Graham Isadore says it feels strange to think of himself as one of the “lucky ones” in Toronto’s notoriously unaffordable housing market.
The 35-year-old freelance writer is a renter, paying less than $2,000 for a two-bedroom apartment in the city’s downtown core. Isadore says this is much lower than the market rate that his friends in the neighborhood are paying.
It’s a relatively affordable apartment, but it’s also become like a pair of “golden handcuffs,” he tells Global News.
Isadore says he has only been able to maintain a stable rate of rent because he has been in the same unit for the last six years. But paying for that apartment itself is already eating up a “very large portion” of her monthly expenses, and the prospect of moving and perhaps seeing those payments increase by hundreds of dollars fills her with a certain dread.
Graham Isadore, a freelance writer who rents in Toronto, calls his relatively affordable apartment a set of ‘golden handcuffs.’
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“The biggest characteristic of my relationship with renting is the nervousness that what I have now won’t last forever or will be gone,” says Isadore.
That anxiety comes like this the cost of living The crisis appears to be becoming more desperate for young Canadians, with groceries and housing becoming more expensive over the past year.
Recent Ipsos polling conducted specifically for global news Shows that while owning a home may seem out of reach, most Canadians feel it is important to their financial security.
According to the poll released Friday, 71 percent of respondents said they think it is possible to remain financially secure without a home, but the figure is nine percentage points lower than a similar survey in March 2023.
About 72 percent of non-owners said they have given up hope of being able to buy a home, while 80 percent said home ownership is now a privilege reserved for the rich.
Ipsos polling shows that four in five Canadians believe owning a home is only for the rich.
Ipsos/Global News
Isadore says that although he would like to buy a home one day and he is able to put aside savings on a monthly basis, it “doesn’t even begin to fathom” how much he will need for a down payment in Toronto.
“I’m grateful to be able to live in this apartment, but I’ve also contributed a significant amount of equity to this home that isn’t going toward my future,” he says.
Jason Heath, managing director of Objective Financial Partners, says the idea that owning a home and paying off the mortgage to build equity is a common strategy for Canadians looking to grow their wealth.
He explains that buying a home can act as a “forced savings” device in that way, while forcing renters to be more thoughtful about putting extra money on top of their rent each month.
But Heath also disagrees that living as a renter is less economically viable than buying a home, simply because the monthly rent payment does not go into a person’s own savings.
“I actually think that in some circumstances, a renter, especially if they’re diligent with their savings, can outperform a homeowner financially in the long run,” Heath says.
Home ownership comes with unexpected costs
Heath says there is a “recentness bias” in the discussion about home ownership because the value of real estate has increased substantially over the past two decades.
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But he cautions that, taking a broader historical view of housing markets, including and beyond Canada, home prices have increased in line with wages – a trend that has largely outstripped home values in recent decades. .
They argue that there is no guarantee that house prices will continue to rise unabated in the coming years, which increases the risks to homeowners who are counting on rising property values to grow their wealth.
He says, “For anyone who is counting on their house having a 10 percent return rate and cutting down on size and using it to fund their retirement, I would be hesitant to think that will happen in the next generation.” “
Owning your own home has often been a “disadvantage” for Canadians in building their wealth, says Alan Small, senior investment advisor at Alan Small Financial Group, part of IA Private Wealth. In Canada, income derived from the disposition of a principal residence is exempt from capital gains taxes, providing a benefit to home owners when they choose to sell.
But Smalls also cautions clients who are planning for retirement about what being tied to the real estate market could do to them.
He says costs in retirement can vary depending on whether someone is renting or buying again after selling their home. In a downsizing situation, if someone sells a home that has appreciated in value, they may be able to buy something else that has also appreciated in value – limiting the net return on the sale.
Instead of relying on the equity that comes from home ownership, he prefers to think of rising home values as “gravy on top” of a wealth-building strategy and rely on other savings and investments to fund the bulk of the retirement plan. Recommend to do.
“I think if you look at it that way, I think you’ll be in a better position,” he says.
Small says many customers choose to become renters again after selling their family home, keeping the sale proceeds or reinvesting them and enjoying the lower monthly costs that typically come with a renter. Comes with lifestyle.
Heath says some Canadians who are renting today but desire to buy a home may underestimate the costs that come with home ownership.
Home insurance, property taxes, repairs and maintenance all become ongoing costs in addition to the mortgage, he notes, which can push owners’ monthly expenses beyond renters’ monthly expenses.
For homeowners, this may mark an opportunity cost — money going toward home maintenance that could otherwise be put into investments and returned at higher returns, Heath explains.
Isadore agrees that if he had a mortgage now, he would likely be paying more every month – not to mention a smaller unit in a less desirable part of town.
But as a renter for half his life, he says it’s only been in the past five years that he’s reached the point where he has money left over at the end of the month for long-term savings. . And knowing how to maximize wealth as a renter isn’t always as easy as it is for homeowners, he says.
“That means trying to get into markets that I don’t really understand, which are much more complex than just putting money into your house every month,” Isadore says.
How to Save and Invest as a Renter
For renters who have money to save, Heath and Small say there are plenty of strategies for increasing wealth outside the housing market.
“I think if someone is a disciplined saver, they can also be a wealthy renter in every way,” Heath says.
Without the forced savings of home ownership, renters will have to be “persistent” about saving each month, Heath says, and will need to choose the investment vehicle that best suits them.
Canadians can open a Registered Retirement Savings Plan (RRSP) to benefit from income tax deferral on contributions, which Heath says is ideal for individuals who currently have a high income.
A Tax-Free Savings Account (TFSA) is another option for protecting investments from being taxed upon withdrawal; Heath argues that it is best suited for early-career individuals, who get less benefit from deferring income taxes.
he adds it New First Home Savings Account (FHSA), which allows Canadians to save and invest tax-free for the purchase of their first property, is not just for potential homeowners.
The FHSA allows $8,000 in annual tax-deductible contributions, which are also tax-free when withdrawn for a down payment, up to a lifetime maximum of $40,000. But if, after 15 years of saving, a person does not use the money in the FHSA to buy a home, the account should be closed and the money withdrawn as a “backdoor” strategy to maximize contribution room. Can be transferred to RRSP. Account, Heath Notes.
“Even if a person never buys a home, the new First Home Savings Account may have a place in their savings strategy,” he says.
But what you do with the money once it’s in the registered account is also important, says Small.
He says the bond market, high-interest savings accounts and fixed income products such as guaranteed investment certificates are suitable for more conservative investors or individuals with a shorter time frame for investing. But Small says that especially for younger Canadians who have a longer time frame to build their wealth, taking some higher risks in the stock market is an important strategy.
Equity markets can be scary when looked at on a year-to-date or stock-to-stock basis, but short notes show that long-term volatility remains smooth and indices like the S&P 500 tend to trend toward growth over the long term. .
“The circumstances are definitely in the investor’s favor. If you have good quality (companies) and you are patient, you will make money,” he says.
This does not mean that a renter has to take the riskiest positions possible to make money. Small says a balanced portfolio might include reliable performers like banks or utilities, whose stocks also pay dividends that can supplement the renter’s income and help pay their monthly costs.
Taking out whatever money is available to start with in the market and supplementing some dividend-paying stocks with one or two well-known high-tech names creates a “diversified portfolio” that will be a renter over the long term. Can pay for. , says Chota.
“The stock market builds wealth over time. And I think if you don’t have that real estate then you should definitely focus on the investment markets,” he says.
Heath says the societal focus on achieving home ownership as an indicator of financial success can be misguided.
It’s true that homeowners get “peace of mind” from owning their property, while renters have to deal with renovations, evictions or other landlord decisions that can affect their living conditions, he says. Are.
But with today’s high interest rates pushing mortgage costs higher, along with sudden repair surprises and other fluctuations in the ownership market, Heath argues, homeowners have no guarantee that a given Their finances in the year will be more stable than those of a tenant.
“It’s not a one-size-fits-all thing where it’s always bad to rent or you should always own a condo or condos are bad investments. You need to look at the nuances of the situation,” he says. “And in some markets and some situations, it’s very much a renter’s market.”
– With files from Global News’ Anne Gaviola