SEPTEMBER 2016

SPECIAL FEATURE RENT OR BUY —The debate explodes

Special feature

But what if the received truth isn't the truth? What if it's possible to build capital and win financial independence for yourself, but without owning a home as leverage?

What does that look like?

Financial advisors for years have been advocating for home equity as the best leverage possible...but for whom?

The reality is that life is far more complex than the average financial columnist admits—and the cultural pressure to own a home is immense. Renters are often thought of as somehow "poor".

But when a blog or a call-in show asks what the lifestyle costs of being "house-poor" are, things get interesting. Simply having a job equivalent to a $2500 mortgage payment is no mean feat these days.

Not only that, but a job you know—for sure—you'll have in five years is rare. The days of lifetime employment at a single job (even if most folks could stomach that prospect) faded into history with the coming of globalization; a career these days is a crazy-quilt of opportunities and calculation and playing the odds—and for many, fearing that their social safety net is their MasterCard isn't a choice. It's a reality.

What’s really going on here?As the great management guru Peter Drucker once wrote, "Culture eats strategy for lunch." What we believe—and the cultural underpinnings of why we believe it—are far more powerful an influence on how we live our lives than any strategy.

Housing costs?

Toronto Life memorably observed that "two million is the new one million" in Toronto housing prices; Vancouver's housing prices are other-worldly. Microcondos and the burgeoning "tiny house" movement have changed the conversation but the cocktail chatter and pillow-talk for thirty-somethings in Canada is all too often ruled by the anxiety of meeting the mortgage payment.

So is there a cultural shift about renting? Is renting becoming more socially acceptable—and will that social acceptance affect the housing market?

One of the most-read news pieces on the CBC website for the past month details the story of a thirty-something Canadian couple, Kristy Shen, 33, and Bryce Leung, 34, who made a simple calculation: mortgage is debt—and "...we're anti-debt." Their plan, executed with unstinting discipline and willpower, began with renting but grew because they were both committed savers. Both Kristy and Bryce work in IT; together, they saved a $500,000 (!) nest-egg most would have used as a downpayment.

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We believe what we choose to believe.The received truth is that home ownership stands as the route to financial security, to a worry-freeretirement... you fill in the blank.

But they chose not to. They've actively—and highly successfully—ditched the dream in favour of (get this) debt-free world travel, living lightly and cheaply (on $40K per year) and in general thoroughly enjoying themselves as global gypsies.

But the Millennial couple (they've been married since 2010) didn't always think that way. In fact, their Asian cultural background was quite the opposite: Shen recalls her parents' "screaming at me to buy a house for the last eight years. 'If you're a renter, you're a loser.'" The point of conversion was shopping the Toronto housing market and looking at $500,000 homes on offer.

That was a horror-show.

The house hunting process was an object lesson in disappointment first—and then the growing realization, given their lived experience at work, watching house-poor colleagues stress out and even risk their health, that many of their friends had been suckered by the home ownership dream.

Unlike owning a million dollar house, Bryce says, "if you have a million dollar portfolio, it pays you." (For a detailed scenario calculation weighing rent vs buy outcomes, see The Globe & Mail’s calculator, and, for a comic take, The Onion's classic calculation blogpost)

Their thinking doesn't stop there: the couple are living proof that smart, conservative investing in dividend-paying stocks and bonds can often (but not always, of course) beat paying off a big mortgage and the companion expenses like property taxes.

It's worked for Kristy and Bryce, who at last word were travelling in Japan and have published a kids' book for the heck of it. And they're by no means opposed to someday owning (one suspects for cash) a modest home in a smaller city.

Others have passed on the condo option for a co-op lifestyle, which, while not for everyone, really works for those who find the lifestyle a fit.

What's the takeaway? Culturally, there's a lot of non-thinking happening about buy versus rent and, perhaps, even more emotion around what ought to be simple math.

And, for many, the mortgage commitment works because it's an enforced equity play: you have to save or you lose your house—even if you're paying thousands in interest for the privilege.

So, for the likes of Kristy and Bryce, the home ownership emperor may well have no clothes. But the takeaway, even for them, isn't so much don't buy the home.

The takeaway is don't buy the debt for the sake of keeping up appearances and buying into someone else's dream.

For more on Kristy and Bryce and their continuing adventures, visit their smart-as-heck, irreverent "Millennial Revolution" blog, which features a whole lot of well-reasoned, dispassionate math.

Kristy and Bryce did a 180: they invested the $500,000 with Toronto financial adviser Garth Turner, 60% in stocks and 40% in fixed income investments, mostly high-grade corporate bonds. And they never stopped saving and investing literally every dime they saved.

They left their jobs and residence to explore the world; they don't even pay rent because they're never "home"—the whole planet

is home, at least for the foreseeable future, their wanderlust bankrolled by

dividends paid out by their portfolio, which continues to grow.

By Q4 2014, the couple had doubled their stake to a cool $1 million.

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Services by First Canadian Title Company Limited. This material is intended to provide general information only and is in no way intended to make any representation or professional advice to you with respect to the information presented.TO RENT OR TO BUY 2