Mrs. CIQY has accused me of being “verbose” before. She’s probably right, but it’s who I am. So I decided to break this post in two, just to keep the length reasonable and palatable. Part 2 is here.
As I said before, i was brought up thinking real estate was king. My parents, because of their experiences, always seemed to use it as a measure of wealth. There were always stories of wealthy past acquaintances of the form of “he was so rich he owned 5 houses!” or “he had enough money to buy apartment BUILDINGS! Not just apartments, but apartment BUILDINGS!” There were also attempts at imparted wisdom in the form of lamentations like “If I had someone to show me the way when I was young and single and earning decent money, someone to tell me to start buying rental properties…” I think the implication was always meant to be that we would be sitting pretty, my parents would have retired early, and my siblings and I would have been proper spoiled, rich kids who could live their lives on easy street, never having known struggle.
I completely understand their thinking. My parents bought their first house in the 1970s. I’m guessing they probably paid something in the neighbourhood of about $15,000-$20,000 for it. (Mind you their mortgage rate on that house was also probably about 15%.) Within a generation the value of that house and others like it had increased about 10x. Meanwhile they also got to take advantage of high wages at the time; wages that have since stagnated in real terms. So if they had saved more, maybe they could have paid their mortgage off much faster and bought a second property to rent, and then a third, etc. etc.
And why not? Being a landlord was easy money, right? Instead of slaving away at a job for 8 hours a day you just showed up once a month to collect rent. Sure, once in a while you had to fix something that broke, but most of the time, ideally things were on autopilot.
At the same time, my parents didn’t know anybody who was rich from investing. Stocks and bonds were things that super wealthy (and usually villainous) people in the movies bought and sold. “Normal” rich people in their experience got that way either through inheritance or property. Or both.
By the time the 1990s rolled around and the masses started migrating online, investing became much easier with online banking and brokerages. My parents started having conversations with friends who actually did dabble in investing and eventually decided that they also wanted to dip their toes in that pool. Other people were making money, so why not them? They were at a stage in life where they felt they maybe had a little money they could afford to use for investment purposes. They signed up for an online brokerage and started buying small amounts of a few stocks.
It did not go well for them. Lesson learned: investing is for idiots. Or very clever people who knew what they were doing and had time to do their research and due diligence. I.e. not them.
This basically confirmed what they already believed, and that was that the best investment is real estate. They don’t say “safe as houses” for nothing.
I am not my parents. My experiences have been a little different. Let me tell you my story…
When I first moved to the city for my current job, I rented. In fact, I rented a furnished apartment that was a five minute walk from work. It was about as turnkey as can be. It was glorious too… I would roll out of bed, shower, have breakfast, and be at work in five minutes. Reliable and traffic proof. But I digress.
After a couple of years, my little studio apartment started to feel… well, little. I wanted more space and I wanted to have my own stuff. After looking at some other rental options, I did some math and figured out that I could actually afford to buy my own place instead. Instead of “throwing away” money on rent, I could “pay myself” by getting a mortgage and building equity. I spent a good amount searching and eventually found myself a condo that was walking distance to work, cheap to maintain, and well within my budget. I was pleased as punch with my purchase.
And then I met the future Mrs. CIQY, and things changed. As I mentioned in a previous post she and I worked and lived in different cities. When it came time to cohabit, we decided to compromise and get a place in the ‘burbs in between where we each used to live. At first, we decided to rent, for a number of reasons. I kept my condo, and rented it out, and we rented a place of our own in the ‘burbs. The rent I was collecting for my condo was the same as the rent we were paying for our new home, so things worked out reasonably okay. The plan was, when it came time to buy a place of our own, we would sell my condo and use the money to buy a house. In the meantime, while we weren’t earning any income on the rental, we were building equity that we could use for our future house. And this is pretty much what happened.
Sounds easy right? Smooth and simple right? Well, it wasn’t.
During the time I was a landlord, I had to fix a broken washing machine. I had to make three separate trips to the rental (which remember, was in a different city) to deal with a faulty heat/ hot water boiler and have it replaced. I had to miss work while I waited for service calls. I had to compensate my tenant who couldn’t have a hot shower in the dead of winter after working outside all day. I had to deal with complaints about pigeon poop. Yes, pigeon poop. And that all happened in less than a year. And that’s not to mention the cost to me to paint the entire place before the tenant even moved in because I was having trouble getting it rented. When it eventually came time to sell the condo, I had to deal with inquiries and concerns about Kitec plumbing, which caused the property to take a lot longer to sell than it should have (btw, do NOT buy a condo with Kitec plumbing).
(I just want to pause for a moment and say that my tenant was actually a very good tenant. He was perfectly reasonable, dependable, and an all around decent guy. I definitely don’t mean to suggest otherwise.)
In addition to all that, it just wasn’t a good investment for me, because the rent I was receiving wasn’t enough to cover the mortgage payments plus taxes and fees. Keeping the condo was costing me money.
Despite all this, we actually did still consider keeping the condo after buying our own place, for the sake of the equity we were getting from it. We thought about the fact that we could potentially raise the rent a bit over time so that renting it was at least covering all its costs. But in the end we decided we would rather use the equity we had built up as a better down payment for our own house, to keep our mortgage payments lower. We figured there were better investment options out there that would give us better return. And the condo had turned out to be more work than we were hoping for.
The S&P 500 does not complain about pigeon poop.
In Part 2, I will highlight some of the benefits I see with investing. Hope to see you there!
