Renting vs. Buying a Home: How to Decide (EP.154)

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Jun 17, 2021

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ADVICE

Reduce Noise with Rules

Combat judgment noise by increasing awareness and applying rule-based decisions.
Use algorithms, checklists, and separate teams to reduce variability while preserving individual dignity.

INSIGHT

Advisors Mirror Clients' Poor Habits

Canadian advisors invest too similarly to clients and prefer expensive, high-turnover active funds.
Advisors generally do not outperform clients in avoiding detrimental trading behaviors.

INSIGHT

Low Rates Don't Boost Stock Borrowing

Low interest rates do not make borrowing to invest in stocks more advantageous.
The expected risk premium above the risk-free rate remains constant regardless of borrowing cost.

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Welcome back to another episode of the sensible money show. The focus this week is the age-old question of housing; whether to buy or to rent. After our preliminary remarks, book review, and a new TV recommendation, we get down to brass tacks on the important things to look at when assessing your living situation. There are some commonly held views on the expenses and sacrifices associated with real estate, and we do our best to share some of the facts as they stand. We get into some meaningful ways to truly compare the costs of each option, looking at the financial aspects, risk, quality of life, and related psychological elements to the debate. The truth is that there will be costs associated with each, but that they may not always lie where you think they do! For instance, it is commonly believed that it is less risky to own than to rent, however, the evidence suggests otherwise. Similarly, many of us assume that the costs of owning a property are greatly diminished once it is paid off, again, this is not necessarily true. Our main argument here is to base your choices on factors more closely related to your physical and mental health, things like stress and relaxation due to noise and travel times.

Key Points From This Episode:

This week's highly recommended book, Noise. [0:05:37.3]
Unpacking the new article by Larry Swedroe titled 'The Misguided Faith in the Fiduciary Standard' [0:11:50.7]
A few thoughts on FIRE, positive psychology, and moral judgments. [0:16:49.2]
The big decision that so many of us are faced with: buy or rent? [0:20:41.7]
Flawed logic around mortgage payments and rental costs. [0:25:55.5]
Opportunity and maintenance costs and the truth about depreciation. [0:29:51.7]
Equating the total costs of renting and owning and making a judgment based on this. [0:36:53.8]
The ratio of prices to rent in Canada currently and in the last few decades. [0:39:47.9]
Risk and homeownership; why renting is less risky in many ways. [0:40:50.8]
Keeping the focus on living a good life when making real estate decisions. [0:45:15.7]
The surprising relationship between owning a property and a sense of control. [0:49:16.8]
Weighing all the factors and making an informed decision based on wellbeing. [0:55:30.4]
This week's Talking Sense segment dealing saving, speed of decision-making. [0:56:08.8]
Bad advice of the week: Fidelity's investment initiative aimed at teenagers. [1:00:34.4]