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 

'A' List Savings & Tips

Our second lesson and the classroom filling up, nice. So we now know if we want to achieve goals in life we need to cut back on the "wants" list, but there also ways to trim the "needs" column so here we go.  

 A) Mortgage or Rent; taking in roommates you can either apply your sub rent directly to the mortgage (it will come straight off the principle saving you thousands of dollars over the term in interest) or if renting you can invest monthly your borders money making you wealthy in time.

 B) Groceries; we all need to eat but it doesn't have to cost as much by buying in the bulk sections so saving on volume and not paying for the packing. Also what is with society eating all this prefab meals anyway, ever wonder how it keeps its shelf-life so long?  So never mind talking about the health issues with the "convenient" way to eat, save big dollars by doing the cooking yourself by picking a day and prep your meals for the week with say a roast beef, turkey etc and be inventive to keep it tasty.

 C) Clothing; there is such a mark up on apparel even when it is 50% off your still paying too much, so look for those stores that mark down the designer brands and save the big $$$  and looking is half the fun is it not? Also learning to mix and match outfits which will reduce the need for more threads hanging in the closet (if you do not have an eye for it just ask a friend who does) and for under-garments and kids outfits any discount box store will do. Also ever notice how some people are styling no matter what they are wearing, its because they are in shape so in other words spending a lot of money on a suit/shoes etc. is not going to change your look, take care of the body first

 D) Transportation; everyone has different circumstances here, without saying using the car less saves you coin and if living near work/school the use of public transport or a car pool plus walking is great. But if buying a car look for the lease buybacks, why? it will have low mileage and warranty as the new car dealers take on the fleets from the rental car agencies to keep rotating their new products to them  Or go to any established used car dealer which offers the same and save big money, i know buying new seems glamorous but there is such a depreciation loss once you drive it of the lot, so
just get some nice air freshener and and think of all the dollars you just saved 

E) Furniture; another mark up king, used pieces or mark downs due to scratches/nicks are just as good. Personally i rummage through old antique stores and find some unique pieces at a great value. So as you see its all how you look at things, as my best friend says; "look beyond the bumpers"

The Beginnings

Before we can start to save for that dream property,
vacation, car, etc. we need to get our financial "house" in order. To begin; make a list of what comes in for income and what goes out for expenses (dates for both). Much like writing down what we would eat to make changes in our waistline, this we will call a financial diet and trim the fat from our expenses to fill that wallet of yours. Here is an example list; A) Rent/Mortgage B) Groceries C) Credit Cards D) Car/Transportation E) Clothing F) Personal Taxes G) Health Care H) Life Insurance I) Furniture  J) Eating Out K) Entertainment ( movies/bars etc) L) Recreation. 

Like any responsible business you need to have enough income coming in to cover the bills going out, so not running into the red. If you do not think this is how it works then you are delusional and should be running for political office 😅, as that is why most governments have a deficit  Also living on credit does not work either as the interest will kill you and you are just working for free, not much incentive to get up Monday morning is it?  Us humans are a funny breed, what we consider a must as part of our wants and needs (in most cases) has to change. 

There is an "A" list of bills;
having a place to live, to eat, clothing and transportation. 

               Wasteful Debt

Its the dining out at expensive restaurants or food deliveries, needing that $7 latte, meeting the boys downtown (every weekend, really), extra pair of shoes to go with the 100 you  already have, spa treatments, a gym membership that comes out each month that never gets used; you get what i am talking about. As North Americans we have grown used to living off borrowed money, well if you want more out of life you need to change that mindset. 

                                                           Outlook Reset

So with just a few small changes in lifestyle you can achieve whatever your dream is by paying yourself first, say 10% of your monthly salary (set it up either with work or your bank for automatic withdraw and you will not miss it) and put that on the "A" list and then start reducing some of those off your wants column . So if your goal is to buy a condo for example, a down payment/closing costs is $20,000 or that holiday in the South Pacific at the same price, then by paying yourself $600 per month for 33 months you achieved it, then get ready to turn that ownership key or book that flight to Australia. Just give up a few extra nights at the bar, maybe brown bag it to work three times per week, making your fav coffee at home for pennies a cup, whatever it is the above list will tell you what to cut back on. I am not saying to give up on everything as its a matter of perspective on what you really want in life, so look in the mirror and you decide.