Canadian Press Article: Renting for life? Here’s what that means for your financial planning

Nina Dragicevic from The Canadian Press recently interviewed me about renting for life as a real option and what it means for your financial planning. 

In today’s housing market, many young people and even people in their 40s see purchasing a home as unattainable.

I work with high-income clients who don’t always own their home, and instead put their money into investments.

For instance, I advised a successful actor who was considering buying a condo in Toronto to rent for now, as it gives him the flexibility and freedom to move around for work.

Financially, if you only take the 20% down payment for a home and invest it in equities, it grows to more than the full value of the home after 20 years. 

This means a disciplined renter can be more wealthy than a homeowner.

Other points you’ll learn:

• Why the financial benefits of homeownership are almost entirely leverage. 
• Why paid-off homes are a low return investment. 
• How renters can leverage through investment loans. 
• How a renter could potentially become more wealthy than a homeowner.

CLICK THE LINK BELOW TO READ THE ARTICLE BY NINA DRAGICEVIC:

Renting for life? Here’s what that means for your financial planning

Exploring saving targets for people who don’t expect to own a home.

If someone is in their 20s and 30s now, how much should they expect to save, anticipating a retirement in 2060? And how to set that up now.

Renting is up in every age group.

Save for retirement:

Get a Financial Plan to define the life you want and know exactly how to achieve it.

• How much to invest, how to invest, how to minimize tax, & what strategies to do.
• Financial Plan should be custom. Same process for renters as owners.
• Renters need more investments at retirement to pay for their rent rising by inflation.
• For owners, their home is not a retirement asset and not part of the retirement plan, unless they will sell & move to a much less expensive place. Many homeowners talk about downsizing, but within the same city, the proceeds are a rounding error. Reducing your house size by 50% to buy a bungalow might clear $200,000.

Need growth in investments. Equities. Young with a long time horizon.

• Save like you are buying, but invest it instead.
• Save the 20% down for a home urgently, but invest it.
• Renting is usually cheaper per month, plus you don’t have repairs or renovations. Invest that difference monthly.
• Toronto condos cost $300-500/month more than rent before the interest rates tripled last year.

No loss of future net worth: Investing just the 20% down payment in global or US stocks typically takes 20 years to grow to the full future value of a home. 

Based on actual stock market returns & actual Toronto house prices.

• Homeowners tend to spend a lot on renovations over the years, which typically add only  30-50% to the value of the home. Renters can save all that money.

Benefits of homeownership:

• Forced savings. You must make payments every month.
• Leverage. Mortgage of 4x down payment. Real estate with no mortgage is usually a low return, barely higher than GICs.
• You can get a 3:1 investment loan on your equity portfolio. Then it grows your net worth far faster than owing a home. You have to pay the interest + your rent, but the interest is tax-deduction, while home mortgages are not.

Freedom vs. security 

Renting offers freedom to live anywhere any time. Owning gives you more of a feeling of security, but makes you less flexible.

• Homeowners get stuck living in an expensive city. Renters can move anywhere, find a growing city with good jobs and far lower rent.

Career

Studies show renters tend to get promoted faster, especially in large companies with offices in many cities. 

Homeowners often decline or are not offered promotions in other cities. You can look for better jobs anywhere.

Ed