Million Dollar House? Or Million Dollar Prison?

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“Wait, you paid HOW much over asking?” I asked, incredulous.

“$75,000,” said Joanna, my ex-coworker. Despite both being in the same field and working practically the same job, Joanna and I are about as opposite as they come. She thinks the more expensive something is, the better. Me? Not so much.

I blew out a sigh. In a heated market like Toronto, bidding wars were normal. So I shouldn’t have been surprised, but still…

“What? 8 other people wanted it! Anyway, we got a good price. 650K is very fair for this area.”

“Did you have a home inspection done at least?”

She let out a derisive laugh. “HA! NO. You can’t have ANY conditions. It’s a seller’s market. Duh.”

Uh-oh. I winced, flashing back to the “devil house” we saw in 2011. Spending more than half a million and NO home inspection? I would be terrified.

“You NEED to get into the housing market now. In 5 years, this house will be worth a million, and you’ll regret not buying…”

That was back in 2011. Flash forward five years.

Joanna was right. Her house is now worth a million…if she sells. And if you ignore the real-estate agent fees, lawyer fees, and maintenance costs.

So when I went for a visit after coming back from our world trip, I fully expected her to be insufferable.

But instead, this happened:

“Wow, the housing market’s been crazy in Toronto. How much is your house worth now?” I asked.

“I don’t want to talk about it,” she said, glaring at me.

Wait, hold on a second. Joanna, housing-nut and rent-hater, who’s been on my back for the last 5 years about how I’ve been “missing out”, DOESN’T want to brag about her house?! Something was up.

“Okay, so would you say renting or buying is better?” I asked, trying to get the “I told you so” juices flowing.

She sighed, clearly annoyed. “It depends. If you bought, you have to pay for all sorts of repairs. Like for instance, I had to fix the front and back porch recently and it was NOT cheap. When you’re a renter you don’t have to do any of that.”

“Interesting. So how much does maintenance cost?”

“How would I know?!” She said, exasperated. “You can look all this stuff up online! Why are you asking me so many questions!? Is this some kind of interrogation?” She threw up her hands, and barged out of the room, while I sat there in disbelief.

I couldn’t believe it. Who was this person and what did she do with Joanna? I mean, I always knew her as a glass half-empty type of person and she does like to complain, but never about the house. I had no idea what changed.

I decided to ask her husband, Tony, what was up.

Turns out, ever since they bought the house, there have been endless headaches.

  1. Their neighbor is an elderly lady in her 70s who keeps backing into their car.
  2. Joanna’s afraid to trim the branches in her own front yard because the neighbors might complain.
  3. The backyard landscaping, which had been a main selling point when they bought the house, was too expensive to maintain. Now it’s just a bunch of weeds and an empty pond.
  4.  The window broke from a fallen icicle in the winter, setting them back $5000
  5. The front and back porches were falling apart and had to be replaced. Another $10-20K.
  6. Their fancy gas stove broke down and they had to buy a new one.

And those are costs outside the mortgage, insurance, property taxes, and land transfer taxes. It’s been a giant money sink, and even though it’s worth a million dollars, they can’t sell it because they need somewhere to live.

money down the drain
Bye bye money, bye bye. (photo credit: Images Money @ Flickr. license: CC BY 2.0)

On the surface, Joanna’s finances and mine look similar. She has a million dollar house and I have a million dollar portfolio. But are they really the same? Is a million dollar house the same as a million dollar portfolio?

Well, let’s see:

Millionaire Portfolio Million Dollar House
Work-life Balance Pays you not have to work anymoreForces you to work, in order to pay off your mortgage, property taxes, insurance, maintenance.
Flexibility Allows you the flexibility to live whereever you wantTies you to one location. Because you are forced to continue working, you have to stay in that city, regardless of cost of living.
StabilityBy renting, you run the risk of having to move if the landlord doesn’t want to rent it out anymore Buying a house lets you stay in one area and not have to move
Market TimingUsing long term investing, indexing, and rebalancing, you don’t need to time the market. Simply rebalance periodically, and as long as your withdrawal rate is 4%* or less, you win.You have to figure out when to sell. If you sell too early, you miss out on further gains. If you don’t get out in a falling market, you will be screwed.
CostIf you stick tolow-cost index ETFs, your investment fees will be only 0.1 to 0.2% of yourassets. Trading fees are around $20-50/year depending on your brokerage and how often you rebalance. Minuscule, compared to the cost of owning a home.On top of property taxes (>1% in most cases), you also have to pay mortgage, maintenance, insurance, real-estate agent fees when you sell, lawyer fees, land transfer taxes, etc. And if your house goes up in value, so does your property taxes!
DiversificationDiversified across multiple assets like bonds, ETFs, REITs, preferred shares, etc All your money is locked in one asset: a home

Of the 6 factors above, the ONLY one where housing beats the portfolio is stability. A house lets you stay in one spot without having to move. So you’d better hope you have good neighbors…otherwise, you might end up stuck there for a long time, against your will, since you need to stay for at least 5 years to build enough equity to offset the real-estate agent fees, land transfer tax, etc of buying and selling. Also, if you’ve ever tried to sell a house after a bunch of frat boys move in next door, you’ll know what I mean.

As depicted by this “documentary”.

And if you look at the other 5 factors, you will see that the million-dollar house doesn’t give you work-life balance, allows you very little flexibility, requires you to market time, costs you a lot of money, and is NOT diversified.

The most frustrating thing is that even if the house goes up in value, all that equity is locked up in the house, doing NOTHING for you until you sell. You can’t take off a brick to pay your bills. You can’t stop paying for the upkeep of the house. All you can do is continue feeding it and hope that it’ll pay off one day.

And once you’ve decided to sell, when do you do it? What if the value goes up higher? What if it plummets? Should you get out now? This is why market timing sucks. You have no idea what you’re supposed to do.

And in the meantime, you’re stuck in your job, working longer and longer hours, so that most of your hard-earned money can go straight into your insatiable house. Every year, you’re stuck paying property taxes (which you have no control over), maintenance, and insurance.

A million dollar portfolio, on the other hand, PAYs you to own it. And since investment income is taxed more favorably than earned income, you actually pay much LESS taxes than the employee with the million-dollar house.

And yet, Canadians are still borrowing their brains out to own homes. In fact, our debt to earnings ratio is now 165%…a whole 18% HIGHER than the ratio of the Americans right before the 2008 housing crash.

Even though the S&P 500 has returned 1000% over 25 years, while houses have only returned 247%, people ignore this fact and continue buying homes. Because home ownership is a cult. Because “renting is for losers” and “renting is throwing your money away.”

Well, you know what? Home ownership is throwing your life away. Yup, that’s right. I said it.


Because even though our debt levels are higher than in 2008, I don’t believe there will be a housing crash. Here in Canada, you can’t just walk way from your debts since there is no such thing as “no recourse loans.” So if housing prices dip below what you owe on your mortgage, you can’t just walk away. If you attempt to foreclose, you will be sued to all HELL and your credit will be screwed. So you can’t even rent a place afterwards. You HAVE to continue working to pay off that debt. So home owners will continue working and being miserable as they work well into their 70s, paying off their houses.

Like Joanna. She should be living the dream, but like other homeowners, she got into the market, only to be disappointed. Instead of selling her million dollar house, she’s too entrenched in the lifestyle to realize the gains, and too busy worrying about following the herd and keeping up with the Joneses. So instead, she spends all her time stressing out about her neighbours and working long hours to pay for the broken window, the worn-out porch, the landscaping in the backyard. Because she can’t sell part of the house to pay for them. It’s all or nothing. And she’ll never sell and go back to renting.

So I have to wonder. Is Joanna really living in a million dollar house? Or a million dollar prison?

*see 4% rule

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69 thoughts on “Million Dollar House? Or Million Dollar Prison?”

  1. I love my prison! Actually just busted open my master bedroom prison wall to install a 12 foot sliding door in replace of the 50 year old aluminum windows. Once that’s done, I’ve hired some prison inmates for a couple packs of cigs to build a 275 sqft deck so we can drink some of the smuggled brew during a sunset.

    The best thing about this project is that it was paid for with blood money back in 2012. Had to drop a large wad of cash to a protection gang. But it’s paid off four years later, so I took profits and rolled it over to create a better living environment.

    The warden told me I could leave whenever I wanted. Don’t tell anybody!


    1. “These walls are funny. First you hate them, then you get used to them. Enough time passes, you get so you depend on them.”
      — Morgan Freeman, The Shawshank Redemption

        1. Eh. 🙂

          You speak truth, but part of the challenge with home owning is that a lot of the math is non-obvious because there’s a lot of small unpredictable things and with renting you generally have one cheque you’re paying.

          With that said, given the crazy cult status behind owning and how, at least in Canada, > 1/5 of the population (me included) lives in places where renting beats buying by a country mile, it seems worthy to advocate for owning being a poor choice 🙂

          1. But how can we know who wins by a country mile without, you know, doing that dang math? 😉

            There is no substitute, no shortcut, for doing the work. And it’s not hard. I mean, if you’re not a spreadsheet person, that NYT link actually does all the math for you: you just need to input some assumptions.

            While acknowledging that both sides of the equation have some unknowns (e.g. – repair costs for owning, rate of rent increases for renting, rate of inflation, investment returns), these are probably not going to tip the decision one way or the other. The big drivers are the purchase price, the rent price, and how long you actually stay in one residence.

            1. I guess my point is that the math in Vancouver (and probably Toronto, although I haven’t looked) is so trivially easy to do at this point as to be almost not worth the effort.

              eg: we pay an enormous $3800/month in rent… and my best guess is that an equivalent place would sell for $1.5M – so that’s $300,000 down and $5000/month @ 2%. At 3% that rises to $5700/month.

              As to the unknown side of things, renting has much fewer unknowns imo. For example, since 2004 the highest allowable rent increase in BC has been 4.6%, average of 3.46%. I think it’s quite reasonable to assume that your rental increases will be no more than 5% per year and probably less than that.

              Basically, it’s no contest, and it’s obviously no contest.

              There needs to be strong advocacy against home ownership precisely because it is so deeply entrenched socially that even when presented with such stark numbers most people still believe that owning your home is a better choice.

              1. Is this post is specifically directed at people living in Vancouver or Toronto? If so, I’ll concede the point. Go ahead and skip the math. (Though I’d argue the average denizen in those cities would still benefit from that five minutes of work.)

                If we’re trying to make a larger point about renting vs buying in general, and using a million dollar home in the king of all outlier housing markets as the example, then it’s a different discussion.

                1. All of what you’re saying is correct. Running the numbers is always the best decision.

                  The point my comments are intended to make is that I feel that the ‘best choice’ is so deeply entrenched in people’s minds that I have a hard time faulting someone arguing that in general, that best choice is wrong.

                  There’s all kinds of reasons why I think owning your own home is probably a net losing proposition and sort of has to be, but that’s not really the point I’m trying to get across 🙂

                  1. So what is your point? Don’t criticize someone who broadly advocates for renting instead of owning, because you generally believe that to be better for most people? Based on what data should we assume renting is better for most people?

                    Again, if the discussion is specific to Vancouver & Toronto, then I’ll concede the point. I don’t have a dog in that fight.

                    If you’re making a sweeping generalization about owning being generally worse than renting, then in the vein of “doing the math”, I’ll kindly ask that you show your work.

                    1. My point is as I previously stated a few times – the idea that home ownership is the ‘best choice’ in all cases is so deeply entrenched, despite being so wildly inaccurate in a significant percentage of cases, without any deep thinking, that I have no problem with people advocating in favour of renting in the general case. It at least balances the discussion somewhat.

                      As to my general opinion – except in highly esoteric cases, I can’t comprehend how it would make sense that owning would be better from a cash-flow standpoint unless you discount the cost of your own time. I don’t see how the average person would be able to perform the function of the average property manager at a better price, when said property manager has the ability to take advantage of economies of scale. Obviously, this might not be precisely true in all places or times for a variety of reasons.

                      I think about it a bit like owning a car (we happen to have two, fwiw). From a cashflow standpoint, owning a car is a losing proposition for most people. I don’t have mechanics on payroll and I don’t have at-cost access to parts, so maintenance is more expensive. Plus, I have to deal with the consequences of vehicle downtime, taking time out of my day to do maintenance, etc.

                    2. Yup, did the math and owning makes no sense in Toronto–which is where this case study takes place. I can’t speak for all places, but I do know that buying makes sense in some parts of the States (like my buddy, Justin, who bought in Raleigh, NC. The price to rent ratio there is 9–unlike 22 or above in Toronto) because he bought for $108,000 and can rent it out for $1000/month.

                      I also think that Americans have some advantages that Canadians don’t, like deducting mortgage from your taxes. So that changes the numbers too.

              2. The thing w/ Canadian homeownership and US homeownership that’s so different is that I don’t think you guys can DEDUCT the mortgage interest rate?

                In the US, you can, up to $1M in mortgage indebtedness. Let’s say you are a top income earner and pay a 39.6% Federal Income tax rate + 12% for State income tax. Getting a $35,000 a year deduction is equivalent to ~$15,000 (deduction phaseouts, so not $17,500). That’s a nice benefit.

                  1. Yes, different situations in the States, for sure. We purchased our last rental in Indianapolis for $82k, and it rents for $1,000. We get to deduct the interest (along with all other expenses), get to depreciate the home, opportunity costs are minimized thanks to leverage, etc.

                    From a cashflow perspective, our renter would surely do better having owned the same house.

                    But that example is not the norm, even here in the states. The average home doesn’t make for a good rental.

                1. I thought that only works if itemize it on your taxes and most people dont they just claim the standard deduction, also I’ve read you would need a large mortgage for it to make a difference because the deduction would have to be greater than the standard deduction to be worthwhile. And i think Americans have to pay taxes on gains when they sell thier home correct?

    1. The only thing with the NYT calculator is that it applies US tax rules – mortgage interest and property tax expenses are not tax deductible in Canada.
      It is a really good start though on getting people to think things through.

  2. “…If you attempt to foreclose, you will be sued to all HELL and your credit will be screwed.”

    This is a common misconception about personal bankruptcy. Structuring your personal liabilities properly at the outset creates the option of a tactical bankruptcy down the road.

    Most critically, all debt should be in the name of one spouse, which renders the other spouse judgement proof. Use your imagination from there.

    1. ” Structuring your personal liabilities properly at the outset ”

      Right and how many house horny minions are going to do this before buying a house? And if you declare bankruptcy, you screw up your credit score. Wouldn’t count on this.

      “Most critically, all debt should be in the name of one spouse, which renders the other spouse judgement proof. Use your imagination from there.”

      Um…this seems risky at best, fishy at worst.

    1. Thanks for linking to this! It gives me an idea for a rebuttal article:)

      Even though I stand on opposite sides as Sean on the whole “rent versus own” debate, I still very much admire his hustle to get his salary from 40K to 100K. Will always use him as a shiny example for that.

  3. I was in Calgary this weekend. Brand new condos in a nice part of town, close to a hospital and good schools for under $200k. Single detached houses were around $350K. Sell the house in Vancouver or Toronto, buy in Calgary and invest the rest in low cost ETF’s. Buy new car if you have cash left over. Alberta doesn’t have a sales tax and you could spend the winters travelling if you don’t like the cold. Maybe Westjet is hiring?

    Large construction companies are still building homes and condo’s hoping the price of oil goes up. Many people I talked to in the oil business think if oil stays where it is then there would be even more job losses this winter. The price of real estate will get even cheaper. Something to think about.

  4. Interesting article with good arguments in favor of renting over owning.

    One nit I have to pick is that it isn’t fair to compare having a million dollar portfolio with owning a million dollar house while you are still paying off the mortgage. To make an apples to apples comparison, you really should compare buying vs renting in which the net worth in both cases is the same. That would mean comparing a million dollar portfolio while renting to owning a million dollar house with no mortgage. This improves the home owning position somewhat (no mortgage or interest payments anymore), but it still suffers diversification risk and inflexibility compared to renting.

    1. Good point. However, even if the house has no mortgage, the owner still has to pay property taxes, maintenance, insurance..and when they sell, tack on real-estate agent fees, lawyer fees, etc. None of these go away after you pay off your mortgage.

  5. I admit, I’m one of the bidders. I’ve offered 80K over, and still didn’t get it. Someone must be printing money at his home or something.

    I basically called the listing agent, and demanded how much she wanted, and I’ll pay 10k over that to get my house.

    For now, increasing my passive income is my major goal. So real estate is still an option –with the right price.

  6. Thanks for sharing a real experience with one of these bidding wars on a crumbling Toronto home.

    We’re off to the Ottawa region with a list of rentals lined up for viewing. Not saying I wont own again someday, but for a 1-5 year expected duration in the house, renting is looking like a real bargain.

  7. I love you blog but I do think you the property vs. stock debate is beside the point. Early retirement is really about aggressive saving by questioning consumption habits, combined with investment in a reasonable investment vehicle. Personally I’ve had a lot of success with property, although an analysis needs to be done case by case to see if the investment makes sense i.e. what’s the internal rate of return factoring in all the expenses and tax implications. It is true that many people underestimate the costs involved in property ownership to their peril.

    From what you’ve said it sounds like Toronto is overpriced right now and isn’t a good investment option, but property, as an investment, can be an attractive path in the right circumstances.

  8. You forgot to factor in the interest paid to the bank on the mortgage. That interest paid is money down the drain as owners like to say to renters.

    1. Yeah. You also need to factor in the rental income from the property, agents fees, vacancies and the impact of leverage. Mortgages tend to have significantly lower interest rates than margin loans and you’re not exposed to margin calls if price drop as you can ride out the down turn.

      Suffice to say the space is too complex to be adequately described by sound bites like ‘rent money is dead money’.

  9. One expense that’s often overlooked by would be homeowners is their personal time spent on home maintenance. You can put a price on that time by asking yourself how much your employer would have to pay you to come to work on a Saturday. Let’s say your free time is worth 2x what you’re paid at work, and we’ll assume you’re paid $25/hr. If you put in 5 hours a week to maintain your home (e.g., mow the law, trim the hedge), that adds up to an additional $13,000 per year. The lesson: put a hard dollar value on your free time and factor that into your home buying calculation.

    1. Very interesting way of looking at it. People forget that time is more valuable than money. You can always make more money, you can’t create more time.

  10. OK so we’ve looked at a million dollar home in a major city vs a million dollar portfolio. But what if you have say a $300,000 paid off town home with around a $100/month maintenance fee and $2200 taxes in a smaller city and a $700,000 portfolio for income?

    Eventually most of us want to have kids so we will probably want a stable place to live and raise them in. With a paid off town home you can live for around $300 a month plus utilities and have another form of investment other than just stocks. I like stocks but I hear a lot of fears about our dollar and the US dollar devaluing or possibly collapsing in the future from all of the money printing that has happened recently since the great recession. What would happen to stocks in that scenario? It might feel a little better to have a home at least to fall back on in that situation. More diversification. Of course land that you could grow food on would be better than a town home but it would be expensive.

    I am in the position now with my girlfriend that we have around $900,000 net worth with $420,000 in cash and the rest in stocks, bonds, REITS and are currently renting and deciding whether or not to buy a home in the Okanagan in BC. We are in our mid 30’s. Kelowna is way overpriced but the smaller cities near Kelowna are pretty reasonable. We previously owned a condo in Edmonton for 7 years and came out negative $22,000 on the sale after that time period after realtor and lawyer fees. I wish I had rented for those 7 years and put that money we had in the condo into the market instead. We would have been way better off for sure.

    1. As a parent who rents and has moved a few times since our first child was born, I have to point out a couple of things:

      – kids don’t care if you own or rent, especially little kids
      – our experience has been that our daughter prefers us to not be stressed out (eg: about money)
      – she appears to be pretty happy sleeping anywhere as long as we’re around. (coincidentally, travelling with young kids is not too bad. She’s been to Taiwan twice, to Hawaii, Sweden, Denmark, Halifax, Sydney (NS), London (UK), Paris, Armenia, and Austria).

      Point being, the ‘stability’ thing is important with respect to the people in her life, not the house she lives in.

      1. One thing I do like about renting with kids in the future would be when they trash the house, spill on carpets and write on the walls I wouldn’t be getting upset about it. Do you find it hard to rent a place when you have kids though?

        1. That’s hard to answer across the board, but our experience in renting is that it would appear that for specu-landlords (ie: people here who are counting on flipping properties, who are often not looking for long term tenants) we’re not popular, but for professional landlords a stable family unit with young kids is often positive as it seems to be perceived as indicating that you’ll be potential long term tenants. The main problem with renting that I can see right now is that the speculation is leaking through to the rental market as well resulting in a lot of folks doing the landlord thing in order to keep afloat until their next flip.

          The caveats that I would add are:

          – my wife and I both in high tech and we’ve been around for a while, so our salaries do enable us to rent at the more expensive end of the market where there’s less competition

          – we’ve tended to spend a longish time looking for rentals in order to find a landlord-tenant relationship that works for us. Not being in a situation where we’re under a lot of pressure to find a place to live in < 30 days means we tend to push forward in situations where we know we're likely to come out on top.

      2. “– kids don’t care if you own or rent, especially little kids
        – our experience has been that our daughter prefers us to not be stressed out ”

        Mike, you speak the truth.

        This was my childhood. We moved around a lot (to save money because my parents had very little), and I didn’t care whether we rented or lived in a house. I just didn’t want them to be stressed.

        Moving around actually makes you more resilient and adaptable to changing surroundings.

        1. I couldn’t agree more.

          My wife and I come from completely opposite backgrounds in this respect – I grew up in the fairly typical Canadian picture, same house from birth to leaving for university. She’s a first generation immigrant whose family wasn’t terribly well off and moved frequently due to their economic situation. It’s plainly obvious to me that she’s much more able to adapt in this respect than I am – right down to the fact that she has a natural tendency away from acquisitiveness as it impedes your ability to move on.

      3. I would imagine that it gets pretty hard to find a home to rent when you tell the landlord you are in your 30’s, you don’t work and you live off of $30,000-$40,000 a year of dividends, you have kids and you don’t have a car. I mean if you were the landlord would that seem like a safe bet? I’m not sure they would even offer you a credit card if you told the bank that. I haven’t rented much in my life but from what I have heard it is pretty hard to find places to rent if you have pets or kids. I would imagine it is much harder with no jobs and kids and a small income.

        Say you go on a vacation and put your stuff in storage and want to come home and find a place to rent again, all of this while bringing your kid or kids all over the place while traveling. Where do you stay while you are waiting to find a new rental, try to get one online before you come back? Do you put all of your things in storage while you are out of the country, or just don’t own anything? If your kids need to go to school you can’t just pick up and leave the country whenever you feel like it. This dream sounds nice for people who never want to have kids or own many possessions. I wonder how easy it would be to survive with kids and no car as well. How do you go grocery shopping with small kids and no car? Walk and take taxi’s back? If you needed to take your baby to the hospital do you call a taxi? When your wife is in labor do you call a taxi?

  11. Hi! Great blog and an inspiration for me.

    I hate mortgages and overprices housing just as much as you do:)

    One thing that can probably allow for owning a place without regret is buying and then renting out the excess “capacity” – spare room/basement. I know it’s not for everyone but I did a calculation and with the rent money coming in I pay an equivalent of rent while also building some equity. I know lots of people and parents frown at the idea of sharing your own place- but do you think it maybe worth consideration as a substitute for renting?

    So far I’ve had great experience and renting out does give you this business owner mindset + still allows you to save 60% + of your income (rent money cancels out mortgage interest so your payment effectively are like a savings account as you chip away at the principal). It works especially great near transit and schools since rents can soar quite high- that was one of the reason we selected the location.

    And we might also try to take even more advantage of it by using a readvanceable HELOC to invest in diversified dividend instruments (long term of course) to be able to deduct interest and speed up mortgage payment with dividend distributions.

    Down the road we will consider just selling it and moving to a cheaper area where I hope we can use our equity to just buy a place outright for $250,00 – $300,000 which should lower the housing costs considerable.

    What do you think? Does this plan clash with your mindset?:)

    1. Renting out rooms to cover the mortgage will help. But things you need to worry about are a) vacancies. You can’t be sure you’ll get tenants 100% of the time. b) it’s a HUGE headache if you end up with bad tenants.

      The readvanceable HELOC is an interesting consideration. But it comes with call risk. The bank can call at anytime for any reason. So you may be forced to sell your investments at a loss. I’d hesitate to base too much of my investment strategy on loans of any kind. I just don’t trust banks.

      My take is that houses always come with headaches and costs that you don’t expect (regardless of whether you have tenants or not), whereas renting while doing long term index investing is passive. You don’t have to time the market, rent is predicable, and you won’t be hit with any unexpected maintenance costs. But that doesn’t necessarily mean your plan is a bad idea. Sean Cooper did precisely that. Buy a house, live in the basement, and rent out the top floor to cover the mortgage, and he managed to do it successfully.

      Both approaches can work, just pick the one that jives best with your personality (Sean loves houses. Me? Not so much) and make sure your math is solid before you pull the trigger.

      1. I agree with most of the things. The callable loan are a risk but banks will most likely be reluctant to pull such a stunt on a good customer – it will most likely never happen. It’s like dividend decrease- it will cause more harm to the company’s image than it will help raising cash. I bet if a loan is called- that customer will be lost to them forever as most likely his friend and family once he shares this story with everybody else.

        Rentals have risks in that you are also dependent on your landlord- if he/she decides to sell you might have to deal with it at times that you are occupied with other stuff.

        In Vancouver the vacancy rates are super low – I think around 1%.

        1. ” I bet if a loan is called- that customer will be lost to them forever as most likely his friend and family once he shares this story with everybody else.”
          Um…that is NOT how banks work. They will call the loan if it makes sense to them. You can’t make decisions based on the “feeling” that they won’t want to lose you as a customer. When you make a big financial decision, you need to figure out everything that can go wrong and have plan to mitigate those risks. Hope is not a strategy.

          Sure, renting has risks too, but the only risk is to stability…that you would have to move if your landlord decides to sell. Generally, renting is much less stressful than buying. You have predictable rent, and are not on the hook for any unexpected maintenance costs. You also don’t have all your money tied to one asset and you don’t have to worry about a tenant destroying your life savings.

          Whether you want to buy or rent, just make sure you do the numbers and have plans to mitigate the risks.

  12. I know lot’s of real estate in GTA and Vancouver area are not cash flow positive but some places near colleges, universities and schools can command very high rent (due to international students with what seems to be unlimited budgets)

    1. Yeah, university/college towns are great. That’s why I’m a fan of Waterloo. Much lower housing prices and with a tech sector (because of UW) providing jobs, I think it’s a better bet than TO and VC. (Of course I’m biased because I went to university there)

  13. my expat-friend of 29 (mixed race) got the travel bug from her parents and has lived in several countries- Aus, Hkg, SG, Ph. Her mom has a place in SG (teacher in an int’l school), while her dad and the younger sister lived in Doha for 2 yrs before settling down with the family. The best thing is, 2 of them are tuition free while the youngest was paid for by the dad’s company. So, from toddler to high school, they had a lot of time to save up and no student loans for them, all went to UK unis). The middle one, the brother is now in the UK gov’t as an economist

    Noticed that she lives modestly (human rights lawyer), parties and travels like you guys and refuses to get a watch even when hers broke. I wanted to get her one, but got lost in the mail and she left for BKK and not long, for London.

    The point is, she’s adaptable to all sorts of people and situations, and living modestly will surely make her retire sooner or simply enjoy life earlier.

  14. What about buying a multifamily home? I just bought a duplex, the payment is $2410/month.

    My tenants will pay me $1,675 to start, and I’ll raise their rent every year. When i rented a room in a 2 bedroom apartment my share of the rent was $1,000/month.

    Now I’ll pay $735/month to own, and my girlfriend will pay half that, so really I’m paying $367.50/month to own.

    When i do move out of this duplex, i expect to get ~3,600/month total income for both units in the duplex.

    Is that a prison? How does that compare to the stock market?

    I’ve always felt i have no control in the stock market.

    1. Does the $2410 include property taxes, maintenance, and insurance? If so, and you have good tenants who pay on time, and don’t destroy your place, then the duplex makes sense.

      The feeling of having “no control” in the stock market is a common one. Admittedly the stock market is more volatile in the short term, but over the long term (20-30 years) it beats the housing market. The issue is the lack of financial education to understand how indexing, low-cost ETFs work (and banks like to keep it this way so they can sell you crappy products). Most people think about investing as “day trading individual stocks” and that’s risky because individual stocks can plummet to zero (not true with indexing) and timing the market doesn’t work.

      1. Hi FIRECracker,

        The $2,410 includes principle, interest, taxes, and insurance. I did budget 1 month of the year (8.33% of the rent per month) for maintenance costs, and 8.33% of the rent per month for vacancy cost.

        Even with those costs accounted for, turn a profit every month of ~350.

        For my next investment, I plan on buying a triplex, and the way rents are going here in the San Francisco bay area, I should be able to live without paying any mortage (PITI) at all.

        I hear ya. I’d like to use the stock market as a means of building up down payments on future multi-family homes, but I don’t even know how to get started.


        1. Well, you sound like you did your homework on the math. Great job! I also think the PR ratio and Cap rates in SF is WAY better than in Toronto (in Toronto you can still find cheap rents. In SF, not so much), so it might make more sense to buy there (duplex is also a smart idea).

          As for getting started with investing, I would say start small and get a feel for your risk tolerance first. We wrote a post on it, in case you are interested:

          Other early retirees are using a 90/10 allocation, but that’s way too risky for us. Since we’re engineers, we like to test things out, learn from our mistakes, then jump in. It helps us sleep at night 🙂

  15. The only issue is when the markets go down ETF’s go down and the coming correctio due to a currency collapse could send an unprotected portfolio down 90%.

    1. I’m not sure what you’re referring to. Which currency? And why would there be a currency collapse? Are you talking about hyper-inflation?

      1. The Canadian dollar is down 25% in the past two years and could go lower. Hyper inflation risk from government money printing. Collapse of pension plans.

        1. The dollar went down because of oil. And our dollar going down relative to US currency doesn’t mean hyper-inflation. In fact, our portfolio actually went UP when the CAD dollar plummeted because the index funds we bought in US dollars went up. That’s why we hedged for currency risk in our portfolio.

          In order for hyper-inflation to happen, money needs to be essentially worthless and only real assets hold value (like what happened in Germany after WW1). But if happens again, we have bigger problems to worry about (like war and famine) than early retirement.

  16. Funny post. Seriously.

    I live in California, rented ’till a few years back. Had to move twice because the landlord, who promised to NEVER sell, decided to sell. Instead of paying $2,800 rent and hoping 3 times is a charm, I put $55K down and now pay $2,900 mortgage including everything.
    I play on staying another 10 years ’till retirement, at which time my home should have given me about $250K in equity, whereas my rental would be $0.
    Of course, the wife and I feed her 401K and max out our IRAs as well.

    Looks like I’m a bit stupid. Please explain to me why paying $2,800 in rent is smarter than paying $2,900 mortgage.

  17. I thought I’d share our experience as homeowners in West Virginia, USA, a state with one of the lowest cost of living and generally lower wages as well.

    We are on our second owned home, the first being a fixer upper that my husband bought for $24,000 before I met him, and we had it paid off after being married about 4 years and sold it for 43,000 about a dozen years later. The payments were only about 200 a month, so we easily paid extra.

    We then bought another fixer upper for 100,000, putting 20% down, six years ago today and only owe 1,200 left. Our monthly payments are 600, so the longest I can take to pay it off is two more months. We of course paid a lot of extra on the principal over the years. This house came with 38 acres and we paid cash for another 3 acres that were inside our property but owned by someone else. We’ve done lots of work to the house (we do all our own labor) and I’m sure we could easily sell it for 150,000 or so now, but we plan to live here for life.

    I am so glad I do not live in such an expensive area as you do. Although wages are less here, I love the lower cost of living. We are self employed and do several different things for income and earn a pretty decent living for around here.

    For us, home ownership is wonderful and very affordable. We live in the country with no restrictions so we can do whatever we please with our property. We had several ponds dug this summer. We do all own repairs and renovations, which in the age of YouTube, etc., anyone can learn skills to maintain a home and even completely gut and rebuild one, which we have done. We have a safe place to raise our children and we have no desire to ever move. We love it here and are very grateful.

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