Buying in your Twenties (Globe)

[exstasie]

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If you had the choice to rent a place for $1,500/month downtown, or own your place and have mortgage/condo fees for $1,500/month, which one would you choose?

Personally, like Urban mentioned, I have always had the priority to owning their own property. I don't know if it is based on culture, but it is a goal that has been instilled in me for quite awhile and it is deemed an important step in ones life.

I am currently at the point where I am able to comfortable afford a place of my own, and not have to struggle to get from month to month. I am still fairly young, and there is still a lot of time for me to screw up in my financial life. however, I believe that I have done fairly well for myself and am ready to enter into the real estate market. Yes, it may be risky from an investment point of view, however I am not purchasing my condo for an investment, I am purchasing it for a place to live in the city.

Obviously finding a place to that would give you the best ROI is important, but that isn't why i'm buying the place.

and yes, I know quite well how mortgages work.
Technically, I don't work in a financial institution, I work for ALL of the financial institutions, but I think I got the gist of the Mortgage concept.

PS. It helps a lot as well when you have a diverse and broad social network. Having friends and family who work in FIs, Insurance, or Lawyers and Real Estate Agents makes things a little bit easier and cost efficient.

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I agree with what you and Chuck. I don't think it would be beneficial for someone to rush into buying real estate, especially when the can only afford to put the minimum amount down. Personally, I will have 50% down payment on the day I move in so I am not worried at all about payments or any fluctuations in the economy.

It is important to enjoy life and going on holidays, and being able to buy things you want, so spending 75% of your disposable income on your housing wouldn't be something I would consider doing.

I've mapped out my future expenses and income to ensure that I could afford a place, all while still being able to live the way I currently do, and feel that it is a great time for me to get my own place! Can't wait It's quite an exciting time!

 

[whatever]

^this is accurate.

However, this breed of buyer represents about 25% of today's buyers. Another 25% is probably the Bay Street Babies described in the story and 50% spec buyers.

Count me in that first category, too. I'm 26 and tomorrow I take possession of my second condo (I bought my first when I was 23, but have since outgrown it). I'm fully aware that from an accounting perspective I'm an idiot, but from a cultural perspective home ownership is a prerequisite for being considered a respectable adult.

I know that I could easily have another 30-40k in my portfolio right now if I had just stayed at home or rented even (considering what I've paid in interest, condo fees, utilities, legal fees, realtor fees, etc), but then, well, yeah, I've internalized this stupid culture that tells me that to do otherwise would be unrespectable

 

[Malthus]

I agree with what you and Chuck. I don't think it would be beneficial for someone to rush into buying real estate, especially when the can only afford to put the minimum amount down. Personally, I will have 50% down payment on the day I move in so I am not worried at all about payments or any fluctuations in the economy.

It is important to enjoy life and going on holidays, and being able to buy things you want, so spending 75% of your disposable income on your housing wouldn't be something I would consider doing.

I've mapped out my future expenses and income to ensure that I could afford a place, all while still being able to live the way I currently do, and feel that it is a great time for me to get my own place! Can't wait It's quite an exciting time!

Heh, obviously we are very similar.

In response Whatever, I'm the last person to knock the satisfaction of home ownership. It is worth paying a lot for, to look around your place and know "this is mine. I own it. I am ultimately responsible for it. And within reason I can do what I want with it". [To my mind a detached house offers the most in this form of satisfaction, but I digress]

What is money for, if not to provide you with the satisfactions that you want?

On the other hand, in my mind this satisfaction struggles with a different and equally culturally-driven issue - a big fear of debt. My only concern is that the people in that article seem to have a rather cavalier attitude towards racking up a big pile of very long-term debt, and a fluctuation in the economy could see them tossed out on their ear - no property and no money, either.

 

[Urban Newbie]

Good point, Malthus. It's a balancing act. Yes, I very much want to be a homeowner. But would I make unwise decisions (HUGE debt, 40-year-mortgage, precarious position that could be toppled by a slight, inevitable shift in the market?) hell no.

The people on this forum who bash all home owners across the board frustrate me. I do, however, share their frustration with the "I can have anything, throw caution to the wind, the good times are here to stay" attitude that many buyers are bringing into the market with them.

 

[lowesthangingfruit]

OK, I will play devils advocate for the poor renters that never get any respect.

There are both pros and cons to renting vs. buying no doubt.

The way I see it is simple. The incremental dollars that a renter has is available for investment oppurtunitities.

The owner however is using the same incremental dollars to pay down home equity.

So the question is which will get the better compounded rate of return in the long run say over 25 years. My bet will be on the financial markets outperforming real estate in the long run and I think most past data seems to indicate the same (although past performance is no gaurantee of future results blah blah blah disclaimer).

Then there's the always common arguement that you can't live in your financial portfolio which is true I guess in the literal sense. But this arguement doesn't make sense cuz really the difference is the renter is simply living in someone else's property whereas the owner is simply living in his/her co-owned property with the bank until it is fully paid off.

By the way, I am not a renter, but after reading this myself,....maybe I should become one. Any thoughts ??

 

[Urban Newbie]

Lowesthangingfruit - I get what you're saying. The ironic thing I find is that, if I find anyone with the drive, intellect and determination to have a great financial portfolio, they usually are not the TYPE to rent. I don't find too many financially secure, well-off men and women with a fat portfolio who are also happy to live in someone else's property... That's not to say there's no such thing, I just find the two tend to go hand in hand: A wise investor has a diverse portfolio that includes real estate but is not limited to real estate. People who cling to either stocks or real estate while bashing the other are living in a very black and white world.

 

[GraphicMatt]

The "renting is throwing your money away" argument is one of the more pervasive myths around today. I think a lot of it comes from parents, many of whom bought into the suburban dream and paid pennies for a big house in the middle of a new development with a name that probably included the word "Meadows" or "Springs".

I'd be the last person to argue that buying in your 20s is uniformly a bad idea. If you're smart about it, then more power to you. But, as has been pointed out in this thread, a lot of people are stupid about it -- putting themselves into huge debt just for the prestige of owning.

I'd advocate renting for at least a short period (2-3 years) before you buy anything. Not only for financial reasons, but also because it gives you a taste of what it's like to have your own place without being on the hook for fixing everything. You'll learn a lot about money management and budgeting without being "all in" as you would be with your own place.

Another interesting thing about our generation: for some, it's less embarrassing to live at home until 25, 26 or later than it is to rent a place.

 

[grey]

Yeah. Right.

Most people don't have rsp's and they are going to do that molasses move? And what if the equity markets crap all over? Or what if most investors are exactly what they are, sheep?

Oh goodie. Buy an asset like a condo that could only get diluted in value as more get built, as interest rates rise, and the condo fees go up, and then take existing risk and put it into a slow mo leverage manoeuvre. I can hardly wait to take a look at THAT asset composition 10 years from now....

Over a longer horizon, though (i.e. the period it would take to convert mortgage debt into investment debt) market fluctuations would average out. Slow as molasses, sure, but far less risky than get-rich-quick buy & flip speculation.

 

[Jonny5]

OK, I will play devils advocate for the poor renters that never get any respect.

There are both pros and cons to renting vs. buying no doubt.

The way I see it is simple. The incremental dollars that a renter has is available for investment oppurtunitities.

The owner however is using the same incremental dollars to pay down home equity.

So the question is which will get the better compounded rate of return in the long run say over 25 years. My bet will be on the financial markets outperforming real estate in the long run and I think most past data seems to indicate the same (although past performance is no gaurantee of future results blah blah blah disclaimer).

Then there's the always common arguement that you can't live in your financial portfolio which is true I guess in the literal sense. But this arguement doesn't make sense cuz really the difference is the renter is simply living in someone else's property whereas the owner is simply living in his/her co-owned property with the bank until it is fully paid off.

By the way, I am not a renter, but after reading this myself,....maybe I should become one. Any thoughts ??

I went through this decision process when I moved to Toronto 3 years ago. I was in the same position as the guy in the article (except I actually lived an hour away, not at Lawrence). I was confident I could make good investment choices with those "incremental dollars". All has gone according to plan so far and have no plans to stop renting at this time. I've actually found the rental market in the city to have some exceptionally good deals and that has really turned me off buying.

 

[Hypnotoad]

This is an interesting and timely article for me. I rent downtown and pay well below the market price for a 1+1 in a condo that includes all the features and cable. My only bills are my credit card and my cell phone.

I am 27, have a good job and am saving. I do not mind renting and avoiding the responsibilities of home ownership and the associated stress. I prefer to save-up and buy a place with as much money down as possible and a plan to pay off the mortgage quickly rather than over 40 years. The 40 year mortgage is a trap and will certainly cost more with fees and upgrades than my rent.

I don't have any feelings one way or another about how someone else decides to spend their money or own (versus rent). I don't understand why some people take it so personally when someone else has a different financial plan or owns a condo at an early age. It is none of my business. I do hope that the twenty-somethings in this article and in this threat are successful in their choices.

At the same time I know I'll always be priced out of my ideal area but I will never, ever again move to the suburbs

 

[TKTKTK]

I've been in a position to enter the real estate market for about 2 years now - but I've held off. My rent is ridiculously cheap and my investments have been doing gangbusters, even compared to a hot real estate market

Once the market cools a bit more, I'll probably start thinking seriously about actually snapping up a place - it just wouldn't be a lucrative start right now

 

[lowesthangingfruit]

Lowesthangingfruit - I get what you're saying. The ironic thing I find is that, if I find anyone with the drive, intellect and determination to have a great financial portfolio, they usually are not the TYPE to rent. I don't find too many financially secure, well-off men and women with a fat portfolio who are also happy to live in someone else's property... That's not to say there's no such thing, I just find the two tend to go hand in hand: A wise investor has a diverse portfolio that includes real estate but is not limited to real estate. People who cling to either stocks or real estate while bashing the other are living in a very black and white world.

Like I said, I am not a renter and I am playing devil's advocate here. Having said that, I have a few responses to what you outlined.

Firstly, re. diversification of investments. Please remember that to "play" the real estate market, you DON't have to own/invest in a home or condo physically. There are a plethora of vehicles on the public and private financial markets out there that offer leveraged, non-levarged, long, short, income producing, etc oppurtunities that directly or are indirect plays on RE anywhere in the world. Furthermore, these vehicles are alot less stressful and alot more liquid then holding physical real estate assets. Not saying holding physical real estate assets is wrong, but the divesification arguement doesn't fly here cuz you can get it if you want it in the financial markets.

Secondly, the cause and effect conclusion(s) you draw by observing well to do people owing real estate may be flawed. You seem to imply that because they own real estate, they are well to do, or vise versa. Don't know which way you see it but just because you observe the two factors to be associated does not imply a cause and effect. What you did point out that was interesting is that "I don't find too many financially secure, well-off men and women with a fat portfolio who are also happy to live in someone else's property". The key word here is HAPPY. Reminds me of a conversation I had with a very financially saavy individual once in which he emphatically stated that if he had it his way, he would continue renting indefinetly but the constant harrassment from his wife and family and friends and immediate social circles to buy instead of rent drove him crazy and so he just plot down the cash to buy a house even though he knew it was a stupid thing to do at that market cycle. The point is, ppl buy physical real estate for all sorts of reasons aside from making money. I would suspect physical real estate has alot of social and emotional overtones that often trumps the profit motive.

 

[Malthus]

OK, I will play devils advocate for the poor renters that never get any respect.

There are both pros and cons to renting vs. buying no doubt.

The way I see it is simple. The incremental dollars that a renter has is available for investment oppurtunitities.

The owner however is using the same incremental dollars to pay down home equity.

So the question is which will get the better compounded rate of return in the long run say over 25 years. My bet will be on the financial markets outperforming real estate in the long run and I think most past data seems to indicate the same (although past performance is no gaurantee of future results blah blah blah disclaimer).

Then there's the always common arguement that you can't live in your financial portfolio which is true I guess in the literal sense. But this arguement doesn't make sense cuz really the difference is the renter is simply living in someone else's property whereas the owner is simply living in his/her co-owned property with the bank until it is fully paid off.

By the way, I am not a renter, but after reading this myself,....maybe I should become one. Any thoughts ??

I think it isn't simply a financial issue.

I have no doubt that everything you say is correct. But there is an undeniable satisfaction that owning your own place brings, which should enter the equation somehow. Sometimes, as I said above, I think chasing that satisfaction leads to unwise financial risk-taking, but on the other hand, you can't discount it totally - after all, ultimately the point to making money is to achieve various forms of satisfaction.

I see it as a sort of balance:

- The satisfaction of being debt-free
- The satisfaction of owning your own place
- The satisfaction of investing a big pile o' money in non-real-estate investments, inside and outside RRSPs, RESPs, insurance, etc. etc.
- The satisfaction of spending cash on shiny toys & vacations for youself, your spouse, your kids, etc.

It doesn't make sense to pursue only one satisfaction at the expense of all the others ... which should go into the calculation as to whether it makes sense to rent or own. IMO, one should only consider owning if one can do so without being dissatisfied in other ways (huge debt, no investments or savings, no toys ...).

Of course, what satisfies one person may not satisfy another.

Edit: You put it well when you said:

The point is, ppl buy physical real estate for all sorts of reasons aside from making money. I would suspect physical real estate has alot of social and emotional overtones that often trumps the profit motive.

Couldn't agree more.

 

[syn]

^ Have to agree with you on that one. Toronto Life had a great issue a couple months back about how buying isn't always the best choice. People always say something like "at least im not paying a landlord or someone else's mortage" when they seem to forget that for the first couple years they are mostly paying interest, when they could have used some of those downpayment savings for better investments to buy in a few years with a much smaller mortage.

I completely agree. A lot of people buy with really long terms and huge interest rates. They'd be better off just renting and investing/saving their money.

Buying your own place is considered a right of passage so a lot of people want to do it as quickly as possible. I don't think there's anything wrong with renting until you're really financially ready.

 

[TrickyRicky]

We all know how difficult it can be to make financial plans while still keeping up a normal standard of living in this culture and society, but man the article makes someone in their late 20's sound like a puppy. Responsibility for bills? How late are we extending childhood to now. Is 31 the new 21 or something?