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Home Free: the advantages of swapping your mortgage for a lease

After years of crushing mortgage payments and escalating maintenance costs, one homeowner sold her house and signed a lease on a place a few blocks away. Life has never been sweeter

Home Free

Our last house was a little gem. Few homes in Leslieville are stately or architecturally impressive—it’s a neighbourhood of unremarkable brick semis with the rare Victorian or Tudor flourish—and the one my partner and I owned for two years was no exception. But inside, stripped down to its simple bones, with Benjamin Moore cloud white walls and dark wood floors, a cute IKEA kitchen and mid-century decor from local vintage shops, the place had charm. We bought it for $450,000 in 2007, a deal, if not a steal, for a home on a coveted street less than a five-minute walk from all the amenities required by the middle-class hordes: good coffee, a busy playground, decent restaurants. Soon, however, our house began to make exhausting demands: the furnace needed to be replaced, then the roof; the basement felt damp in the summer humidity, and in the winter our barely insulated bedroom, with its ancient windows, was so cold we had to run a space heater through the night.

There was no money to fix any of it. Our line of credit and credit cards were maxed out. We had two comfortable incomes, but after mortgage payments, utilities, property taxes, car payments, insurance, daycare and groceries, there was little left over. We added up the sums, living expenses against income, on increasingly complicated spreadsheets—it would be years before we would be in the black. Meanwhile, the company I worked for faltered during the recession. First the frills were cut: fewer couriers, no fancy Christmas parties, no taxi chits. Then jobs; I lost mine in early 2009.

We called our real estate agent. Within a week, our house was purged and fluffed, our excess belongings stowed in cupboards and in the trunk of our tiny hatchback. While agents toured our home, we schlepped around the city looking for apartments like modern-day Joads. By the end of the next week, the house sold for a little over $600,000. Our debts paid off, we invested the rest of our profit in RRSPs, index funds and tax-free savings accounts. We’ve been renting a house a few blocks from our old neighbourhood ever since, and spending about a $1,000 less each month in housing-related costs than we did when we were owners.

A few friends have witnessed this transformation with alarm, as if we’d shucked off our grown-up responsibilities for a stop at dorm life en route to freeganism. Our return to renting was weird for me, too, at first. Home ownership is in my DNA; my dad is a striving, self-made man for whom buying a house is the surest sign of arrival into the middle class. But at the time we sold, just after the U.S. housing market crisis sparked the global recession, it was a relief to no longer be shackled to a mortgage. Now, more than a year into this new living arrangement, with money in the bank and little concern about hiccups from the appliances or cracks in the foundation (they’re someone else’s problem, as is the property tax bill), we feel less like kooks and more like visionaries.

To urban-living theorist Richard Florida, the imperative to own property—something that in no small part contributed to the housing collapse in the U.S.—continues to stall the economic recovery south of the border and elsewhere. If they haven’t lost their homes altogether, people in cities and towns hit the hardest are unable to sell their houses to move to where the jobs are. In an opinion piece in The Wall Street Journal, Florida wrote that, “Today’s idea-driven economy requires a more mobile work force that can seize opportunities wherever and whenever they arise.” This means discouraging home ownership except in cities with strong economic prospects and except for those with stable jobs, savings and a solid down payment. It also means regulating against risky lending practices, such as zero-down mortgages and extended amortization periods.

Toronto is, in theory, a city where home ownership should be a wise investment: we have a diverse economy, a seemingly limitless pool of new migrants and a vital creative class—all contributors to a healthy housing market. It would be easy to view an investment in a home here as a sure thing. That is, until you talk to someone who remembers when rapid house-price appreciation in the late ’80s was followed by a crash that turned the market to mush for years. Even the most bullish economists agree that all bubbles eventually burst.

Most people believe that renting means throwing your money away. Not so, says Vince Brescia, head of Ontario’s biggest rental-housing advocacy group. He ran some numbers comparing renting to owning over a 25-year period and came up with a surprising seven-figure windfall:

ASSUMPTIONS: House appreciation rate of 2%; inflation rate of 2%
1. Based on August 2011 average GTA home price of $451,663, with a 20% down payment and a 5% interest rate
2. Lost investment returns on funds tied up in the home, and on any excess annual costs of owning compared to renting. Investments are assumed to yield 4% annually
3. Assumes average GTA monthly rent for a three-bedroom apartment of $1,312 (utilities included)
4. Funds available to renter to invest in other assets