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So this chart cited is showing household wealth, not individual, and I assume in Canadian dollars.
Australian figures, in Australian dollars which are pretty well equivalent to Canadian are:
Average wealth of renting households, $199 000
Average wealth of households with mortgages $981 O00
Average wealth of outright home owners $1,600,000
It seems that in Canada, and also in Australia there is a capital gains tax exemption on principle place of residence. I do not know if that is the case in the US. It obviously encourages investment in homes and has helped to push values in Sydney and Vancouver to be amongst the highest in the world. Here in Sydney an old house perhaps 6 miles out of the city centre, no parking and needing renovation will sell for upwards of $2 million.
I do not know whether this applies in either Canada or the US but here we have negative gearing, where losses from real estate investment properties can be used to offset other income. This has encouraged people to invest in rental properties. We also have a fifty percent exemption on capital gains tax for rental properties owned more than a year. Anything purchased pre to 1985 is capital gains tax free. We also do not have any inheritance nor gift tax. All of these things have encouraged investment in property.
Also, the figures quoted are all average, not median, which would be a lot lower.
The capital gains tax exemption on principle home is a bit messed up in Canada regarding acreages, but it works for urban properties. Regarding acreages, even though the entire acreage may have been used, manicured, and enjoyed, the government has decided that regardless of acreage size, the only portion that is exempt is the house, septic field, and water well accounting for approximately one acre. That makes for a lot of capital gains on larger properties.
So called "negative gearing" and capital loss from real estate can be used to offset other income. Also, all repairs done on rentals are deductible from rental income. There's no capital gains exemption for rental properties after ownership that exceed one year. That tax is full on unless the property is transferred/gifted to a family member and registered at a value greater than purchase price, and then then regifted again to another family member at market value. That would be the only way to eliminate the capital gains tax from purchase price to final assessment value.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Originally Posted by saibot
The question is, why would you put so much money into buying two expensive rentals for which the rental income was no more than the mortgage payment? What was the point? There has to be more to this story as no sensible person would do such thing.
In the Bay Area this type of real estate investment is quite common. Lots of people do it. The hope is rent doesn't pay for the ownership, but helps pay for it. The idea is after 30 years it is all paid for and hopefully it also goes up in value.
People who live in cheaper areas can't comprehend this. Now if someone in the Bay Area wants to buy out of state real estate the numbers make a lot more sense, but they have to be okay with not self managing their property.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by Quietude
The discussion just seems very polarized and wandered off into a basic rent-v-buy argument no longer connected to the wealth-building question. I'll just say I haven't been convinced there is any renting path to wealth building that exceeds the same assets in an owning situation, and that careful ownership is usually financially advantageous - the exceptions being people that get caught in an economic downturn, and those who buy a house needing more skill and effort than they can provide.
If you can't fix a loose doorknob and can't hire out every home task... rent.
Like everything it depends on the situation.
When I moved to Atlanta I had not so good credit, but $300k in the bank.
I could have bought a house cash, or rented the same house for $1650 a month.
I chose to rent because could make more than what rent was by investing.
My rent for two years was 39,600.
My investment yielded over 80,000 in the same time period.
The capital gains tax exemption on principle home is a bit messed up in Canada regarding acreages, but it works for urban properties. Regarding acreages, even though the entire acreage may have been used, manicured, and enjoyed, the government has decided that regardless of acreage size, the only portion that is exempt is the house, septic field, and water well accounting for approximately one acre. That makes for a lot of capital gains on larger properties.
So called "negative gearing" and capital loss from real estate can be used to offset other income. Also, all repairs done on rentals are deductible from rental income. There's no capital gains exemption for rental properties after ownership that exceed one year. That tax is full on unless the property is transferred/gifted to a family member and registered at a value greater than purchase price, and then then regifted again to another family member at market value. That would be the only way to eliminate the capital gains tax from purchase price to final assessment value.
Thanks for the explanation. I am not sure about capital gains tax exemptions about rural properties here as we have always lived and invested in urban areas.
Is negative gearing being blamed in Canada for unaffordable housing as it is here? As we not only deduct interest, rates, repairs and the depreciation of many items, it is very popular with people paying higher personal income tax rates.
The median price of houses in Sydney has hit 13 times median household income in Sydney, apparently second highest in the world, after Hong Kong. More than 20% of Australians live in Sydney so it affects many young people badly.
On the other hand, it has created a good amount of wealth for quite ordinary people. Friends have sold a fairly ordinary house they have inherited for over $2 million and passed some on to their kids. So people are torn about the issue.
Similarly the government are probably torn by the negative gearing issue. If it is abolished it will likely decrease the pool of rental accommodation and push up rents without necessarily helping buyer affordability.
Renting long term is not overly popular here as tenants have less rights than in many countries and also the pension system favours home owners. So all a vexed issue.
My investment yielded over 80,000 in the same time period.
Since the big'un total S&P 500 return with dividends reinvested has been almost 270%, it isn't hard to imagine scenarios where investment returns dwarfed real estate appreciation and ended up the better path to wealth building.
Too many variables to declare rent/buy as better, especially given how often people sell their homes within 10 years.
real estate is to localized and to deal dependent to do a general comparison to equities .
our manhattan real estate blew away the stock markets , but our queens co-op lagged , we made money but no where near manhattan . so you really can't compare in general terms , only individual situations . in the case of the manhattan real estate it was not so much appreciation as it was the deal we made on the buy . so real estate can be very deal dependent too because greater profits can be made on the buy side than the sell side or even the income side ..
we have two of the manhattan co-op's up for sale today at 50 cents on the dollar and we will still make money . they have stabilized tenants so that is the going price ,.
Last edited by mathjak107; 01-26-2018 at 04:51 AM..
Just as there are Two Americas, there are two rental markets. The low-end / subprime rental market is distinct from the mainstream rental market.
Low-end / subprime renters do not have the option of leaving their current rentals for new construction which is unavailable / unaffordable to them. Captive markets can be exploited precisely because they cannot exit the market.
Which comes right back around to it being an income problem, not a rent problem.
I'm not sure when exactly you will grasp the fact that even if you were handed a home to purchase today, it would not change your financial situation. You still would only be able to pay a few hundred dollars a month to pay for and maintain that house.
things always look easier from the outside looking in on what you never experienced .
when we had our first house i could not believe how much we spent on it . especially early on when it was a novelty . we couldn't go any where without coming back with something for the house .
Yep I remember our first house we tried to plan down to the very last detail to approximate how much additional money would have to go into it the first year, and we still came out $9k higher than our estimate.
Much of the unexpected budget damage was outside. The wrought iron fence topping I thought would be a weekend repaint project turned into a multi-thousand dollar replacement, a couple of big trees that needed trimming because too close to house needed to be removed since roots mucking with foundation, underground watering plant system needing complete overhaul instead of playing wack-a-mole with the monthly new geyser, etc.
I can't believe that this is on an Economics forum and so many people deny the very reality that PROPERTY OWNERSHIP is the way to personal wealth, liberty and individual freedom. Especially freedom from the government.
Property ownership system as Capitalism with the rule of law.
See: An ACTUAL Economist: Hernando de Soto Polar.
See: Agenda 21 Regionalism
Well, unless you prefer to be a renter who's politically invisible and a pawn quid pro quo for votes and loss of sovereignty.
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