“Renting can be just as financially viable as owning”: An investment expert on the pros and cons of lifelong renting
Benjamin Felix, the chief investment officer at PWL Capital and the co-author of a recent report titled “Renting vs. Owning a Home in Canada 2005–2024,” breaks down the financial pros and cons
It’s a cultural thing, I think. In Canada, there’s status attached to owning your home. Renting can be seen as a bad financial decision or a sign that you can’t afford a home. It takes a lot of financial self-confidence to be content to remain a renter when you’re facing that type of stigma. But, whether you’re a renter or a homeowner, you’re not throwing your money away. You’re paying for a place to live.
What are the pros of renting? The main advantage is flexibility. It makes more sense to rent if you plan to move around a lot. Owning is a huge commitment. You’re responsible for this big, expensive asset that you have to maintain, and people forget how much those costs can add up. There are property taxes and maintenance costs, including the expense of spending time looking for a plumber when a pipe starts to leak. There can also be the downside of having the majority of your equity tied up in a home instead of investing in the stock market. Depending on their income, renters tend to have more available cash, which they can invest in a more diverse portfolio.
Homeowners can’t be renovicted. That’s one downside to renting. Renters are at the whims of their landlords. We’ve all heard the horror stories, but even landlords with integrity may reclaim a unit for personal use, hike rents, or deny DIY projects or personalizations that help a rental feel more like home. Homeowners with fixed-rate loans are a little less vulnerable to sharp market fluctuations, but that’s not true for renters without rent control. It’s possible for rents to go up quite a lot—Torontonians are familiar with this—exposing renters who aren’t protected by rent control to more financial risk.
Many homeowners consider their property their retirement plan. That’s not the case for renters. How should they be planning for the future? Renting can be just as financially viable as owning, but renters need to do two key things to keep up with the equity intrinsically generated by home ownership. The most important thing is to save the cost difference between renting and owning rather than spending it. This is easy for homeowners, who automatically invest that cost difference in their biggest asset each month by paying their mortgage. Homeowners prioritize their mortgage because failing to pay it is one of the worst financial mistakes you can make. There’s a forced discipline there that doesn’t exist for renters. The second most important step is to invest those savings in a diversified portfolio of low-cost index funds. Risk sounds scary, but taking the right kinds of risk yields higher expected returns. If you’re not investing in higher-expected-return assets such as stocks, you are more likely to fall behind a comparable homeowner.
This interview has been edited for length and clarity.
Teagan Sliz covers Ontario real estate for Toronto Life and Storeys. She also writes for Cottage Life and has reported on everything from hidden-gem restaurants to Canadian wildlife and forest fires. She graduated from Queen’s University with a bachelor’s in history and art history and from Centennial College, where she studied Canadian publishing.
