I prefer renting to owning.
I have been both an owner and a renter. At one time, I owned three properties in Le Plateau, one of the trendiest neighborhoods in Montreal, and I have been renting the same apartment for over 10 years, and I much prefer being a renter to being an owner.
When I was a property owner, I had to attend condominium meetings, deal with co-owners and neighbors, handle repairs, pay taxes, and manage many other headaches. On top of that, landlords with HUD-assisted properties even have to think about things like a pre NSPIRE inspection, which is basically a practice check-up to make sure buildings meet strict federal standards. Now, there isn’t a problem with any of this at all, it just means more work, and if you’re someone who doesn’t want to put in the extra (but legal) work, then being a landlord isn’t going to be for you. Honestly, it’s just another layer of responsibility that renters never have to deal with. Besides, as a landlord, you may also face legal liabilities you never expected if your property accidentally falls below standards. When something gets damaged, it’s tempting to fix it yourself at home. But with a tenant, this may be the last thing you want to do. What happens if your DIY repair works fail? You may think it’s only a case of redoing it or reaching out to a contractor to have it done properly, but there may be hidden costs. For instance, if a DIY repair led directly or indirectly to your tenant sustaining a health issue, you may have to deal with their personal injury lawyer, who will seek compensation. This comes on top of the cost of repair.
As a renter, I deal with none of that. I pay my rent every month and don’t have to worry about anything else. Plus, keeping up with payments when you’re in a sticky spot can be rough as a homeowner. You’ll find that lenders are relentless in chasing you down, whereas some landlords can be more lenient and understanding. If you’re in this situation, finding a good home-equity partner could help you out. That way, you can stay in your house and not have to deal with the debt cycle you’re currently in.
Owning property is not a great investment
Some people may say that buying a property is an investment. Well, when we speak about investments, we have to compare it to other investments.
The average annual appreciation rate for U.S. real estate over the past decade has typically ranged between 3% and 5%.
The average annual appreciation rate for Canadian real estate over the past decade has typically ranged between 5% and 7%, with some regions experiencing even higher rates.
Remember, owning a property is NOT passive income. You have to deal with tenants, repairs, insurance, taxes, and many other issues.
The average annual return over the past 10 years of the S&P 500, considering both price appreciation and dividends, has typically been in the range of 12% to 14%. This investment is 100% passive—no meetings, no complaints, no headaches.
Diversification
When you own a property, most of your capital is concentrated in this one property. If there is a fire, a flood, or a tornado and you are not properly insured, you can lose it all. And even if you are properly insured, insurance can be expensive and will eat into your profits.
On the other hand, when you are invested in the stock market, your capital is diversified among hundreds of companies. Sometimes the energy sector is down but technology is up. Sometimes the retail sector is down, but the telecommunications sector is up. Thus, your assets are diversified and ready to face any economic fluctuation that may come.
Flexibility
When you invest in real estate, you have very little flexibility regarding your investment. You have to save for years to give a down payment to buy the property. Then you have to pay high commissions to sell. Assuming that you pay from 4% to 6%, that means that on a $1M property you pay $40,000 to $60,000, plus all the additional city taxes (in my city we call it the Welcome Tax). When you sell, you have to sell the property as a whole. You can’t sell a bedroom, a bathroom, the entrance, or the backyard. Finally, selling a property involves many hassles and it may take months, even years.
When you invest in the stock market, you can invest small amounts, say $100, $1,000, or whatever amount is convenient for you. The commissions are very low. For example, to sell $1M in stocks, I will pay $10.00 and there is no additional tax other than my regular income tax. I can choose to sell $100, $1,000, or whatever amount I need at the moment and the transaction could take seconds.
On the positive side. Owning a property allows you the possibility to remodel the property to your taste. In addition, if you stay in the property for over 5 years, you might end up saving some money. And if you don’t have the discipline to save, owning a property might become a forced saving vehicle.