More so than in New York, people in the Toronto area own their own homes or condos. People I meet assume everyone should own a home, and assume we want to, as well. On hearing that we rent a house, people immediately ask, Can you buy it?
This must be in part because - believe it or not - housing is very affordable in the Greater Toronto Area than in New York. Most working stiffs in New York can't afford to own. Some people move far, far out of the metro region in order to buy a home, and many other New Yorkers own tiny condos, which is way more expensive than renting. In the Toronto area - and elsewhere in Canada, I assume? - people earning salaries similar to ours expect to own homes. That's not the case in New York.
The fact is, Allan and I have no interest in buying a home, and that's not likely to change. The common wisdom about home ownership just doesn't work for me. I know all the usual complaints against renting. Supposedly, I'm throwing my money away on rent, I need equity, it's better for tax purposes, you can make a lot of money in real estate. And then, simply, owning is good. Many people like the fact of property ownership for its own sake.
I see it differently. I don't pay property tax. I don't owe money on a mortgage. When something breaks, I call the landlord. I'll never need to replace a roof, or a furnace, or buy a washing machine.
Although it's possible we could finance a home with a mortgage equal to what we now pay in rent, I doubt it - certainly not in any location we'd want to live. Then there's property tax, and a downpayment. That's money better spent seeing the world. If we did find a home we could afford, we'd have to maintain it, which costs money and time. Time we'd rather spend doing other things.
It's true that many people turn a profit by selling their homes. But many people don't. In any case, in the US, profit made through real estate must be reinvested in real estate until you reach retirement age, or you lose most of it to taxes. So selling one home, no matter how profitable, doesn't lead to a big pile of cash: it leads to buying another home. [Update: I've been informed that this is no longer the case in the US. (See comments.) I'm sure someone will tell us about Canadian law soon.]
Many years back, good friends of ours were once told by a therapist that their lack of interest in home ownership was really a fear of commitment! One of them has since died. The survivor looks back on their time together, and feels grateful and appreciative that they didn't waste it shopping for a house, buying it, maintaining it, and selling it. Instead, they paid rent and left the work to the landlord.
I'm not saying all you homeowners out there aren't doing the right thing for your own lives. There are clearly advantages for some people. But there are drawbacks, too - drawbacks that no one seems to acknowledge. Renting is frowned on as foolish, and buying is both wise and preferred. And I just don't see the point, for myself.
The only home I want to own is on wheels.
24 comments:
"In any case, in the US, profit made through real estate must be reinvested in real estate until you reach retirement age, or you lose most of it to taxes. So selling one home, no matter how profitable, doesn't lead to a big pile of cash: it leads to buying another home."
This is actually not the case under current US tax guidelines: An individual is exempt from the first $250,000 of profit on a primary residence and a married couple is exempt on the first $500,000 of profit on a primary residence. The exempt amount is not taxed as a capital gain, nor does it have to be reinvested in real estate. I believe the tax rules changed in 1996 . . . .
I believe the tax rules changed in 1996 . . . .
That's odd. I know people who have sold homes in the US just within the last few years and told me it did have to be reinvested in real estate.
Doing a quick Google search, I easily found what you referenced.
I guess these homes didn't qualify for one reason or another. Thanks for the info.
Not a problem . . . Wanted to make sure your info was as accurate as it normally is. Enjoy your weekend in beautiful Canada while the rest of us await "permission to come aboard"!
Wanted to make sure your info was as accurate as it normally is.
I appreciate it. I've updated the post, too.
Enjoy your weekend in beautiful Canada while the rest of us await "permission to come aboard"!
Thanks - and keep us posted!
I feel exactly the same way! I've had acquaintances and coworkers try to convince me to buy instead of rent so many times, and they always claim that I'm paying more in rent than I would be in house payments. They always leave out the down payment and upkeep costs, which would be issues for a low-income person like me. They also always claim that "owning a home" is better, but they really never truly own their home because they never get it paid off before they move and start paying for another. The only thing that tempts me about owning is the potential to plant whatever I want on a small plot of land, but even that is limited in reality, because you usually have to conform to what your neighbors will accept, and since I'm into native landscape restoration that would probably be another problem.
As for many issues one might discuss, it depends on a variety of variables. Or, as my husband says, "That's why they make chocolate and vanilla."
In the case of owning versus renting, it depends on personal situations, such as income, the real estate market at that particular time and place, and long-term plans. For us, the purchase of both our home and our office were among the most beneficial financial decisions we have made in 30 years of marriage. In fact, if we had felt ready to purchase a home just three years before we did, we would have been far better off financially, given the real estate market at that time.
As planned, we have now paid off both mortgages in full, and the value of our real estate is a substantial portion of our retirement plan.
Incidentally, don't be deluded into thinking that you do not pay property taxes. Landlords certainly include these costs when calculating how much to charge in rent, so that you pay it indirectly.
I've had acquaintances and coworkers try to convince me to buy instead of rent so many times, and they always claim that I'm paying more in rent than I would be in house payments. They always leave out the down payment and upkeep costs, which would be issues for a low-income person like me.
Then you know exactly where I'm coming from. :)
They also always claim that "owning a home" is better
Most people seem to feel it's just better, for its own sake. Kind of like having kids - it's just something you're supposed to want to do.
As planned, we have now paid off both mortgages in full, and the value of our real estate is a substantial portion of our retirement plan.
That is so great. That must have a lot to do with both wanting to live in the same place for all that time, and earning a sufficient income to pay off the mortgage.
The way my life is, I cannot imagine ever paying off a mortgage. It wouldn't be a realistic goal.
Landlords certainly include these costs when calculating how much to charge in rent, so that you pay it indirectly.
Not necessarily. In NYC our rent was controlled by city law. It never increased in proportion to increasing property taxes.
Here, too, property taxes are very high. If our current landlord charged rent commenserate with his taxes, he could never find tenants for this place - the rent would be way too high.
I think in most cases mortgage plus property tax (or maintenance fees if it were a condo) would be more than I could afford to pay, whereas rent has been affordable.
In the case of owning versus renting, it depends on personal situations, such as income, the real estate market at that particular time and place, and long-term plans.
Right - and that's really my point. Almost everyone I know assumes home ownership is always preferred, that it is always better for everyone.
It's obviously right for many people, but few things in life (if any!) are right for everyone.
Exactly! That's why they make chocolate and vanilla. :)
It is a trade off, and I can't disagree with anything you are saying.
The bottom line is, Noah's got a nice place. That's what counts :-)
It is a trade off
That's how I see pretty much everything in life.
The bottom line is, Noah's got a nice place. That's what counts :-)
That too. :)
We've had good and bad with owning. Our little house in London, Ontario, lost us $34,000 (bought at $114,000, sold at $80,000). On the other hand our first place in Toronto, a condo at River & Queen, almost doubled in value while we were there (went from $150,000 to over $250,000), which let us move into our current place.
The current place is going pretty well, though the past year was tight because the bank fell short on the tax account because of a jump in property taxes, and increased our monthly payment by 25% to cover the shortfall. They've just sent us a note saying they're covered now, and they're going to drop it back to just a little higher than it had been a year ago. So that wasn't great, but we managed.
On the plus side, this place has increased in value by about $100,000 since we moved in. We're thinking that in five or ten years, we might sell it and buy a smaller condo (almsot) outright on the proceeds.
Condos are a pretty good compromise between owning and renting. You have the equity, but you don't have to manage the upkeep. Though condo fees can be horrid in some places. At our River St. place they were great -- no real ammenities other than some basic maintenance, so most of the condo fees went to paying the utilities, which were all covered. On the other hand, another place we were looking at had monthly condo fees of $750, mostly to cover the one elevator that served the three units in the building.
Though condo fees can be horrid in some places.
I think of condos as the worst of both, because of incredibly high maintenance fees (that's what condo fees are called in the US - or at least in the NY/NJ area). In NYC, maintenance fees are much higher than most rents, plus there's your mortgage payment on top of that.
Depending on the market, there could be a great re-sale value, but you have to be able to afford it in the first place.
Generally, condos are a great deal - for the bank, and for the management companies that run the buildings.
On the other hand, another place we were looking at had monthly condo fees of $750
Would that be considered a lot here?
I think of condos as the worst of both, because of incredibly high maintenance fees (that's what condo fees are called in the US - or at least in the NY/NJ area).
"Maintenance fees" is also used here. They vary a lot from condo to condo. Your best deals are with condos without pools & excersize rooms &c -- then the fees to towards real expenses, like utilities.
On the other hand, another place we were looking at had monthly condo fees of $750
Would that be considered a lot here?
It was high among the places we looked for. Our River St. fees were more like $300/mo, and that included heat & water. When you compare the condo fees to what you end up paying in "fixing the house" costs, they aren't so bad.
It was high among the places we looked for. Our River St. fees were more like $300/mo, and that included heat & water.
Wow. Including heat is a good deal. That shows me (again) how outrageous real estate prices are in NYC.
Just to let you know, in Canada you cannot write off the interest on your mortgage, however any capital gains on your principal residence is income tax-free (no matter how large).
You may only have one principal residence at a time, but you can change them as often as you like.
Tax is charged on 50% of your "regular" capital gains. Capital losses can offset capital gains in the year they are realized, can be carried over into future years, or can be applied against recent previous years' gains for a refund.
Scott M, I was wondering when you'd appear. Thanks for the info. :)
Wow. Including heat is a good deal. That shows me (again) how outrageous real estate prices are in NYC.
Our River St. place was just eight units plus eight parking spaces. No common areas (other than the parking lot and the electrical room), no pool, no climbing wall or half-court. So there wasn't a lot for fees to cover. The company that created the condo decided to still charge fees comperable to others you'd see in the area, but apply them towards utilities instead of ammenities. Which was a great deal for us.
The other condo building we looked at was a nifty building on Queen St. just east of Mutual. If you go there, it's quite distinctive, an old, narrow, four-story place with bay windows and a big arch on top. We were looking at the second floor unit (there are only three units in the building).
Like River St., it had no amenities, but it did have an elevator that stopped at every unit's front door. Because of the cost of maintaining the elevator, the condo fees were $750, and I don't remember if that included utilities. Those were the highest condo fees I remember seeing in Toronto.
Still amazingly inexpensive to me. Friends of ours were paying $800/mo in maintenance fees in a not-hip, not-convenient neighbourhood for nothing but an apartment - no amenities at all.
The thing I hated about renting was being a dog owner -- a very responsible one but that's irrelevant to most rental-property owners. It restricted my choice so much that buying a place became more important than it probably should have. How have you gotten around that?
PS As a former condo-owner I resented the strata fees (as we call them here in the west) even if they were only $150/month! I'd rather pay upkeep on my house as it becomes necessary than be at the mercy of a strata council.
It restricted my choice so much that buying a place became more important than it probably should have. How have you gotten around that?
We've been lucky - it's never been an issue.
In NYC, we found a neighbourhood and building that allowed dogs. In Ontario, it's against the law for landlords to exclude tenants on the basis of pets. Of course some still do, but more often than not, rentals allow animals.
I grant you there were times I was worried about it! Long ago, after we found our little dog Clyde (and we already had our Gypsy dog), I was nervous that we'd have problems when we had to move. But it turned out to be very easy.
Similarly, I was concerned that we might have problems coming to Canada - but there were none.
The only potential problem was the breed-specific pit bull ban, and Buster looking like the pit-mix that he was. It caused me some worry, for sure, but turned out ok.
Keeping animals in apartments is often an issue in public housing in the US. Pet ownership is often illegal in public housing - another way low-income people are controlled and discriminated against. A lot of elderly people have to give up cherished animals because of it. It's awful.
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