Why Houses Are a Scam

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FIRECracker is a computer engineer/children’s author, who used to live in one of the most expensive cities in Canada. But instead of drowning in debt to buy a house, she saved and invested instead. What resulted was a 7-figure portfolio, which has allowed her to retire at 31 and travel the world.
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photo credit: Raphael Love@Flickr. License: CC BY 2.0

I had a major case of déjà vu this weekend.

I visited two friends whom I hadn’t seen for years. And like so many of our other peers, they had two things in common:

  • They own property
  • They are stressed out of their minds

One of them has two rental properties (which he supports on one person’s income), and just bought a third.

The other one owns one house in the suburbs and just bought another condo downtown. Her condo fees are $700/month…just $100 shy of our rent when we lived in Toronto.

While we chatted over Korean BBQ and Soju, I had a glimpse of my old life. As I listened to my friend, Ellie, complain about her mortgage and long, stressful work days I saw my ghost. The ghost of FIRECracker’s past.

Ghost Me stared back, eyes rimmed with dark circles, dreading the upcoming Monday, when she’d have to get back on the treadmill, toss back a couple of Xanaxes, and continue worrying about her life slipping away.

Looking at Ellie, and seeing Ghost FIRECracker, it dawned on me how close I’d been to trapping myself in that life. A life I didn’t want, all because of FOMO (Fear of Missing Out).

Ghost FIRECracker had gotten the high paying job, endured the long stressful hours, and almost….almost bought the overpriced house. After all, all my friends were jumping into the market. What if I was missing out and would never be able to buy?

But luckily, I thought about FOMO in a different way. Instead I thought about FOMO like this:

  • What if I was missing out on a life that I could CHOOSE rather than one dictated by the Boomers?
  • What if I have a child and I miss out on their childhood because I’m too busy running the rat race and struggling to pay off my massive mortgage?
  • What if I get ill and die before I make it to 65? What would be the point of my life?
photo credit: methodshop.com @ Flickr. License: CC BY-SA 2.0

But clearly Ellie didn’t see it that way.

When I asked her why she doesn’t sell her place and rent instead, she laughed. A derisive laugh.

“I can’t go back to renting!” She said. “I’ll miss out on all the investment gains!”

“And besides, if you have kids one day, you’ll want to grow some roots. “

I get it. The nesting instinct and FOMO are two of the main reasons why a homeowner would never go back to renting. Especially since their friends can’t stop bragging about the windfall they’ve made in the market.

Here’s the thing though. Those friends are filthy LIARS. Why? Because until they sell the house, they won’t make a single cent. And most people won’t sell and go back to renting. They’ll be too emotionally attached to the house and their identity as homeowners. So they will either keep the house or buy a bigger house. And then the cycle continues. And in 20 years, they’ll wonder where their life went. They’ll wonder why they didn’t get to spend time with their kids because they were too busy working. And now their kids are all grown up and they’ve missed the best years of their lives.

Home ownership has now become a cult in North America (In France and Germany, most people just rent). But it wasn’t always this way.

So how did it happen? How did we become so obsessed with home ownership?

Did we get scammed? Tricked into believing owning a home is the ultimate dream when, in reality, it’s a nightmare?

Yes and yes. Houses absolutely are a scam, and here’s why:

1. The Conservative Government Popularized Home Ownership 

Traditionally, houses were a way for Conservative governments (specifically Reagan in the US and Thatcher in the UK) to secure more taxes and stimulate the construction industry.

After all, if you’re a homeowner, you have to pay property taxes. And if you’re stuck, worried about your property values, you’re more likely NOT to vote for change.

2. Property Tax is a Wealth Tax

When you own property, you have to pay property taxes no matter where you live. And you have no control over those taxes.

But when you invest, you actually pay FEWER taxes than the average working stiff. If the government ever introduced a wealth tax, people would immediate sell their stocks/bonds and move their money to another country. But you can’t do that with a house. If property taxes get out of control, you can try to sell the house, but then you incur closing costs and, oh by way, everyone ELSE would be trying to sell, so your house would be sitting on the market as supply overwhelms demand.

3. Speculators are willing to rent at a loss, to go after the capital appreciation

According to the Financial Post, “Ben Myers, vice-president of Urbanation, agrees that many investors in the GTA are not cash-flow positive on properties, taking the loss because they’ll make money on the underlying condominium.”

That’s not investing, that’s gambling. This is what’s driving up the prices. Not foreign investors. And once the cheap debt stops, the real-estate party will too, which brings me to my next point…

4. Interest Rates Are Determined by the Bond Market, not the Bank of Canada

Here’s probably a phrase you’ve heard before: “The Bank of Canada will never raise interest rates, so housing prices can never go down.”

This is a misconception on how interest rates work. Interest rates are determined by the global bond market, not your own government.

Our interest rates are pegged to the US’s. So even if the Bank of Canada doesn’t raise interest rates, if interest rates in the US go up, it can affect our interest rates.

5. Home Inspections Are a Thing of the Past

With the Toronto housing market so insane, people are forgoing house inspections. Inspectors are finding all sorts of problems (termites, mold, structural issues), after the papers have already been signed. This can cause thousands of dollars in unexpected costs, and unsuspecting homebuyers will be left holding the bag.

 6. Houses prices have gone up, but salaries are stagnant.

“Vancouver’s price-to-income ratio is 11.2, while Toronto’s is 8.2”.

Back in our Boomer’s parent’s era, the price-to-income ratio was a measly 2 or 3.

“With an average price of $627,395 in the Greater Toronto Area, a household would need income of at least $209,000 or so to be in sync with the guideline of having a price-to-income ratio around three”.

Which is insane, since the avg family income in the GTA is only $75,000—nowhere NEAR $209K.

We wanted to buy a house back in 2011. But once we stumbled into Financial Independence, we realized that having a portfolio that PAYS you passive income to travel the world is WAY better than having a house that constantly costs you money (insurance, maintenance, property tax,etc).

But nobody understands this. So they keep asking, “if we don’t buy a house, what’s the alternative? Invest? That can’t be safe? The only other “safe” option is sticking our money in a savings account, earning 1.5%. That doesn’t sound very sexy.”

And no, no it’s not. And it doesn’t make sense either. Because what FEELS safe isn’t really safe at all.

Photo credit: Dmitri1999 @ en.wikipedia

Our parents keep telling us to buy houses, because it’s the only investment they understand. Because it feels “safe”. And the only alternative is putting your money in a savings account.

Why do we think this way? Because they never taught us about investing in schools. In fact, when I graduated high school, I knew more about soil erosion than ETFs. What is up with that!?

No one tells you that when you lock your money away in a savings account paying 1.5%, you are actually LOSING money to inflation. Since interest is taxed at your marginal rate, you are losing between a third and a half of that gain to taxes. So at 0.75%, you aren’t even beating 2% inflation, making your money worth less and less over time.

Compare that to a balanced portfolio, earning an average of 6% year after tax. If you had 100K invested instead of sitting in a savings account for 30 years, the difference would be a staggering $449,222 after taxes! (100,000*(1.06)^30 -100,000*(1.0075)^30).

Equities are a natural hedge against inflation. As prices rise, companies charge more and make higher profits. That profit gets passed to you, the investor, either in the form of dividends or capital gains (as companies become more profitable, they can invest and grow their businesses, increasing the value of their shares). And because investment income is taxed more favourably than interest, you get to keep way more of those investment earnings than the tiny interest paid to you by the bank.

And if you still think investing is too risky, please go and read our investment series, where we explain how to build a balanced, diversified portfolio, using indexing.

And if you still want to include real-estate, consider including Real Estate Investment Trusts (REITs) in your portfolio. That way you can still take advantage of the rising real-estate market, without having to lock all your money in one risky asset. In fact, the REITs in our portfolio went up 22% in the past year…higher than the 16% rise in GTA house prices. Meanwhile we’ve never paid a penny in property taxes or maintenance, and we’ve been getting an income from the rents paid by the tenants in that REIT.

So this is why we invest. Unlike houses that keep sucking money from my friends’ pay-checks, our portfolio pays us, so we no longer need to work. And unlike their houses, we don’t need to pay for broken shingles, or leaky roofs, or flooded basements. And if the value of their house plummets in a down market, they get paid nothing. Our portfolio, in contrast, keeps paying us dividends, even if the capital values drop–like during the 2012 Grexit, Oil crash of 2015, or Brexit.

So, there you have it. Houses are a scam. They suck away your life energy, cause you to lose time with your kids, force you to be chained to your stressful job…and yet people continue buying them. Why?

What are your thoughts on home ownership?

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81 thoughts on “Why Houses Are a Scam”

    1. Good question. Here’s my take on it:

      Central banks have been printing money and lowering interest rates, but their intent is to stimulate the economy, not artificially inflate housing prices. So once the economy recovers (as shown by the explosive job growth and salary increases in the States), interest rates will rise. When that happens, people who have taken on massive mortgages are going to see their home prices fall, their monthly payments go up, and they’re going to be wondering why they can’t get ahead. That’s the danger of jumping into the housing market.

      In terms of our portfolio, the stimulus actually helps equities, so we’ve been able to benefit from the gains. Bonds have also increased in value as interest rates go down. In this environment, it makes more sense to invest than to lock your money in a savings account, because not only are interest rates low, they are taxed at the marginal rate, so people are losing money to inflation.

  1. Pretty much completely agree.

    I grew up in Montreal and used to like big cities. But Toronto’s housing market is just insane. I wouldn’t buy property there.

    K-W’s condos are much more affordable, especially when not in the luxury condo market. But I still consider our housing to not be an investment.

    1. Kudos to you for having a clear head. It’s so hard to talk to people about their house because it’s SUCH an emotional topic. And it’s also one of the biggest decisions people will ever make, so I’m surprised they’re are jumping in without crunching the numbers or doing any research. Very scary.

      K-W area is definitely more affordable. If we ever get sick of travelling (which I don’t see happening any time soon), we might consider settling down there. While I favour renting over owning, I’d still crunch the numbers to see which one makes sense. In Toronto, buying makes NO sense anymore.

    2. KW has actually been getting pretty expensive in the last few years. You can still get nice places for a decent price if it’s going to be your home for a long time, but the ROI is terrible if you are an investor (for cash flow, that is). Not sure if it’d be worth if you’ve already FIRE’d and only going to be using your Canadian place for parts of the year. Most of the small towns outside of KW are much more affordable, but most people don’t want to live there.

      1. That’s good to know! In any case, I will do the math and see whether rent beats owning in KW. I have a sneaking suspicion renting will win…but I never rule anything out until I do the math.

  2. Your favorite homeowner here chiming in. The property tax is such a pain in the ass. I wish there was a renter taxes well to make things equal. That way there wouldn’t be so many people voting to raise property taxes without having to pay more taxes themselves for more programs they are unwilling to pay for.

    One of the things that is hard to see until maybe a decade after home ownership is really how powerful inflation is. The first five to maybe 10 years of homeownership requires some sweat equity. But once you make it through the first 10 years, things get much better financially, again thanks to inflation.

    Nothing good comes easy. But if you can ride the wave of inflation through real estate or stocks, chances are you will be financially better off in the long run.

    Sam nothing good comes easy. But if you can ride the wave of inflation through real estate or stocks, chances are you will be financially better off in the long run.

    1. I guess that’s the funnest part of being FI and a renter…voting to raise property taxes so someone else can pay for my social programs. Tee-hee! ^_^

      Seriously though, you choose to ride inflation through real-estate, I choose to ride inflation via equities. We’re not enemies here.

      That being said, I’ve followed your blog for many years and you obviously know what you’re doing. You understand how to use debt, and you understand how to analyze cashflow. Most people don’t, and those are the people getting into >500k mortgages without a clue about what they’re doing. The issue happens when people who aren’t NEARLY as smart as you get into as a similar amount of debt, with zero (or negative) cashflow. Then shit hits the fan. I don’t want to be anywhere near real-estate market when that happens, and it’s already starting in Vancouver…*cue ominous music*

      1. I’m really surprised about how strong the Vancouver real estate market is. I’m in service or, what are the major companies out there hiring like crazy to afford these level of prices? It can’t all be China money Can it?

        Roughly 25% of my net worth is in public equity investments. I guess because I spend my entire career in public equities, I’m not as big of a fan as maybe other people. I know what goes on behind the scenes. I don’t like to be a minority shareholder and companies that pay their CEOs tens of millions of dollars for driving the companies into the ground. I also don’t like exogenous variables blowing up my holdings either.

        1. Vancouver (west side) home owner here. I am with Sam. I have been invested real estate in the area for 46 years, and have seen it rise and fall, but mostly relentlessly climb. Finite supply (water, mountains, border), immigration, demographics (people moving in from other provinces), and now low interest rates keep the prices rising in approx. 7-10 year cycles.
          Locals can afford the expensive houses either because they build equity and move up over the years and/or inherit money from parents who own(ed) houses and/or they own successful businesses.
          Another reason real estate does so well is that the capital gain is 100% tax free on your principal residence.
          A good strategy is to rent part of the house (basement suite, coachhouse) and that covers the mortgage and other housing related expenses (and provides low cost rental housing).
          With the new property purchase tax on foreign buyers, we’ll have to wait and see what happens. Already, listings were way down as people are scared to sell and buy in this market. Now they’ll be more scared. Low inventory will tend to keep the prices up. (BTW, there are still lots of affordable houses and condos in Metro Vancouver as long as you don’t insist on starting at the top.)

      2. I don’t know if it is the same everywhere, but in Quebec property taxes are automatically passed to the tenants when the rental agreement changes (typically every year).

        1. No, as far as I know, we don’t have that in Ontario. It’s possible that the landlord can set the rent higher, to account for their property taxes, but since there are plenty of places for rent in Toronto, the tenant can just pick a place with cheaper rent, like we did.

          1. It’s possible that the landlord can set the rent higher, to account for their property taxes

            Not true for Ontario, with some exceptions. If a tenant stays in the same rental, the allowable yearly rental hike is set by the Province, based on the consumer price index, backward looking. This, of course, is less than real inflation for landlords in recent years since property taxes, water and other ‘sometimes included costs’ such as hydro have been going up well above the rate of inflation.

            However, to balance this, if a tenant moves, the landlord can set the rent at whatever the market will bear for the next tenant. And in recent years, for Toronto at least, that has been MUCH higher the CPI increases.

            I should caveat that there are some exclusions to the above, such as ‘shared accommodation rentals’ with the landlord. I believe that I’ve read that condos are also not covered, but as I don’t own/rent one, don’t quote me on that. 🙂

            1. You make some very good points. The rent hike is set, but high demand could give the landlord the ability to charge more.

              However, that being said, in my experience, because I have a lot of good references and a high credit rating, when we moved, all of the landlords have begged us to stay (offering us all sorts of gifts or lowering our rent). So there is something to be said about being a good tenant and having your pick of rentals 🙂

  3. I understand that you guys did not make a million by buying houses but made from index investing.

    However, do you see any situations when buying a house is also a wise decision? or anywhere in canada where buying a house can also be a wise decision?

    if you see any case that buying a house is a wise decision -> under what personal and financial situations that seem appropriate to you.

    Greaterfool and this blog, I love them. I regularly read the posts. However, sometimes, I feel the talk are not comprehensive and could include more details also could provide more details on the numbers (breakdown of the numbers, how different numbers are calculated at least in an appendix ) such as :

    -> when you/greaterfool say houses cost money here and there -> a list of all such cases and approximate cost will help -> people will know exactly what to consider -> the cost might depend on the location and personal situation -> however, the list will help.

    I could write in a more clear way; however, in a rush.

    1. Well, not ALL houses are bad investments. But the overpriced ones in Toronto and Vancouver are. We’ll do a cost analysis of rent versus own and the opportunity cost of owning a house instead of investing in a future article.

      1. Sounds great.

        I liked your posts on slicing the Pie, Age and Asset Allocation, Tax Optimization.
        Similarly, like these posts, showing many of the numbers in detail might work great for some then people can use those numbers in their actions.

  4. I would say ‘income generating’ real estate is desirable. As long as the property gives you a reasonable yield, and appreciates, I would be inclined to put my money there. Toronto, Vancouver? Bay Area? Nope. Too expensive and rent does not cover mortgage and expense. Negative cash flow is a no no

    At the right time though, you can really have substantial gains. I’m seeing some slowdown here. Sam predicts 2018. I’m also curious about real estate in Calgary.

    1. If you know what you’re doing (ie calculating price-to-rent ratio, cap rates, etc), then investing in real-estate as an income property makes sense. But many people in Toronto blindly jump right in, thinking they’ll make easy money without doing any calculations. That’s the scary part.

      And yes, timing is everything. If you buy and sell at the wrong time, you’re screwed. That’s why I like buy and hold investing better than real-estate investing. You don’t need to time the market.

      So are you in the Bay Area? You mentioned Sam’s predictions, so I’m assuming you guys live in the same city.

      And Calgary real-estate is getting hammered…sales down 12%. This SHOULD be a warning to the rest of Canada, but people in GTA and Vancouver just ignore it and say “meh, it’ll never happen here.”

      1. Sam lives in San Francisco, and I live an hour south of that. Land of the techies. I’ve lived in Toronto, Waterloo,Vancouver as well. Back then believe it or not, I could get a 1+1 at Bay&College st in Toronto for 200k –but too bad I was a poor student back then.

        Foreign investment is pretty heavy in Vancouver, not sure about Toronto. Most of my parent’s neighbors are all cash buyers, so I would think Calgary is a little different because the economy is actually based on people ‘working’. If Calgary continues to be on the downward trend, I’d be interested in foreclosures.

        1. The thing with San Francisco is that every 22-year-old out of college is getting a $100,000 a year job. And when these 22-year-olds become 30 years old they are now making $200-$300,000 a year.

          And when these people get married, they are now making over $400,000 a year.

          My point is that there is a huge job industry that is well pain that is supporting these housing prices. Then you have all this for money coming in buying about 10% of the inventory. Then you have the thousands of employees at uber, Pinterest, Airbnb, who will all be multimillionaires once their companies go public in 2 to 3 years.

          As a result, I think the bay area is relatively cheap. I just don’t understand why Vancouver is so expensive. Someone tell me the answer.



          1. Sam, you hit the nail on the head. The salaries in the bay area supports its housing prices. The salaries in Vancouver…not so much. The avg family income is only 76K…nowhere NEAR the MULTI-MILLIONS it costs to buy. We have a similar situation in Toronto where income is stagnant but housing prices are through the roof. Everyone is so quick to blame it on foreign money, but research has confirmed foreign buyers make up only 5%. The most likely explanation is cheap debt. Canadians now have a 165% debt-to-income ratio, HIGHER than the 147% debt-to-income ratio that Americans had before 2008. The end is near…

        2. Yeah, 200K won’t get you anything in the downtown core anymore. 1+1 at bay&college is around $300K-400K + condo fees. Housing prices have gone up but salaries haven’t. Research done by the government revealed that foreign buyers are only 5% of the market in Vancouver, so I suspect a lot of the prices are being pushed up by cheap debt. Once interest rates rise, the party’s over.

          Calgary is dependent on oil field jobs, so the outlook is not good for housing. You might be able to pick up some good deals (but again, why?)

          1. “that foreign buyers are only 5% of the market in Vancouver,”

            Here’s my question. Does investment immigration permanent resident count as foreign investor? So a family from Asia immigrates with their family to Vancouver, and buys multiple houses, is that foreign investment?
            Or a student who is a PR decides a buy a house with their family money.

            To me, I suspect it’s more than 5%. But like you said, cheap debt, speculation are also driving up the market.

            1. Well, when people immigrate and students get their PR, they are living and working in Canada. They pay their taxes here, so I don’t see the problem with that. I believe the study excludes them. It’s only looking for foreign investors who buy houses to park their cash in, and then leave the place empty. These investment properties cause Canadians to be priced out and inflates the housing prices.

      2. Sales volumes down 12% — does not mean prices are down, but likely they are.
        Real estate prices in Vancouver area do cycle down sometimes, but it’s important not to panic and sell, just like when the stock market goes down. Over time, prices go up. Keep paying the mortgage, and wait out the downturn. Don’t have any non-mortgage debt and make sure your cash inflow (or cash on hand) is much more than your cash outflow, so you can handle higher interest rates, and other ups and downs in income and expenses. Be prepared to cut back, have room-mates or renters, or find side hustles if necessary. I keep my mortgage payments as low as possible just in case.

  5. I’m not on the buy house versus rent side. It really depends on your circumstances and you have to do that rent vs buy calculation. I live in a high cost of living area as well (NYC metro area). If I had the choice between $850 rent which is what you pay or buy a house that is over a half million dollars, the choice is easy. My wife and I were renters for a while (1BR for $1475 to about $1600 with annual increases). When we had a baby, we lived there for another year but wanted a bigger space. Houses were way too expensive so we looked at co-ops (not sure if they have these in Toronto). The mortgage and maintenance on the co-op we bought that we converted to a 2 BR costs about $1900 a month. A similar rental would cost $1800 to $2000 a month so there isn’t much of a savings with renting. And unlike a house, there are rarely repair costs because most of it is covered by the maintenance fee (which includes property taxes)

    1. I think we do have co-ops in Toronto. I don’t have much experience with them though. My understanding is that Cooperative Corporation owns the entire property, not each individual owner, and that’s what makes it different from a condo. So what happens if you want to sell? Do you need to have a vote with the other owners to decide on that? Or does the board decide?

      1. No, you can sell whenever you want, but the buyer has to be approved. Generally, they will approve the sale as long as the buyer’s financials look good. I believe with my co-op there is a 1% transfer fee when you sell.

      2. Indeed we do. Co-op rentals, co-op ownership. There’s even a hybrid on the ‘co-op’…essentially a ‘co-op’ that builds a condo (google OPTIONS for Homes).

  6. Being a regular reader of Garth’s blog, I’m particularly interested in the ever balooning Canadian real estate bubble.

    I am also of the opinion that real estate often is a very poor investment.

    However, a home can simultaneously be a poor investment compared to, say, an index mutual fund, and yet buying can still be a better way to pay for living expenses than renting. It comes down to buying four walls and a roof or renting four walls and a roof, and the correct answer is based upon your local market and, generally, your timeframe for living in an area. In less expensive markets, there’s a breakeven point for buying.

    The correct advice is not really “rent” or “buy” but, “do the math”.

    1. Agree. But in Toronto, if I so much as mention “the math”, my friends respond by putting their hands over their ears and yelling “lalalala, not listening, not listening. lalalala.” So yeah. People don’t like math for some reason…

      The housing bubble here is reaching epic levels. In Vancouver, housing sales are down but prices are up…not a good sign. Smart money always leaves the market first, and the masses are left holding the bag.

      We all know a correction is coming, but nobody knows exactly when.

    1. God I hope not. His beard would look terrible on me.

      And Garth is one of a kind; he can’t be duplicated 😉

  7. I’m an older fan…yes, we own our house. OWN. No mortgage. The reason why we bought our house was because we had children…and because my mother in law said so. But we bought at a historically low time in the Toronto real estate market. Would I buy a house now? Not sure. Knowing what I know about the stock market and investing, I would invest then buy a house. People are nuts right now. I love real estate, but I stay far away from it!

    Be free and mobile…see the world. That’s my advice to my own kids.

  8. I live in Vancouver. My suburb where I live with my folks has gone up so much it’s ridiculous. Average price of a normal 4 bedroom, 2000 ft home is $1.5-1.8 million.
    Had a good friend who bought 10 years ago 2 streets down for $700k and we thought that was crazy back then. Basically it’s been a bubble from 2000 to now, with a few hiccups.

    Price to income ratio makes absolutely no sense. I mean, Seattle which is 2 hours south and basically the same living standard is 2-3x cheaper! And what that guy from San Franc said is right. down there salaries support the prices. Here no fresh grad is making 100k, let alone 50K! unless they are in IT or engineering, or oil&gas..

    Crazy times.

  9. http://www.greaterfool.ca/2016/07/26/the-crash-tax-crash-test/

    I just been reading Garth Turner’s blog today. This whole housing thing is very confusing to me…
    If what the government reports that Garth Turner has been posting are true, foreign buyers are at about 5-10% of the total market share depending on what data you look at. House ownership in canada is about 70% (I think Garth mentioned this but I haven’t confirmed it myself). If we assume foreign money is the major force artificially inflating the canadian housing market, by that logic, lots of canadians (in fact, 70% of them) are getting a huge boost to their net worth (i.e. making lots of money without having done anything).

    If all of the above assumptions are true, then any regulations to control foreign money coming into the canadian housing market will negatively impact the price of housing.
    My questions are:

    1. Why are most people even upset about the foreign money (seeing that 70% of Canadian basically won the lottery for having bought a house, especially since these foreigners basically give Canada free capital and don’t get to use any of our services like healthcare/social security/CPP)? Sell the house when they retire and live a fabulous live on the untaxed gains seems great to me.

    2. Why do most people think restrictions like the foreign property tax is good for Canadians (seeing that if the prices fall, Canadians will have less capital gains or even lose money if they bought in the last few years)? I mean, this is obviously good for people like me because I rent, I just don’t see how it’s good for the 70% people who already own a house???

    1. 1) Canadians who are being priced out of the housing market are pissed off. And since they’re the loudest and angriest, they’re the ones pressuring the gov’t to make housing more affordable. While I see your point about foreign investments giving Canadian more capital, this is not necessarily a good thing. With no control over the flow of this capital, our housing prices get very inflated (since they are not supported by fundamentals like higher salaries) and are at risk of having an uncontrolled collapse. This is why the gov’t has been so hesitant to bring in any measure to cool the market (for fear of exactly this), but at this point, the market is so overheated, they have no choice. Either deflate it carefully, or have it crash HARD.

      2) This is why the gov’t has been hesitant to make any changes. I think at this point, they don’t really have a choice. There’s too much pressure from Canadians who can no longer afford to live in Vancouver, and from the heated housing market that would sustain a massive, uncontrolled collapse if the government doesn’t take measures to carefully deflate it. That being said, if the real reason the housing market is so heated is because of high-levels of Canadian debt, and NOT foreign buyers, the tax won’t have much impact. If, however, most of the houses ARE being bought by foreigners, the housing market could very well crash. This fear is what’s keeping the Ontario government from doing the same thing.

  10. People may think you hit the lottery buying a house in Vancouver 20 or 30 years ago, but reality is it’s a paper profit until you sell. And most parents won’t sell, I mean my folks will probably live here for the rest of their lives. Unless you plan to take the cash and move to a cheaper city or downsize it’s not worth selling.

    Then you got the young people paying $400-500k for a basic 2 bed condo. For the price of a 1 bed condo, $300k+, you could buy a house in half the cities in USA!

    1. Yup. Most people won’t sell or they’ll sell and get into even more debt. That’s why a house is dead equity. You work your entire life for it, and never get a penny out of it until you die. At which point, who cares?

      1. Just to add another point of view about real estate in Vancouver.
        It might be dead or inaccessible equity (although growing at a good rate especially if the investment is heavily levered), but the feeling of security it brings is wonderful. It means I can take a bit more risk on other investments. It is also a potential source of income as I can also rent the house or part of the house. And it’s all tax-free gains when you sell.
        I submit that houses are as affordable as they were when I started in the late 1960’s — you can’t start out on the west side of Vancouver, but you can start out further out in the valley. That’s how we did it back then. My first property cost 5 times our combined (non-professional) income. I believe you can buy a house not much further out now with the same relative income to price.
        I also know very smart hard working young couples in their 20’s buying houses and rental property on the east side of Vancouver.

  11. I have been reading your posts and see some valid points. Real estate is all about timing. I have been fortunate to have timed it right…. twice. I am also retired, although at 50. The last sale being during this latest surge in Vancouver where I was able to add another million to the portfolio, thanks to a greater fool.

    A good part of my financial freedom also came from saving which (it appears) is the foundation of your strategy. I have always lived well within my means. Another lesson lost on the pay cheque to pay cheque generation.

    Herein lies the problem as I see it. 99% of the people can’t save. Thus creating… the 1%

    People today cannot save money. They either were not taught how, by their parents, or, they had it too good growing up and never had to.

    I applaud your efforts and wish you success. In todays world, your theory is a good one and possibly the only one to get people through to the “next round” Good luck.

    1. Thank you! Sadly, I believe the financial institutions are keeping financial education out of schools to keep everyone ignorant. That’s why I knew more about soil erosion than ETFs when I graduated high-school. And that’s why I started this blog. I firmly believe that everyone has a right to financial literacy, and that’s why I want to share as much information as possible. No one deserves to be screwed by the realtors or Wall Street/Bay Street.

      1. I certainly would have loved to have family that taught me about personal finance, investing, and business. I definitely agree that schools should teach how to apply math to financial situations and create financial spreadsheets — valuable tools for decision making. I had to learn about investing on my own like most people learn most things. Even the conventional financial wisdom that is provided by the financial advisors and money managers isn’t always so great. Luckily there are many great sources of information for people willing to read a few books and blogs.

      2. Hmm, perhaps your experience was different than mine. I grew up in Toronto. I remember learning compound interest in early high school (had to do it long hand – no calculators! – and everything). I’m guessing that the difference is really more:
        – most of my classmates didn’t see any ‘real world applicability’ to the exercise like I did (interest rates were high then…I remember freaking friends out by shopping newspaper ads for the highest GIC returns);
        – media/advertising does a great ‘sales job’ on how you really don’t know anything after all and therefore need a financial expert to hold your hand.

        1. I agree. I think the little bit of “financial education” we had in school wasn’t applicable to the real world.

          How cool as it that you knew about GICs at that age! Guess you were always a financial nerd 🙂

    2. Yes, many people are not very good at seeing more than a few steps ahead and can’t see that a little discipline can result in huge benefits quite quickly.

      It’s not only young people. I know retired professionals who with a pension, a house or condo, and a portfolio, but can’t see ahead to the years when the money they have now won’t seem nearly as much. They “hate” dealing with money and finances (too stressful). This is not even talking about the ones who are really terrible with money and basically p…d away their savings and house equity (sold too soon and became renters), and have probably another 20 years to eke out small pensions. Emotional reasons (impulsively selling real estate at the wrong time), fear (stock market is gambling), YOLO, and other excuses for poor judgement.

      That’s why I really admire FireCracker and Wanderer. You can see ahead of yourselves and you know yourselves. You got smart long before I did.

  12. I don’t know, all of this isn’t one size fits all. We don’t live in a major city. We are Gen X (’72 and ’78).. so maybe I don’t get it. We bought in 2004. Our house is 2.5x our income. Local rentals cost more. Locally the rental market is tough. When I hear about people having to give up their beloved pets to rent, I’m happy that we bought. When I hear the recent stories about families needing to live in tents because they were renovicted and can’t find a rental, I’m happy we bought. Our house doesn’t stress us out, hell it’s not far off from being paid for. We have a house emergency fund in case something happens. We can still save outside of the mortgage.

    I have absolutely zero desire to travel to most third world countries. For the countries that we do want to visit, we can still travel to them even before retiring. Our child is the biggest expense (our house isn’t). As for him I don’t feel like I’m wasting his childhood because we still spend a lot of quality time together. He’s 4 and he loves his daycare friends. By the time he’s in school it will only be a few hours on weekdays we won’t watch him grow up outside of (important and legally required) schooling.

    We also couldn’t have saved up $500,000 by the time we hit 30. I left my parents house at 19 and paid for all expenses by myself. It just couldn’t have happened.

  13. Also, my sister and brother in law bought their house 5 years ago. My brother in law LOVES doing the renovations to it and making it his own. They both are working at their dream jobs. They are quite frugal because they prefer to be. I’ve never heard them complain about their mortgage.

  14. I absolutely agree that it would be crazy to buy in Vancouver or Toronto. But home ownership can be a big gain in some cities, particularly deindustrialized US cities that give financial incentives for homeownership because they have WAY too many houses.

    For example, I got a $7500 USD first-time homebuyer’s grant to go toward closing costs and my down payment, and that covered ALL closing costs. All my money went directly to equity. I have to live in the house for 5 years, but my parents live near here and I can’t imagine leaving since they aren’t young and aren’t in good health, and I will never be able to get the time back with them, if I moved to make more money. It’s not worth for me it if I lose the time (the only time that there will ever be) with my parents. Plus I hate moving.

    Additionally, there are rehab/reno grants. If I put $5,000-10,000 towards renos, there is a grant that will match it, paid off 20% each year I live in the house, for 5 years. What else has such a high rate of return? Of course this only is realized once I sell, but I definitely plan to sell once my parents are no longer here.

    I bought the house from my landlord, so no realtor fees, and my mortgage (including property taxes etc., homeowners insurance) is lower than my rent, which I was paying to live in the same house. Other people I know have also bought their houses from their landlords, and in my state, the landlord legally has to offer the tenant the right of first refusal before selling it to someone else.

    I could also rent it out for $400 more than my mortgage a month, if I ever wanted to leave, and with repairs, maintenance and even paying a management company, it would be really hard to do worse than breaking even and would likely provide passive income.

    tl;dr Homeownership might be worth it if you live in a mid-sized deindustrialized city in the US, and don’t like to move.

    1. Additionally, if I broke up with my girlfriend, instead of splitting the mortgage, I could get two roommates to fill the extra two bedrooms, and that would completely cover my mortgage, which is a great option to have if times ever get hard (disability or longterm illness).

  15. You had mentioned earlier that “Since interest is taxed at the highest rate, you are losing half of that gain to taxes. So at 0.75%, you aren’t even beating 2% inflation, making your money worth less and less over time.”. However, don’t they gat taxed at the marginal tax rate ( your tax bracket)?

    1. Correct, I meant “YOUR highest tax rate,” not “THE highest tax rate.” I’ve corrected the original article. Nice catch!

  16. Love this post, exactly why we’re trying not to buy into the property scam right now.

    Biggest downfall of renting so far though, is being kicked out when the owner wants to sell because of rising house prices :/ That’s happening to us now so we’re busy rental hunting again. If I could find a cheap housing solution I’d buy just for the security of not worrying about being moved out.

    Tenancy contracts in New Zealand are pretty short – usually 1 year or so – and after that year expires you can either renegotiate another contract or go on a month-by-month basis. 1 month notice either way, and you’re out 🙁 I’ve had friends kicked out because landlords wanted to move into the house, sell the house, move family back in etc.

    It’s a bit of a sellers market *and* a landlord’s market right now, with a high shortage of suitable housing, especially in Auckland. Hopefully the government puts steps in place soon to try correct this shortage.

    1. Yeah, getting kicked out by the owner is one of the disadvantages of renting. I think apartments are a better bet in this case, because the owner owns the entire building, so less likely that you’ll get kicked out.

      Vancouver is having the same problem and it looks like the 15% tax that the gov’t applied is having an effect. Hopefully you guys will get a similar kind of relief.

      1. Quick question, and maybe you can address it in the guest post. With the money you have, how do you deal with the desire to live in a nicer place back home when not traveling? Do you ever think, “I’ve got a million bucks in the bank for goodness sake
        , why don’t we rent a two bedroom, two bathroom at least?”

        I spent about 10-15 hours a day in my house now, from maybe 8 – 10 hours a day when I was working. As a result, I see more value in my house and want it to be as nice as possible.



        1. Good question. I think it’s because I grew up having very little, so I never developed a taste for fancy things. It just isn’t important to me. I would rather spend the money on experiences or building things. eg. if someone just gave me $3000 and told me to go buy an LV bag, I would rather just buy a cheap $50 bag and donate the rest. Dunno, I think it’s just my personality.

          1. I think it’s all about what you value personally. We have some luxuries that we splash out on, and our rent is one of them. We could rent a smaller, older, crappier house, or share with roommates, but we prefer to have a nice place to ourselves.

            On the other hand, I’m trying to cut down on cafe coffees – since I don’t get much value from this other than a full stomach. And we don’t do a lot of expensive travelling overseas, because I don’t value that as much and feel I can watch travel videos to get as much joy from seeing new places. I’ve got pretty poor memory, so most of what I’d remember are my static photos anyway, rather keep my money and watch other people travel to these places 😉

            The book “Your money or your life” by Vicki Robin and Joe Dominguez is a good one to help evaluate what’s worth spending your time and money on.

            1. Oh, I wasn’t actually talking about like $3,000 LV handbags and stuff, but that is a good example as I don’t see value in stuff with 95%+ margins! I’d feel stupid buying such things.

              I’m talking about the value in living in a house, since the post is about housing as a scam.

              I LOVE taking long jacuzzi bubble baths while reading a good post or book, for example. So that is what I built in my house. I LOVE lounging on a deck facing west in the afternoon and overlooking the ocean. Sunsets are particularly magical. Hence, that’s what I’m building now. So yes, my values are having a nice lifestyle in a house where I spend 10-15 hours of my life.

              I DON’T spend more than 1/10th of my income on a car b/c I only spend on average 1 hour a day driving.

              In other words, I think part of the reason why there’s so much desire for property is because people 1) spend so much time in their homes, 2) want to be free to do whatever they want with their homes without having to move, and 3) if it so happens to ride the inflation wave, which it will, then fantastic.

              Don’t fight inflation. It will beat you with a stick. Ride inflation, so you can beat its ass instead.


              1. I see what you mean. I guess people value different things. I’m just as happy living in an apartment as I am living in a house. I need very little space (because I hate accumulating things), and I would rather free up my time to write, code, or blog, rather than taking care of things around the house.
                Having a jacuzzi and deck is nice, but I HATE the maintenance that goes into it. It just adds more headache to my life and the extra gain is not worth it to me.

                Investing allows you to ride inflation as well. And homes just end up costing you money in the long run. I prefer to rent and not have the headache of having to replace things and upgrade. I guess I value freedom more than I value having a nice jacuzzi 🙂

                1. True. But I will tell you a little secret. You can actually still have a lot of freedom well also enjoying hot tub bath!

                  1. I don’t see it that way 🙂 You can hire other people to maintain the house but why would I do that? That just adds another level of headache that I don’t need. If you love property and love assessing its value, and looking for property managers, that might be a good use of your time.

                    Right now I have all the time in the world to do whatever I want. Would I trade that time to get a house I don’t want, and to find people to maintain it? Nope.

  17. Hi

    I completely agree with your post and your blog. Don’t get discouraged by the complainy pants.

    I have a unique situation where buying a home worked may or may not have worked out better for me then investing in stocks and bonds. Here it is

    I bought a home in Victoria, BC for 650,000 6 years ago with 200,000 down. It is a 4000 sqft 1994 build on 10,000 sqft that borders on farmland. It has 2 existing suites. I rented both suites out (3 bed 2 bath up and a 2 bed 1 bath down) for a combined 2700 including utilities. I then invested $12000 in the garage (500 sqft) and converted it into a full suite with a sleeping loft with skylight windows ( it’s beautiful). The home is worth about 685,000 now.

    mortgage (principal plus interest) 1900
    taxes 360
    hydro cable and internet and gas 490/month
    maintence 300 month
    total $3050 month

    income 2700 from rentals
    that means I 350 month for my monthly portion (the 500 sqft converted garage)

    if I invested the 200,000 in indexes I would have received about ~1300 a month
    so even with this “perfect” maximizing the properties money making potential I may have done better investing the money instead. That way I would have more freedom and not have to take care of a house with tenants lol.

    I think you are on to something by not buying and renting. Looking forward to your comments 🙂

    Thank you for your insight.

  18. I love reading this stuff. Very pointed but also very true. I guess I’m not exactly the poster child for this sort of investing as I own three houses. However I didn’t buy them in bidding wars and I actually DO own them (ie they are not mortgaged). Two are in Toronto. Also I didn’t pay huge sums of money for them (bought them in “not so prime” neighbourhoods that have now “gentrified”).

    Housing is a tricky gamble. What I am doing is earning 25% year over year capital gains, by purchasing houses in crap neighbourhoods then betting on a “gentrification” event (in my case it is the Eglinton Crosstown, which is adding to the value of my houses by about 25% per year as it slowly comes to life).

    But it’s a gamble. If all goes well I’ll have a few million to invest soon enough. Then yes retirement is the plan. Hopefully before age 50 (likely 47 or 48).

  19. The “mortgage is better than renting” conversation has just come up I believe for the first time today. Had to find an outlet to re-assure me.

    Living in Vancouver, housing prices are high. So today a coworker pointed out a 200k condo in nearby Surrey. My coworker of course only has my best intentions at heart, but it was a conversation I wasn’t ready to have to defend! The conversation went a little like this.

    Coworker (C): “Why don’t you and (girlfriend) buy a condo in Surrey for 200k?”
    Me (or Millenial – M): “Nah ownership is not for me at this particular time.”
    C: “Well why would you want to keep paying someone else?” *starts punching into a calculator* “You could pay ______ a month, less than you’re both paying for rent right now and own the place in 20 years. Plus housing always goes up ” (This is where I had a ‘whoa’ moment because she’s reciting verbatim the same words you have been saying are a blatant myth/lie. Also, I don’t think she was factoring in interest because as far as I know you need a bare minimum of an excel spreadsheet to get a semi-accurate figure)
    M: “Well there’s condo fees, maintaining the place and appliances.”
    C: “Yeah but your money is just going to somebody else, why not actually have something to show for it in 20 years?”
    M: “I’ll have a big fat bank account”
    C: “But you can pay LESS if you get a mortgage”
    (At this point I’m not ready to get into a long discussion)
    M: Yeah, well I’d have to live in Surrey.
    C: Well that’s a good point.

    Aside from forgetting to include the interest payments (which would be around 400-500 a month at the beginning), the main idea that’s got me a little bit shaken today is that, heck, I could be paying less and instead of paying rent, I’d be paying the bank about half of what my current rent is, then some money would go into the principal. I would have to account for strata fees (probably 150-200 a month or more). I know renting has to be the cheaper move, especially if girlfriend and I move in together. But after this conversation today I am slightly less sure of that.

    *Deep breaths, deep breaths, stay calm*

    I still know moving in together and renting for $1050/month is the way to go. Conversations like this upset me.

    1. Yeah mention you’re thinking of renting to any homeowner and watch them go into contortions to prove you wrong. What they’re actually doing is trying to convince themselves that they made the right choice.

      Renting for $1050 a month in Vancouver is a no-brainer. In fact, I’m going to throw this back in anyone’s face that tells me there are no reasonable rents in Vancouver! Stay Strong, M!

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