Real Estate

How does a couple retire without owning a home?

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[OP]
Jr. Member
Oct 13, 2013
177 posts
34 upvotes
Richmond Hill

How does a couple retire without owning a home?

If you rent exclusively before you retire, how can you afford to retire comfortably while still paying for rent? Rent some place way out? But a homeowner doesn't have to do that. If a couple wants to downsize, they can do that too and find a place steps away from where they used to live.

So how is renting feasible for retirement?
53 replies
Sr. Member
May 3, 2011
671 posts
90 upvotes
They continue to pay rent with their pension and investments.
[OP]
Jr. Member
Oct 13, 2013
177 posts
34 upvotes
Richmond Hill
jimmyonishi wrote: They continue to pay rent with their pension and investments.
Most companies don't offer pension anymore. Only make-work jobs in the government have pension, which I'm not sure if they still have FT hiring freezes going on. The average couple hardly has enough money at the end of each month to invest. Return on low-risk investments are terrible to the point of not keeping up with real inflation on daily purchases.
Deal Guru
User avatar
Mar 23, 2008
12208 posts
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Edmonton
Ezcruu wrote: If you rent exclusively before you retire, how can you afford to retire comfortably while still paying for rent? Rent some place way out? But a homeowner doesn't have to do that. If a couple wants to downsize, they can do that too and find a place steps away from where they used to live.

So how is renting feasible for retirement?
Theoretically, the couple would have put the money they saved by renting into investments, and would draw on those investments when they retire. And like the homeowners, they might have to downsize their place as they retire.

Owning a home isn't free either... There's still property taxes to be paid, as well as being responsible for all maintenance issues.

But then you go off on how pensions and investments aren't worthwhile, and the average couple doesn't have money to invest anyway... So I'm not sure what your agenda truly is, with this thread.

C
Member
Mar 5, 2009
369 posts
124 upvotes
Ezcruu wrote: If you rent exclusively before you retire, how can you afford to retire comfortably while still paying for rent? Rent some place way out? But a homeowner doesn't have to do that. If a couple wants to downsize, they can do that too and find a place steps away from where they used to live.

So how is renting feasible for retirement?
The idea is to save the money you would have spent maintaining a home towards a low cost diversified portfolio.

Let's say I'm 25 and want to retire at age 60. I rent my entire life and I'm able to save 25k/year. Let's also assume that the diversified portfolio returns 7% annualised.

In 35 years, the pot will be worth 3.7 million. Should the person retire at this point, the 3.7 million will return 2% dividends approximately (standard vanguard couch potato portfolio). That will return 74k/year in dividends that can be used for rent and other life expenses.

The key point to know is that 74k/year in 35 years is worth a lot less in today's dollars. 74k in 2016 would be worth 27.8k in 1981.

The other key point is that a renter can save a lot more than 25k/year.
Deal Addict
Oct 20, 2011
1112 posts
409 upvotes
Mississauga
serious7 wrote: The idea is to save the money you would have spent maintaining a home towards a low cost diversified portfolio.

Let's say I'm 25 and want to retire at age 60. I rent my entire life and I'm able to save 25k/year. Let's also assume that the diversified portfolio returns 7% annualised.
Please tell me where I can get a 7% return without assuming too much risk, as the last 4 advisors I spoke to said it's difficult to get 6% consistent returns. Even the Financial Webring Forum is stating that 7% assumes way to much risk.
Deal Fanatic
Feb 4, 2015
6642 posts
2974 upvotes
Canada, Eh!!
You're equating home ownership = investment portfolio.

IMHO buy home to live in. The dollars to buy house can be very well used to rent and still have diversified portfolio to use for retirement.

If put all into house then you're still doing very good [again whether you bought at high or low of mkt will have an effect] but not diversified so could be harmful or great.
Deal Addict
Aug 20, 2007
1930 posts
706 upvotes
Kitchener
my mom sold her house 2 years ago. It had been mortgage free for decades but was still costing her close to 9-10k a year to live in. Property taxes, maintenance, utilities, house insurance (usually double to triple what a tenants policy costs) etc. When I showed her the numbers and that for 1350/month she could rent a nice 2 bedroom apartment, inclusive with a indoor pool, hot tub, unground parking, no shovelling, cutting grass, etc. She can lock up and leave for 3 months to Europe without worrying and better yet is that when something goes wrong at the house, its not me she is calling to fix or trying to find a repair man. She says it was the best decision she ever made. Sure it costs a little more but she could afford it with her pension and her house proceeds are invested for the future so she is making more on the investments than the marginal increase in living costs.
Member
Mar 5, 2009
369 posts
124 upvotes
MyDream1 wrote: Please tell me where I can get a 7% return without assuming too much risk, as the last 4 advisors I spoke to said it's difficult to get 6% consistent returns. Even the Financial Webring Forum is stating that 7% assumes way to much risk.
http://canadiancouchpotato.com/wp-conte ... d-2015.pdf

I never said consistent returns. I said 7% annualised returns.

7% annualised means that there will be fluctuations here and there but if you look at the end date of investment life and beginning date of investment life, your return should be averaged at +7%.

In terms of risk, the portfolio will help you diversify yourself across the global market investing mostly in equities.

If you are seeking help from a financial advisor, please be aware that you are paying him/her a large percentage of your principle every year. This fee is going to cut into your returns which is probably why the advisor said 6% is difficult. The advisor is thinking about his/her wallet :)
Deal Fanatic
Nov 24, 2013
6214 posts
2963 upvotes
Kingston, ON
Ezcruu wrote: Most companies don't offer pension anymore. Only make-work jobs in the government have pension, which I'm not sure if they still have FT hiring freezes going on. The average couple hardly has enough money at the end of each month to invest. Return on low-risk investments are terrible to the point of not keeping up with real inflation on daily purchases.
CPP, RRIFs are considered "pension income." Then there's also OAS and GIS. When you retire, you do so when you have something as an income replacement.

Really it's exactly the same for renters as homeowners. You don't sell your house or reverse mortgage it just because you retired. Typically the value stays locked in. You live off retirement income.
[OP]
Jr. Member
Oct 13, 2013
177 posts
34 upvotes
Richmond Hill
CNeufeld wrote: Theoretically, the couple would have put the money they saved by renting into investments, and would draw on those investments when they retire. And like the homeowners, they might have to downsize their place as they retire.

Owning a home isn't free either... There's still property taxes to be paid, as well as being responsible for all maintenance issues.

But then you go off on how pensions and investments aren't worthwhile, and the average couple doesn't have money to invest anyway... So I'm not sure what your agenda truly is, with this thread.

C
Where is this money saved though? Would that mean rental properties are cash outflows? Why are there so many people with cash positive rental properties? Would that not mean it costs more to rent than to live? Or at least, a similar amount?

If that is the case then wouldn't both the homeowner and renter have the same amount of savings at the end of each month? Money spent on renovation, additions, etc. don't count because a) they improve resale price and b) it is for personal enjoyment.
[OP]
Jr. Member
Oct 13, 2013
177 posts
34 upvotes
Richmond Hill
serious7 wrote: The idea is to save the money you would have spent maintaining a home towards a low cost diversified portfolio.

Let's say I'm 25 and want to retire at age 60. I rent my entire life and I'm able to save 25k/year. Let's also assume that the diversified portfolio returns 7% annualised.

In 35 years, the pot will be worth 3.7 million. Should the person retire at this point, the 3.7 million will return 2% dividends approximately (standard vanguard couch potato portfolio). That will return 74k/year in dividends that can be used for rent and other life expenses.

The key point to know is that 74k/year in 35 years is worth a lot less in today's dollars. 74k in 2016 would be worth 27.8k in 1981.

The other key point is that a renter can save a lot more than 25k/year.
The fact that a lot of rental properties are cash positive or near cash-positive means that there is no "savings" to renting. The homeowner can save the same amount as the renter each month and put that towards a DRIP portfolio.
Deal Addict
Feb 5, 2009
2808 posts
933 upvotes
Newmarket
Ezcruu wrote: If you rent exclusively before you retire, how can you afford to retire comfortably while still paying for rent? ?
The question is why they were renting all that time, was it because it was their lifestyle choice, could have afforded a home if they wanted to but choose not to, or they were always broke and couldn't qualify.

If they were always broke they will not retire what most would call comfortably because most likely they don't have much or any savings, do not have good jobs with public pension and will receive a minimum welfare like pension.
If they on the other hand were smart with money, had good earnings but choose to rent, they can afford very comfortable retirement.

Obviously not all home owners will retire comfortably either, it depends on being good with money and earnings, and not on owning a home or not. Mind you property prices appreciation in many Canadian markets do help with retirement if you can liquidate it.
Member
Mar 5, 2009
369 posts
124 upvotes
Ezcruu wrote: The fact that a lot of rental properties are cash positive or near cash-positive means that there is no "savings" to renting. The homeowner can save the same amount as the renter each month and put that towards a DRIP portfolio.
As a renter, I have the luxury of moving anywhere I want to. I will choose to rent near work in an ideal location where I don't have to buy a car. I can also choose to rent a condo instead of buying a semi detached home.i don't have to pay for any maintenance fees. I also don't have to pay for home insurance/property tax/larger utility bills. I'm also not paying the interest on a mortgage.
[OP]
Jr. Member
Oct 13, 2013
177 posts
34 upvotes
Richmond Hill
serious7 wrote: As a renter, I have the luxury of moving anywhere I want to. I will choose to rent near work in an ideal location where I don't have to buy a car. I can also choose to rent a condo instead of buying a semi detached home.i don't have to pay for any maintenance fees. I also don't have to pay for home insurance/property tax/larger utility bills. I'm also not paying the interest on a mortgage.
I'm not saying you should buy a home if you're constantly on the move or could be on the move. Still, positive cash flow means tenant's cheque > mortgage payment (incl. interest) + p. tax + insurance + utility + maintenance/fees (for condos). If a tenant is paying more than the aforementioned it means they're paying more by renting. If they're not on the move and settled down, is it not better to buy a house/condo?
Deal Addict
Jul 9, 2004
1572 posts
171 upvotes
Delta
Often one rents less home than they'd buy, so some savings are to be had there. Not an apples to apples comparison per se, but still a reasonable comparison of two alternative choices.

Regarding cash flow positive: this isn't true in all markets. Also if you were to buy, you may not be in the same situation as the person renting out their property. They might have put down a much bigger down payment than you can or wish to, or they bought years ago and have much less mortgage than you'd take on now.
Deal Expert
Jan 27, 2006
16731 posts
9505 upvotes
Vancouver, BC
Ezcruu wrote: The fact that a lot of rental properties are cash positive or near cash-positive means that there is no "savings" to renting. The homeowner can save the same amount as the renter each month and put that towards a DRIP portfolio.
The idea of cash flow positive is not met in many large urban areas in Canada. Heck, many house owners think having a tenant subsidies the mortgage on the property... they aren't even thinking about maintenance, taxes, fees, yet. Only the more knowledgeable landlords understand that they will need to be more than cashflow positive in rents to account for vacancies (the times when you don't have any tenants) as well as potential capital depreciation (yes, property valves can and often do go down) - a good guideline is a monthly rent of at least 1% of the property valve and ideally 2%.
Member
Sep 1, 2013
403 posts
96 upvotes
As a renter, you are paying the landlord's costs PLUS a profit margin. Not on a cash flow positive, but on an overall returns basis, that includes the cash flow and the growth in the property value. If the profit margin was zero or negative, you would see tons of rental properties for sale on the market - collecting dust without any bids.
Member
Mar 5, 2009
369 posts
124 upvotes
Ezcruu wrote: I'm not saying you should buy a home if you're constantly on the move or could be on the move. Still, positive cash flow means tenant's cheque > mortgage payment (incl. interest) + p. tax + insurance + utility + maintenance/fees (for condos). If a tenant is paying more than the aforementioned it means they're paying more by renting. If they're not on the move and settled down, is it not better to buy a house/condo?

I encourage you to do the calculations yourself to see the difference between renting and buying. Without going through the number crunching process, you probably aren't going to understand the true costs of home ownership.

Also, you are comparing the difference between investing in a rental property vs living in a rental property. The two are different scenarios and cannot be compared.

Instead, you should compare the difference between living in a property you own vs living in a property that you are renting from someone else.
Deal Addict
User avatar
Sep 23, 2014
1927 posts
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Toronto, ON
Why can't people do both and reap the benefit of all???
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