Is Home Ownership Worth Negative Cash Flow?

By: Gary Parkinson on November 4, 2012

David Trahair, a Canadian chartered accountant, attempts to answer the age old question ‘rent or buy’.  In Canada’s real estate market, major cities such as Toronto have tens of thousands of condos available to rent or to buy.  Trahair believes young professionals attending school or starting a career are usually best served to rent a condo, but he says that advice is applicable for others as well.  He believes the traditional ways of amassing wealth by accumulating assets aren’t for everyone, and that sometimes it is best to focus simply on cash flow.


For instance, Trahair has worked with many seniors who choose to downsize from the family home into a smaller house or condo once they retire.  Trahair often suggests his clients sell their home, pay off the mortgage, and use the capital generated from the sale to make an investment.  This investment, yielding a 2 or 3 percent return, can in turn provide seniors with monthly income to help pay for rent and other living expenses.

He believes this investment strategy is best for seniors who may not be able to afford owning a home or a condo.  In his book “ Cash Cows, Pigs and Jackpots: The Simplest Personal Finance Strategy Ever ”, Trahair describes houses and condos as “cash pigs” that result in owners spending more money than they should to maintain them.  Paying thousands of dollars to replace old appliances or fix the windows depletes retirement budgets, and can result in negative cash flow.  Trahair believes owning a home or a condo may provide certainty and stability but by selling the home, “you sit on a ton of cash and you just rent.”

Trahair says now is the time for seniors to consider this cash flow strategy.  When the market is strong there are few condo vacancies, but when the market weakens, as indicators suggest it currently has in Toronto, there are plenty of rental opportunities available.  Trahair’s advice is echoed by housing economist Will Dunning, who says the condo market is repeating its behaviour from the early 1990s.  “Rents fell sharply because there was so much stock out there.”

Trahair advises seniors to consider if owning a home or relocating to purchase a condo is worth the cost of depleting cash flow before committing to anything.