We looked at renewing every 5 years on a fixed mortgage, using the posted rate for that time. We saw rates ranging from 4.64% to 11.25% in the time period that we are discussing. The mortgage matured in 2016, and this imaginary home was paid off. 2/

The price of this home was $234,313 and the entire purchase price is financed in this scenario, because that was an option back then. Check out this link for values What we found is, as Gina put it yesterday, sobering. 3/

From 91 to 96: Interest: 11.25% Payment: $2,295.69 Principal Paid: $11,830.05 Interest Paid: $125,911.55 Total Cost: $137,741.60 Balance: $222,482.95 4/

From 96 to 01: Interest: 7.95% Payment: $1,836.29 Principal Paid: $28.243.21 Interest Paid: $81,934.09 Total Cost: $110,177.30 Balance: $194,239.74 Cost to Date: $247,917.90 The year 2000 is when the home value recovered, not adjusted for inflation. 5/

From 01 to 06: Interest: 7.5% Payment: $1,788 Principal Paid: $42,848.29 Interest Paid: $64,431.91 Total Cost: $107,280.20 Balance: $151,391.45 Cost to Date: $355,198.10 6/

From 06 to 11: Interest: 6.6% Payment: $1,719.87 Principal Paid: $63,514.40 Interest Paid: $39,677.78 Total Cost: $103,192.18 Balance: $87,877.05 Cost to Date: $458,390.28 7/

From 11 to 16: Interest: 5.39% Payment: $1,671.69 Principal Paid: $87,877.05 Interest Paid: $12,424.07 Total Cost: $100,301.12 Balance: $0.00 Cost to Date: $558,691.40 8/

So what we can take away from this is that without factoring in any maintenance, property taxes, insurance, upgrades, renovations, inflation, etc. is that this home cost twice what it was worth to purchase by the time the loan matured. The value at maturity was $729,824. 9/

The true equity in this property would be $171,132.60, not adjusted for inflation. The expenses previously mentioned would exceed this equity figure, meaning that the homeowner actually lost money in the long term. 10/

If we put $234,313 in to an ETF or MIC and got 6% returns over 25 years, you would have $1,005,641.10. It is reasonable to assume that over 25 years, a homeowner would spend more than $275,817.10 on all of the previously mentioned expenses. 11/

What this exercise does not account for is any equity take-outs/refinances or HELOC's a borrower may have, which would further erode equity or increase the real negative equity associated with owning this home. 12/

So primary residences as an investment... not so great. It's a great place to live, grow a family, and build memories, thats about it. 13/

I have run this exercise for Feb 2022 numbers, looking forward with current and average rates for the last 25 years. It does not change the conclusion that we come to. 14/

Lets say, that you had to do this in Feb 2022. You have to come up with $267,000 down to make 20% of the average GTA home price of $1,334,544. Since we can't get the benefit of 100% leverage, let's consider a real investment vs. purchasing a property. 15/

Using 6% annual returns as our baseline, you would have $1,145,929.48 after 25 years. The cost of owning that home in the same capacity as we just went through is $2,356,299 at 6.21% interest (25 yr avg) or $2,100,669.35 at 4.84% interest (currently available). 16/

Adjusted for inflation (assuming 2%), that home should reasonably be worth $2.2M in 25 years, but cost you $2.225M to get there. The investment, made you $900k. Not to mention, that in those 25 years, you could be adding additional cash to your investment. 17/

I acknowledge, that this is a straight line exercise, neither life or homeownership are a straight line. This is simply to illustrate what the real cost of ownership, and real equity are through the life of ownership. Make of that what you will. Fin.

@sm_cmc @agentgina1 Hi Sanj, Would you be open to privately sharing the spreadsheet used here? Just want to check some assumptions and math as it pertains to after-tax returns, investment returns, opportunity cost, etc. Thnx...

@RobMcLister @agentgina1 I can look, but this was done 18 months ago and I got a new computer since then. Might not have it anymore. Shoot me a DM about this as a reminder to me.

@sm_cmc @agentgina1 This is an AWESOME analysis. Three factors not taken into account. 1. Most folks get a discount (let’s say 0.25-0.5) to posted. 2. The ETF etc — capital gains tax. Primary home no cap gains. 3. You’re not going to be able to borrow large $$ to buy an ETF and play leverage.

@BrowninToronto @agentgina1 Factor 4. All the costs of homeownership, property tax, maintenance, insurance, upgrades etc