￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼￼To buy a home or not to buy a home may be one of the biggest decisions facing upwardly mobile young people.
Millennials have spent the past decade or so listening to their parents musing about how much their property values have gone up, and nudging them to starting saving for their first down payments.
Historically low interest rates are also inspiring the next generation of homeowners to get into the market.
But buyer beware: home ownership isn’t for everyone. Even if you’re making a good salary or your startup is luring big-money investors, experts encourage today’s millennials to consider putting off the purchase of a money pit. Instead, they should keep renting and sock away extra cash into equities to help build more wealth over the long term.
Wealthsimple adviser and investor Joe Canavan, an entrepreneur and icon in the financial services industry, recommends most millennials rent now, and consider buying later in life.
“What I tell a lot of young entrepreneurs who ask me is: ‘Don’t lock your money in a house. Stay liquid as much as you can and plow every available dollar into the equity market so you can continue to build and create wealth,’” says Canavan, 53.
“It’s one of my favourite things to talk about with young people because it changes their perception of what their father or mother told them growing up.”
Canavan rented for more than a decade, including during the time he founded and built companies in his 30s, namely GT Global (Canada) and Synergy Asset Management.
He had a chance to buy a house in Toronto’s Beaches neighbourhood in his 20s. But after crunching the numbers – including after-purchase costs such as property taxes, insurance, utilities and regular maintenance for roof and other potential repairs – Canavan determined that renting an apartment in midtown Toronto was a better fit for his financial goals, not to mention his lifestyle.
“I’m a big believer in keeping all of your costs minimal and variable,” he says.
Canavan put all of his savings into the stock market – and watched them grow. He earned enough, alongside other investments, to allow him to start his second business, Synergy, with his own money in 1997.
“Had I bought a house, I never would have had that capital,” Canavan says.
What’s more, when it came time for Canavan and his wife to buy a house in their mid-30s, the couple was able to pay for it in cash.
Canavan is a firm believer that equities will always outperform the housing market over the long term. In the past 25 years, for example, the S&P TSX Composite Index has grown by about 325 per cent, while the average home price across Canada has risen about 200 per cent.
“If you said to me, ‘I can only choose one investment – a house in Toronto, which is a growth market, or equities, I would chose equities every time,” Canavan says. “Plus, you aren’t as liquid in a house.”
Aaron Ferrera heeded Canavan’s advice when he worked for him at Synergy and put off buying a house until his mid-30s.
While growing up, Ferrera remembers watching his parents struggle to make ends meet when interest rates were at 18 per cent.
“That plays a bit on my psyche,” says Ferrera, 47, now vice-president and partner at hedge fund Picton Mahoney Asset Management.
“We’re living in a bit of a fantasy world today, where rates are concerned.”
He and his wife rented for years, and saved their money before buying a house in Toronto in 2004. They were both working at startups, and they also benefited from the sale of those companies to help pay their down payment.
“The challenge is that this interest rate environment makes it attractive for people to extend themselves further than they logically might,” says Ferrera. “For a lot of young couples, when you put yourself in a situation where you’re overextended, it can be tough on your relationship. It makes sense to go in with as many of the bases covered as possible.”
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