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Renting vs. buying: Canadian edition

Renting vs. buying: Canadian edition

I only recently started following Rational Reminder and I found this video on renting vs. owning in Canada fascinating. One, because it is a Canadian model; and two, because I have always thought “owning is throwing your money away” was a silly comment. Housing is a need, being angry about renting is – to me – equivalent of being angry at your grocery bill because you eventually have to go to the bathroom.

That said, I also have discovered that a lot of people prefer owning because of the reasons laid out below: it’s more of a psychology problem than a money problem. While I have discussed this issue in other posts and don’t regret my decision, a $15000-$22000 savings (on average) if you do EVERYTHING right as a renter just isn’t worth it to me. I really enjoyed this deep dive and model and I have summed up some of the key points below.

Renting vs. owning in Canada: research & a model

– Houses are forced savings. People are better at paying a bill than they are about saving money. If you are going to rent, it is only a better deal if you are investing the money.

– Owning is riskier short-term but is inflation-hedged in the long term. Renting is the opposite: riskier long-term due to inflation.

– Ben Felix’s model (2005+) includes both current rents and rent controlled units (vacant vs. occupied) for myriad rental types (bachelor, 2-bed etc) and both the primary (purpose-built rentals) and secondary units (condos someone may choose to rent) and includes things such as down payment and insurance costs as well. He runs the model as if the difference is invested in the market and is not taxed (ie: in a TFSA). See the video for a more detailed explanation of how he invested the money and the fees for owners and below market vs. jumping to a market rent as well as where he got his pricing details from. It assumes you would save 90% of the difference between renting and owning. Land also typically increases but building decrease so he does include some maintenance in his calculation. But he basically concludes that:

    o Renting beats owning in 7 of the 12 metropolitan areas where he ran his model

    o The renting net worth beat owning by +$15000

    o Edmonton had the least difference between +renting vs. -owning

    o Kitchener-Waterloo had the highest difference between +owning vs.-renting

    o Investment fees are important: 0.25% is used for this model but people were actually paying WAY more (probably around 2.5% on average). In 2022 it was 1.76% on average, largely driven by active mutual funds. If he bumps the fee up to that 1.76%, renting trails owning in 10 of the 12 areas. IMO: this is a super important finding mostly because Canadians didn’t have access to discount brokerages for this entire period and were paying higher investment fees. We tend to forget but before the 2010s, self-directed investing was more difficult than it is today! Most people used banks or FAs that charged an AUM!

    o On savings efficiency (how much of the difference you actually save to invest). If you save:
    – 100% is where owning comes out ahead in 5/12 areas
    – 90% is where owning comes out ahead in 7/12 areas
    – 80% is where you are better off owning in 10 of the 12 areas
    That is a HUGE difference!

    o For the maintenance cost assumption:
    – 2% it was better to own in 7 areas
    – 3% it was better to rent in 3 areas
    – 2.2% (the average) is 6 out of 12 favour owners

    o They assumed amortization is 25 years but if you knock it back to 15, owning only beats renting in 3 areas and renter wealth exceeds owner wealth by $78000 on average. A 35 year amortization owning beats renting in 6 areas and owner wealth beats renter wealth by a little over $15000.

    o With a 50% downpayment renters come out ahead in 9 out of 12 areas & renter wealth exceeds owner by $59000. With a 5% downpayment, renters still have a 7/12 advantage but the renter wealth advantage drops to $12000. Leverage works!

    o This assumes you were also all-in on 100% equities, which may have been super difficult for people, especially through the 2008 financial crisis. “People panic sell stocks when they go down but rarely does anyone panic sell a home.”

    o Disc: Maintenance/depreciation as a percentage of the housing value is contentious because the exact same structure may not cost more to maintain just because it is in a HCOLA area. BF then goes out to silo maintenance vs. depreciation and for this he looked at condo fees and discovered that in lower priced cities, condo fees were higher and in higher priced cities condo fees were lower (as a percentage of the property value). The result? Only one city – Victoria – switched sides from renting to owning being more of a benefit and it only increased renting to being advantageous by $22000 vs. $15000 in the model above.

Good points to consider

– People may be buying for their future selves, not their current needs.
– In an emergency, the last thing you will stop paying is your mortgage but the first thing to go is the savings.
– All things need to go right in order for the models to truly favour renting: discipline to save, low fees, not panic selling your portfolio and psychologically, this is very difficult.
– Renting is throwing your money away unless you are already prone to throwing your money away

The Commentariat

They did a video update based on the comments they received, and it is also well worth the watch:

– Here is the Globe and Mail article they reference
– You can’t get evicted owning but if you have to move, the transaction costs are a lot
– Moving is disruptive (especially for kids)
– Maybe there aren’t rentals in the place you want to live & it’s especially more difficult to find single-family homes
– “Renting isn’t throwing money away, throwing money away is throwing money away, buying a home may help people to throw less money away”
– “People rent for the minimum they will accept but buy for the ideal” …or buy for the future
– People don’t do the math on housing. The amount properties increase never are as crazy as they seem when you break it down
– Owning a home becomes more attractive when you have maxed out your other non-taxable accounts due to the no capital gains on your primary residence in Canada
– Landlords are taking a loss on ownership in some areas & holding out for capital appreciation (they didn’t discuss that a lot of landlord expenses are tax deductible though as are losses when rent doesn’t pay the bills)
– “Wealthy people tend to be owners!” But renters also tend to be younger, make less money and spend more of their income on housing. Correlation ≠ not causation
– Just because you could hypothetically have a higher net worth doesn’t mean you should necessarily borrow against your house but for a lot more volatility and less peace of mind
– Renters need more wealth because they don’t have the hedge against future housing consumption
– If you do find a great rent controlled place, renters can have less stress and more money
– Labour mobility: owning while young could commit you to one geographic location and it could stifle your career

…but are owners happier than renters?

– Canada: no significant impact except for lower income households were more unhappy. Similar neighbourhoods = similar happiness
– Switzerland: no, maybe small negative relationship between owning and happiness
– Germany: yes, but much less than people think (especially for people who are extrinsically motivated)
– US: no. Owners are more unhappy because they spend less on other enjoyable activities
– Germany: mortgage debt negatively affects people, especially for people who have higher mortgages relative to income

There are some things that I have brought up before but I feel need special attention here as well:

You can go a very, very, very long time not doing any maintenance to a house except for emergency repairs and still have a liveable space & see a huge appreciation in your land value. Almost every neighbourhood I have every lived in has had one of those neighbours who keeps to themselves, does almost no home maintenance and the grounds are only sporadically maintained. The roof shingles are peeling, their cars are on blocks and they generally seem to be shut-ins. One day you see a for sale sign, a dumpster is placed in the driveway and it is sold for land value & torn down. Now, I am not recommending this by any means but most homes can go a very long time without preventative maintenance. You can live somewhere for a really long time without it falling down around you.

On the back of that, I’d like to say: if you are poor, disabled or on a fixed income: buy! Smarter people would buy together. If you are going to have to rent a shared space anyway, then if you can qualify for a mortgage, do so. Single parents, disabled folks and poorer folks have less options when they are renovicted. So why not buy with friends? In my province it is two adults per sleeping room. I mean, I also lived in a 17-bedroom Goth commune in university so maybe I just have a higher tolerance for friction than many other people.

We have a pretty ok financial plan but if everything went to crapola, we would rent rooms out. The going rate in my neighbourhood for a room rental is $1000. Having a house would allow us to take in some renters to smooth over some rough patches in our retirement plans. Do I want to do this? No. But I would in a heartbeat over losing my home or not eating. Sure, it’s great for Mr. Tucker and I to have a shared office but if we needed to we’d pack it in and rent the room. Having a home gives us this option. Even if we end up selling this house when the kids move and buying, say, a smaller condo I would definitely stick with a two-bedroom so that we could take in a renter if need be. Heck, having co-op or exchange students would bring in income and give you summers off if you wanted as well. I can’t rent a part of my portfolio (although, I may be able to use it for a loan).

To me, the peace of mind of having an accessible, paid off home that can house my family is worth the $15000-$22000 price tag of a LIFETIME of PERFECT investments. I know I won’t be a perfect investor, so forced savings works for me. I also like to put holes in my walls to hang up art and I adore my accessible bathtub. I have been tossed from way too many apartments in my 20s to really consider going back to renting unless I was under duress. Sure, our house appreciated by 55% in the 7 years since we bought it (which mimics a similar investment in the TSX) and because the house was maintained well by the previous owner we’ve only done cosmetic things to it (except for the bathtub but I got tax credits for that). So overall I am happy with my choice.

(I have done my best to take notes/summarize as much as possible. Most errors are probably my own and not the creator’s. Apologies if there are mistakes)

Don’t make decisions on perception

Don’t make decisions on perception

What I’m reading
• [Early Retirement] was not what I expected. Honestly, I have never loved the acronym FIRE (in my head it should be FIER, which is the French word for pride) but I don’t begrudge people using it. They know what it means to them. I prefer FI just because in the early 90s when I read Your Money or Your Life that is the term they used – and it is via FI that allowed me to stay home with my kids, start a business, go back to work etc.. But I absolutely LOATHE when bloggers nitpick about people saying they’ve achieved FIRE but they still work. It’s like when people say “dividend investing isn’t a thing.” Of course it is, people have defined their terms and so the clarity is there. Being pedantic about it is just weird.

• Yes, and… this reminds me of a meme I stole from the internet:

A lot of the “this is the worst of times” suffers from the knowledge of history. Being in the middle of WWII when things were absolutely dicey (most people don’t realize how close it was at one point) was horrific. But from our place in 2023 where the Allies won, it doesn’t seem so scary. Sure, things definitely feel pretty terrible right now but how much of it is real and how much of it is just perception? We spend so much time on our phones and as a result of that the algorithm feeds us things that confirm our perspectives because that content keeps our eyeballs on their ads. It makes us more fearful and makes us believe things are so much worse than they are. It reminds me of this Dara O’Briain bit from 2009:



The Economist published this fascinating chart recently about how the pandemic has broken people’s views on the economy. The economy in the US is actually doing well, but people don’t believe that it is. It’s the first time since they started tracking sentiment that there has been such a wide gap. I suspect a lot of that is due to how we are constantly being fed doom and gloom from various social media sites. They call it doomscrolling for a reason.

But even if you go back and read economic headlines from the past, the only way we really knew things were good or bad was in retrospect. 2010-2020 was unprecedented for growth but for a lot of that period there was a lot of doom and gloom predictions floating around. This is a very good reason to ignore the noise and just focus on your goals. If you had believed a lot of the advice from “experts” you would have made some terrible decisions. Just leaving your money in an index fund for the entirety of that decade would have made you a very rich person. Ignore, ignore, ignore. Trust the process. Stay the course.

Did the 4% rule work if a Canadian retired in 2000?

Did the 4% rule work if a Canadian retired in 2000?

I love this article from the Globe and Mail (sorry kids! Sub only!But please sub to at least one Canadian paper and one magazine a year to support homegrown content /soapbox) but here is what I think the most important takeaway is:

The bursting of the internet bubble provided a real-time test of Mr. Bergen’s “4 per cent rule,” which brings me to the hypothetical Canadian investor who started their retirement at the end of August, 2000. They began with a $1,000,000 portfolio. Half was invested for growth in the S&P/TSX Composite Index while the other half was invested for income in the S&P Canada Aggregate Bond Index.

The investor took $3,333.33 out of the portfolio to live on at the end of each month (a 4-per-cent initial annual withdrawal rate) with the payments being stepped up each month to adjust for inflation. (The figures herein are based on monthly data with reinvested distributions, but they do not include fund fees, taxes or other trading costs. The portfolios were rebalanced monthly.)



(Yeah, the 5% seems to be missing)

This is absolutely great news — unless you were that 6% guy. Ouch!

Optomizer vs Satisfier

Optomizer vs Satisfier


Here I am satisfying my need to consume university-priced pitchers at a local brewery last night at book club. It was a $20 night out, which never happens!

I am not an Optimizer. Granted, I LOOOOOOVE reading blogs that get into the weeds with detailed tax, investment and savings strategies but I am not that person. I enjoy a rousing debate and when personal finance keeners bring out the calculators and start fighting, I make some popcorn and watch. But I am not that person.

I don’t budget down to every penny. I don’t know the asset allocation of every ETF available on the market. I just see which ones have the average allocations that represent the markets/indexes/regions I want (and the fees I don’t) and then I push the BUY button. I know that this makes some people deeply, deeply uncomfortable.

But here is the thing: I know SO MANY PEOPLE who just walk into a bank/sign up for a salesperson to take 1% of their money (whether they are good at making YOU money or not) and then they just wipe their hands and walk away. They feel confident that a “professional” is taking care of their money when they are truly getting scammed.

Conversely, I know people who are DOING NOTHING. Scared of the stock market, they let their cash accumulate in accounts where their cash is being slowly eroded by inflation. Even sticking that into a 5% GIC would be at least doing something that would at least be stemming the hemorrhage of your buying power to inflation.

Both of these kinds of people are doing the exact same thing: they don’t trust themselves enough to learn the basics and they are scared that they will lose everything. So they make the most inefficient decisions possible because it feels comfortable.

Don’t get me wrong, I think money psychology is super important. You have to make decisions that help you sleep at night. But I feel like you can only make those decisions if you have all of the facts and oftentimes people don’t. They try and play it safe because they don’t know (or don’t want to learn) the basics of how to invest and in the process they allow themselves to fall victim to a predatory financial sales community or lose their money as it gets eroded by inflation over time. Sure, it may feel good to be stagnant and/or ignorant today but what this means is that you will lose your access to a secure or even bountiful retirement. The longer you wait, the more you lose.

People often get the impression that I know the ins-and-out of the stock market because I do enjoy discussing it, either in our Money Mondays group or with friends. But in reality I only really know how the basics work. And more controversially, I truly believe the following things:

1 – Most Financial Advisors don’t know more than you could learn on your own by reading a few books. Still scared? Get a fee-only FA. They are worth the money to help build you a plan without draining your nest egg.
2 – The average person doesn’t need to know much more than the basics of the stock market (although, I do recommend they learn as much as possible!).
3 – Inflation is like losing money every year. We tend to feel good psychologically if our $100000 stays at $100000 from one year to the next. But, realistically you can only buy $97000 worth of goods this year with that money when inflation is at 3%. That’s actually a $3000 loss that you don’t see.

Things that you do need to know:
1 – Invest regularly, preferably you can set it up to automatically fund your accounts and then forget it(ish).
2 – How ETFs/Index funds (and maybe even Robo-Advisors) work.
3 – Know what tax shelters are available to you in your country and learn how to use them (ie: retirement accounts)
4 – Only look at your accounts once a year.

Some people are on the cusp of having a coronary just reading that. But I am not an Optimizer, I am a Satisfier. I am satisfied to point myself in the right direction and then hobble down that road. I am not sprinting to some ridiculous goal of making my bajillions on stock tips, I am looking to make a decent decision (buying the index for an average return) while minimizing my losses (fees, inflation). The average return of the S&P is 11+% (1957-2021) and the average return of the TSX is 9+% between (1960-2020). So logic dictates what Jack Bogel introduced to the world: if you buy the entire thing as an index fund, your returns will follow the market.

Of course, I am simplifying things (and nothing works out 100% of the time) but that is the beauty of it: it’s that simple! You don’t need through reams of company reports and a deep knowledge of how every company you buy works. You just need to know that you are heading down a road that even when it gets winding and rocky (when the average return is down, like last year) will eventually take you to where you are going. As a satisfier, that is good enough for me. You give up huge gains for steady growth and the ability to sleep at night.

I do my budget the exact same way. I lay out all of the mandatory things (bills, savings) and set it up to come out of my account as much as I can. Whatever is leftover is mine to do with what I want. I don’t do a zero-budget where every single penny has to be allocated like an Optimizer would. Being a Satisfier, I just have to be concerned about my obligations and then the rest is mine to toss around. Of course, I am frugal in many ways (how does a green bean know that it is a generic vs name brand green bean?) and that allows me to save more in my day-to-day life on things I don’t care about. But that means I can just allocate more to my more expensive habits, like travel.

“BuT tUcKeR, aRe YoU sAyInG pEoPlE sHoUlD bUy InVeStMeNtS tHeY dOn’T uNdErStAnd?”

No. I am saying that they only need to know the basics, not become experts*. Historically, over time, the stock market always goes up**. If the bottom falls out of the entire economy, we won’t even have to worry about our investments because we will need to grab our leather thongs and fire guitars and wander out into the Mad Max desert.

If you are still worried, PLEASE, PLEASE, PLEASE read JL Collins’ book, The Simple Path to Wealth which will give you more info to change your life than any other book out there.

*I am not a Financial Planner nor do I play one on tv. Quite frankly, they’re probably acting too.
**It doesn’t mean it always will in the future but again: we’ll have bigger problems if it comes to that…