HOUSING: BEING AN OWNER OR TENANT

HOUSING: BEING AN OWNER OR TENANT

In 2016 I wrote a book and one of the chapters that generated the most interest was the chapter on buying a house or living in rent

In summary, I said this:

Buy a house or rent an apartment

Home ownership is an important goal for many people, but the costs associated with purchasing a home must be considered. For example, interest, taxes and maintenance costs can be considerable and affect finances in the long term. Additionally, with today's low interest rates, investing in the stock market can offer a higher return than buying a home.

It's worth noting that the costs associated with real estate ownership can be considerable, with taxes, higher utility bills, and maintenance and renovation costs to consider. It is therefore important to weigh the pros and cons of real estate ownership and stock market investing before making a decision.

Is this still valid in 2023.

Yes, this statement is still valid in 2023. Here are the results of my research based on data from the Canada Mortgage and Housing Corporation (CMHC)

Price of a house and rents

here is a table showing the evolution of house prices and rents for the period from 2012 to 2022 in Quebec.

Year Average house price ($) Average rent for a 5 1/2 ($) 2012 234,000 835 2013 243,000 855 2014 249,000 872 2015 254,000 892 2016 262,000 918 2017 273,000 951 2018 295,000 1,034 2019 316,000 1,105 2020 339,000 1,186 2021 376,000 1,318 2022 400,000 1,400

These figures are based on data from the Canada Mortgage and Housing Corporation (CMHC) for the Quebec market. Please note that these prices are averages and may vary by region and other factors.

S&P 500 performance since 2009

The S&P 500 has returned over 550% after inflation since 2009 (see link here: https://bit.ly/3JrAjVF

Downpayment

According to data from the Canada Mortgage and Housing Corporation, in 2012, the average down payment for a first property in Quebec was approximately 20% of the purchase price. So for a purchase of $234,000, this would correspond to an average down payment of approximately $46,800 .

Okay, here is the table you requested:

Year	Initial balance	Annual payment	Interests	Capital	Residual balance
2012	187,200	-	-	-	187,200
2013	183,224	10,833	6,896	3,937	183,262
2014	178,877	10,833	6,761	4,072	178,805
2015	174,133	10,833	6,624	4,209	174,015
2016	168,965	10,833	6,486	4,347	168,618
2017	163,342	10,833	6,346	4,487	162,855
2018	157,233	10,833	6,206	4,627	156,606
2019	150,602	10,833	6,063	4,769	149,832
2020	143,414	10,833	5,920	4,913	142,501
2021	135,635	10,833	5,775	5,058	134,577
2022	127,227	10,833	5,629	5,204	126,023

In this last table, I assumed that the down payment is 20% of the purchase price of the house, or $ 46,800 . The interest rate is the one we used previously, 3% ( Bank of Canada ). Annual payments are calculated for a 25-year mortgage, and the remaining balance is the amount owed after each year of payments.

According to the Association of Construction and Housing Professionals of Quebec (APCHQ ) and the CMHC, the average charge rate for the maintenance and maintenance of a house is between 1 and 4% of the value of the property. House. I used 3 for the exercise

which now gives the following table:

Year	Average cost for a house	Initial balance	Annual payment	Interests	Capital	Residual balance	Total charges = interest + 3%	Average rent	Annual rent	rent vs house difference
2012	234000	187200	-	-	-	187200
2013	243000	183224	10833	6896	3937	183262	14186	855	10260	3926
2014	249000	178877	10833	6761	4072	178805	14231	872	10464	3767
2015	254000	174133	10833	6624	4209	174015	14244	892	10704	3540
2016	262000	168965	10833	6486	4347	168618	14346	918	11016	3330
2017	273000	163342	10833	6346	4487	162855	14536	951	11412	3124
2018	295000	157233	10833	6206	4627	156606	15056	1034	12408	2648
2019	316000	150602	10833	6063	4769	149832	15543	1105	13260	2283
2020	339000	143414	10833	5920	4913	142501	16090	1186	14232	1858
2021	376000	135635	10833	5775	5058	134577	17055	1318	15816	1239
2022	400000	127227	10833	5629	5204	126023	17629	1400	16800	829
							152916		126372

By analyzing the returns of the BMO ZSP fund and injecting an average of $400 per month (the residual between the rent and the maintenance of the house) we obtain the result an amount of 237,000 on our $46,800 invested

If we take for granted that our house is now worth 400,000 and that we paid 152,000 and that we have a residual value of 126,000 , we therefore obtain a net worth of 122,000 for the purchase of a house

With the investment in a fund based on the S&P 500, we therefore have a net worth of $ 237,000. Since the TFSA began in 2009, good tax planning would ensure that our returns would be mostly tax-sheltered.

So what is the best investment if you can be disciplined?

The rent with the forced placement would therefore have enriched us by 117,000 more than if we had bought a house

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