Wednesday, May 10, 2017

The Worst Advice Available For Today’s Millennials…


…is this "opinion" video released on Monday via the Globe & Mail.

Honestly folks, this is one of the most unbelievable things I've seen in a long time.

Millennials, apparently, should rent forever, and that's based on math, that makes positively, no sense.

Ugh.  My words can't do this justice.  Just watch the video…


The "Information Age" has given us many things, both good and bad.

Never before has there been so much information, knowledge, opinion, and commentary, available immediately, at your fingertips, and on virtually every conceivable subject.

When it comes to the bigger subjects – life, health, dating, money, politics, religion, etc., the amount of information is seemingly infinite, and continues to grow every day.

Much of the information out there happens to be of the insight/opinion variety, and that's where things get dodgy.

I suppose you could argue that there is no true "unbiased news," but I think it's safe to say that most people can differentiate between a CBC News report, and a teenager Instagramming.

So take this entire blog post with a grain of salt, since I'm a "blogger," chalk full of opinion on a daily basis, who is about to critique somebody else, who put his opinion on the Internet.

The problem with this opinion, is that it was published by the Globe & Mail, which is has national reach in both print and online.

Don't get me wrong, I love the Globe & Mail.  It's my favourite of the major newspapers.

The Star is too left, The Sun is too right, and in the spirit of Goldilocks and the Three Bears, I find the Globe & Mail to be "just right."

But if the Globe, and other newspapers or media outlets, are trying to appeal to millennials and others who don't want to READ a newspaper column by Christie Blatchford, Margaret Wente, Rosie DiManno, or any of the other talented, long-time, award-winning columnists, and instead want to feature video-opinions of the proverbial "man on the street," then today's media is simply succumbing to the lowest common denominator.

The piece I have issue with is in their new video section, in an "Opinion" feature that they've rolled out.

The videos are well-produced, and look authentic.

But when you boil it right down, this is a random person, opining on a very complicated subject, with virtually no knowledge.

Globe & Mail won't allow embedding of their videos, so click on the image here and it will redirect you:


Wow.  There's a lot going on here!

I have a lot of problems with this video.

Let's start from the beginning.

A random guy comes on screen and says, "Hey millennial!  You want to buy a house?  I don't think you should, not now, or maybe ever."

Well the most important word in that sequence is "I."

Who are you?

I don't want to attack this guy personally, because unlike 99% of internet commenters in 2017, and I respect that he put his name on this.

So I'll leave it up to you guys to decide whether he is in any way qualified to be giving real estate advice.  But maybe you'll then ask, "Who is?"

So then comes this:

81% of millennials plan on selling their home.

Well no kidding?

As opposed to, what?  Dying in their house in 60 years?

Everybody, at some point, is going to sell.  So I don't quite understand the point, and this is where things turn into a grade eight book report.

63% feel cash poor
57% fear rising interest rates

Source?  No?

Then this:

"Polls show that millennials want to buy, and want to do it within the next five years."

Wow.  If the argument is that millennials "shouldn't buy in five years," then I don't know what to say to that.

And here comes the point of this thesis.

Are you ready for this?

This guy thinks that millennials should consider renting FOREVER!

That's some serious contrarian thinking.

But the absolute BEST part of his fatally flawed argument comes when he gives us this graphic:


I don't understand this at all.

The author's idea seems to be that the $216,000 in rent, which is a sunk cost, is HALF of the $500,000 that it cost to buy the same condo!

But the $500,000 is not a sunk cost.

Am I missing something?  Because I don't think I am.

His exact quote: "If you do the math, even after ten years of renting, you're paying nowhere near what it would cost to buy."

So what?

My socks cost a fraction of what my shoes cost, but they're totally different.

The author here is essentially arguing that the $216,000 in rent is comparable to the $500,000 it costs to buy the condo – as though the $500,000 is a sunk cost!

"You're paying nowhere near what it would cost to buy."

This makes absolutely, positively, no sense.

This isn't comparing two apples – one that costs $1, and one that costs $2.

This is comparing an apple that costs $2, and an apple tree, that bears fruit, over time, and remains in place, unlike the apple core (or rent…) that you discard.

The author may be unaware that………wait for it……… ten years, you can sell the $500,000 condo, and get that $500,000 back!

He says, "And I haven't even mentioned property taxes."

No.  But you also didn't mention that in ten years, that property could double in value.

But even if it didn't, let's look at these numbers.

His idea that "stable rents" exist is silly.  Rent will not stay the same for ten years.  So by compounding an extremely modest 2.5% interest over ten years, that $216,000 is actually $241,993.

Buying that $500,000 condo, forget about with 20% down – let's say a modest 10%, will cost you $953/month in interest, at current rates (and yes rates can go up).  The maintenance fees would be $400/month, taxes $250/month, hydro $50/month.  That's $1,653/month.

I didn't just make those numbers up to come out to an amount less than what the $1,800/month he quoted was.  Those are real numbers, folks.

But forget about these numbers, for a moment.

What really bothers me here is that he's essentially suggesting that the sunk cost of renting is equal to the sunk cost of buying, which is insane.

I just don't understand this piece.

And I'm afraid that somewhere out there, a millennial is watching this video, thinking that "renting costs half as much as buying," because that's what this piece says.

Forget about the fact that, in my opinion, that $500,000 purchase in 2017 could be worth $900,000 in 2027.  Or $700,000.  Or $600,000.  But bottom line, and I think 90% of you would agree, that no matter what happens today, tomorrow, in 6 months, 18 months, 36 months – in ten years, the price of a home will be higher.

"Millennials should never buy housing."

Good Lord.  I mean, just think about that advice.  It's scary that this stuff is out there.

Then again, I remember back in 2008, with Garth Turner wrote the best-selling book, "The Greater Fool," in which he predicted the market crash!

The average home price is up 143% since then.

He cost his followers a lifetime of tax-free capital gains that they will never be able to recoup.

I, writing this now, have the benefit of hindsight, so my argument isn't totally fair.  But I wasn't the one writing books about the market crash in 2008, before starting an investment fund to attract people who were taught not to invest in real estate.

And for somebody who is not in any way affiliated with real estate or personal finance to put together a video with deeply flawed math, and have a platform like the Globe & Mail promote it, is just so dangerous.

I'm not hammering on this opinion piece because it's bearish in nature.  You have to know me better than that.

I read every single article by Rob Carrick, who I think is an extremely talented writer and gives very level-headed advice on personal finance that I wish every single millennial out there would take to heart.  And Rob, of course, is a real estate bear – a noted one, in fact.  But I've done videos and columns with Rob in the past, and I think his articles and videos have a place at the forefront of the Globe & Mail.

But this "Opinion" video, by a random guy, with non-sensical numbers?

I can't believe the Globe has trotted this out.  I'm just shocked.

The post The Worst Advice Available For Today's Millennials… appeared first on Toronto Real Estate Property Sales & Investments | Toronto Realty Blog by David Fleming.

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