A government bond yields about 2 per cent these days, while blue chip Canadian stocks have an average yield of about 2.6 per cent. The yield on your house when treated like an investment? American financial writer Jared Dillian pegs it at minus 1 per cent.
“A house has a very high cost of carry,” he wrote in a recent commentary. “Unless you buy a new house, you are probably going to spend up to 1 per cent of the value of the house on maintenance every year. Stuff breaks. Pipes burst, roofs leak, and occasionally the whole thing burns down.”
But houses go up in value, right? Mr. Dillian lives in the United States, which means he lived through a housing crash there more than about 10 years ago. While he’s confident the price of his house will rise over a 40-year horizon, he believes people should think of their home as a place to live, not an investment. Naturally, he’s also open-minded about renting. In fact, he thinks you should rent if:
- You would be bad at taking care of a house;
- You don’t have a cushion if things go wrong;
- Your rental payments are lower than a mortgage payment on an after-tax basis (including property taxes and insurance) for a dwelling of comparable size;
- You think houses are overpriced.
Mr. Dillian acknowledges one financial benefit of home ownership – paying down a mortgage is a forced savings plan because you build equity in your home over the years. But he also notes the tendency of some owners to borrow against this equity through home equity lines of credit, or HELOCs.
Mr. Dillian might be a little more pro-ownership if he lived in Canada, where you can sell a principal residence tax-free. In the U.S., there may be capital gains taxes to pay on part of your gain. Overall, though, his take on home ownership is sensible and business-like. I wish more Canadians thought that way.
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Rob’s personal finance reading list…
Why you should take a staycation
Nope, not to save money, although that is a benefit. The real benefit of vacationing in your own city is that it “leaves you refreshed and provides perspective.”
The best housing markets for buyers and sellers
Newfoundland rules for buyers, while sellers have the upper hand in a range of cities stretching from Victoria to Halifax. Vancouver, Calgary and Toronto are considered balanced markets.
Does anyone travel without first checking TripAdvisor?
According to this behind the scenes look at TripAdvisor, about one in every 16 people on earth use some aspect of this travel website’s services every month. This is a really interesting dive into the challenges TripAdvisor faces in ensuring its review are real and accurate.
A strong argument against early retirement
Retiring at 66 instead of 62 increases a person’s standard of living by one-third, according to a study. Even working an extra month at the end of your career can help your retirement savings.
Today’s financial tool
This list of consumer resources from the Ombudsman for Banking Services and Investments includes a guide to online financial and investing content relevant to seniors.
Ask Rob
Q: “I have a granddaughter heading off to university in 2019. Do you know of a list of places she can apply to for scholarships and bursaries?”
A: “Here’s a really good list of places where students can seek financial assistance, and here’s a list of scholarships."
What I’ve been writing about
- Hey, realtors and family members, stop pushing seniors to sell their homes;
- What Air Canada’s purchase of Aeroplan means for all those points you have;
- Younger investors, here’s how to get fee breaks and other little-known perks at online brokers and robo-advisers (for Globe Unlimited subscribers)
More Carrick and money coverage
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Rob Carrick