Wednesday 17 October 2018

Owning versus Renting

I have been reading Early Retirement blogs, not because I want to retire early, but because I don't want to be desperately poor when I do. Dancing gaily through life writing this and that, picking up various lifestyle university degrees, and then running away to a foreign country has been fun but impecunious. It would have been a good idea to have read Early Retirement blogs when I was 19 and lived off dividends from age 32, but there were no blogs when I was 19 and the possibility never occurred to me.

Having read quite a lot of Early Retirement Extreme and Mr Money Moustache,  I have recently been reading  Millennial Revolution, which is based in Toronto. The authors, being from Toronto, absolutely loathe the idea of buying a house. Instead of buying a house in Toronto, which can plunge the average person into almost a million dollars in debt,  Mr and Mrs Millennial Revolution put all their savings into stocks and bonds, rode out the 2008 crash, and retired when Mrs MR was 31.

As I read the Millennial Revolution's nightmare articles about their-friends-who-bought-houses-in-Toronto, I ponder whether or not it was a mistake to buy a home near Edinburgh instead of whacking all our savings into stocks and bonds and renting. After all, even as homeowners we can still hear people coughing or yelling on the other sides of the walls. Pinning someone down to fix the roof was a chore, too.

When, this summer, I began to doubt the buying project, Benedict Ambrose argued that paying rent instead of a mortgage was akin to setting the money on fire instead of investing it.  Also--this is not true in Canada--when you rent a flat in the UK, you still have to pay a kind of property tax to the government anyway. It's called "council tax". When we were the proud "key-holding" tenants of the Historical House, we weren't paying council tax only because B.A.'s employers were paying it for us. (I found this out only after the Deluge drove us from our home.)

Eventually I sat down with a pen and paper and calculated that, given our relatively small mortgage and relatively small council taxes, it did make more economic sense for us to buy a flat in our modest (but not crime-plagued) neighbourhood than to rent. Even locally monthly rent on a two-bedroom flat is more than our monthly mortgage payment.

Meanwhile, in the United Kingdom, if you invest in a Help-to-Buy ISA (Investment Savings Account) at a bank, the UK government actually pays you a whopping percentage (20%) of what you put in. It is free money (supplied by the taxpayers) to bribe/help people in the UK to buy their first homes.

Therefore the answer to the question "Should I buy or rent?" seems to be another question: "What does it cost to live where we work?"

Where B.A. works--a ten minute train journey from the glorious Georgian facades of Edinburgh--property prices are relatively low: you can buy a two-bedroom flat for £120, 000*.

Near where my sister Quinta works, you can buy a miniscule two-"bedroom" condo for $530, 000 Canadian, which is about £311, 290.

Therefore, whereas buying near BA's UK workplace makes sense for a two-income couple, it would make less sense for Quinta to buy near her own Toronto workplace.

My gosh. I have just looked up property prices in my parents' neighbourhood and my eyes almost fell out of my head. Teeny-weeny bungalows going for $1,400,000 (£821,975).  Less than that would get you this in Edinburgh.

*Theoretically. In Scotland, all homes are sold by blind auction. You tell your solicitor how much you are willing to offer (which means all the money you can spare plus whatever mortgage you have "in principle" from a lender) on the closing date and then wait and see if your offer was the best. So if you want to buy a £120,000 flat and you know there are 5 other people who want to buy it, you shut your eyes, bid £130,000, and pray that if you win, you couldn't have won by bidding £127,000 instead.

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