While renting might be forced upon some, others are tearing up the idea that owning is the only path to financial security.erhui1979/iStockPhoto / Getty Images
Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know. For more from Globe Advisor, visit our homepage.
While housing prices have contributed to the rising number of renters in Canada, some are choosing to rent because they see it as meeting their current lifestyle objectives and are doing away with the traditional idea of owning a house being a sign of financial security.
Jonathan Rivard, a financial advisor at Edward Jones in Toronto, says he’s seeing more clients going the rental route, with many citing interest rates and inflation as the big drivers.
“A lot of people are coming to grips with the fact that home ownership is incredibly expensive, especially when you look at the amount of interest paid over a 25-year amortization period,” he says.
But while renting might be forced upon some, he says he has many clients who could buy but are choosing not to because they don’t want to be tied down to a location.
According to Statistics Canada, the growth rate in renter households (by 21.5 per cent) from 2011 to 2021 was more than double that of owner households (8.4 per cent).
“I’m finding recently more and more clients are inclined to rent, and what I’m finding interesting is that it’s a higher percentage of professionals,” Mr. Rivard says. “These are people who have flexibility in their careers – doctors would be a good example – who are very comfortable renting because they may not know what city they’re going to be in [in] two years, five years from now, but it gives them flexibility and increased cash flow in the interim.”
Kalev Vesik, a certified financial planner at Vancouver City Savings Credit Union in Vancouver, says he frequently tells his clients financial health isn’t exclusive to homeowners. “You can be financially secure and be a renter,” he says.
The financial plans Mr. Vesik designs for renters have some similarities to the plans he prepares for homeowners, the first being that these plans need an emergency fund.
“I tell my clients that you’d want to have some sort of emergency savings,” he says. “If something happens to you where you’re let go or you have some sort of health issue, you have a basket of money that’s easily accessible to keep the lights on.”
The next step he walks his clients through is the idea of insurance, whether it’s disability, life insurance, critical illness insurance, but especially renter’s insurance.
“You need protection just in case something happens,” Mr. Vesik says.
However, because an individual’s rent is likely to be less than a typical mortgage payment, there are opportunities available to renters that might not be to homeowners.
“I have a client now who can buy [a home] but has chosen not to because he wants to go back to school,” Mr. Vesik. says “He’s not sure when, but he thinks in the next 10 years, and he doesn’t want that mortgage to lock him into his career because he’s not fully satisfied [in his current one].”
Renting may also mean there is more money for investing or saving. In fact, Mr. Vesik is quick to point out that renting doesn’t have to mean financial sacrifice, but he strongly recommends clients make a plan and direct their money wisely.
“In home ownership, not only are you paying your mortgage, you’re paying your property taxes, condo fees, home renovations and repairs that many people don’t factor in,” he says. “But as a renter, you don’t need to deal with those things, so it’s important to make sure that money you’re saving is directed elsewhere – into accounts such as the tax-free first home savings account or a tax-free savings account, possibly a registered retirement savings plan, and you want to automate things.”
This type of flexibility is leading some potential buyers to keep renting, says Teresa Black Hughes, a financial advisor at RGF Integrated Wealth Management Ltd. in Vancouver.
“I can think of some people who are professionals and have just crossed into their early 60s, and they like renting. Why do they like renting? It provides them with all the usual things, such as flexibility. And they don’t have to fix stuff,” she says.
Understanding the “why” is a big part of the discussion. Talking to clients about those real estate wants and so-called deal breakers is a helpful step in finding out the motivations for renting.
Even with rising rents all over the country, Ms. Black Hughes says, some clients have chosen to remain renters.
“They can continue to live comfortably with the escalating cost of the rent, but they like the flexibility they found,” she says. “It’s like if you buy in a good building. If you have a nice neighbourhood, you have some nice neighbours in your building, sometimes those are stronger emotional ties than the financial numbers.”
Mr. Rivard also says that renting doesn’t automatically mean financial insecurity.
“Just because you own a home doesn’t mean you’re necessarily going to build equity in that home,” he says, adding that some clients have added to their debt by using their home as a line of credit.
“A good financial advisor will listen to their client’s goals and aspirations, show them their options, and then come to the best decision possible for them – and that might be renting,” he says.
For more from Globe Advisor, visit our homepage.