FIVE TAKEAWAYS FROM THE WEALTHY RENTER
Many of us are told that if we rent, we are throwing our money away (note: someone else’s mortgage is the trash can). But in The Wealthy Renter, Alex Avery shows many of our preconceptions cost us money. Here are your takeaways.
1 Those advising you to buy often have an interest in their own advice, whether it’s someone in real estate, your parents who don’t trust you to invest your money, a friend justifying a mortgage of their own, or someone who just got a great return on their house. (Everybody knows somebody who has, unless the only person you know is me. I also accidentally marked my most valuable hockey card with a pen.)
2 Buildings don't go up in value; land does. The fanciest house on the block has the most value tied up in the structure, and is the most vulnerable to depreciation. Owning such a house is often the result of “investment creep”: when someone justifies paying more than they planned on the premise that it is an investment. Since the investment fallacy isn’t available to renters, they accurately see rent as a consumption item. (I heard Radiohead doesn’t play “Creep” anymore because it reminds them of that time they justified quartz countertops when they had originally been fine with laminate.)
3 A home’s return on investment isn't just sale price minus purchase price: it includes mortgage interest, taxes, maintenance, insurance and transaction costs (which are many times those of other common investments). As an annual return, Canadian housing has not done as well as the stock market during the last 25 years. But housing is seen as stable, whereas stock market volatility is often confused with risk. Read more as the home-owning Jets and the renting Sharks square off in the online comment section.
4 Over a mortgage's life, homeowners shift from paying rent to the bank to paying themselves. A house with no mortgage still has “implicit rent”: the opportunity cost of consuming the home yourself instead of renting it out while living in alternative lodging. That’s right – you are your own landlord. I certainly hope you’ve been addressing all your complaints.
5 Renting can mean greater job opportunities, as renters are not as geographically or financially constrained as homeowners. Nor do renters have to worry about unexpected repairs. So if you’re renting, the next time your toilet explodes or the ceiling caves in, there’s absolutely nothing to worry about. You can just laugh all the way to that fancy new job in Dubai.