Nicole Hunt plays with her children on the shared terrace of their rented apartment in downtown Toronto on May 5, 2018. Ms. Hunt never thought she’d enjoy raising her kids in a rental, but the mom of four has been doing just that for seven years.Laurence Butet-Roch/The Globe and Mail
Renting has left 29-year-old Sam Nasser with a sense of financial freedom.
Not only is he debt-free, he’s also focused on saving money. “[Renting] gives me a lot of flexibility and I don’t have any maintenance costs or real estate taxes,” he says.
The oil and gas engineer, who has been renting for six years, is currently leasing a one-bedroom apartment in Calgary’s downtown core for $1,000 a month. It’s close to work, shops and restaurants. He and his girlfriend hope to move into a two-bedroom within the next six months.
Mr. Nasser has considered buying a home. “I just ran the numbers. The difference of the money that I would save if I rent – I would end up with a substantially higher amount of money in 40 years,” he says. “There are a lot of hidden costs [when buying] that just don’t make sense.”
The key, he says, is saving the money that home ownership would have eaten up. “The extra money I was willing to pay into a mortgage and expenses – it can just go into an RRSP or TFSA.”
A nest egg is possible
Renting is becoming increasingly common among young Canadians who don’t want lengthy commutes, enormous mortgages and the unpleasant financial obligations that accompany home ownership. And regardless of whether they are choosing to rent, or being priced out of an increasingly expensive housing market, many long-term renters are worried about how to build wealth while seemingly padding the pockets of their landlords.
By focusing on saving and investing, renters can accumulate as large a nest egg as home owners, says Kevin Langman, a fee-based financial planner based in Calgary who works with many millennial clients. When added up, renting can save thousands on mortgage payments, interest, repairs, maintenance and property taxes – while freeing up cash for other pursuits.
Mr. Langman says Canadians who are considering renting for the long-term should figure out how much they would be paying for a mortgage if they had bought and subtract their current rent. So if their mortgage would have been $3,000, and their rent is $1,500, they have $1,500 to invest each month. Mr. Langman suggests putting that money in a broadly diversified exchange-traded fund. “It should be fairly aggressive,” he says.
Andrea Thompson, a senior financial planner with Coleman Wealth of Raymond James in Toronto, says that in a recent calculation for a client comparing renting versus buying, renting came out on top, increasing the client’s wealth by $114,000 over a 20-year time frame. The client was looking at a $335,000 condo, with a mortgage of $250,000 at 3.75 per cent – versus renting for $1,250 a month. This factored in the appreciation of the home at 2 per cent, mortgage payments, maintenance, taxes and home insurance. This also assumed rent increases of 2 per cent annually.
Ms. Thompson assumed the excess monthly cash flow and would-be down payment funds in the ”rent” scenario would earn a 5-per-cent average return over 20 years. To achieve this type of return, she suggests investing in blue chip equities that pay a rising dividend over time. To keep it simple for novice investors, “Invest in shares of the very bank that you would have taken a mortgage from,” she says. “Buy their stock and hang on as long as you can. Ignore the day to day price variability. Collect the dividends.”
‘There were so many bills’
Michel Dauda, a senior event manager in Toronto, has chosen to rent. For life. “I understand the burden of all these [household] expenses,” he says, having bought a property four years ago in Toronto. “There were so many bills.”
Mr. Dauda, who is single and makes over $50,000 a year, had rented apartments for years when he suddenly got the itch to buy a house.
“I’m from the Brady Bunch generation – I’m a homebody,” says Mr. Dauda, 51. “I love the whole concept of coming home to a family.” But after purchasing a home, he was suddenly paying $3,000 a month to pay off his $600,000 mortgage, his insurance, utilities and phone bills. It was a far cry from his former rent of $500-$800 a month.
“I couldn’t believe it was that much,” he says.
Mr. Dauda sold the property to a family and has rented ever since, paying $800 per month for a huge basement flat. He hopes to travel with the money he saves – and to rent “for the foreseeable future.”
“I feel like I’m moving forward with life,” he says.
’We’re staying put as long as possible’
Nicole Hunt never imagined she’d enjoy raising her kids in a rented apartment. But the Toronto-based mom of four has been doing just that for seven years.
“We thought it would be for a couple of years – and we would pay off student debt,” says Ms. Hunt, 35, who shares her downtown apartment with two daughters and two sons, ranging in age from 13 months to 9 years.
“We’re staying put as long as possible,” she says.
Ms. Hunt is happy with her rental, a spacious two-bedroom in a 12-year-old building that costs $1,700 a month. Though the unit is short on storage space, and she and her husband share a bedroom with the two younger children, the 1,400-sq-ft-apartment with two bathrooms has its perks.
“There are about 30 other families,” says Ms. Hunt, who says their presence in the building has created a sense of community. “There’s a terrace where we meet for play dates.” It’s also close to a good school, a supermarket and transit, and has a parking space. Her husband, a lawyer who works on Bay Street, can also walk to work.
“There are definite pros to being here,” she says.
More Canadians certainly think so. In British Columbia, almost half of the population are renters; in Toronto it was 35 per cent in 2016, up from 32 per cent in 2011, according to Statistics Canada. Among millennials under age 35, 39 per cent own their own homes, a decrease of 6 per cent in the past five years.
Many have crunched the numbers and realized home ownership is simply too costly. To own a property, “You have to earn substantially more than the median income,” says Kira Gerwing, manager, Community Business & Investment, at Vancity in Vancouver. “I think we’re going to see a lot more people renting going forward.”