October 3, 2024

Episode 325 - Addressing 200+ Comments on Renting vs. Owning a Home

October 3, 2024

There are many different considerations behind housing when you are in the position to choose between renting or buying. During this episode, hosted by Ben Felix and Dan Bortolotti, we address user questions and comments on homeownership, rentals, and the factors that may lead to choosing one over the other. We discuss what makes homeownership more attractive as your financial situation evolves, consider whether or not landlords are making money on their properties in 2024, and explore the explanations behind whether or not renters are less wealthy than owners. This conversation also touches on one of the most common misconceptions about housing, why it is untrue, and how to make this key decision of renting or buying based on both lifestyle and financial considerations and the difference in mindset between renters and buyers. Join us today to hear all this and more.

Key Points From This Episode:

(0:02:06) Homeownership versus renting with renovations and rental evictions in mind.

(0:08:40) Understanding the risks and rewards associated with securitive tenure.

(0:10:09) Factors that may influence changing needs that may influence whether you rent or buy.

(0:15:58) Three factors that one user would include in an argument of renting versus buying.

(0:18:25) Addressing the idea that it is equally expensive for a family or landlord to own a home.

(0:21:00) How the cost of homeownership evolves with time and other factors.

(0:24:50) Why owning a home is not above and beyond better than renting or owning with a mortgage.

(0:27:50) Understanding factors beyond financial considerations when it comes to renting versus owning.

(0:34:10) The difference in mindset between homeowners and renters and the benefits of both.

(0:38:10) Why it is so beneficial to be open-minded and add to conversations rather than rejecting other people’s ideas.

(0:40:25) Ben tells the story from the start of his career and Dan shares his experience of feedback on the Canadian Couch Potato blog.

Read the Transcript

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We are hosted by me, Benjamin Felix and Dan Bortolotti, Portfolio Managers at PWL Capital.

Welcome to episode 325. This is a bit of a different episode, as people can tell. If you're watching, it's just me and Dan today, which Dan and I were just joking that Dan went from being a guest to a potentially infrequent contributor to a co-host in the matter of a couple weeks.

Dan Bortolotti: It's all happening a little quickly here. So, we'll see if we can hold it together.

Ben Felix: Yes, I'm moving too fast. Mark is sick today. Cameron is still in Australia. The other thing that happened though is that we had a guest planned for this episode and so we didn't have a main topic prepared because the main topic would have been the guest discussion. I'm speaking at a conference though this week and they actually asked to move my speaking time to a time that conflicted with our whole recording setup. So, we had to move to a different day and rather than scramble to prepare a topic, we decided that we would do a follow-up discussion on our episode from a couple of weeks ago on renting versus buying a home.

Dan and I were also talking beforehand that both of us like to be very prepared for stuff like this, and this is a little bit more on the fly than usual, but we're going to see if we can make it work.

Dan Bortolotti: Yes. It's just a matter of trying to sort through the incredible response that you got not only to the podcast, but to the follow-up article you did in The Globe and Mail. There was certainly a lot of people who had a lot to say, and yes, so we'll work through some of those comments and see if we can follow up.

Ben Felix: Yes. I do also want to mention, actually, we're joking just now about your presence here, Dan, but Dan is going to be a more permanent fixture on the podcast. So, we've got a ton of great feedback in the couple episodes that we've done with Dan. So, people will likely be happy to hear that it will be more of a regular thing.

Dan Bortolotti: Well, I'm looking forward to it.

Ben Felix: Yes, likewise.

***

Ben Felix: Okay. So, I'm just going to read comments. Some of these are from like The Globe and Mail article, like you mentioned, Dan. Some of them are from the Rational Reminder community. Some of them I think are from Twitter, but it's all pretty interesting. One person says, “The primary reason for not renting, in my opinion, is security of tenure. There are so many situations where a tenant can be thrown out, no matter how reliable they've been. So, unless you're renting a purpose-built rental building, if you want peace of mind, buy a house and live in it. Forget about speculating. What goes up today, it comes down tomorrow.”

I thought that was a really sensible comment. The idea of hedging the cost of living in a specific home is probably the best argument for owning because you can't get rent evicted, like they said. You're not going to have the landlord’s family members moving in. So, those are great arguments. The other side of it, though, I think is that if you do need to move, the transaction costs of owning are much higher than renting. You can also be taking on a lot of price risk.

Dan Bortolotti: For sure. I was telling you, Ben, that I actually have some firsthand experience with both of these things. I mean, our family we’re homeowners for at least, I guess, 20 years or so. Then back in 2016, we decided to make a move to downtown Toronto from outside the city. We just decided we would sell the home and rent. That's exactly what we did. We had both of these issues going on. The first one was, the first place we rented, we thought it looked great and we lived in it for a little while and it was fine, but then we eventually realized there were just some problems and not talking about things that could be solved with renovations just about the location of the unit and the building and whatnot. We just decided we don't want to be here long term and so we just found a better place and moved.

Now, that was extremely easy as renters. If we had bought that place, we would have been like, “Hey, we bought this place. We probably want to be here for five to seven years or you're really taking a hit going in and out on the transaction costs.” So, I think it was a reminder that renting is extremely flexible. And if you're at a place and decide it's no longer appropriate, it can be quite easy to move. Then when we did find a second place, we were there for a couple of years and it was right before COVID, literally the week before shutdowns, we got a call from the landlord who said, “We've decided to sell the unit. We're not going to renew your lease. You've got to find another place to live.” Again, imagine getting that news in the middle of COVID.

So, long story short, we ended up actually buying the same place from the landlord. They were great about it. I'm very grateful today for the fact that they were so reasonable and they didn't list the property. We just did a private sale. We had the ability to do that. If we didn't, we would have found ourselves having a look for a new place in the middle of COVID. So, this idea of a landlord looming over you with the imminent threat that you're going to be kicked out of the place is real, unfortunately. With the increase in renovictions as they call them in these places where the landlord is making up excuses to get you out because they want to just fix up the place and then rent it out for significantly more than you were paying, makes it even more acute.

So, this is a very, I think, sober comment here and that it does show, regardless of the financial aspect, the security of owning your own home and controlling your own destiny is really important as a homeowner, really valuable.

Ben Felix: Yes, totally agree with all that. I definitely feel that living in an owned home now, one of the things my oldest son who's 9 now, turning 10 later this year, he talked about how much he disliked moving because he lived in three different rentals as he was growing up before we bought our current house. I never had a big problem with moving. It's for sure a hassle, but I did find it interesting that when we moved into this house, he said, “Does this mean we don't have to keep moving?” That's worth something too.

Dan Bortolotti: Yes. It's probably more disruptive to a kid, especially if they have to change schools. But yes, I agree with you.

Ben Felix: Yes. So, there was one comment in the community, actually asked this user for permission to share his comments on a different episode. And he was kind of like, “I don't know, man. I wrote this publicly in the community. You can do whatever you want with it. You don't need to ask.” So, I stopped asking people. I'm going to read a few comments, hopefully they don't mind from other people, including this user.

This is someone who always has very, very thoughtful posts in the Rational Reminder community. So, he says, “For what it's worth, if I think back to my reasons for buying versus renting over two decades ago,” this is in the US, not in Canada, “They were the area.” He wanted to live in an area with good schools with reasonable work commutes. “It's true. It's not always easy to find rentals. That's why I bought where I am now. There were no rental options.” Duration and expectation of living there for at least the duration of schooling for kids, stability, like what we were just talking about, limited availability of comparable rental houses in the area with a higher risk of having to move houses. It aligns with the conversation we just had. The idea of a home versus a temporary shelter, again, which I think speaks to my nine-year-old’s comments when we bought a house. And then peace of mind, which again, I think resonates with what we just talked about.

Dan Bortolotti: It is interesting too that this idea of there not being a lot of good rental opportunities in neighbourhoods where there are good schools. I think a piece of this that doesn't always get the emphasis that it deserves is that if you want to rent an apartment or a condo, there's lots of availability. If you want to rent a house, there's a lot fewer opportunities.

I mean, I know just from clients, I have actually several clients who rent and rent houses and have families with kids. But I think they all feel like I got a pretty good deal going here if for whatever reason we have to leave this house. The amount of inventory out there that's comparable is not very great. So, it really comes down to, in many ways, not just the sort of rent versus buy question, but the quality or the size of the dwelling that you're actually living in.

Ben Felix: Yes. That's definitely true. We lived in two apartments. We did in Ottawa find one really nice family home. We rented for two years before we bought our house, but that was rare to find a house like that for rent.

Dan Bortolotti: I suspect that a lot of people who rent out houses are only doing it temporarily and they eventually plan to either occupy those homes or pass them on to family members or something like that. I think if you're someone who's an investor looking to purchase a rental property, you're more likely to purchase a condo. I don't know, it's just easier to maintain, I think for one thing. But yes, there's just not a whole lot of stock out there of really good quality houses for rent.

Ben Felix: Yes. That was exactly the case with that house. It was someone who had gotten an overseas work assignment for five years. So, they wanted to keep their home because it was their family home, but they needed to do something with it for the five years that they were away. That was exactly the situation, which actually allowed us, because they were eager to find somebody to occupy it for quite a while, they did a three-year lease with us, which at the time we thought was super smart because it gave us security of tenure for three years. But then we decided to move after two years.

Dan Bortolotti: Okay. And were you able to break the lease without any problem or just sublet the last year?

Ben Felix: No, we found a sublease, which they let us do, which was nice. But we saw the other side of security of tenure, which is risk. It's kind of the same thing with buying. You take on a lot of risk in exchange for that longer-term security.

Dan Bortolotti: Yes.

Ben Felix: Nathan M. in the Rational Reminder community had a pretty funny, but I think accurate comment. He says that here's the takeaway I got from the episode. Renting isn't throwing money away. Throwing money away is throwing money away. Buying a home may help people throw less money away.

Dan Bortolotti: Well put. It really emphasizes this whole idea of force savings that we talked about was people use that term all the time, but I think your modelling and analysis really showed how valuable that force savings is. It is one of the most important factors in the decision. The fact that Most people who are not forced to save will throw money away, not by renting, but by throwing it away on other things.

Ben Felix: Yes, I think that's true. So, on the other side of that, though, and this is an interesting one, we touched on this briefly during the podcast conversation. I think I told a quick story about someone who told me they were considering renting a two-bedroom or buying a four-bedroom house. So, SG Man in the Rational Reminder community said, “I really enjoy the conversation around rent versus buy, but on the other hand, reality seems totally removed from the often-used models. For example, I've never met anyone who rented the same size or quality property that they wanted to buy. People I've met in real life rent for the minimum, the rent for what fits them at the time. They find the smallest, lowest quality place they find acceptable.”

On the other hand, I think you've alluded to this earlier, Dan. On the other hand, people buy for the ideal. They wait until they find a house they really want for purchasing. The other thing I've seen is people buying ahead, like buying for their future or buying something, well, it's like what this guy's saying, nicer than what they would otherwise rent, which just increases the amount of housing that you're consuming.

Dan Bortolotti: Yes. And of course, it makes sense because if you have a small family that you expect to become a bigger family and you don't want to move multiple times, you might buy more house than you need today because it matches what you'll need in a few years. No one's going to do that with a rental. So, that does make some logical sense. I don't know that unless you feel like your family or your needs are going to change, I'm not sure that it's any more than anecdotal evidence that people will rent less than they would buy.

To go back to our example, when we moved down into the city, our kids have moved out, we had no ambition of moving up. We were just ready to move into whatever we were going to move into and the place we rented would have been similar to a place we bought. But again, that's just my anecdote. I don't know if that's a tendency or just something that individuals will

observe in their own circle.

Ben Felix: That would be interesting to see on that. The rental stock is mostly apartments and we talked about that earlier.

Dan Bortolotti: But if your goal was to rent an apartment or a condo, I'm not sure that we would have, well, as I said, we literally rented the place we eventually purchased. Now, again, that's just my experience and other people could have completely different ones. But I think if you're pretty stable in your life and you know what you want and your family's not expected to grow, I think renting and buying, you would be looking for similar places to live, I would think, similar neighbourhoods, similar quality, similar size.

Ben Felix: Yes. That's probably true. I don't know. We rented literally like the minimum for what we would fit in and moved to a bigger place and then again, a bigger place, then rented a house and then bought a bigger house. But yes, I don't know. If I could go back in time, if we had decided to buy a house upfront, probably would have bought something big enough for our 10 years in the future selves to avoid having to keep moving. Whereas with renting, there's just less friction with moving.

Dan Bortolotti: Yes, of course, which is one of the benefits.

Ben Felix: This is one from The Globe and Mail comments. I think this one's interesting because it illustrates a point that I think is important with housing, which is it's hard to do the math on what you actually earned in terms of investment returns. So, this person says, “This is a great academic analysis, but here's the reality. I bought a condo in Greater Vancouver for $40,000 in 1974, moved several times to houses using the equity and then sold the last house for $2 million, downsized and retired.” And then they made some political comments, which I'm not going to read.

So, if you do the math on that in terms of annualized returns, that's about 8% per year before accounting for any costs and that's not accounting for leverage. They would have been their cash on, cash returns and boosted by leverage. But net out whatever, 2% in maintenance costs. So, we're down to 6%. Then they said they moved several times. So, if you say 5% transaction costs, four different moves kind of spread out throughout the period, it drops down to about 5.5% in terms of annualized returns that they earned on their Vancouver real estate, which is not bad at all. That's similar to the numbers that we had in our model, and you still had great outcomes in Vancouver for owning.

But the TSX over that period returned more than 9% annualized, the S&P 500 and Canadian dollars returned a little more than 12%. So, it's just like, you see 40,000 to 2 million over any period and people say, “Wow, that's an incredible return.” But you do the math and it's never as crazy as those numbers make it seem.

Dan Bortolotti: I think that comment is a perfect microcosm of the whole debate because that comment is what every young person hears from their parents. I bought this house in whatever year for whatever tiny amount of money, and today it's worth so much more. Obviously, it's a great investment. If there's one thing we can take away from this discussion is we need to get away from this idea that I paid X for my house, I sold my house for Y, my return is Y minus X. There's so much wrong with that calculation. But yet that is the tenor of so much of the discussion around dinner tables and things like that. Obviously, that's not academics and financial planners understand all of that. But it's really what is driving this renting-is-throwing-money-away argument.

Ben Felix: Totally.

Dan Bortolotti: It's this, “Look, I turned 40,000 into two million.” Yes, over what, 50 years? With all kinds of expenses along the way here that are just being ignored. So, let's at least take the discussion beyond that level.

Ben Felix: Yes. So important. There's another comment in here that we'll get to in a sec that I think furthers that perception, but I want to do a couple of other ones first. The next viewer from The Globe and Mail comment section, this person says, “The disconnected portfolio manager who wrote this story, neglected three unbelievably critical factors in the equation. Four to one leverage on a home,” which actually is factored into the model that I linked in that article, “forced savings, which as we've discussed, agreed that is important, and tax-free appreciation of a home. Again, agreed on that.

So, in our online calculator for this, we have a toggle where you can toggle taxable versus non-taxable investments, and it does for sure make a difference, particularly if someone has a higher tax rate. One of the other episodes we've been thinking about doing that we will do, we just haven't done it yet, is what changes once you've maxed out your registered accounts? What should you change in your investment strategy, or how does it change your financial decision making? I think that one of them is that owning a home becomes more attractive once you've maxed out your registered accounts. Because the opportunity cost of any equity that you have in the home decreases if you're investing in a taxable account as opposed to in your tax-free savings account. And it can be by a lot too.

Anyway, I agree with this. Some of the comments there that leveraged, yes, it's important, but we did include that in our modeling. Forced savings that we talked about earlier is massive. And the tax-free appreciation of a home, it's a factor. It doesn't make owning objectively better in all cases. But it's definitely something worth thinking about, particularly for someone with taxable investments and a high income.

Dan Bortolotti: Yes. I think anytime that you assume that the opportunity cost is invest or that if you don't own a home, you're investing in a taxable account, especially if you're a high-income earner and you're paying tax at the highest rate, for sure, that's going to erode some of the benefit. Yes. I'm not sure that you ignored these factors, certainly the leverage when we spend a lot of time talking about if our $40,000 to $2 million investor had leveraged his investments in the stock market, he would have returned even more than those 9% and 12% numbers. So, it has to be an apples to apples comparison.

Ben Felix: This next one, again, from Globe and Mail comments, this one comes up a lot. Every time I talk about the subject, it comes up. So, they say the headline makes no sense whatsoever. Dan, you know this better than I do. Writers don't write the headlines.

Dan Bortolotti: That is correct.

Ben Felix: If it's expensive for an individual or family to own a home, it's equally expensive for a landlord to own that home. That is true. Those expenses are passed on to the renter. Then if one adds in the profit that the landlord wants to make, it becomes hard to see how renting could possibly be a better deal than owning.

So, this comes up like I said all the time, because people will say, “Well, how are the landlords making money if what you're saying is true?” I think that's an assumption that maybe isn't true that landlords are making money. There's data out there that a huge portion of landlords in Canada right now are in fact losing money in hopes they're holding this asset with positive caring costs. They're taking a loss on the ownership costs in hopes that it's going to appreciate as it has dramatically over the last 20 or so years, but they're expecting that to continue and therefore willing to take a loss on the carrying costs. That's the whole point of this type of analysis, that, “Hey, we can look at any market and say based on what's happening right now, is renting or owning a better deal at this moment?”

I think in the long run, in equilibrium, you'd expect it to be roughly a wash. But anyway, at any point in time though, and I think in a lot of places in Canada right now, renting would look pretty good and that's because landlords are, in fact, losing money.

Dan Bortolotti: Losing money. I was shocked and just to be clear, so you've linked a Globe and Mail article in here that argues that 80% or so of real estate investors are losing money because their condos are not generating enough cash flow. I think it's really remarkable what we've seen over the last few years because I got this sense, but it was interesting to read that article that actually had real numbers to confirm that.

There was a time going back to the Middle Ages when owning land or real estate was a way of generating rental income. That was how you made money on it. Now, people seem quite happy to be cashflow negative with real estate investments because there is a presumption a very large capital appreciation. You know what, there has been very large capital appreciation over the last 10, 15 years in most cities in Canada. I get that and maybe that will continue.

But to me, the idea that you would intentionally, I mean, because I realize a lot of these condo investors bought their condos a couple of years ago and things have changed. But the fact that I still have clients from time to time telling me now, I'm thinking about buying a condo in Toronto as an investment property and I'm like, “Have you done even the most basic math?” Your rent will not cover the mortgage taxes and insurance. So, every single month, you are cashflow negative. What is your expectation for price appreciation for that to be a profitable investment? Ten percent a year? Again, we've seen that in the past, but to project that that's going to continue.

So, the point is, I think that our expectations have changed so dramatically during a period of low interest rates and high real estate returns to the point where I think people are making surprisingly short-sighted decisions about how profitable it is to be a landlord.

Ben Felix: Yes. A big piece of this point is that the landlord doesn't set market rents. You can buy a condo and set the rent at $9,000 a month, but that doesn't mean someone's going to pay it.

Dan Bortolotti: That's right. Just because your mortgage went up when you refinanced two years ago doesn't mean that your tenant is going to take on that additional cost.

Ben Felix: Yes. There's a market, like there's a rental market. It's a tight rental market, but there's still other people renting out places at whatever market rents are. It's still competitive.

Dan Bortolotti: Yes.

Ben Felix: You don't get to define your rent because that's what makes you profitable.

This next one ties back to one of the ones we talked about earlier, that just furthers that perception of rent being a bad financial decision. This is another one that comes up every time I cover this topic. So, this comment says, the top 50% wealthiest people in Canada, what percentage of them rent their home? The bottom 50% of wealthiest people in Canada, what percentage of them own their home? Done. So, they're basically saying, if you look at wealthy people, they tend to be owners. If you look at less wealthy people, they tend to be renters.

That's true in the data. Stats can reports on this and it's true. Renters tend to be less wealthy than owners. That is a fact. But the explanation is really important. It's not because they own homes that they're wealthy. Renters tend to be younger households, lower income households, and households that spend a larger proportion of their income on housing. So, they don't own homes because they can't afford to own a home. If they could buy a home, it wouldn't make them wealthy.

Dan Bortolotti: This is a pretty good example of causation correlation issues. Exactly, like you said, people own a home because they're wealthy. They're not wealthy because they own a home. I suppose what he stated is true. But again, there was a funny ad that they used to do for, I think it was some company did it for financial advice or financial planning. It was something like people who engaged a financial advisor on average had a lot more money than people who didn't. So therefore, you should get a financial advisor because clearly it makes you wealthy. It's like, I think it's the other way around. People who are wealthy are more likely to engage a financial advisor because they can get some value out of it. So yes, this to me is just, there's no causation here.

Ben Felix: I remember that study when it came out. I remember PREIT wrote an article in The Globe and Mail just eviscerating the study.

Dan Bortolotti: Yes. That's a bit like saying you should buy a Mercedes because people who drive Mercedes are wealthier than people who don't. So, there must be a reason. I wonder what that reason might be.

Ben Felix: Yes, that's funny. Okay, this is another interesting one. So, they start off saying monthly rent payments are actually higher than most mortgage payments. I don't know if that's true, but that's not the important part of this comment or the interesting part. They then go on to say, additionally, broaden the scope of this “analysis,”. I guess it wasn't really analysis, “Beyond the convenient 25 years presented and you're into the time span when basically every single homeowner is now mortgage-free. In my case, after 19 years. Good for you people do love to brag about paying off their mortgage, which is fine.

Good for them. In 19 years, not 25. Accelerated payments, I guess, I don't know. So, they say therefore the whole argument is invalid. How is a renter able to invest these phantom savings when there aren't any? That's back to the original thing about – in the numbers that I looked at, I don't know if that's true. In some cities, I think it is where the cost of rent is actually more than the cost of owning right now. So that may be true in some places, but it's not true everywhere.

But I think that the point about paying off the mortgage is really important and it's probably one of the most common housing misconceptions, which is that once the mortgage is paid off, owning is just above and beyond better than either renting or owning with a mortgage. Now, we talked about this in the podcast episode and to be fair, this person read The Globe and Mail article, not listen the podcast episode. But as we talked about in that episode, mortgages for financial wealth, they're great. If your only goal was to maximize your financial wealth, which would be a pretty ridiculous goal, you would want to keep your mortgage as long as possible. You'd want to keep stripping out the equity in your home to invest in stocks. Now, you shouldn't do that probably.

Dan Bortolotti: Well, now it's the Smith maneuver basically is what you're talking about.

Ben Felix: Yes, which anecdotally, Smith maneuver, not so much because our clients tend to be in a position where they could just pay off their mortgage. And in a lot of cases, we will recommend doing that. We call it a debt swap where we'll say, “Hey, you have this taxable investment. You have this mortgage. You could pay off your mortgage and then re-borrow to invest and make the interest on your mortgage deductible.”

Dan Bortolotti: And that's just a tax strategy. It doesn't really change your risk in any way.

Ben Felix: Exactly.

Dan Bortolotti: People will always say, “Wow, that's so smart. I want to do that.” So, they'll pay off their mortgage and then we're like, “Okay, step two, you have to borrow again now.” And they're like, “Yes. I'm actually kind of good without the mortgage.” So, I've seen that countless times. But anyway, the main point on this comment is that once you pay it off your mortgage, owning a home actually gets more expensive because the cost of having equity in a home is typically higher than the cost of financing a home with a mortgage, with debt. The cost of capital is higher with equity than it is with debt financing for a home.

So, if you run the numbers on this, owning without a mortgage looks a lot worse than owning with a mortgage relative to renting. I don't think people will get that. The math goes in the opposite direction of what this comment is suggesting.

Dan Bortolotti: This is a very interesting idea, I think, to take to the next level. So, there's a couple of questions. One is, imagine that you are an investor and you've got a significant amount in taxable investments. You're renting now, you decide to purchase a home. You have enough in investments to just liquidate, let's leave aside any capital gains taxes, not the point, to take all that cash and buy the home mortgage-free, or would you be better off just putting 20% down, taking the mortgage for the rest?

Again, it comes back to this idea that leverage works very well in a market that goes up and in one where you don't panic sell when it goes down. Then, just to take it to the next step is what if you are like this homeowner, he pays off his mortgage in 19 years, he was paying several thousand dollars a month in mortgage payments, no longer has that payment. Presumably has extra cash flow now. What do you do with it? Presumably you just invest it in a taxable account. I don't know how all of those things factor into the analysis.

Ben Felix: I think the other thing is, do you want to be debt-free? I made this same comment on Twitter a few times because it comes up a lot in this whole discussion and people have the same question, like, “Oh, well, I've got to pay enough house. Should I be borrowing against it if I want to match the net worth of a renter?” The answer is no. Why would that be your objective? Why would you want to match the net worth of a hypothetical renter in a situation otherwise similar to yours? I don't see any sense in that being a goal that somebody would have.

I mean, having it paid for a home, as we've talked about, is pretty nice from the perspective of security, just because you could have a higher net worth potentially with more risk, obviously, it doesn't mean you should be borrowing against your paid-for house.

Dan Bortolotti: That's my inclination too. You could probably make a financial argument that, as you said, yes, you could just keep dipping into that equity, investing in equities, and you would end up with a higher net worth in most cases, but with a lot more volatility and a lot less peace of mind. So, what value do you put on the latter? I put pretty high value on it. I think it sounds like you do too. Maybe not everybody does. People argue. I can always sell my investments and pay off the mortgage at any time. Maybe, unless the investments are down. So, I would agree with you. I think that if there's a major takeaway from this whole discussion is not just a financial decision. It's very much a lifestyle decision too.

Ben Felix: Yep. So, Justin HCI in the Rational Reminder community chimed in on this discussion, which was going on in the community. I had responded to somebody else. They said, “Does this mean you will need to continue to be levered up higher in the last five years of a 25-year mortgage or maybe not even pay off the mortgage?” I said, “You don't have to do that. Matching a renter's net worth is not a great goal. I'd be happy with a paid-for home.” And then Justin HCI, who often has very thoughtful comments in the community said, “Yet another good reminder that the purpose of money and savings is to fund consumption, not to get the high score on the arcade machine. Two people who consume the exact same stuff might need different levels of wealth to fund that consumption if one has more uncertainty about the cost to consume. Owning a paid-off house hedges your cost of shelter consumption, whereas

the uncertainty of changes to rental prices or availability might require a bigger wealth buffer for the same level of certainty that shelter consumption needs will be met.” That was interesting.

That's different from what we were just talking about. Justin's saying a renter, they don't have the hedge against their future housing consumption. So, they actually need more wealth to match the certainty equivalent outcome of an owner, which again, just speaks to the idea that as an owner, having an objective of matching the net worth of a renter doesn't make a whole lot of sense. It's just such a different situation.

Dan Bortolotti: It is. I mean, it's just, there's sort of different goals and different ways of perceiving value.

Ben Felix: Yes. I've got a couple more comments here. This is a nice one, just a fun to read. “As a former homeowner, I love being a renter now. In a great location, quiet building, everything taken care of. The owner of the complex committed to security of tenure, no surprise costs, older building under rent control, close to public transit with a swimming pool, library, gym, and other amenities on site. Friendly and obtrusive neighbours. What more could anyone want?”

Dan Bortolotti: We found a happy renter.

Ben Felix: Yes, a happy renter. I thought it was funny.

Dan Bortolotti: I think that that is one part of the story that maybe doesn't get enough play. We talked a lot about how much comfort people take in controlling their own destiny as a homeowner. But I think there is definitely a liberating feeling to being a renter in many ways. This listener has obviously found a great place. Not everybody is as fortunate as that. But if you do find a great place, there is really something very satisfying about knowing I don't have to worry that my roof's going to leak, my basement is going to leak, that I'm going to have some expensive repair that I have to worry about, that if something goes wrong, I can get it fixed. I can maybe be a little lighter on my feet than I could have been as a homeowner and that is definitely a liberating feeling that you don't necessarily get when you're a homeowner.

I think we touched on it a little bit earlier because I was going to say that there's also this idea that what I call a renter’s mindset. We noticed this during the years where we rented as well. You were just a little bit more Zen about a lot of imperfections in the property. So, for example, if you had a kitchen or a bathroom that maybe wasn't fully renovated, maybe isn't what you would normally want, if you own the place, you just learn to stop worrying about it. At some point, you don't even think about it anymore. It's a little bit like love the one you're with. You just learn to say, “This place isn't perfect, but you know what? I'm not even going to waste my mental energy thinking about this anymore.”

Then it changes. Believe me, because as I described you, we rented a place and then we bought the same place. Well, what do you think we did as soon as we bought it? All of those things that we had become quite laid back about, all of a sudden became things that needed to get fixed. So, we dumped a lot of money into the place and fixed it up. Now, is it better? Yes, but am I happier? I don't know, maybe incrementally.

But I just think that there is something to be said about not always worrying about trying to keep the place that you own up to some standard that is very difficult to maintain.

Ben Felix: Man, so in our last rental, which was a nice house in Little Italy in Ottawa. Part of it was a very old house, but it had been renovated and expanded. The guy who owned it was a homebuilder. It was really nicely finished, but the kitchen was a little bit older and the grout on the backsplash was chipping away and water would get up there and I could see it seeping back behind the counter and I was like, “Man, that sucks.” But I didn't care because it wasn't my problem and I knew this guy would fix it and he'd redo the kitchen in a few years and it would look great.

Now, in my house that I own, I'm always so stressed about, is the silicone bead in the backsplash still in good shape because I really don't want water to get back there?

Dan Bortolotti: Yes, because that's going to be your problem if the tiles start to come off the wall.

Ben Felix: Exactly.

Dan Bortolotti: I don't want to suggest that you're happier with lower standards, but honestly, in some ways, you are happier with lower standards. Not to the point where you give up and you don't care about the place where you live. You just are not necessarily burdened by a myriad of minor stresses that accumulate to become a major stress at some point. I mean, I definitely worry more about the property now that we own it than I did when we rented it. It's the same place.

Ben Felix: Yes. Your example is super interesting because it's literally the same place.

Dan Bortolotti: Yes. It's a controlled natural experiment.

Ben Felix: Okay. I got one more from a happy renter. “Happy renter here with no intention to own anytime soon. We've been able to accumulate a portfolio of 1.4 million in less than 15 years. If we had bought as we were planning 10 years ago, we would not be near that amount in net worth and would be under big financial stress for our retirement/daily expenses. Looking back, it was a wise choice. I would not trade our lifestyle for the one of a homeowner anytime soon.”

Dan Bortolotti: There you go again with the idea of just feeling a little lighter. This came up in the comments very often. Again, it's hard to consider in the analysis, but one of the things that I think is really important, especially as someone who has two kids in their 20s, early 30s, is age where your career is going to be very important and where you are living and working is going to depend, I mean, maybe less so now with work from home, but it's still an issue. And what I'm getting at is if you decide you're going to settle down and buy a home at that age, assuming you can afford it, you're tying yourself down to one geographic location.

If something happens with your job or if you get an offer for a much better job in a different centre, what is the cost of saying no to a career opportunity that you choose not to take because you bought a house. This must happen to young people all the time, again, fewer and fewer young people are in that position. But if those who are, must feel that it does put some guardrails around your career development.

Ben Felix: For sure. Labour mobility is huge with the housing decision. I haven't seen anything on this for Canada, but I know in the United States, they can have the issue of mortgage lock-in because they have these super long-term mortgages. So, if you get a mortgage at a low rate and then you move, you can't keep that mortgage. You have to move to a mortgage with a higher rate. So, if you buy when rates are low and then rates go up, you can get locked into a mortgage. I'm pretty sure I've read research on that affecting labour mobility. So, exactly what you're talking about. It is definitely related to that point.

Dan Bortolotti: Yes. I mean, that would be really interesting to hear from listeners who might be in that boat. Anybody has stories to share, either good or bad. Either I'm a renter and I'm glad I was because I could pack up and move to a much better job or the opposite. I had to turn down an opportunity because the transaction costs of selling the house would have been too high.

Ben Felix: Yes. No, I would definitely love to hear stories like that. That'd be interesting to talk about. On that point, we experimented today with a new, we've never done this before. We've read out comments before. We've never had a whole episode. This is like the whole thing was an after-show. I don't know. The whole thing was reading out feedback and comments from the audience and responding to it. I thought it was fun to do. It took way less prep for us, which is nice as a break. But I often had this thought, particularly with the Rational Reminder community because there's so many thoughtful people in there that say really interesting stuff that I take a lot away from after episodes.

So, I've thought about, could we do this? Could we do a follow-up episode every few weeks or something where all we do is discuss what other people in the community and elsewhere podcast ecosystem are talking about? I'd be super interested in audience feedback on what they thought of this format and if it was terrible, we should never do it again. Or if they kind of liked it, because I do enjoy this format.

Dan Bortolotti: Well, and I think we can learn a lot from thoughtful listeners and readers as well. It's so important in a discussion like this, and it's also so rare, frankly, in discussions like these, to be open-minded. It seems that all of us have this natural inclination when we read something, an opinion or an analysis that doesn't jive with our first-hand experience, that our first reaction is to just reject it out of hand, or worse to attack the person who brought it up. And it's nice to see in the community there have been a lot of thoughtful comments from people who read it over, thought it over, didn't just get defensive about their own decisions and tried to add something new to it. It is pretty remarkable and you'll see, especially on the article that you did in the Globe.

I've had the same experience with Globe articles, and it's not unique to the Globe by any stretch where people will read the headline and the first paragraph and then immediately go into the comment and say, “What an idiot this writer is.” And they'll say, “You didn't even think about this.” And I'm like, “That's in the third paragraph. If you had taken a little bit longer to actually read the piece before you commented on it, your comment might have been very different.” It's just a reminder to all of us, take the argument seriously, read it through, think about it, don't take it as a personal attack, and respond with your own experience. It's not about trying to win an argument. It's about we all should come away from this learning something.

Ben Felix: Yes. I do find the Rational Reminder communities generally quite good on that. We do have a pretty strong moderation force. So, when there have been discussions that go off the rails, they usually get put back on track. If people are continuously taking them off the rails, they've been taken out of the community. It's generally better than The Globe and Mail comments. I'll put it that way.

Dan Bortolotti: As we all know, some of these Times articles and certain subject matter attract cranks and sometimes we have to just take it with a grain of salt. But unfortunately, the loudest voices tend to be the least interesting ones and the moderation is a great feature, because it allows us, it's not about censorship. It's about trying to put some rules around the debate.

Ben Felix: Yes. I've got a soft spot for Global and Mail comments though, because I don't know if I were told you this story, Dan. But the way that I ended up at PWL in the sort of roundabout way, is when I was working selling mutual funds, when I knew nothing, I didn't know what an index fund was at the time. I was interviewed for – do you remember the Me and My Money column?

Dan Bortolotti: Yes.

Ben Felix: I think I can remember Larry McDonald maybe was his name.

Dan Bortolotti: Yes, that's right.

Ben Felix: So, he would interview people about how they invest their own money, whatever. It was kind of a neat little column. A friend of mine had done it and asked if I wanted to do it. I was a very green financial advisor with an insurance mutual funds license. So, I wanted to get my name out there. So, I said, “Sure, I'll do it.” This guy interviews me about how I invest and I told him about the – people are going to laugh. I think it was a fidelity dividend mutual fund or something that I had all my money invested in at the time, talked about why I thought that was a good thing and whatever. I got absolutely roasted.

This is like 2012 or something. Absolutely roasted in the comments. People were calling me a snake oil salesman and all this stuff and I read the comments and I was like, “Whoa, I think I need to learn more about this.”

Dan Bortolotti: Well, it was good that you took away something positive and not just, “I'll never write for The Globe and Mail again, or I'll never share my thoughts again.”

Ben Felix: Oh, yes. That article still up which is I don't know, sort of unfortunate, but a nice memory capsule. But unfortunately, the comments are gone because they changed their comments engine at some point since whenever that was 2012. But yes, quite the memory there.

Dan Bortolotti: Oh, that's funny. I think we all had an awakening at some point in our lives, but that sounds a little ruder than most of the awakenings that the rest of us have enjoyed.

It's funny, I look back to all of the years I did the Canadian Couch Potato Blog and the commentary on it was so civil. I like to think that I tried to foster that, but I think it was mostly just good luck that it just attracted people who are very civil, and people disagreed for sure. But it was very much a civilized discussion, lots of dialogue, people asking questions, and others answering their questions in a constructive way. And it makes such a huge difference to me. It made the blog so much more valuable than it would have been if it was just my articles. It's just, that's a rare commodity now online. Unfortunately, it has deteriorated quite a bit. So, the

moderation, I think it's just really made a big difference here.

Ben Felix: Yes. Well, I think we made some lemonade out at the lemony comments online about the rent versus buy discussion. Hopefully, people enjoyed it. Anything else to add, Dan, or is that it?

Dan Bortolotti: No, I think we covered it all. That was great.

Ben Felix: All right. Well, thanks for listening everyone and we'll be back next week.

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