I feel bad sometimes for not posting more on the Petty Cash. The site has brought a ton of connections and ideas to me and sometimes I forget that. I heard somewhere that the key to any successful relationship is low expectations, I think that applies to anyone still following the site. Expect (next to) nothing and be happy when anything happens.
I want to take some dedicated mental energy and share how the transition from owning a home to renting has been. To be fair, I don’t know if owning is better than renting I just know it works for me. This won’t be me convincing you to rent or buy, but just me putting some thoughts, feelings and experiences out there. For my family owning vs. renting really came down to the math.
I know there are many home owners out there who are waiting for a crash and want to time the market. As well, there are many people who don’t own currently that feel the societal pressure to own a home.
First, the former is just a stupid idea. To think you can actually time when the market is going to crash (and presumably jump back in after the crash) is asinine. Your ability to time the market is likely no better than anyone else’s.
The latter is tough to quantify. Generally we have been taught as Canadians that anyone successful owns a home and learn to associate renting as someone who “is starting out” or “doesn’t get it”. People said congrats when I told them that I was approved for a mortgage. In fact, many people brag on how much they are approved for. When I tell people that I sold my house to rent I get this puzzled look. Most immediate dismiss anything that comes out of my mouth after that. “How can he know anything about investing (or anything else for that matter) if he isn’t even smart enough to buy a house.” That’s what I imagine others are thinking of my decision. It takes more courage than you realize to act upon something that makes sense for your family when you know you will be scrutinized by your peers, friends, co-workers, etc.
For me and my family it came down to math. Simply removing emotion and letting actual facts make the decision.
Owning – pros and cons
- capital appreciation in the house
- one should note that unless you are able to pick the right house, capital appreciation expectations should be limited to annual inflation rate as housing costs make up a large portion of the annual inflation rate
- likely inflation protection vs. holding cash in a bank account
- stability (for the term) in mortgage payments
- ability to pay off mortgage faster and get a guaranteed after tax way to build your net worth
- Stability for the family – I can pretty much know where I will live for the foreseeable future
- can borrow against the house (via HELOC) for anything I want
- Tax free capital appreciation for your primary residence in Canada
- It’s easier to fit in
- Property tax goes up pretty much every year
- Can be expensive
- You buy a new(er) house and have big payments
- Something to note is that many have had bad experiences with new homes still not being built with high quailty
- Or you buy an older/fixer-upper and have to spend time/money maintaining it
- You buy a new(er) house and have big payments
- Reduced mobility
- it takes a lot of time and money to move (especially if you have a family)
- Your Time required
- cutting the lawn, painting, shovelling snow, raking leaves, etc
Renting – pros and cons
- the biggest one for me is time
- none of my time is dedicated to maintaining the house: no yard work, no snow shovelling, etc
- usually you can lock in your expenses for a minimum of a year (likely longer)
- no surprise breakdowns/repairs that you have to pay for
- most people who rent have high mobility
- they are able to pick yup and move quicker
- that means less “things” which for me led to less mental clutter and more time/energy to focus on the things I truly value
- If you have capital built in your house, you now have better access to it
- You can have very little notice on when your house/condo/apartment can be sold and you have to move
- You have to make rent payments as long as you rent
- eventually when you own you stop making mortgage payments
- I mean that’s the dream right?
- You get to live in your house for free at some point
- You could have a bad landlord
- You aren’t able to “make it mine” by painting the rooms whatever color you want or knocking down a wall or renovating the kitchen
For us it was a matter of taking the capital that was tied up in the house and investing it in the public markets to (hopefully) get a higher return than if the capital was left in the house. This of course requires a ton of time.
You also have to consider ALL the expenses with home ownership. Property tax, utilities, sewer, additional fees from the city to upgrade streets, appliances, anything that breaks down.
Once we ran the numbers and realized that it makes sense for the family, we executed in pretty short order. It was actually quite therapeutic to downgrade the size of our living space. We got rid of a ton of things that we didn’t need. Without being forced to move, we likely would have kept many of those things.
Post Move Feels
- The largest thing that I noticed since we moved was how much extra time I have to do things I really want to do. I have been surprised with how much I’m into fitness. I spend a decent amount of time in the gym and wouldn’t be able to do that without sacrificing something else if I had a house to maintain. I also get more family time which is really appreciated in Edmonton’s short summer. Investing performance has improved as I spend more time understanding each business I purchase.
- Probably more important that the time is the reduction in mental clutter. I don’t worry about remembering to do or organize something related to the house.
- Going against the grain by renting has given me courage to challenge other societal norms. If I didn’t try renting then I wouldn’t have the courage to challenge other traditional beliefs.
- We have less geographical security. Once in awhile you hear a horror story about someone renting and having to move with very short notice. This has crept into my thoughts a few times. We like to keep as nimble as possible so we are able to react to surprises.
- Even after almost 2 years, I still have friends and family think that I’m “wrong”. It’s funny how many people have it ingrained that you just own a home.
Not sure if it’s positive or negative, but many people want me to look stupid. Since they are so emotionally attached to rising house prices, they feel that anyone who doesn’t own a home is a bet against their fundamental beliefs and values. It’s hardened me as a person. In my 20s I would seek acceptance from people, in my 30s I really don’t care what others think of me.
The only thing I would encourage the reader of this article to do is to ask yourself what is right for you. Not what is easy. But what makes the most sense for you as a person. It wasn’t always easy and yes there is always times of doubt, but in the end renting has been a worthwhile endeavour.
If anyone has a similar experience, please share it.