Timestamp: 0:00 Intro/ Cameron’s Recommendations 12:00 The Exponential Age - Transforming Economics? 19:16 Comments on the Royal LePage Report on Renting vs. Buying a Home 30:50 The New Know-Your-Product (KYP) rule (feat. Rob Carrick) 45:58 Rob Carrick’s Response to Royal LePage 1:05:35 Talking Cents (with Rob) 1:12:08 Bad Advice of the Week
There are so many factors that determine whether it’s better for each individual to rent or buy. I think it’s great that Ben is pointing out reasons why many should consider renting because renting is not what you typically think of when contemplating the “American (or Canadian) dream”.
Greetings from Germany I realy like the Discussion today. As always it is not black and white. Here we live in a HCOL area (for Germany) or at least realy high price to buy property area. And we took despite the common narative "YOU MUST BUY", another route. All the friends bought a house or plan to buy. Most do not even can spell ETF or fund or stock exchange. For them the house is maybe the best option. We on the other side looked at the math of owning or renting and found in our area the proposition not very compelling to own. In a less expensive area for buying in comparison to renting the choice would probably change. We keept the portfolio and went the landlord route. Owning now three apartments bought with the cash position obsololete after foregoing buying the own home and renting. Mild leverage there included. Three properties seem a lot more versatile and diversivied then one big chunk which is also the primary home. If landlords realy rip of the renters. We are now joined with them. Otherwise the possible rise in price for renting is partly hedged by renting out ourself. Sure renting out is a complete other buissness than living on a own plot of land ,also it is not even close as a asset to ETF or Bonds. It demands a certain amount of maintanance. In the end it comes down to the individual case and has to fit to the person and the plans in life. Keep up the good work Christian
This is so interesting as I personally account for my mortgage payment as a split payment. Let's say my mortgage payment is 1000EUR. Around 700EUR goes against the principle and 300EUR is interest. So my "expenses" for the month only count that 300EUR (because my accounting looks at the entirety of my personal net worth view). I feel that this is fine for me in this isolated case... but clearly not fine when trying to make comparisons are broad cash flow and portfolio allocation contexts. The whole neglecting of the up front purchase costs is rather amusing and don't understand how anyone could take the paper seriously with that left out. I really enjoy how you discuss rent vs ownership without brushing away all the complexity that's involved with these comparisons. I'm very frustrated when folks state that one is objectively better and neglect to mention any of the assumptions. Love what you all do over there! Nice to hear some Canadian accents while I live abroad 😃
I don't catch every single podcast, but I really wanted to comment on this one and say that I loved hearing Rob's thoughts and insights into things and how he was around for the entire podcast even into the Talking Cents and and Bad Advice of the Week segments. I'm sure a random youtube comment doesn't hold much weight, but if you invite him on again please be sure when you do to tell him at least one person in the youtube comments really really enjoyed him taking the time to talk with you both on his last podcast appearance.
The rent and buy debate often get pitted against each other as if their stocks. Choose the asset mix you like between cost of renting and cost of maintenance + equity. A problem arises when markets shift. You can hold a 20/80 bond/stock portfolio as one bubbles and the other sinks, hold and look long. Don't have to reduce allocation to either as you continue to invest. But with housing, if the rental market rises, you have to "allocate" more to renting. If the rental market gain exceeds you income growth. You have to reduce you rent/investment allocation, because you can't not rent. (I'm assuming you have the house you need, because if we don't this conversation can quickly devolve to go put a tent on crown lands). If the stock market rises more than your income growth? No worries. I can still invest 80/20. (Or whatever you mix is.) The cost of maintenance shouldn't increase more than inflation. Your downside potential on renting is much higher.
@@dennis7293 haha. Housings just very tricky. I've heard the argument for renter's revenge. But it's a very aggressive mix. And to think you'd have to go so aggressive to beat one of the more conservative assets (land and housing) just sounds like a bad trade.
I agree, from a pure personal finance perspective, that renting is a valid option for a lot of the reasons that people have gone over - the costs of buying (interest/taxes/maintenance/opportunity cost of not investing in another product i.e. ETFs/opportunity cost of saving the downpayment in a HISA/etc.). Another big thing is that, at least in the GTA, buyers are expected to waive financing condition and virtually all due diligence conditions (except very basic stuff like title) - which seems to me to be completely bananas for assets that cost over $1 million, especially compared to other asset transactions like securities and franchising where there are very significant disclosure obligations on vendors. The problem with renting is that, somewhere down the line, the landlord is going to renovict you or "move in", or sell the property to a new owner, who will then renovict you or "move in", in order to get around rent control. This really sucks if you have kids, because then you need to worry about changing schools, splitting the kids from their friends circle, etc. and, on top of that, landlords don't like renting to families with kids (doubly so for single parents and/or for some racialized people). I know that a homebuyer can be effectively forced to move as well (ex. by horrible neighbours). But it is not an inevitability.
Hello Ben and Cameron I am transitioning from non profit to for for profit. I just got hired as a financial advisor with Sunlife. I will be dealing with life insurance. I Recently passed my LLQP. Life is good.
What I don't understand about the rent/buy debate is that renters pay for the profit that a landlord takes. Renter and Owners both gain the utility of housing - whatever that's worth. The lost cost is rents on the one hand and taxes, buying/selling fees, maintenance, etc. If renting is profitable - the renters must pay all the costs of ownership.
That's not entirely true. One large, underappreciated cost of owning are the transaction costs. If you buy a house, live in it for a few years, and then sell and buy another house, you've just paid three different rounds of transaction costs, each of which was thousands of dollars. If you aren't living in the same place for a long time, the advantage goes to renting because you don't pay transaction costs. The landlord of course intends to own the property for a long time, so their transaction costs per year are small. Second are improvement costs. If you don't feel obligated to do constant improvements as many homeowners do, and the landlord doesn't want to because they want to save money, then the budget for improvement is lowered. This is, of course, something an owner could do in their own residence, but the incentives are better-aligned to produce stinginess in a rental. The opportunity cost of equity in a home you own is also large. This is an implicit cost, but you are paying it when you own equity in a home instead of stocks. The landlord is arguably not charging you for opportunity cost.
And that's the big assumption: If renting is profitable. You can make 1 dollar a month profit on your rental property. That means its profitable. But is the return on investment worth it. Need to look at more than just profit, need to actually understand the ROI involved and determine if its worth the ROI for the effort and opportunity cost involved. That's where no one ever seems to agree.
@@omarlyttle It can't be that rental property profits are a big if. It's a very robust industry. It's disengenuous to put owning against a landlord that takes a mere $12/yr. In true ongoing unrecoverable costs, renting is a very delicate situation to be in.
@@robertwright8844 True - transaction costs are high if amortized over the short term. But there's no accounting for this. One can argue what of i need to move next move. The other can argue they'd never sell and hire a management company to rent the property if they have to move in 10y. These improvement costs are unfair. Like for like, your rents would rise with improvements. If we want to compare a rental with poor appointments to a home where a home owner isn't of sound financial mind and completely remodels every year - we're tying someone's hands behind their back in this fight. Apples to apples, improvement costs will be realized in the rents - a landlord isn't going to take a loss so you can have a wifi connected fridge. Third point - opportunity cost is argued for the renter, especially for the portfolio called renter's revenge. I think it's important to recognize that if you need to take an aggressive portfolio to beat homeownership, we're not comparing assets of similar volatility. Might as well tell me the market can outperform bonds. Additionally, for primary residence, you can put as little down as 0% in some countries (NACA and VA) or 3-5% in most countries. The realized comparitive opportunity cost on 20k is $50/month (6% for total market, with inflation and RE gains taken out). That's a very small squeeze in favour of renting again for assets with completely different volatility/risk.
@@austingonzalez1148 I constantly read about landlords saying that the rent they recover "pays the mortgage." But have done no math on opportunity cost or on whether or not the return on investment is worthwhile. there are mutlidwelling units in my city that report a 3.5% ROI. These are buildings that cost around $4 million. And people think that's a good investment. 3.5%
I was looking at apartments for sale in Vancouver and between the mortgage interest, the condo fees, and property tax, you’re already at like 3000 a month (before you even add in the principal repayment). And you can certainly rent a 1 br condo in most parts of Vancouver for 3000 or less per month. Buying is absolutely not worth it in that city. And this is just for a 1br condo! You start looking at Vancouver detached housing for too long and you’re gonna have a stroke. Guess I’m staying in Ontario for now
Do the know your product rules impact self-directed investors? I use TDI to buy etfs, will they stop selling third party etfs? Or does this only apply to those using the inhouse advisors? edit: and the banks' reactions to this are typical. They want to take their ball and go home. Stupid.
Social security / state pension / superannuation simply don't support the ongoing cost of renting. And no one is saving enough for retirement. It's that simple. You own a home outright, or you live a precarious life and retirement at risk of homelessness, at the whims of your landlord. Outside a few more progressive countries with good welfare and regulation, there is no choice at all. The runaway housing market of the last 30 years has put us here.
Absolutely. I am sure there exist renters with 7-figure retirement savings who won't have their last deacdes constricted by renting costs. But all the renters I know have little to no savings. Some have defined-benefit pensions coming from public jobs, but they know they will have to find a lower COL area in order to survive. I have seen no models for middle-class retirement that assume you will be renting and subject to market increases in your housing costs, esp if forced to move because a landlord sells, wants to move in, renoviction, etc. We need to re-do a lot of basic advice if we're going to see a big percentage of retirees renting, spending their lives paying someone else's mortgage, building someone else's equity.
The line of thinking expressed above is not entirely accurate. Homeowners pay transaction costs, insurance, property tax, and maintenance. As a renter, you can invest in stocks instead of increasing your equity in a property. Stocks have higher expected return than houses. If this doesn't make sense, consider the following. Imagine someone who owns a $300K home and has paid off their mortgage. Will they be richer in 20 years if they leave $300K of value in home equity the entire time, or sell the house and invest $275K in stocks while renting? Stocks have much higher returns than homes -- especially with allocation to small cap value as Ben mentioned -- so they're likely to end up at least as rich by renting. This situation doesn't even factor in the costs if you have to move. If you're a renter, the cost is small. The costs of buying a home, selling when you move, and buying another home are very significant.
@@robertwright8844 People buy homes and build equity in them AND invest in stocks. It's not either/or. Renters build equity for someone else and need to invest for themselves. Do you know families that rent? I do, and they paid hundreds of dollars to move their belongings this year, whereas last year it was thousands. And getting a new rental unit was not quick or easy, with dozens of applications, references, proving their employment and income, and then a handful of interviews. I think some people think of renting as being like what single, childless 20-somethings do, and don't think about how different it gets as life progresses. And many people live in places where real estate has outperformed the stock market. That's why there's this glut of investors driving up prices on homes they'll never occupy: they see it's an excellent investment. I laughed when Ben was explaining depreciation on houses and how you have to keep them up or else receive a lower selling price. All true to an extent, but I live in a market where people make hundreds of thousands of dollars on homes they did nothing do, and let fall into disrepair. So I doubt they care that much about how much more they could have made with effort and putting more money into it. They still get a dozen offers.
Yes, moving your belongings costs money, but that cost exists equally for renters and owners. Owners have larger costs overall. I agree that renting can be stressful and unfair. Yes, there are homes that have outperformed the stock market. Okay, but there are also many stocks which have outperformed the stock market. There are also markets in which homes have lost value. The important variable is your expected return. Stocks have higher expected return than homes. "People buy homes and build equity in them AND invest in stocks. It's not either/or." For each dollar, yes it is either/or. Every dollar invested in stocks has a higher expected return.
@@robertwright8844 Thanks god we have a sane response. Sure owning makes sense for some but thinking that owning is the only logical choice is poppycock. Yes I said it -- poppycock. We're 30 years into a massive real estate bull market I think some caution makes sense as well as accounting for opportunity costs of sinking all your money into one asset.
I just checked Robert K’s twitter. Wow that guy is just straight up insane. Not just bad financial advice. He has bad comprehension of reality in general.
“Too much content to watch”, while Canada has a productivity problem. I know for myself, the addictive nature and unlimited supply of various forms of content consumes too much of my life and mental energy.
Timestamp:
0:00 Intro/ Cameron’s Recommendations
12:00 The Exponential Age - Transforming Economics?
19:16 Comments on the Royal LePage Report on Renting vs. Buying a Home
30:50 The New Know-Your-Product (KYP) rule (feat. Rob Carrick)
45:58 Rob Carrick’s Response to Royal LePage
1:05:35 Talking Cents (with Rob)
1:12:08 Bad Advice of the Week
There are so many factors that determine whether it’s better for each individual to rent or buy. I think it’s great that Ben is pointing out reasons why many should consider renting because renting is not what you typically think of when contemplating the “American (or Canadian) dream”.
What a wonderful episode! Loved the casual conversational tone with Rob.
Greetings from Germany
I realy like the Discussion today. As always it is not black and white. Here we live in a HCOL area (for Germany) or at least realy high price to buy property area. And we took despite the common narative "YOU MUST BUY", another route. All the friends bought a house or plan to buy. Most do not even can spell ETF or fund or stock exchange. For them the house is maybe the best option.
We on the other side looked at the math of owning or renting and found in our area the proposition not very compelling to own. In a less expensive area for buying in comparison to renting the choice would probably change.
We keept the portfolio and went the landlord route. Owning now three apartments bought with the cash position obsololete after foregoing buying the own home and renting. Mild leverage there included. Three properties seem a lot more versatile and diversivied then one big chunk which is also the primary home. If landlords realy rip of the renters. We are now joined with them. Otherwise the possible rise in price for renting is partly hedged by renting out ourself.
Sure renting out is a complete other buissness than living on a own plot of land ,also it is not even close as a asset to ETF or Bonds. It demands a certain amount of maintanance.
In the end it comes down to the individual case and has to fit to the person and the plans in life.
Keep up the good work
Christian
This is so interesting as I personally account for my mortgage payment as a split payment. Let's say my mortgage payment is 1000EUR. Around 700EUR goes against the principle and 300EUR is interest. So my "expenses" for the month only count that 300EUR (because my accounting looks at the entirety of my personal net worth view).
I feel that this is fine for me in this isolated case... but clearly not fine when trying to make comparisons are broad cash flow and portfolio allocation contexts. The whole neglecting of the up front purchase costs is rather amusing and don't understand how anyone could take the paper seriously with that left out.
I really enjoy how you discuss rent vs ownership without brushing away all the complexity that's involved with these comparisons. I'm very frustrated when folks state that one is objectively better and neglect to mention any of the assumptions.
Love what you all do over there! Nice to hear some Canadian accents while I live abroad 😃
I don't catch every single podcast, but I really wanted to comment on this one and say that I loved hearing Rob's thoughts and insights into things and how he was around for the entire podcast even into the Talking Cents and and Bad Advice of the Week segments. I'm sure a random youtube comment doesn't hold much weight, but if you invite him on again please be sure when you do to tell him at least one person in the youtube comments really really enjoyed him taking the time to talk with you both on his last podcast appearance.
Thanks for the feedback. I will pass this along.
The rent and buy debate often get pitted against each other as if their stocks. Choose the asset mix you like between cost of renting and cost of maintenance + equity. A problem arises when markets shift. You can hold a 20/80 bond/stock portfolio as one bubbles and the other sinks, hold and look long. Don't have to reduce allocation to either as you continue to invest. But with housing, if the rental market rises, you have to "allocate" more to renting. If the rental market gain exceeds you income growth. You have to reduce you rent/investment allocation, because you can't not rent. (I'm assuming you have the house you need, because if we don't this conversation can quickly devolve to go put a tent on crown lands). If the stock market rises more than your income growth? No worries. I can still invest 80/20. (Or whatever you mix is.) The cost of maintenance shouldn't increase more than inflation. Your downside potential on renting is much higher.
You must work for Royal LePage. ;)
@@dennis7293 haha. Housings just very tricky. I've heard the argument for renter's revenge. But it's a very aggressive mix. And to think you'd have to go so aggressive to beat one of the more conservative assets (land and housing) just sounds like a bad trade.
I agree, from a pure personal finance perspective, that renting is a valid option for a lot of the reasons that people have gone over - the costs of buying (interest/taxes/maintenance/opportunity cost of not investing in another product i.e. ETFs/opportunity cost of saving the downpayment in a HISA/etc.). Another big thing is that, at least in the GTA, buyers are expected to waive financing condition and virtually all due diligence conditions (except very basic stuff like title) - which seems to me to be completely bananas for assets that cost over $1 million, especially compared to other asset transactions like securities and franchising where there are very significant disclosure obligations on vendors.
The problem with renting is that, somewhere down the line, the landlord is going to renovict you or "move in", or sell the property to a new owner, who will then renovict you or "move in", in order to get around rent control. This really sucks if you have kids, because then you need to worry about changing schools, splitting the kids from their friends circle, etc. and, on top of that, landlords don't like renting to families with kids (doubly so for single parents and/or for some racialized people).
I know that a homebuyer can be effectively forced to move as well (ex. by horrible neighbours). But it is not an inevitability.
Hello Ben and Cameron
I am transitioning from non profit to for for profit. I just got hired as a financial advisor with Sunlife. I will be dealing with life insurance. I Recently passed my LLQP. Life is good.
This is the first time I saw Ben blinking 👏🏻
What I don't understand about the rent/buy debate is that renters pay for the profit that a landlord takes. Renter and Owners both gain the utility of housing - whatever that's worth. The lost cost is rents on the one hand and taxes, buying/selling fees, maintenance, etc. If renting is profitable - the renters must pay all the costs of ownership.
That's not entirely true. One large, underappreciated cost of owning are the transaction costs. If you buy a house, live in it for a few years, and then sell and buy another house, you've just paid three different rounds of transaction costs, each of which was thousands of dollars. If you aren't living in the same place for a long time, the advantage goes to renting because you don't pay transaction costs. The landlord of course intends to own the property for a long time, so their transaction costs per year are small.
Second are improvement costs. If you don't feel obligated to do constant improvements as many homeowners do, and the landlord doesn't want to because they want to save money, then the budget for improvement is lowered. This is, of course, something an owner could do in their own residence, but the incentives are better-aligned to produce stinginess in a rental.
The opportunity cost of equity in a home you own is also large. This is an implicit cost, but you are paying it when you own equity in a home instead of stocks. The landlord is arguably not charging you for opportunity cost.
And that's the big assumption: If renting is profitable. You can make 1 dollar a month profit on your rental property. That means its profitable. But is the return on investment worth it. Need to look at more than just profit, need to actually understand the ROI involved and determine if its worth the ROI for the effort and opportunity cost involved. That's where no one ever seems to agree.
@@omarlyttle It can't be that rental property profits are a big if. It's a very robust industry. It's disengenuous to put owning against a landlord that takes a mere $12/yr. In true ongoing unrecoverable costs, renting is a very delicate situation to be in.
@@robertwright8844 True - transaction costs are high if amortized over the short term. But there's no accounting for this. One can argue what of i need to move next move. The other can argue they'd never sell and hire a management company to rent the property if they have to move in 10y.
These improvement costs are unfair. Like for like, your rents would rise with improvements. If we want to compare a rental with poor appointments to a home where a home owner isn't of sound financial mind and completely remodels every year - we're tying someone's hands behind their back in this fight. Apples to apples, improvement costs will be realized in the rents - a landlord isn't going to take a loss so you can have a wifi connected fridge.
Third point - opportunity cost is argued for the renter, especially for the portfolio called renter's revenge. I think it's important to recognize that if you need to take an aggressive portfolio to beat homeownership, we're not comparing assets of similar volatility. Might as well tell me the market can outperform bonds. Additionally, for primary residence, you can put as little down as 0% in some countries (NACA and VA) or 3-5% in most countries. The realized comparitive opportunity cost on 20k is $50/month (6% for total market, with inflation and RE gains taken out). That's a very small squeeze in favour of renting again for assets with completely different volatility/risk.
@@austingonzalez1148 I constantly read about landlords saying that the rent they recover "pays the mortgage." But have done no math on opportunity cost or on whether or not the return on investment is worthwhile. there are mutlidwelling units in my city that report a 3.5% ROI. These are buildings that cost around $4 million. And people think that's a good investment. 3.5%
Please make candles that smell like money :), you know the old, paper kind.
I was looking at apartments for sale in Vancouver and between the mortgage interest, the condo fees, and property tax, you’re already at like 3000 a month (before you even add in the principal repayment). And you can certainly rent a 1 br condo in most parts of Vancouver for 3000 or less per month. Buying is absolutely not worth it in that city. And this is just for a 1br condo! You start looking at Vancouver detached housing for too long and you’re gonna have a stroke. Guess I’m staying in Ontario for now
I watched Maid like a week ago. The lack of money made me pretty anxious.
What about renting vs buying + SM?
Have to allow some leverage for the stock investor too to make that a fair comparison.
Do the know your product rules impact self-directed investors? I use TDI to buy etfs, will they stop selling third party etfs? Or does this only apply to those using the inhouse advisors? edit: and the banks' reactions to this are typical. They want to take their ball and go home. Stupid.
I do not believe so.
Social security / state pension / superannuation simply don't support the ongoing cost of renting. And no one is saving enough for retirement. It's that simple.
You own a home outright, or you live a precarious life and retirement at risk of homelessness, at the whims of your landlord.
Outside a few more progressive countries with good welfare and regulation, there is no choice at all. The runaway housing market of the last 30 years has put us here.
Absolutely. I am sure there exist renters with 7-figure retirement savings who won't have their last deacdes constricted by renting costs. But all the renters I know have little to no savings. Some have defined-benefit pensions coming from public jobs, but they know they will have to find a lower COL area in order to survive. I have seen no models for middle-class retirement that assume you will be renting and subject to market increases in your housing costs, esp if forced to move because a landlord sells, wants to move in, renoviction, etc. We need to re-do a lot of basic advice if we're going to see a big percentage of retirees renting, spending their lives paying someone else's mortgage, building someone else's equity.
The line of thinking expressed above is not entirely accurate. Homeowners pay transaction costs, insurance, property tax, and maintenance. As a renter, you can invest in stocks instead of increasing your equity in a property. Stocks have higher expected return than houses.
If this doesn't make sense, consider the following. Imagine someone who owns a $300K home and has paid off their mortgage. Will they be richer in 20 years if they leave $300K of value in home equity the entire time, or sell the house and invest $275K in stocks while renting? Stocks have much higher returns than homes -- especially with allocation to small cap value as Ben mentioned -- so they're likely to end up at least as rich by renting.
This situation doesn't even factor in the costs if you have to move. If you're a renter, the cost is small. The costs of buying a home, selling when you move, and buying another home are very significant.
@@robertwright8844 People buy homes and build equity in them AND invest in stocks. It's not either/or.
Renters build equity for someone else and need to invest for themselves. Do you know families that rent? I do, and they paid hundreds of dollars to move their belongings this year, whereas last year it was thousands. And getting a new rental unit was not quick or easy, with dozens of applications, references, proving their employment and income, and then a handful of interviews. I think some people think of renting as being like what single, childless 20-somethings do, and don't think about how different it gets as life progresses.
And many people live in places where real estate has outperformed the stock market. That's why there's this glut of investors driving up prices on homes they'll never occupy: they see it's an excellent investment.
I laughed when Ben was explaining depreciation on houses and how you have to keep them up or else receive a lower selling price. All true to an extent, but I live in a market where people make hundreds of thousands of dollars on homes they did nothing do, and let fall into disrepair. So I doubt they care that much about how much more they could have made with effort and putting more money into it. They still get a dozen offers.
Yes, moving your belongings costs money, but that cost exists equally for renters and owners. Owners have larger costs overall.
I agree that renting can be stressful and unfair.
Yes, there are homes that have outperformed the stock market. Okay, but there are also many stocks which have outperformed the stock market. There are also markets in which homes have lost value. The important variable is your expected return. Stocks have higher expected return than homes. "People buy homes and build equity in them AND invest in stocks. It's not either/or." For each dollar, yes it is either/or. Every dollar invested in stocks has a higher expected return.
@@robertwright8844 Thanks god we have a sane response. Sure owning makes sense for some but thinking that owning is the only logical choice is poppycock. Yes I said it -- poppycock. We're 30 years into a massive real estate bull market I think some caution makes sense as well as accounting for opportunity costs of sinking all your money into one asset.
I just checked Robert K’s twitter. Wow that guy is just straight up insane. Not just bad financial advice. He has bad comprehension of reality in general.
“Too much content to watch”, while Canada has a productivity problem. I know for myself, the addictive nature and unlimited supply of various forms of content consumes too much of my life and mental energy.
Call it the 5 olfactory candle 😂
@1:14:00 Bill Gates did call the pandemic