go up in price!