Sunday, 6 November 2011

The Rental Mortgage

If you live in North America, you probably believe that it is much better to own your home rather than rent.  I mean, who would want to fill the pockets of the landlord instead of diligently paying down your mortgage, building equity and, in essence, saving and investing for the future, right?

If you do believe that, you are in the majority.  Congratulations!  You are in good company.  Your opinion is supported not only by your neighbours and the army of your fellow home owners but by countless hordes of real estate agents, mortgage brokers, bankers, construction companies, furniture manufacturers and retailers, building supplies and home decor experts, newspaper subscription-selling teenagers and the occasional encyclopedia-pushing door-to-door rat.  It's an entire economy!  My apologies for all that I have probably missed!

But prickly little me is the kind of pain-in-the-ass, know-it-all snot-face who always seems to think that common sense generally stinks and it is neither that common nor does it have much sense at all.  Annoying I am, I know.  In my defense I will say that I was particularly unnerved by the chorus of relatives who, as soon as they saw me and a female hitched together with a couple of smaller would-be-humans in tow, launched a campaign of persuasion on why and how we should, could, ought to and downright MUST buy a house.

"The kids need a back yard to run around in," was the first and most compelling reason they presented.

"But a reasonably comfortable house is, like, three hundred and fifty THOUSAND dollars!"  That was all I could think of at first.  Definitely the wrong answer!

In a consumerist society, it does not really matter how much something costs.  What matters is how willing you are to get it.  Kind of like a motivational pep-talk: If you can conceive it, you can achieve it!  The rest of it is just a simple exercise of rationalizing your decision.

I pointed out that we did not have that kind of money.  The chorus of relatives did not believe me.  After all, we could get a mortgage, like everyone else did, and by paying it off we'd have a nice little nest egg, an investment in our own home.

I pointed out that the return on investment on real estate is, on average, about 4-5% lower than the average of the stock market index.  That did not help either.  Stocks are risky, the chorus said.

I then argued that a mortgage is a risky proposition as well.  A $300,000 mortgage financed at a low interest rate may have a sweet low monthly payment but a single percentage point increase in interest rates would jack up your monthly payment by $250.  Does not sound like much?  Try a three- or a four-percent increase.  How do you budget for an extra $750 or $1,000 per month?  Do I take a part-time job at the local Starbucks?

"What about retirement saving?  Your home is the perfect place to safely put money away for that."  OK, I answered.  But how do I get that money out when I retire?  Sell my home?  Where would I live then?  Buy another home yet again?  Or set up a reverse mortgage?  Make yet another insurance company even richer?  I might as well buy whole life insurance.  To the reader: Please don't get me started on whole life insurance, or I might bore the life out of you with piles of proof why it is a bad idea.

"Buying a home is a safe investment."  This one felt like an index finger being waved at me.  But I was bold cause I knew better.  OK, you have a $350,000 home and a $300,000 mortgage.  You lose your job and can't find another.  You are forced to sell because you can't afford the mortgage, property taxes and, the repairs to the roof which conveniently just caved in.  So, your home is now worth $200,000.  No matter how you spruce up the flower bed in front of the house, you are eating a $100,000 loss and that's it!

"Paying rent is like throwing your money to the wind," chanted the chorus.  I argued that the interest on a mortgage is throwing money to the wind as well.  In addition, I'd have to throw more money to the wind in heating bills, property taxes and maintenance costs which, as a renter, I did not have to worry about since my rent includes them all.  I pointed out that the rent I pay is a fee for a service.  I pay to have a comfortable place to live in without having to worry about unexpected maintenance expenses, the logistics of hiring and overseeing trades when something needs to be fixed, without having to mow the lawn and shovel snow and without having to keep a small warehouse of tools, machines and implements to do all of that work myself.  Somebody else does that for me.  Outsourcing at its best while I am concentrating on my core competency: enjoying life.

"But you cannot make your apartment exactly how you want it."  The war drums pounded and the chorus swayed with the rhythm.  I hummed a bit on that one because, at one point of time, I did dream of living in a fully open-concept space, knocking down all the walls except for the bedrooms and bathrooms.  But, with time I realized that, as much as that might have been a nice thing to have, its absence did not bother me that much at all.  What I did realize, however, is that, with the average home ownership spanning over only six years, it was not likely I would go gang-busters on setting up a space to be exactly how I like it.  Between work, kids and trying to enjoy life as much as I can, chances are it would take me all of the six years to make the home exactly how I like it.  And then?  A rise in interest rates, loss of a good job, kids moving out to start life on their own, or god knows what other surprise life might serve me, I might find myself stuck with a big house or a big mortgage payment that I am no longer willing to carry and having to sell in market conditions that may or may not be as good as I hoped.  And if I sold wherever would I live?  Buy again?  Pay legal and real estate fees on the sale and on the purchase?  Start the six-year renovation project to turn the new home into exactly what I wanted all over again?  Egh!  Repetition is the mother of boredom.

"How do you even live in an apartment?" the chorus chanted, "there's no space for anything."  I tried to wave this one off.  I had always lived in small spaces, since I was a kid.  It isn't a disaster by a long shot.  You just get used to keep fewer things around and can focus on getting quality versus quantity.  A forced saving, if you will.

"And what about the back yard?"  Easy.  We have a large park behind our building and an outdoor swimming pool.  Sure beats twenty square meters of grass and a rusty barbeque in my book.

I seemed to be gaining the upper hand so I thought I'd move in the offensive.  What happens when the kids move out and start a life of their own, I asked.  I'd be stuck with this huge house which I now have to clean and look after and where I'd have to put GPS devices on me and my wife so we can find each other whenever we are both at home.  Or, again, I'd have to sell and buy, pay more realtor and legal fees and start the whole 6-year project of making the new home my own space.

HELL NO!  I had it!  No matter how I look at it, it seems to me that a house is a temporary thing that I don't particularly need.  So why the hell should I buy one?  So I can enslave myself paying ridiculously high amounts for a living space, miss out on all the vacations and fun I could be having in my younger years and then be burdened with unloading this harness of my shoulders when I am old?

Whatever it is, buying a house is not the only and perfect solution.  In fact, it seems to me that buying a house is just a much more expensive way to rent it.  After all, when I die, I can't take it with me, right?

Sure, if you are a gardening, a home renovation, or a home decor freak, or if there are other reasons why you need to own your space, that may be the perfect solution.  But for all the normal reasons people give, for me, the logic fails.  I am an average Joe who just wants to enjoy the short lease I have on life and buying a home is not my vision of leveraging my existence capital.  I'll rent, goddammit, until I find a good enough reason to revisit this line of thinking.  Wouldn't you agree?

My voice echoed in the empty room.  While I was engulfed in my rant, the relatives had gradually filed out the door, throwing back pitiful glances over their shoulders.  I could see the sighs in their eyes.

"Yet another silly, sad rebel," the sighs said.

PS:  OK, this wasn't a spiritually, philosophically or even emotionally enlightening post.  But it was fun writing it.  And I am still renting happily :)