Condo owners in TO get poor return, compared to homeowners

[stinkynuts]

http://www.huffingtonpost.ca/2015/10/06/toronto-house-prices-wealth_n_8252214.html


The average house owner saw their wealth increase $8500 a month, compared to less than 2,000 for condo owners.

Obviously, this is because land is limited. Condos can be built in the sky. Also, condos are cheaper to begin with.

 

[basketcase]

...
The average house owner saw their wealth increase $8500 a month, compared to less than 2,000 for condo owners.
....

Less of a difference when taking property values into account. The article says the average home price is over a million vs. 400,000 for a condo. Yes, houses are still getting more return on a % basis but it's not really an option for most people trying to enter the market. I'm sure that many condo owners would prefer 5.6 %/a rather than hoping a wealthy relative dies and leaves them money.


And of course there is that whole other issue; if you sell, where are you going to move?

 

[explorerzip]

Condos are commodities and are the furthest from investments. The "luxury condo" that you bought downtown is near identical to all the other ones in the same area. And there's nothing you can do to markedly increase the value of your unit. Real estate is only an investment when you have positive cash flow after all other expenses: taxes, mortgage, utilities, etc. So for most people, owning real estate is not an investment.

 

[stinkynuts]

Condos are commodities and are the furthest from investments. The "luxury condo" that you bought downtown is near identical to all the other ones in the same area. And there's nothing you can do to markedly increase the value of your unit. Real estate is only an investment when you have positive cash flow after all other expenses: taxes, mortgage, utilities, etc. So for most people, owning real estate is not an investment.

Hence the argument that renting is the smartest choice...

 

[explorerzip]

Hence the argument that renting is the smartest choice...

Only if you are also investing at the same time.

 

[stinkynuts]

Only if you are also investing at the same time.

Yes... Investing the difference on what you save from the mortgage/taxes/maintenance/insurance/etc.

 

[Occasionally]

Renting is a loser's game. All you do is waste money and funnel money to the landlord where you are basically paying off his mortgage as he sits there and reaps in paper gains every month.

A home owner will likely pay more per month than a renter, BUT right now about 50% of a person's mortgage payment is equity, which at the point is a paper gain. So at the end of the day, a home owner is likely gaining ground against a renter. Also, as a landlord myself, all you have to do is try to rent out the place to break even with the monthly expenses or be pretty close to it. From there, I have just as much excess cash lying around to invest myself into the stock market or top up my RRSPs. It's not like us landlords are dead broke. We get renters to pay for our monthly costs as much as possible, so our finances are turn key and we don't have to worry about being in a negative cash flow. And it's not hard to do.

Then add real estate appreciation and a home owner will make much more money than a renter.

The only way a renter will win out is if he or she funnels cash flow into the stock market and gets lucky hitting the jackpot with a pharma or tech company where the funds exponentially multiply beyond whatever gains a homeowner gets over the many years riding the wave of home appreciation and equity. And IMO, not too many renters will beat out a home owner.

OK sure, there might be some guy who paid cheap rent and put all his money into Amazon.com or Apple when they were $5 and has held onto it all making himself a millionaire, but those people are very few.

The avg guy who bought a home in 1990 for maybe $200,000 is likely sitting on a property worth about $1 million.

A renter has nothing, but whatever investment gains he's made outside of real estate ownership and appreciation.

 

[stinkynuts]

Renting is a loser's game. All you do is waste money and funnel money to the landlord where you are basically paying off his mortgage as he sits there and reaps in paper gains every month.

A home owner will likely pay more per month than a renter, BUT right now about 50% of a person's mortgage payment is equity, which at the point is a paper gain. So at the end of the day, a home owner is likely gaining ground against a renter. Also, as a landlord myself, all you have to do is try to rent out the place to break even with the monthly expenses or be pretty close to it. From there, I have just as much excess cash lying around to invest myself into the stock market or top up my RRSPs. It's not like us landlords are dead broke. We get renters to pay for our monthly costs as much as possible, so our finances are turn key and we don't have to worry about being in a negative cash flow. And it's not hard to do.

Then add real estate appreciation and a home owner will make much more money than a renter.

The only way a renter will win out is if he or she funnels cash flow into the stock market and gets lucky hitting the jackpot with a pharma or tech company where the funds exponentially multiply beyond whatever gains a homeowner gets over the many years riding the wave of home appreciation and equity. And IMO, not too many renters will beat out a home owner.

OK sure, there might be some guy who paid cheap rent and put all his money into Amazon.com or Apple when they were $5 and has held onto it all making himself a millionaire, but those people are very few.

The avg guy who bought a home in 1990 for maybe $200,000 is likely sitting on a property worth about $1 million.

A renter has nothing, but whatever investment gains he's made outside of real estate ownership and appreciation.

There is truth to what you say, but I think it's not so cut and dried.

To take one extreme that supports your point. I know someone who bought a house in Vancouver over 30 years ago. He rented out the place to pay the mortgage. It turns out that the renter stayed for those entire 30 years, paying rent. I believe the guy paid less than 200,000 at the time. Today, the house is worth 3 million dollars. The renter has nothing to show for it. Meanwhile, my friend has a profit of hundreds of thousands in rent, PLUS about 3 million in profit from the value of the house.

However, most houses do not appreciate like Vancouver. Plus, many renters move around a lot, and buying a house is a losing game because of the costs involved in the transaction. Plus, it forces you to stay put when there may be better job opportunities. The stock market on average yields a profit of about 8 percent a year. This is about the same as a healthy real estate appreciation for a detached house.

 

[sashimi]

Renting is a loser's game. All you do is waste money and funnel money to the landlord where you are basically paying off his mortgage as he sits there and reaps in paper gains every month.

A home owner will likely pay more per month than a renter, BUT right now about 50% of a person's mortgage payment is equity, which at the point is a paper gain. So at the end of the day, a home owner is likely gaining ground against a renter. Also, as a landlord myself, all you have to do is try to rent out the place to break even with the monthly expenses or be pretty close to it. From there, I have just as much excess cash lying around to invest myself into the stock market or top up my RRSPs. It's not like us landlords are dead broke. We get renters to pay for our monthly costs as much as possible, so our finances are turn key and we don't have to worry about being in a negative cash flow. And it's not hard to do.

Then add real estate appreciation and a home owner will make much more money than a renter.

The only way a renter will win out is if he or she funnels cash flow into the stock market and gets lucky hitting the jackpot with a pharma or tech company where the funds exponentially multiply beyond whatever gains a homeowner gets over the many years riding the wave of home appreciation and equity. And IMO, not too many renters will beat out a home owner.

OK sure, there might be some guy who paid cheap rent and put all his money into Amazon.com or Apple when they were $5 and has held onto it all making himself a millionaire, but those people are very few.

The avg guy who bought a home in 1990 for maybe $200,000 is likely sitting on a property worth about $1 million.

A renter has nothing, but whatever investment gains he's made outside of real estate ownership and appreciation.

Only true if property prices go up. If they stay flat or down, renting wins!

Nothing goes up forever.

 

[Occasionally]

Only true if property prices go up. If they stay flat or down, renting wins!

Nothing goes up forever.

When was the last time the Canadian real estate market tanked for extended periods of time? Probably never.

Even when a home price stays flat for many years.... let's say in a small town, a landlord getting a renter is still great because someone else is paying the mortgage. For me, I just sit back and get the monthly payment.

The renter in that case gets nothing, and will never get any kind of equity or home appreciation gains. The best they can do is hope the money they save on the side goes up in the stock market. As I said before, a landlord that has income paying off mothly expenses has just as much loose cash to invest himself too. So it's not like a renter has cashflow to invest, while a landlord is living pay cheque to paycheque. I have just as much loose cash as before landlording since my rent pays for my monthly expenses +/-$100.... which is negligible.

Home ownership also allows some people (if you qualify) to get lines of credit equal to a portion of your home. So just like a renter trying to make money in stocks, a homeowner can take that and plow it into the market himself. Some people do that and make money too.

So add it up, that's why anyone who owns a home (especially anyone who bought a place let's say 3-5 years ago in the GTA or before that... the farther back the better like someone's 70 year old parents who bought a home in 1970), are raking it in. Sure it may be paper gains of $50k, $100k..... $1M. But comparing to a renter, the renter has $0 paper gain. As soon as a homeowner sells, they can put it back into another expensive home, or downsize and bank it. A family member is planning to do that in the next few years (they are getting up there in age). At current values (not even taking into account appreciation in the next few years), his home went from $250k to $1M. He just banked $750k. Less commission and such, probably $700k. And all he did was sit there, do no renovations and just watch the market rise.

The chances of any renter getting a gain like that is almost 0%.... as I said, any renter making big gains from market has to get lucky and pull off some lucky picks AND be brave enough to hold onto to it for 10 years.

 

[happydog]

Depends on job security(or movement) and rental price.(there are some small credits)
As mentioned above investing the difference is not nothing.
Renting also may allow to be in a community/building otherwise unaffordable in the current market if just entering.
We have gone over this before and will again:
https://terb.cc/vbulletin/showthrea...apartment-vs-owning-a-condo&highlight=renting
https://terb.cc/vbulletin/showthrea...is-excellent-video-explains&highlight=renting

 

[nottyboi]

Hence the argument that renting is the smartest choice...

Its really not that simple. For example, if you rent, you are paying for your rent with AFTER TAX dollars. If you buy a house, one of the dividends you receive even if you do not lease it out, is a tax free benefit for accommodation. For example, I have owned my house for about 20 years, if I were renting for all that time, I would have paid an average of about 2K/month to rent it. So that is $480,000. I have paid property tax on that, but that is a fraction of income tax. So I have received 480,000 worth of accommodation at a tax rate of about 18% or so. Plus I still have the house, which has 4x in value at this point. I have probably spent abut 120K in renovations over that period. The thing that hurts condos is the management fees. That is a big hit on value.

 

[explorerzip]

I don't think you can say either renting or buying is "smartest" because it depends on many factors including your lifestyle, if you're single, have kids, sources of income, willingness to move for work, etc. There are millions of people in other countries that rent and are perfectly fine. Remember, that the global financial crisis was caused by the US housing market.

I think people confuse their home as an investment because of it's supposed market value. It is actually worth nothing if you have no desire to move. Even if you want to move to make a gain, you still have the switching costs of buying a new home, real estate and legal fees and land transfer tax. Then there's the ongoing maintenance of the home that you will be paying even when you're mortgage is paid off. Renters have fewer things to worry about i.e. if the roof falls or the pipes burst they call the building manager. A home owner has the fun and joy of dealing with that themselves. The problem of having so much of your net worth tied up in your home is how to get all that equity out. That's why someone invented reverse mortgages, which are a borderline scam IMO.

You can't really compare stocks and real estate equally as investments since they are very different things. Stocks can be traded instantly virtually anywhere. Real estate is not liquid in comparison. If you look at the very long term of 25 to 30 years, the stock market actually beats the housing market even with all the massive crashes.

http://www.investopedia.com/ask/ans...-historically-stock-market-or-real-estate.asp

 

[TeeJay]

Only true if property prices go up. If they stay flat or down, renting wins!
.

The last time property went down is before most of us were born
Maybe in our grandparents days...

(And a 1 year hiccup is not a devaluation of property! It will more than recover the following year)

 

[TeeJay]

If you buy a house, one of the dividends you receive even if you do not lease it out, is a tax free benefit for accommodation.

at a tax rate of about 18% or so

I don't know how little you make, but most people never get these tax breaks
I certainly never qualified & I owned my first place at 18yrs

18%???
Heck you realize even if that $24,000 in rent was your ONLY income your marginal tax rate (in ON last year) is over 20%

 

[Intrepid416]

It will be interesting to see how long homes remain capital gains tax free. The politics of envy (and the need for new revenue of government) might target homes if they continue to appreciate so well in the GTA and Vancouver.

 

[TeeJay]

It will be interesting to see how long homes remain capital gains tax free. The politics of envy (and the need for new revenue of government) might target homes if they continue to appreciate so well in the GTA and Vancouver.

The new CRA rules require reporting alot more info on sale of homes this year

 

[sashimi]

The last time property went down is before most of us were born
Maybe in our grandparents days...

(And a 1 year hiccup is not a devaluation of property! It will more than recover the following year)

Not sure how old you are. If for eg you look up Toronto average home prices adjusted for inflation in 2016 prices, it peaked in 1974 and bottomed in 1985. Then it peaked again in 1989 and bottomed in 1996.

The 1 year hiccup you were alluding was the 2008 Great Financial Crisis. If not for coordinated governments intervention led by the USA because some banks were too big to fail, and if the crisis was allowed to run its natural course it certainly wouldn't be such a "shallow" & short crisis given the extent of the financial fraud and insane levels of leverage in the whole system.

I'm not disagreeing that buying have its merits and many including myself have been enriched by owning properties and reaping the long term capital gains and enjoying early retirement. I'm just cautioning it is not not a guaranteed winner vs renting. Period. Not always.

You think that from hereon given the sharp rise in GTA property prices to record levels over the last few years is going to continue unabated even at a slower rate? You also know the record level of debt Canadians are carrying at this juncture. You think your children and grand children 10-20 years from now are surely going to see meaningful price increase from here? Do not be surprised that in 20 years there will be no more OAS as the government cannot afford to pay. This will be another topic altogether.

Even though we are discussing about Canadian property and more specifically Toronto, don't just have a parochial attitude.

Have you forgotten about the decade long deflation in Japan. And remember prior to their deflationary decade Japan was gobbling up premier artwork and prime real estate, especially in the USA. Nearer home, prices in Calgary have also corrected.

 

[nottyboi]

I don't know how little you make, but most people never get these tax breaks
I certainly never qualified & I owned my first place at 18yrs

18%???
Heck you realize even if that $24,000 in rent was your ONLY income your marginal tax rate (in ON last year) is over 20%

I refer to 18% as you still pay property tax on the house....probably closer to 8% as my house is in 416. Of course I made more, if not my house would have been repo'ed. I payed my house off in 10 years and only worked about 5 of those lol. Honestly, when i see people struggle to by a house, I realize it really was super easy for me and I am very grateful for that fact. For most of the years I have owned it I was in the top tax bracket so the rent would have been taxed at 40+% BEFORE I paid it. So if, for example you need to live in a home that costs 2K/m to rent, and you need a modest 20K in living expenses, you need to earn maybe 65K just to make ends meet. While when you have paid for the house you can make 25K and have the same lifestyle. OR you can take the money and put it in an RRSP and defer tax. ..

 

[healer677]

But as a landlord, consider the hassle if you get an idiot renter. The Landlord Tenant Act is heavily weighed in favor of the renters and there are nighrmarish stories in Toronto about this exact scenario.