Pattie's Blog: Move over 'hot housing market' there's a new kid in town
Published Friday, August 10, 2012 9:29AM EDT
I’ve always held the belief that you should own a home.
Why would you rent and build up someone else’s balance sheet when you could build up your own? Right? Well, not so fast. I’ve come to realize when challenged by my 26-year-old son that renting, in fact, may make more sense than owning….for now.
He doesn’t want to get into the real estate market at a high, he doesn’t want the responsibility, he wants flexibility to move to enhance his career should the opportunity present itself and would rather build up his investment portfolio than his real estate portfolio. And not to be overlooked, at this stage in his life if something goes wrong he would rather call a landlord than deal with it himself. He put forth a compelling argument.
It would seem he is not alone in this thinking. Low interest rates for an extended period of time coupled with rising house prices has forced some to think about renting until things cool off a little.
The challenge, it appears, is that others are beginning to think that way too and good locations are hard to find. We are familiar with bidding wars for homes and now common place are bidding wars for rentals units. It is not unheard of to have 5 or more people bidding on a single unit.
Location continues to matter and urban rentals in trendy areas are hot commodities -- think Vancouver, Toronto, Ottawa. And if by chance you are lucky enough even to see a potential place, be prepared to pay for extra amenities such as parking and hydro and be willing to move almost immediately.
I suggested if this was the route he was going to take, he might want to try to establish some sort of rental history pattern to know what he was getting into and sign a lease more for his benefit than theirs. I tried to explain that the cost of a home is approximately 10 to 20 per cent more than renting and if he managed it correctly he could build up quite a nice little portfolio -- possibility for a down payment for a home down the road.
Just for the record, I believe in home ownership, love that the appreciation of your home is tax free and I do believe over time it will increase its overall net worth. I provided this argument and he smiled and simply stated -- not for me right now, but I do get the savings strategy and I will do that. A small victory.
Bottom line, whether you are just starting out or you may be considering downsizing to create an income stream in retirement for yourself, the rental market is hot, competition fierce and you need a plan and be prepared to execute against it. Renting is no longer a default to home ownership. It is about choice.
My last piece of advice to David… you absolutely need to know not only what you are willing to pay for rent but also what you can afford to pay in rent. Renting can be as emotional as buying and allowing your emotions to dictate your decisions could prove costly. He totally got that.