Owning a Home

22 Jan 2019

The other day I was listening to a Gary Vaynerchuk videoand he was talking about something that I have been thinking about for a long time. He mentioned the idea of selling your home and renting so that you can quit the job you hate. My whole life I have been told that real estate is a smart investment and I would have always agreed, until recently.

I live north of Toronto and here starter homes do not really exist. In my town the cheapest home for sale at this time is around $600,000. This home would barely be big enough for our family as it’s around 1000 sqft. If we were to buy this starter home and wanted to put 20% down we would be writing a cheque for $120,000 and still have almost a half a million dollar mortgage. In a couple years time when we would like to have a second child we would need to move.

I did a simple mortgage calculator for a $500,000 mortgage over 25 years and the payments are just a little north of $2,500 per month. Growing up the standard belief seemed to be that it was roughly the same cost to own and to rent, but the difference was the down payment. The issue is that currently is not the case.

We are currently renting a free standing, four bedroom home that is 2,800 sqft. It is across from a park and around the corner from both sets of parents. We have a two car garage and an unfinished walkout basement. We could have as many children as we like here and still have too much space. Market value to rent a place like this is around $2,400 per month. Yes, buying the cheapest house in my town would result in the same monthly output, however this house is significantly larger, nicer and there is room for my family to grow into it. We also don’t have to write a $120,000 cheque.

I still sometimes feel embarrassed that I have a business, wife, and a child without owning a home, but that needs to change. In North America we have elevated home ownership to be a marker of adulthood, but it is starting to make less and less sense. If we were to buy the house we are currently living in, it would likely be just over one million dollars. We definitely cannot afford to buy a house like this, but we are truly enjoying the oppourtunity to live in this house. It’s only 8 years old and it was originally sold for just over $300,000. Over a 3x multiple in that short amount of time is entirely unprecedented and it has created a market of wild expectations.

For now, it seems unwise to stress about the fact that we don’t own a home, we will focus on staying near family and friends, even if that means we rent forever. Staying out of debt and allowing any excess capital to be put into alternative investments will be our strategy. The return multipliers have seemingly leveled out and I believe that real estate, although a great investment, has gotten severely overrated. It is not a guarantee by any means.