Weekend Reading: Renting Is Bad Advice Edition

I remember three years ago reading then MoneySense Editor-in-Chief Duncan Hood’s confession that he – a lifetime renter – got caught up in a bidding war and purchased a home in downtown Toronto. I remember reading how elated he felt when his final offer secured his dream home, as if overpaying by tens of thousands, or maybe even hundreds of thousands of dollars, was akin to winning the lottery.

Fast forward three years later and Mr. Hood is at the Globe and Mail writing a not-so-humble-brag about his decision to buy a home because the crash that everyone had been predicting has not yet come to fruition. Okay then. So, just because a decision made to buy an overpriced home in one of the most expensive real estate markets in the world happened to work out for Mr. Hood after three years means, ‘telling people to rent instead of buy is bad advice.”? What planet is this guy on?

Survivorship bias

Clearly Mr. Hood’s short stint as Editor-in-Chief at MoneySense did not instil any money sense in him, or he wouldn’t make such bold proclamations about home ownership – which is such a highly personal decision dependent on a wide number of factors (age, location, mobility, financial readiness, etc).

It sounds to me like Mr. Hood got house horny and swept up in an emotional attempt to buy his so-called dream home, and then got extremely lucky that this frothy Toronto real estate market continued to push up house prices in the short time since he bought-in. How you can take that one personal experience and extrapolate it to say, ‘renting is bad advice’ is beyond me.

Back to reality, here’s the always sensible Rob Carrick saying that a disturbing number of people are building their retirement plans on a weak foundation – their homes. Sorry to burst your bubble, but owning a home won’t fund your retirement.

This Week’s Recap:

On Monday I revealed the new American Express Cobalt Card, which pays 5% back on ‘eats and drinks’ and 2% back on ‘travel and transit’. Definitely worth a look!

On Wednesday Marie looked at how to protect your investment portfolio from rising interest rates.

And on Friday Marie shared an informative read about the importance of having a power of attorney.

Weekend Reading:

An incredibly brave post by a mother of two who left her abusive husband and moved across province to start over.

“I’d call you a liar if you told me that in six months I’d have saved up enough money to use as a down payment on a house someday, for a brand new laptop for myself, a family trip to Cuba, as well as a trip to the dentist. I would have thrown up if you were to tell me that eight months down the road I’d be dialling the number of a divorce lawyer, and with a shaky voice saying, “I’m not sure where to start…” 

CBC Marketplace exposes ‘homegrown lies’ at farmers markets where some Ontario vendors were caught misleading consumers about the food for sale on their tables.

In another expose, Sam Cooper reveals how B.C. casinos are being used to launder millions in drug cash. Unbelievable story.

Index investing advocate Larry Swedroe once again takes aim at dividend investors, this time with the help of research from Vanguard’s own study on dividend-oriented strategies. The conclusion?

“a total-return approach is superior to one that focuses on dividend strategies.”

An interesting read on The Great Unwinding: After a historic buildup of its bond portfolio to support the U.S. economy, the central bank plans to shrink its holdings, entering uncharted territory.

Why the history of Sears predicts nearly everything Amazon is doing.

Dan Bortolotti answers a reader question about whether to buy U.S. stocks in Canadian dollars:

“When you convert your loonies into U.S. dollars isn’t the issue, it’s how you convert from one currency to another that matters.”

It seems to be common practice for seniors to add the kids to ownership of a house. MoneySense’s Jason Heath isn’t sure why.

Here’s one to send to your adult children: Everything you need to know about opening a TFSA at your bank.

Finally, a great look at the decision Million Dollar Journey blogger Frugal Trader and his wife made to take the commuted value of her defined benefit pension rather than leaving it in the plan.

Have a great weekend, everyone!

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  1. GYM on September 30, 2017 at 6:35 pm

    Haha house horny, I like that phrase!! Yeah when I read that piece by Duncan Hood, I thought it was going to piss a lot of people off.

    The BC Casinos are laundering money and then that money is being used to buy Vancouver real estate in washed BC Casino cash. Lol…

  2. brett on October 1, 2017 at 8:17 am

    The decision to rent depends on your financial and personal situation and on the market where you live. We sold four years ago. Traveled. Came back and rented a condo for four years. Put our home equity in the market. The after tax earnings paid our rent and a fair amount of our travel budget each year (4-5 months per year). Just bought two months ago. Price was the same as it was, perhaps slightly lower than it was 4 years ago. We have been home owners all our lives but this decision is really big ‘it depends’. Certainly not one size fits all.

    • Echo on October 1, 2017 at 11:51 am

      Hi Brett, thanks for your comments. If I recall, you’re in Calgary, right?

      • brett on October 2, 2017 at 5:44 am

        Yes, Calgary. People who purchased condos in the complex where we rented for four years lost equity over those 4-5 years. Condo prices in this upscale development have gone down over this period, as have rents. The unit we were in had a 35K assessement. Our landlord broke even on her expenses over four years and her equity decreased.

        We knew the prices, mtce fees etc because we first considered buying into the complex but the financials did not add up. This is why we rented for four years. The numbers need to add up. Home ownership can be an emotional decision but it should always make financial sense IMHO.

  3. Tim C. on October 1, 2017 at 9:14 am

    Do you know if anyone did the math for using house as a retirement fund? I am in my mid thirties and the majority of the house owner i know thinks that selling their home when they retire, they are going to strike it rich. Yet no one seems to realize that the money they earn from selling their house might have to last 20 to 30 years…people are just living longer and no one i know is preparing themselves financially to live that long. I am in the fence right now in buying…my gut feeling is to put that downpayment in a robo advisor and rent until I can find a house that wont make me house broke.

    • Echo on October 1, 2017 at 11:50 am

      Hi Tim, the problem with relying on your house to fund your retirement is that you still need to live somewhere. What’s the likelihood of being able to downsize and keep enough of a nest egg to fund your retirement? No, whether you rent or buy, the bottom line is you need to also save and invest for your retirement. As you say, we’re living longer. Why put all your eggs in the real estate market?

  4. Enoch on October 1, 2017 at 10:30 am

    Yes, there are too many risks with depending on one’s home as a sole source of retirement income. Apart from the real estate market being so unpredictable, one obvious problem is that you still have to live somewhere – rent or buy again. So, if prices are sky-high, you are still going to be paying a lot for accommodation, and that really screws up the math.

    • Echo on October 1, 2017 at 11:54 am

      Hi Enoch, you’re exactly right. Still need to live somewhere, and downsizing might not even get you an extra $100,000. And it’s unlikely someone that lives in a big city all their lives would consider moving to a tiny hamlet to maximize their home equity, right?

  5. J C on October 1, 2017 at 1:17 pm

    Here I am in my early 80’s and I have been a home owner for the past 30 years, mostly a renter previous to that because of changing work locations and so on. I think that most advice about renting being the best or owning being the best is misleading as it usually contains only partial information. Add to this the current tendency by people to base much of their input on headlines and I think these headline recommendations do readers (perhaps better-called “viewers”) a disservice as opposed to the reverse it regularly claims.

    Add to this the fact that many people who find it cheaper to rent than owning do so in order to have more disposable income for day to day living, so they apply less to secure their longer term plans. Many also do not factor in the uncertainty of their income and they suddenly find themselves with half the income but no way to reduce their rent without moving into subsidized or sub-standard housing.

    Whether you own or rent has to be part of your life’s financial plan. I don’t mean your current year’s budget, I mean a lifetime financial plan. Once your plan is in place you then have to manage it. Not knowing how to do this is not an excuse. I learned how to do this 55 years ago when the learning tools were minimal compared to today. I planned and have managed my retirement for the past 55 years and I would definitely need guaranteed supplement had I not done so. Yes, the plan gets a little fuzzy as you get farther and farther out so regular management and updating is necessary, which I do annually.

    My annual review this year had me do a major revision of our longer term plan ( the 20 year one). We are fortunate to have already lived comfortably beyond our expectations but our current accommodations and financial plan have to be adjusted if we live another two decades.

    If you don’t plan your future your are making the decision to accept whatever good fortune befalls you. If you want more then you need to plan for it. If you are serious enough to think this progressively then keep in mind that “headline advice” is dangerous whatever the subject. Make sure you fully understand the facts and especially how they impact your individual circumstances in the longer term.

    • LOBNA on October 4, 2017 at 5:53 am

      You’re absolutely spot on JC and a wise man. I just turned 55 and has been a homeowner for the past 10 years and plan to keep my house as long as I live, renting is not an option for me either. Hopefully, by 2020 my house will be paid off totally, then I’m planning to start investing in ETE. Or even starting sooner, it’s much better than Mutual funds.
      Anyhow, bottom line if I’m going to live till 90 years old, now is the time to plan how my next 40 years will be.

  6. Richard on October 3, 2017 at 9:40 am

    I normally agree that renting is a very efficient way to live provided that you have a good plan. However one aspect that’s not brought up by supporters is that rents sometimes do rise very quickly. In some parts of Canada people might see their rents double in just a few years. That’s a major problem.

    It usually doesn’t make sense to exchange the possibility of that loss for the certainty of high expenses with homeownership. However the possibility has to be recognized.

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