Isn’t that the ultimate plan: to save up, put a down payment on a house, buy and eventually own the home over the next 10, 15 or 20-plus years?
It doesn’t have to be. Home ownership is not everyone’s dream. Far from it…
It’s not always the best financial decision either. Like any investment you should do the math.
You also need to consider if putting all your money into one asset (your home) is really a smart thing to do. Finally, you need to assess your lifestyle. Putting all these factors together, renting isn’t throwing money away. Renting might be the best thing for you or your family.
Let’s break it down using my lessons learned.
We Started Out Renting
Many years ago before my wife and I moved into our condo together, before we got married, we rented separate places. I never considered renting throwing my money away at the time because paying rent did one thing very well – it put a roof over my head. I was trading money for something I needed - shelter.
How much you pay in rent will depend heavily on where you want to live. Real estate pundits don’t chant location, location, location for no reason. My rent was modest in the city before the recent real estate boom in Ottawa. Renting in the city was also a lifestyle choice. Amenities were a short walk away. Renting offered freedom many years ago – freedom from any major house maintenance or repairs - more on that shortly.
What We Learned From Buying A Condo
In 2005, my girlfriend (now wife) and I bought and moved into a condo together. I recall the price tag was around $240,000 in downtown Ottawa for our two-bedroom, two-bathroom unit with about 1000 sq. ft. It was a nice place in an older building. Based on today’s downtown Ottawa condo prices that seems rather cheap...but times change.
Related: Is The Home Buyer’s Plan Worth It?
Our condo mortgage costs were modest and the lifestyle was simple – not much to maintain – but let’s not forget the common elements.
Soon after we moved in, the elevators needed to be repaired, the pool and hot tub needed to be fixed, and a couple of years later the condo board decided the building’s foyer and common rooms needed upgrades. In addition to servicing our long-term mortgage debt, we had condo fees to pay for these common element changes AND property taxes to cover.
Beyond our mortgage payments at the time, condo fees ran us close to $500 a month and property taxes cost us another $300 per month. Although the condo lifestyle was good and we enjoyed our amenities we couldn’t justify the rising condo-ownership costs. After renting the unit for a few years – we eventually sold it.
Our lessons learned:
- Renting in the city of Ottawa many years ago would have been far cheaper than our short-term condo ownership experiment.
- If you decide to buy a condo, now or in your future, make sure you understand and forecast the costs of ownership beyond your mortgage. Those costs can easily amount to hundreds of extra dollars per month.
- If you decide to buy, try to stay put for at least 10 years. This time period should help you live through any real estate cycles and ensure your home appreciates in value.
Now We’re In A House - A Big Decision
My wife and I have lived in our current home for six years now. We enjoy the space (1,800 sq. ft. bungalow) on a small lot of land just outside the city.
We decided to buy this home and get a mortgage a few short years ago. Looking back we borrowed what seemed like a ridiculous amount money to buy this place – over $300,000.
Thankfully, due to some hard work, our mortgage is now almost half that amount. However I cringe when I think about the interest costs we’ve paid over those six years. Even at today’s low borrowing costs – it’s still a ton of money.
Related: How To Save Money On Your Mortgage
True, we don’t have monthly condo fees here, but the equivalent amount we used to pay for our city condo has gone into maintaining or improving this home year after year.
We also have more land here and we’re not living in a box in the sky – but we’re also further from the city. We drive more. We have a bit more time on the road for our weekly commute to work. We spend more on gas.
Our tradeoff is we have general serenity and little environmental noise here. We have walking paths and trails in our community – along with an active community presence.
While the mortgage beast is slowly being slain every couple of weeks, pushing our net worth higher, I’m not convinced our house is skyrocketing in value. Yes, home values depending on your market have appreciated in recent years (I’m looking at you Toronto and Vancouver). The same cannot be said for us.
Yes, our house value has appreciated in six years, but not by leaps and bounds. We don’t think buying this home was a bad investment. Thankfully it’s not our only investment. We believe our home is just one part of our portfolio so we invest outside this home prudently.
Our reflections this far:
- Buying this home was both a financial and lifestyle decision – there are tradeoffs we continue to accept with home ownership.
- Home values are not guaranteed to rise in all areas. Like the stock market in the short-term house prices can be fickle and uncertain.
- Home ownership has costs – maintenance and upgrades are required to maintain a home’s value. Your budget needs to continually account for those.
- Regardless if you rent or buy, consider what you have left to invest for your future self. Renting may provide you with more cash flow for retirement savings.
- Retirement savings, outside the home you own, are important for diversification.
Our Future In Home Ownership
How long will we live here?
Hard to say ... but we’re committed to another 4-5 years for sure when keeping in mind our lessons learned above.
If you decide that you want to own a home, I say do the math and strongly consider your lifestyle. The former has financial answers for you and the latter will likely have an emotional attachment.
The smart shopper will consider both the numbers and their lifestyle because home ownership costs plenty. That is why renting is never throwing money away.
Mark Seed is one of Canada’s leading personal finance and investing bloggers. With his wife, he is working his way towards a 7-figure retirement portfolio for an early retirement in addition to slaying the mortgage dragon. You can follow my friend Mark and his financial journey on My Own Advisor.