The switch

“My mother,” Susan told me, “is CRAZY.” How could I not read the rest of the note?

“It isn’t just the young who are rushing to guzzle koolaid,” she explains, “My 82 year old widowed mother has rented a condo for the past 9 years.  Out of the blue the owners told her they wish to sell the condo for a crazy-ass price that made the entire Condo Assoc laugh. It is 14 years old and in all the time my mom has rented there have been no upgrades except a replacement of the living room carpet that is cheap, like the appliances.  There was no formal assessment done.  Mom went into a panic.  She does not want to move.

“So she agreed to her owners’ sale price.   Both realtor and her RBC advisor are thrilled for her and assure her that in the long run she will be spending less money to buy than to rent, condo fees not a problem either.  She has no intention of having anything checked out, no intent to negotiate for fear of a bidding war and her desire to remain in the building. And has begun to think about redecorating and painting.  Sigh.

“I reviewed common sense, buying at the peak, her age !!!!! newly inherited responsibility for repairs etc.  At least she didn’t scream that as usual I was more concerned about her dying to cash in what little money she has because I am so hard up for money, as she usually does.

“Moist millennials?  Goofy seniors?  Thought this would add to your example of how stupid is as stupid does.”

Yup, stupid. Given her life expectancy, buying at the top of the market, the age of the beater condo, the lost income potential of her capital, the condo fees, property taxes, maintenance costs and insurance she now shoulders, this was an irrational, emotional, confused decision. And let’s be frank – Susan had better options than to write a dodgy blog and bitch.

One might be to obtain a power of attorney for the old lady. There comes a time in the lives of many families when the parent-child relationship must flip. Suddenly adult children need to look out for aging parents, ensuring the decisions they make are reasonable, sound, rational and in their own best interests. Spending life savings in your eighties on a dippy condo isn’t one of them.

This is where a power of attorney comes in. It’s a legal document granting someone else (in this instance, Susan) the right to make decisions on property, finances, investments and other matters. In a perfect world, a parent would grant this right to an adult child on the understanding when marbles start to be lost, good decisions can still be made. It’s a common thing in the financial world for POA investment accounts to be set up so kids make the decisions, yet aging parents are the beneficiaries, still legally owning the assets.

A continuing power of attorney lasts for life, and can normally be invoked when a medical or legal professional determines Mom is losing it. That doesn’t only mean dementia or wandering in traffic, but can extend to big money-related decisions that will have long-lasting and deleterious consequences. Like being ripped off by the people who own your rented condo.

Susan, like every person with an 80-year-old parent, should have arranged for a POA in advance. And while granting a power of attorney to someone else to look after you may sound scary and open to abuse, it comes with clout. The POA holder has a fiduciary responsibility to the other party – that means, by law, Mom’s interests must come before those of the guardian. Whether mother likes the decision or not.

Every married couple should exchange POAs. Anyone losing a spouse should seek someone they trust and arrange one. Everybody with an eightysomething parent should get this is place.

After all, your Mom looked after you when you were an idiot. Your turn.

$        $        $

Imagine if last year the number of foreign buyers Hoovering up residential real estate in this country increased by 49% – a record. Now imagine if 10% of the value of all property transactions went to offshore dudes. Not just one in ten deals in a city that foreigners like, but a tenth of all sales everywhere. It would be huge. The comments section of this blog would be positively bloodthirsty.

Well that just happened in the US. Cheesy non-Americans snapped up 284,455 homes last year in places like Florida, Texas and California, which was a 32% increase over the previous level. In total, over $153 billion worth of dirt changed hands. And have you read a single negative story out of the US about foreigners taking over? Do any American states have a 15% foreign buyers’ tax, or a 1%-per-year empty houses levy?

The biggest surge in alien buyers of US houses last year? That came from Canada. Horny little beavers invading from the north snatched up $19 billion worth of properties, most of them in Florida, with suitcases full of cash. The average price of a Canadian-bought home hit $561,000 US – double the level of a year earlier. The median home value in Florida is $207,500. Without a doubt, we’re driving up prices for the locals.

Chew on that.

Almost

Remember those yesterday stats breathlessly shared with you showing the fastest-ever 90-day plop in Toronto house prices?

Well, forget it. That 14.2% plunge was incorrect. Or at least stale. According to the internal numbers the real estate board doesn’t really want you to know, the situation has changed. Naturally, it’s worse.

The average GTA property was worth $919,589 in April – the most ever. But by July 13th that had declined to $755,727, for a rout of almost 18%.

So the typical property-owning family lost a tax-free $163,863 in 11 weeks. Ouch. That rolls prices back to the level of September, 2016. So much for those goofy months of February and March when everyone thought houses would go up by 30% forever. In fact, this reduction in average price expressed across the GTA (with just over 990,000 properties) means $162 billion in equity is gone. Poof. Floated away. Just like Kevin O’Leary.

“The real estate board has a fiduciary responsibility to represent both buyers and sellers,” says the realtor who provided this information – we’ll call him Reliable Source. “So this kind of data needs to be made public in a responsible fashion.” You bet. Some poor moister buying a condo right now with 95% leverage, ‘because real estate always goes up’ could be crushed by what’s yet to come.

“This market is goin’ down,” says RS. “Yes, it will eventually find a bottom and start to recover, because that’s what markets do. But things are not healthy.”

The long-time house flogger points to his own analysis of current listings, where he sees “a disproportionate number of vacant and rented properties” suggesting that amateur landlords and speculators “are doing everything they can to get out.

“You have to remember that people who own and occupy their houses are not gonna bail just because prices start to crash or mortgage rates go up,” he suggests. “So this market is totally different now with all that speculation that took place. It’s distorted and investor-driven.” And that’s why this correction is not going to end well.

Good luck with that soft landing. Splat.

But it could be worse. You could be a doctor.

Chances are your family doc operates in a clinic with a few expensive employees and a bunch of shiny equipment. He or she probably has no benefits, no pension plan, pays lots of overhead and, yeah, makes a few hundred grand a year. That puts him or her in the top tax bracket which, thanks to T2, now Hoovers away more than half of income.

The solution? Follow the law and split income with your spouse who, as a shareholder in your medical professional corporation, is entitled to a piece of the after-expense cash flow. You could also (like so many docs) live a frugal life on a modest salary or dividends while keeping savings within the corporation where they can be invested at a lower tax rate than in your own hands. Then, in retirement – when your income goes to zero – you can withdraw the money as income and pay tax on it at your lower marginal rate.

This is part of the reason we have doctors in Canada, where socialized medicine caps incomes. In some places they must be government employees while in other places they’re allowed to incorporate. But it’s not just medical professionals who use corps to be tax-efficient and compensate for the fact they spend eight years training or will retire without income support. Lawyers incorporate. Dry cleaners incorporate. IT dudes are increasingly forced to incorporate. And most of them pay corporate taxes and personal taxes while making employee benefit payments plus collecting/remitting HST without compensation.

Anyway, here’s the deal. They’re all ‘rich’ now, so Bill Morneau plans to eat them. As this blog forecast months ago, the hammer’s coming down. In the next budget you can count on (a) a test to ensure all shareholders are worthy of the money they are being paid and, if not, a tax rate of over 50% will be applied to their income and (b) full  taxation, at personal levels, of investment income earned within a corporation, making every doctor wish she’d taken a salary and exploited RRSPs.

Moreneau veiled this in a cloak of ‘middle class fairness.’ But it’s unfair when rules are changed for the express purpose of penalizing success, hard work, risk or the acquiring of skills essential to the public good.

Another T2 grab. Makes you wish for a Trump. Almost.