Renting as an Investment

                                                            The Debate

Now with the money saved from the previous writings i am going to say that renting is an investment and no i am not trying to be funny, hear me out. 

 

                                         Different Circumstances For Everyone

 There are various factors that come into play here for buying a place to reside and maybe some of these will work out for you; like the timing of the housing market, location, you doing some sweat equity and maybe its just because the family needs space or for a school location. But in my humble opinion renting in todays economic landscape has the most upswing for your investment purposes, i will explain

                                                          The Numbers

  For comparison, lets take an average mortgage of $600,000 over 20yrs @ 6.8% = $4,580.04 per month and that's if the rates stay at its historical lows, then add property taxes, heating, power, water, insurance etc, which is another $700 (a low estimate) for a total of $5280.04

 Then your rent say is for $2,200 everything included. With that extra three thousand dollars per month, which is $36,000 per year and invested into a 5% vehicle, it would give you around 1.25 million dollars after 20 years.

                                                      The Beginning Costs 

A) minimum house down payments required in Canada;

 $500,000 or less is 5%, 

$500,000 - $1,499,999 is 5% on the first half million and 10% for the above portion, 

$1.5 million or more is 20%

So at least $25,000 up front cash

 B) also you would have to spend for these closing costs; deed transfer tax, lawyers, home inspection, appraisal fee, title insurance, property adjustments paid back to the seller on prepaid utility bills, property taxes, this all adds up to $4,000+ 

                                                  Out of Pocket Expenses

Meanwhile (in time) your home is getting older if you bought new which will require upgrades and if you purchased an aged dwelling expect some repairs. Yes i know the equity has gone up, but factor in these additional costs based on the example of the building that was purchased at the above mentioned price of $600,000

Now some on this list you can take on yourself which saves some money, but most please leave it to the professionals as either you will cause more damage or end up hurting yourself 

A) Roof; a life span is 15-20 years for most new shingles and depending on the size, anywhere from $10,000 - $20,000 . Then add in additional repairs if they find rotting plywood decking, damaged trusses or the flashing needs to be upgraded. Also if the pitch is steep or has complex angles, all of this will add to the labor costs

 B) Heating; replacing an old furnace and that cost depends on which the type you get, but generally between $7,000 -$12,000 Then additional expenses of removing the old unit, ductwork modifications if needed, permits and inspections plus added labor depending on the systems complexity

 C) Septic System; replacing it is on average $8,000 with add-ons that include permits from local health and building departments, percolation test on the soil and yard restoration  

 D) Kitchen & Bathrooms Upgrades; a kitchen can run you from $20,000 -$100,000 depending how far you want to take it and bathrooms $5,000 - $30,000 with the size of the restroom plus its finishes. As with any renovations, factor in the "hidden surprises" especially with older homes, which will need  replacement of all the outdated wiring and plumbing which then brings it up to code

E) Appliances; depending on what needs to be replaced, but factor in $5,000  

F) Back Deck; between $8,000 - $25,000 for what size your replacing, with added fees for the demolition and removal of the old structure, footings plus piles, the railings and of course the building permit which goes by what the total construction value will be  

G) Windows; generally $600 - $2,000 per glass pane depending on which type you choose. An average home will have ten windows multiplied by $1,000 for a $10,000 total

H) Outside Painting or Siding; $4,000 - $8,000 depending on the home size and with siding, stucco or brick much higher

I) Landscaping; $5,000 - $15,000 per yard

                                                     Asset Accumulation

 So really what a mortgage does is forces you to save, but if you have the discipline to put that extra money in an annual investment you are ahead of the game

                                                         X Factor

 Research has shown the prefrontal cortex of your brain (the area responsible for decision making and logic) has stronger, more efficient neural pathways in highly disciplined individuals. So like a physical muscle these connections strengthen the more you practice self-control

So that being said, we are not all the same so if you cannot "hold" onto extra money, continue with your bank payments 

The Myth
Our parents grew up in a different financial era when they bought a home decades ago, as the price to income ratios were low which made sense to buy a property

My Closing Argument
House prices have climbed much faster than the regular wages over the last twenty years, so with the national benchmark prices hovering around $660,000 it requires a massive debt load
The hidden costs ( that i outlined earlier) eats profits which once subtracted gives you around a 4.5% net annual growth on real estate compared to stocks that historically have returned closer to 8% over the long term. The core summary on this subject, buying a home in Canada and treating it as a guaranteed financial windfall, is an outdated notion