I was fortunate enough to be interviewed for Rob Carrick’s column in the Globe and Mail on Tuesday, and because of the content of the article, I received no less than a half-dozen emails, phone calls, and Tweets from Realtors asking, “What the hell were you thinking?”
I had the audacity to admit (gulp!) that some young people in Toronto might benefit from renting a condo instead of buying one!
I guess I’m naive, that’s all. As an active real estate SALES person, I suppose I’m supposed to SELL condos to every interested party, regardless of whether that’s the right move for them…
“Tell me you were misquoted in today’s stupid piece of drivel from Carrick,” read a text message on my phone first thing on Tuesday morning.
It was sandwiched in between two other messages, both saying something to the effect of, “Hey, great article, congrats!”
Positivity, please meet your cousin: negativity.
I’ve been reading Rob Carrick’s articles in the Globe & Mail for as long as I can remember. I don’t always agree with the content, but show me ONE columnist in any newspaper in the world where you do agree with everything, and I’ll probably show you a mirror…
I find Carrick’s articles to be extremely helpful to the younger generation, who likely aren’t reading the Globe & Mail anyways.
Carrick writes about a variety of topics, but it’s those on personal finance that I find the most relevant.
Maybe the majority of my regular blog readers happen to be business-savvy and successful, but think about how many people out there, whether they’re 18 or 88, don’t know what “compounded interest” means.
Think about how many people live paycheque-to-paycheque, and how many people don’t understand why making the minimum payment on their credit card each month will never eliminate the outstanding balance.
I’m constantly amazed by how ignorant people can be when it comes to personal finance, and part of me thinks that today’s young generation is in for a major wake-up call over the next few years.
As I discussed with Mr. Carrick last week, I find that today’s younger generation have had everything they’ve ever wanted at their fingertips, and they’ve never had to reach for anything.
Think about what it was like back when you were a kid, and you wanted to do a school project, say, on wolves. You went to the school library, and the public library, and you sorted through the card-catalogue looking for books on wolves, then you signed them out of the library, and went home to read them. You sifted through the books, wrote down “facts” on a piece of paper, and then organized those facts into a short summary, essay, paper, or what have you.
That’s how we learned to write.
Today, and yesterday, kids just type “wolves” into Google, and 10,000,000,000 web pages come up.
And you don’t even need to sit down at your laptop in your bedroom either (FYI – I maxed out at a stereo on my bedroom as a child; never had a TV, computer, or game system), since all this is available on your smart-phone or tablet.
Today’s 20-somethings have experienced immediate gratification their entire lives, through the most rapid advancement in technology that society has ever seen.
As a result, and I’m writing this after speaking with a 23-year-old who works in my office, and a 19-year-old who I coached in baseball for three years, today’s younger generation wants everything NOW, and they want the BEST as well.
As a result, many of these kids don’t know the value of a dollar, don’t know how to plan financially, and don’t want to spend two seconds weighing the pros and cons of different options, when they can just walk into the more attractive one immediately.
This is why I find Rob Carrick’s articles on personal finance so helpful.
If you’re a 40-year-old, who makes $900,000 per year, then OF COURSE you find his articles to be elementary, and unappealing!
But I was shocked to see the outcry this past Tuesday when Carrick wrote an article about renting condos instead of buying, and the cost savings potentially associated with doing so.
I was also shocked, although perhaps I shouldn’t have been, by the amount of Sh!t I took from industry “colleagues” who felt I was giving ammunition to the real estate bears.
Is this like Sharks & Jets?
I’m fully aware that Rob Carrick is a real estate bear, but that doesn’t mean I wasn’t going to speak with him. We chatted for a half hour about renting versus buying, and I was open, and honest. At no point did he misquote me in his article, as a couple of my colleagues had “hoped.”
Can’t I be honest and suggest that some people aren’t cut out for buying? However few that may be, and despite my consistent outlook that buying is probably a better option than renting, can’t I suggest that sometimes, the situation calls for a buyer to rent?
Last year, a young man came to me from my blog, and told me he wanted to buy a condo in downtown Toronto. He was looking to spend around $250,000, and was fully accepting of the fact that this would get him a bachelor condo, or a very small 1-bedroom. But it wasn’t until we were into our fourth or fifth email that he told me he was on an 18-month contract at a downtown financial services firm, after which he was likely heading back to Calgary.
I told him the truth: that buying probably didn’t make sense for him.
To purchase a condo and pay land transfer tax and legal fees, and then sell it in 15-16 months, with a 1-2 month closing, and pay realtor fees and legal fees, would more than likely be a break-even proposition.
What the hell is wrong with being honest?
I could not, in good conscience, tell this kid to purchase a condo in the downtown core, and forecast a 10% appreciation in 15-16 months so that he could break even.
I leased him a wicked loft for $2,000 per month, and he’s just coming up to the end of the work term, and as planned, he will head back to Calgary.
You can make numbers say anything you want, if you’re a bull, or a bear.
You can tell me that I helped him “throw away” $36,000 over the 18 months, if you want, but you’d be ignoring the carrying cost af a $250,000 condo, which with 5% down, was about $1,200/month for the mortgage (perhaps $700 in interest), $400/month for maintenance and utilities, and $150/month for taxes.
The condo he leased for $2,000 per month probably would have cost him $450,000, which you might say was almost “twice as good” as what he could have afforded at $250,000.
Make no bones about it: I do generally feel it is a much, much better use of your money to BUY rather than RENT. But in certain situations, it’s the other way around.
Imagine my audacity in Rob Carrick’s article to say, “I don’t think it’s a bad move,” in reference to renting a condo.
I’m not going to pump up everything in Carrick’s article. Carrick says:
“Rent a condo and park all the money you’re saving as a renter in a nice, safe high-interest savings account held in a tax-free savings account. In the example just above, you’d save about $370 a month by renting. In a high interest account paying 1.25 per cent, you would end up with $22,894 after five years. That’s two-thirds of the way to a 5-per-cent down payment on a $600,000 Toronto house.”
There are two problems with this, in my opinion:
1) Where do I find a $600,000 house in Toronto?
2) There’s a decent chance that a $600,000 house in Toronto will be $750,000 or $800,000 in five years, so that “savings” will have cost you $150-$200K in tax-free capital gains, the likes of which can take you years to make from your after-tax employment income.
So no, I don’t agree with everything in the article, but I certainly don’t regret giving my two cents to a “market bear.”
At the very least, the ideas in the article, and the numbers and calculations contained within, should get the mind of a young person moving, and get them to consider that when they’re adults, they no longer receive the “new and improved” iPod every single year for Christmas like they did from mommy and daddy, and instead, they’ll have to decide whether $300 from after-tax dollars is worth spending on something that has the same function as that which they’re replacing.
But on the flip side, we have contributions like what my good friend and colleague from Re/Max Condos Plus wrote, and Tweeted @ me on Thursday, written HERE.
He ended with this:
“In summary, renting involves the worst economic outcome and also comes with the biggest risk.”
That is the most insane, inane, poorly-worded statement I’ve seen in quite some time.
It’s a blanket statement; an extreme hyperbole, which can be true some of the time, or false some of the time, but on the whole, is exceptionally generic and thus incredibly misleading. The situation he described had nothing to do with “risk,” nor was that word used during the text of the column, and the situation had nothing to do with “economics.”
It’s what makes the general public hate real estate agents.
I’ve prided myself on being honest and forthcoming on my blog. I try to see both sides of an argument, and often argue two sides of the coin. That is what I tried to help Rob Carrick with in his article.
My friend from Re/Max Condos simply demonstrated what the general public loathes about real estate agents, which is that they SELL, and don’t advise. They PUSH, and don’t guide. They are “salespeople,” and not don’t always act in the best interest of the client, who might actually benefit from renting, instead of buying. Every single situation is different, and there are no two situations the same.
I’m a real estate bull, make no mistake.
But I’m not dishonest, and I’m not going to make a blanket statement like, “Buying a condo is ALWAYS a better option than renting one, for every man, woman, or child, 100% of the time.”
I wish I could share with you the emails, Tweets, and phone calls I received from Realtors who were afraid I might somehow cost them (how, exactly??) a sale or two, or put the idea in the heads of the public that renting is a better idea than buying.
Are people really that impressionable?