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With All The Mortgage Rule Changes, Does Alex Avery's The Wealthy Renter Make Even More Sense?

In a society that’s obsessed with real estate in general and home ownership in particular you wonder if Alex Avery’s The Wealthy Renter makes sense.
“Renting is the unsung hero of the housing world, renting is beautiful in its simplicity. Pay a fixed amount of money for the right to occupy a space for a fixed amount of time. It’s that simple.”

As the title of the book suggests Alex Avery is an advocate for renting verses owning, citing that people are not privy to all the additional costs that go along with home ownership. His view is that one home does not fit all and that the right home for each one of us is quite different.

The dream of ownership is a business. A big business.

Plus, as the old saying goes too many cooks spoil the broth. It seems that everyone from your family to the government has an opinion about home ownership and what you should be doing with your money. After all, the business of buying a home is a big business indeed. From applying for mortgages, to lawyers, land transfer fees, not to mention commissions, buying a home can put you into quite a bit of debt, particularly if you haven’t saved "enough" for it. Because of this mass cult-like mentality, it’s hard to think outside the “buying box” and actually look at things from an unbiased perspective.

“Home ownership is aggressively marketed to make people want to buy homes in the same way car companies run commercials featuring their cars racing through hairpin turns with their engines roaring. “ 

“Government is coach, referee, cheerleader, and fan in the game of housing.”

But, rather than using the book as a way of bashing the concept of home ownership, Alex Avery suggests that The Wealthy Renter is actually a celebration of the virtues of renting.

So, what’s really appealing about renting?

  • Renting can be a casual relationship – one that you can change up with relative ease.
  • One fixed cost
  • Renters can move without a penalty (or almost)
  • Improve your chances of finding a better job because you are more flexible about where you can work
  • Not owning means you don’t own the responsibility and the risk

Alex Avery explains that it’s easy to underestimate the cost of maintaining a home, particularly because the costs are large and infrequent.

In the book he speaks about distinguishing the costs based on implicit rent a homeowner pays to live in the house. 

“Implicit rent is an opportunity cost, so the cost depends on what alternative investment opportunities are available.”

It’s not news that home prices are at an all time high. If you bought your house a while ago you have seen significant appreciation. But, if you are getting into it right now, Alex Avery suggests you heed caution and crunch your numbers. The demand for housing is driving up the real estate prices, and in the current market, with houses going $100-200K over asking in Toronto and the GTA is not uncommon. People are taking on a lot more debt and as a result are house poor once the cost of debt servicing and maintenance are taken into account.

Ultimately Alex Avery is fighting against a number of perceptions. In the "Anglo-Saxon" world --Canada, USA, UK, Australia-- we are programmed to think of real estate as an investment. How many times have you heard the aphorism "they're not making any more land", and "my house was the best investment I ever made", in addition to the quotable quote "you can't live in your RSP."

But in addition to that way of thinking, we fail to see the other side of the equation -- one that always assumes that when you are ready to sell, there'll always be someone willing to buy  at a hefty premium to inflation. Furthermore the vested interests ensure that home ownership is encouraged -- where would our banks be if they didn't extend massive amounts of credit for home ownership, and where would our macro economy be without the multiplier effects of home owners trying to keep up with the Joneses by renovating and buying to make their home worthy of Architectural Digest, or at least Martha Stewart Living.

Alex Avery is an accomplished professional at a major wholesale bank who has parsed through the arguments, crunched the numbers and has given us food for thought. The numbers add up, especially if people have the discipline to save concurrently while paying rent. But buying a house, much like any purchase, is about emotion, and as such the arguments will take time to take hold. In Canada, we may not embrace renting in the same manner that they do in say Germany, but with the price of real estate assets continuing to far outstrip income growth The Wealthy Renter is a book whose arguments need to be taken seriously.

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