So, does it never make sense to buy a house? Some people would have you think that I hate real estate. Like the Globe, which called me the “king of housing bears”. This is ironic, since I’ve written almost as many books on how to buy property, as how to avoid it. At least I now get to wear little crowns on my boxers.
Actually I love real estate, and have owned lots of it. But I also recognize it’s turned from a necessity to a leveraged investment asset, into a cultish obsession. With so many people owning, housing’s now viewed as riskless. Those without it feel disenfranchised. Kids buy condos before they get cars. Weird.
(I recall my parents asked my rebellious older brother when he was 17 what he wanted as a graduation gift. A car, he said. So they did. He got in and drove away. Forever. Made perfect sense to me at the time.)
Anyway, a house since provides shelter and emotional security. Astutely bought, and wisely financed, it can make you long-term money. Gains are tax-free. You can borrow against it, rent it or expand it. Your mom will be proud. But against all these positives are a growing stack of negatives, chief among them the massive debt involved in buying an asset at historic-high levels. This means as prices rise, so does the risk of paying too much – especially when interest rates inevitably creep up and the debt gets ugly.
So, buy if you can truly afford it, and if the real estate represents a reasonable amount of your net worth. That does not mean 5% down with a 3% cash-back mortgage if you’re a burger-slinger at Wendy’s.
But here are two other examples of when being an owner beats being a renter. Or, rather, when renting sucks. First, here’s Mark in West Van:
“My wife and I just rented a house in West Vancouver. 2 year lease for $4000 per month. Our landlord and agency said they wouldn’t list the house before I’d agree to sign the lease. Two months after we moved in she listed the house for almost $500,000 over assessed value, which has almost no chance of actually selling.
“So we could easily be harassed by potential buyers for the whole lease, just in case of the off chance that someone wants to severely overpay for the house. $1.81 million assessed, $2.3 million price. What would you do if this happened to you?”
First, Mark, I’d pay my lawyer two hundred bucks to send the LL a letter alleging breach of contract, since verbal assurances given to you formed a critical part of your decision to lease the home. It’s worth a shot. Lots of landlords want nothing to do with legal action, since it’s costly and protracted. And I hope your lease was properly papered.
But according to BC tenancy legislation if the owner sells the property and the new owner (or a family member) wants to move in, you have to move out (after two months), unless you have a fixed-term lease. But it has to be done properly – your existing landlord must receive a written request from the new owner prior to serving you notice. Ask to see it. The request must say the new owner requires vacant possession in order to move in. If this request does not exist, or the new owner wants to do something else with the property, you can stay
By the way, if you are kicked out after the house sells, after the vacant possession request is made, after you receive notice, and after two more months, then you must receive a month’s rent as compensation.
In Ontario the Landlord & Tenant Act says you can be evicted if the LL sells to someone who will move in (or his family), “however, a tenant can only be evicted at the end of their tenancy and only if the Board issues an eviction order.”
Now, here’s another problem, from Mike who apparently dissed me in the past (before he required free advice):
“My name is Mike and I read your weblog everyday and post comments. I apologize for anything I have posted that was in-appropriate. I have a problem and some questions I am hoping you can help with. The condo I am renting has been foreclosed on. I was served with a notice this morning. I mostly have questions about my rights. I think the foreclosure happened July 4th, 2014. How long do I have before I am told to leave? Do I keep paying rent? I sent post dated cheques, should I put stop payment on them?
“I really don’t know where to start or what to do. “
When a LL goes paws up, the bank’s right to collect on the mortgage debt takes precedence over your right to live there. This is a pain, but I sure expect to see a lot more of it in the future since so many amateur landlords own properties that are cash-flow negative.
You should have received a court document called a Petition, Mike, delivered to you. It spells out how long the owner has to pay outstanding arrears before being forced to sell (usually six months). You should go to the court house and file a Response to the Petition which will then entitle you to receive copies of all documents, so you know what’s going on. You have 21 days to do so.
Do you keep on paying rent? Yes, you must until you get a court document naming a new owner. The court might inform you that the property can be shown to prospective buyers, and you must accommodate that. Finally, if the court tells you there’s been a sale, or a change in title, you’ll be given a possession date by which you must split. That is, unless you contact the new owner and work out a new lease.
In general, renters are subsidized by owners. Often massively. In every major city (even Calgary), it costs less to rent a condo or a home than to own it, once all the costs are factored in. And yet scores of silly people have purchased properties thinking they can lease them out, and get on the path to real estate riches. Many are learning otherwise. And this is why sales and foreclosures happen.
So, you can accept the reality, move and enjoy subsidized rent again. Or you can buy, and roll the dice.