Perspective

Van11

Kajal and Vishal Dharod paid $559,000 in 2006 for a new four-bedroom house built in Rancho Cucamonga, California. Today, it’s worth about $360,000. “We don’t know how we can come back from a loss like that,” said Kajal Dharod, 29, a first-time homeowner with a $4,200-a-month mortgage. “Buying the house was a mistake.”

Those few words are from a Bloomberg wire story which moved Tuesday. I post them here as a reminder that smart, middle-class people in the most developed country in the First World, who follow all the rules and pay their bills with dollars earned from full-time careers can be destroyed by real estate. We should never forget that lesson.

When a house stops being a place to live and becomes an investment commodity, the market’s living on borrowed time. That would be now.

How else would you describe a scene in which people buy inflated assets with 95% or 100% leverage? Where sellers wring every last dollar out through an orchestrated auction-like process? Where flipping houses is so common many people never get their basement boxes unpacked? Where the inexperienced are led to slaughter by the greedy? Where the ‘winner’ of a bidding war can ever only win by finding a greater fool to sell to?

The housing market’s sure looking like the worst of the penny stock business. The way people talk about their homes, you’d think the conversation was about Nortel shares in the fall of 1999. In fact, Canadians today convinced housing prices will trend higher forever sound exactly like Americans three years ago. Like the young couple in the story above, so many of us have rolled the dice, thrown everything we have against a piece of real estate, and then hope for the best.

Some plan.

And now to Vancouver, and another 29-year-old:

Garth: I’ve been following your blog since I met you at a session in Vancouver a number of months ago (maybe even a year ago?) at the advice of a family friend of mine.  I’m recently married in Vancouver, income around $85k and wife is looking for work, 29 years old with about $55k in RRSPs ($25k in a money market fund ready to use as a first time homebuyer), $25k in stock, and $65k in cash.  No debt, paid for car, and renting for approximately $1200/month with the intent to buy as soon as fundamentals make sense.

Given the volatility in the markets today, where’s a good place for a young guy like me to make a good return over the LONG TERM?  Does it make sense for me to continue to load up on cash and hope like hell that some normalcy returns to the real estate market, or should I look at investing in some of the other avenues you’ve recommended (bank preferred stock, oil, etc) and hope that the market for them is strong when I need to cash them out to move into real estate?  All of my friends have purchased in the past 5 years, many at 5/35, and while I’m happy to rent for as long as necessary (maybe look at a bigger place?) it would be nice to put some of the cash to use.  I just feel like I’m spinning my wheels saving every month when the market goes up more than I can save.

I’ve been able to keep the new wife satisfied with a honeymoon in Asia, new furniture, and the ability to stay at home while she looks for work.  Once she finds something though I know her nesting instinct will kick in…

Tick tock tick tock… Canucks Fan

OK, puck boy, so you have $145,000 in liquid assets, of which $125,000 is earning diddly. Fix that. You live in a city where the average single-family home is selling for $732,000 and the average piece of junk is $535,000.

If your friends have purchased homes with 5/35 deals, unless they come from millionaire families, odds are they’ve bought condos for $400,000 just like the apartment you rent for $1,200. That would mean downs of $20,000 and monthlies (at 3%) of $1,500 plus strata fees, plus a debt of $380,000. If they renew their loans in three or five years at just 6% (and it will be higher, trust me), the monthly charge will be $2,200, plus fees – and they will owe the same amount. If mortgages return to the 8% average of the last twenty years, payments rise to $2,700 – and yet the debt level does not drop, thanks to the 35-year amortization.

So here’s the thing, Canuck Lover. If they make mortgage payments for a few years and pay nothing off, how is that mortgage different from your rent? Other than the fact you have the same and pay less for it? Or that you’re free, I mean? And they have $380,000 in debt? Which might destroy them if condo prices fall by 10%? Which is about certain once the Olympic stuff is over and Van property taxes go up? And the HST comes in? And all the rich Asians stay in Asia where the action is? I mean, what’s the difference?

Oh yeah. You still have $145,000. No debt. New wife.

I don’t know how you take the suffering.

114 comments ↓

#1 G-Know on 11.03.09 at 11:44 pm

$145,000 in savings for a 29 year old. The guy must be a financial genius. Who has that kind of money at that age?

#2 Lance on 11.03.09 at 11:44 pm

It’s like a big game of musical chairs. When the music stops playing, those who are still holding real estate are going to be burned… hard. All of those house flippers who brag about every flip and the money they put in their pocket will likely lose it all when the next flip they attempt falls flat and they desperately try and sell it for a significant loss.

#3 hal smith on 11.03.09 at 11:52 pm

Maybe someone can enlighten me. I was under the impression that a person’s primary residence which they had lived in for one year was exempt from capital gains. But I know people who bought condos and flipped them and never lived in them and paid no capital gains tax. And RevCan never came after them. What gives?

#4 mike from oakville on 11.04.09 at 12:17 am

Fix That? Garth – i know you’ve made comments on how you’d have to be an idiot not make a decent return in this market – i think what he’s asking for is some guidance on that specific item. you say healthcare is one area to invest in, but how about some more specifics. if you just keep focusing on real-estate and ignore the alternatives, you’re going to get a bunch of your fans (and probably the ones who listened to you and dumped real-estate) bored and alienated, because you’ve given them nothing to work on.

#5 Watched Bubble Never Pops on 11.04.09 at 12:22 am

LOL! $2700 a month to cover the mortgage for a condo… plus maintenance, plus property tax, plus insurance, plus utilities, LOL!

I will take great pleasure when the chum drops in the water.

Predictions of the future are still stupid regardless of how much pleasure they bring to think about.

$2700 a month LOL!

#6 ALE on 11.04.09 at 12:45 am

Sounds like this guy’s content to rent. The question is what to invest the cash in. I’d stay liquid, stay away from stocks. Deflation is around the corner as credit tightens. Cash will be king.

#7 $fromA$ia on 11.04.09 at 1:04 am

Nice thread on the American couple in California, Garth…”But were Canadians and were different.”

I am so tired of hearing the Fu#$ing stupidity. Were differnt, were different. Again, Fu#$ off!

I am sick and tired of hearing this. Oh and by the way,not to rant but it’s been a while since I heard you talk about $500 dollar gold, could you start again? :P

Love you Garth :) No not that way ;) Keep it out of the gutter.

#8 Jim on 11.04.09 at 1:10 am

Garth,
I’m in a similar situation, 10 years older and have been waiting for over seven years, but property here seems to hold its value. Many in Vancouver would not live anywhere else unless they are forced to move for work, so as long as they have a job – yes, there are some good paying, legitimate jobs here- not just low wage tourism, dope growing, and declining resource industry jobs, and can make the payments, even if rates go to 6 percent and the asset value goes down 10-15 % people will likely hang on. I don’t see how the market will correct substantially, except maybe for all of the cheap, small and poorly built condos.

Jim

#9 Rich in Calgary on 11.04.09 at 1:16 am

Speaking of 35 year mortgages…

From the Globe & Mail the other day:

“Federal Finance Minister Jim Flaherty says he is confident he has a handle it. He noted that in 2008, the government decided it would no longer insure mortgages with 40-year amortization periods, reducing the maximum acceptable term to 35 years. It also boosted the minimum down payment to 5 per cent. Both Mr. Flaherty and Mr. Carney said measures of that type could be taken again if Canadians get in over their heads in the mortgage market.

“We’re monitoring that situation,” Mr. Flaherty told reporters in Toronto yesterday. “Interest rates are very low, and that is no doubt contributing to some additional activity in the real estate market. We’ll watch, and what we’ve done before we can do again if we need to.”

Garth, my question to you is, do you think that Flaherty’s comments are an indication that we may also see the end of 35 year ams in the near future?

#10 observer on 11.04.09 at 1:20 am

This is away from current subject but interesting nevertheless:

How Goldman secretly bet on the U.S. housing crash

http://www.mcclatchydc.com/politics/story/77791.html

#11 Cyrus on 11.04.09 at 1:39 am

I am in almost the exact same situation as Canuck Lover (except with about half as much saved) and am struggling to find somewhere to park my cash. People’s Trust savings account can only go so far.
As the days go by, I become more and more comfortable with the idea of renting for the long term. It has been almost two years sans mortgage and with that, reduced stress. As a 26 year old, I believe my generation has grown up with the idea that the place you live in is also an investment. This idea will perhaps come back to bight some in the not so distant future.

BTW – I have been following your blog(s) right from the get go and was at one of your meetings in bubblicious Kelowna. VERY glad for the internet and for having found someone with the balls to post almost daily with some insight and logic.

#12 taylor192 on 11.04.09 at 1:54 am

Canucks Fan,

I live in Kits and rent a 2bdrm for $1900. Its valued at ~$550K, which at 35/5 is $2300. Then add $300 condo fee and $300 in tax. I’m saving $1000 or 30% renting. If I was paying the mortgage I’d only be paying down the mortgage $600.

Now lookup real estate prices in Vancouver. You’ll find after the early 90s recession prices spiked, fell, bounced, dropped again, then leveled out for nearly a decade. We’re on that bounce, and I’m expecting prices to drop then level out for a long time.

Yes its frustrating to feel like the market is growing faster than your savings. Give it time, it won’t be like that for long. In fact, prices are still down from the peak, so your savings have out-paced prices for nearly the last 2 years.

You do have a slight problem: Asian culture values home ownership. It might be hard to convince your Asian fiance that renting is better. If so, move out to the burbs. Surrey/Richmond are still be over-priced, yet less dramatically. $400K gets you a very nice house with a yard and a garage. Even if that price drops to $300K, its more likely you’ll hold onto this property for a long time than a small condo downtown, riding out the loss.

#13 Nostradamus Le Mad Vlad on 11.04.09 at 2:03 am

$4,200 monthly mortgage? That is slightly less than what I used to gross as a tradesman, but we had paid for our home through bloody hard work — gallons of overtime, and to some extent, reasonable spendthrifts.

As long as the bills / debts were all accounted and paid for, we could have a little fun, but I guess in the present “Entitlement Age”, those rules don’t apply anymore.

We taught our kids they were entitled to anything they wanted, as long as they worked for it first and saved a little. I couldn’t stomach paying any size mortgage to any bank now; that’s like being tied a ball and chain.

“Some plan. . . . the worst of the penny stock business.” — The greed of Bre-X generation has taken over and is running rampant now, so six months or so after the ‘limpdix have financially sucked BC dry (not Canada Dry), then pull the plug on this whole damn shbwang of a mess.

It will clear out the cobwebs, deadheads and slimesuckers (politicians / used car salespeople), etc.
——
To have a better understanding of what is happening in Ukraine, and to see who Joseph Moshe is read the type on the lead-in pic at http://rense.com/ Looks as if population downsizing has begun.
——
Rather odd coincidence these two are squabbling — CanWest & GS
——
If companies with large mortgages on their commercial properties go belly-up, what becomes of banks who hold those mortgages?$2 T. Mortgages
——
Not very appetizing. See also last line re: India — Long Term US$
——
Obama has pulled this plug (apparently) — SPP – NAU

#14 Nostradamus jr. on 11.04.09 at 2:08 am

Garth, the wife in the story is the problem, not the fellow.

…all men have an achilles heel…their women.

You see, in all first marriages, the partners enjoy a shared relationship…50/50….she gets what she wants and he gets what she wants.

That is why so many relationships end up broken.

This woman will put her husband in an early bankrupted grave.

Nostradamus jr

#15 grumpy on 11.04.09 at 2:15 am

Garth, you’re right, but, only in a real world way. The real world however hangs in suspension by it’s heels out one of the side offices of the Ministry of Finance called the CMHC. As long as we the taxpayer are prepared to entertain the idea that real estate ownership is a right and the one and only plank of an independant economy on which the ship of state depends we shall have no ‘real estate ‘ market in this country.

Real Estate values in fact have no value because the traditional measure of value ie: a level playing field, no longer exists except at the whim of a few local politicians.

As long as the government keeps readjusting the marketplace to suit temporary political needs the market will hold but look out below if reality ever sets in. Kaboooooom, the market really doesn’t like this type of intervention. The floor is the government but the government has no head.

#16 West Coast on 11.04.09 at 2:18 am

I am confused about something.

If insurance rates increase in 5 years time back to 8% – doesn’t that imply an inflationary environment and therefore house prices will be increasing?

Or is there a scenario where rates are at 8% and housing prices drop…

I know… I really don’t have a clue.

#17 Clobbered on 11.04.09 at 2:26 am

I like the “new wife” bit. Such down to earth useful advice.

How many wives have you had Garth?

#18 Jeff Smith on 11.04.09 at 2:27 am

Did anyone notice recently that various governments around the world are stocking up on gold (buying them off the IMF)? I am willing to guess they are preparing for a possible run on the US dollar. This is very very scary. Because a destruction of the US dollar will devastate the US and we are screwed also. This is because our economy is directly tied into theirs.

#19 ruraldude on 11.04.09 at 2:29 am

All of my friends have purchased in the past 5 years, many at 5/35, and while I’m happy to rent for as long as necessary (maybe look at a bigger place?) it would be nice to put some of the cash to use.
Canuck Lover do your own thing and to heck with the Jones crowd. In the end you will feel better about yourself and who knows, you’ll probably end up being the smart one.

#20 Same Situation on 11.04.09 at 3:09 am

I’m in the same situation as canucks guy except i’m not married yet or renting. I definitely want to see what nov 2010 will be like (after olympics, interest rate hike, after spring boom, HST full affect). I don’t know how he keeps the wife happy cause the gf is giving me the eye roll when i talk RE.

Hopefully only serious buyers (25+% down, ~25yr mort) will be left to pick off troubled homeowners.

#21 Mike (Authentic) on 11.04.09 at 4:20 am

Many home buyers seem to forget the effect that % mortgage rate have over 25-35 years on what the “real cost” of the house was. They just look at W (purchase price) and X (selling price) and say, “wow, I made/lost Y” without looking at Z (interest paid on loan).

Typical:
5.8% HSBC 5yr fixed mortgage over 35 years

W = $400,000 home
Z = $527,488 paid in interest

You need to sell (X) that $400k home for over $927,488 make any money.

Good investment or speculation? And we know it won’t be a mortgage of just 5.8% over 35 years either.

Mike

#22 Mike (Authentic) on 11.04.09 at 4:22 am

Sorry forgot to add the link to the mortgage calculator to try this out for yourself:

http://www.tdcanadatrust.com/cgi-bin/mortcalc.pl

#23 Emma on 11.04.09 at 4:40 am

Damn good advice, Garth!

The sooner people hold out until they can reasonably afford the home they want, the sooner we’ll get to the other side of this bubble and see what homes are really worth. In my humble opinion, it should be about 3 times household income – that’s a little over 200K for the average in Toronto (and about 270K for homes with two or more earners)…HA! God help us if we actually go from here to there!

If you can’t double any payments or come up with a sizeable lump sum once a year, then you can’t afford the mortgage … and you’ll pay double (maybe triple) the amount you signed up for. People really need to start using those fancy little tools called calculators.

Globe Investor ran an article yesterday about Ontario’s plan to teach financial literacy (otherwise known as numeracy) in school. Too bad those running the country, CMHC or the banks didn’t have such an opportunity!

http://www.theglobeandmail.com/globe-investor/investment-ideas/investor-education/ontario-schools-to-teach-financial-literacy/article1348708/?cid=art-rail-crashandrecovery

My favourite line was that it should also be learned at home – oh it’ll be learned alright!! The hard way. My generation had to take 5 years of high school english but only 2 of math! Hmmmmm! Today’s kids know how set up spreadsheets and run scenarios…it’s the parents I’m worried about.

#24 SaraBeth on 11.04.09 at 7:00 am

“When a house stops being a place to live and becomes an investment commodity, the market’s living on borrowed time.”

I’ve thought this for most of my adult life….. It never made sense to me in our (IMO) overly mobile society until you settle down and plant roots….and then you want a home…not just a house…

#25 SaraBeth on 11.04.09 at 7:00 am

“When a house stops being a place to live and becomes an investment commodity, the market’s living on borrowed time.”

I’ve thought this for most of my adult life….. It never made sense to me in our (IMO) overly mobile society until you settle down and plant roots….and then you want a home…not just a house…

#26 David Bakody on 11.04.09 at 7:34 am

Speaking of taxes going up ….. received an e-mail from Wentworth County ( Hamilton) and property taxes are going up 10% …. just like that! Soon those who are renting will getting a good nights sleep. Van Fan …. Hello …. how many times do we have to say it, “THINK” if you could find a decent flat to rent in Manhattan or NYC you would think you have died and gone to heaven. And you say there is a chance to get an even better one …. sit back enjoy life and when the time comes buy quality on sale like 1/2 price . When the markets crashed and the little guys and gals bought good new cars for 1/2 price ….the rich were buying all those RR’s and other fancy toys all those would be rich guys lost . It’s all relative baby.

I am willing to bet when the crash comes (and it will) one of your friends will be knocking on your door with house keys in hand looking for your hard earned cash. Note: keep your cool and remember it’s your money and your choice with you wife by your side …. PS: wear dark glasses when looking, for all that glitters is not gold.

#27 SaraBeth on 11.04.09 at 7:47 am

#15 David Bakody ~

Hubby and I rent now in Hamilton…living on a fixed income…any tax increase is just going to raise our (ridiculously low) rent…

So much for sleeping well. :-(

#28 Bill-Muskoka (NAM) on 11.04.09 at 8:04 am

When a house stops being a place to live and becomes an investment commodity, the market’s living on borrowed time. That would be now.

Always has been, always will be! Except for Greater Fools!

BTW, for a visual example of a truly Greater Fool watch ‘Curious and Unusual Deaths’ when it hits You Tube (Nothing yet on Discovery Channel HD on line and aired this past weekend).

The two most enjoyable were the Bible Salesman struck down by lightening on a clear blue day, and the all time classic of the arrogant idiot lawyer who threw himself against the window of his firm’s Toronto TD Tower (1993) office window to showoff. Unfortunately, the second time the window BROKE and he got to try being Superman. Didn’t work. Guess the window lost its ‘temper’?

#29 TaxHaven on 11.04.09 at 8:09 am

Good grief…! 85K a year! We can only dream.

This guy’d be better off working one more year, buying a cheap acreage up north and spending the rest of his life enjoying his hobbies and wife and learning to be a do-it-yourself investor…

#30 Just a bit outside... on 11.04.09 at 8:10 am

Garth,

Early = Wrong.

#31 ritenote on 11.04.09 at 8:48 am

When “the wife”, and “the new wife” are referred to in the same way “the house” and “the mortgage” are, I think it’s time for women to exit the blog….get with it guys! In what century do you live?

#32 Grantmi on 11.04.09 at 9:00 am

#3 hal smith on 11.03.09 at 11:52 pm

Maybe someone can enlighten me. I was under the impression that a person’s primary residence which they had lived in for one year was exempt from capital gains. But I know people who bought condos and flipped them and never lived in them and paid no capital gains tax. And RevCan never came after them. What gives?

What gives.. is they are crooks.. and in violation of the tax law. Simple! CRA probably doesn’t know about them.

An Anonymous letter to the CRA on their home(s) address and your suspicions will do the trick.

They will have to prove they were NOT flippers. Believe me.. the burden of proof is high for the CRA to let them off the hook.

If they have done this multiple times.. they’ll have to pay fines and back taxes, (and more fines) for each and every condo or home they flipped.

(Pet Peeve for me! This is one of the reasons home prices are so frig’n high .. and our tax pool is dwindling. IMHO [Add the under ground economy in there as well])

#33 Grantmi on 11.04.09 at 9:11 am

Oh! Just so you know I’m not whistling dickie!

Close friend’s buddy is in this world of hurt right now.

Doubly worst for her. Not only did CRA say the home she built and sold WAS NOT her principal residence!

She can’t prove the cost it cost to build it.. because she had a lot of the work down under the table with contractors and didn’t charge GST!!!!!

So now… if she puts forth the names and the bills she paid for the work… she AND his underground contractors are ALSO in a world of hurt for violating the GST submission laws.

Goes around comes around!!

#34 Devil's Advocate on 11.04.09 at 9:24 am

#3 hal smith on 11.03.09 at 11:52 pm
“Maybe someone can enlighten me. I was under the impression that a person’s primary residence which they had lived in for one year was exempt from capital gains. But I know people who bought condos and flipped them and never lived in them and paid no capital gains tax. And RevCan never came after them. What gives?”

Hal, a condo flip is not subject to capital gains… it is considered a “venture in trade” and taxable at your full marginal tax rate just as any other source of working income.

Our tax system is an honour based system in which Revenue Canada “trusts” that you will report all sources of income honestly. Of course many do not. On the flip side, the penalties are severe for “evading” paying taxes.

I personally know that the auditors are out in full force investigating flips by speaking with REATLORS and developers of such condos. Those you speak of are playing a dangerous game of chicken of sorts as Revenue Canada is just a little pressed for tax revenue these days and anxious to find what ever they are, or thnk they are, entitled to.

PS. I know of a couple flippers who have taken the winfall reinvested it a few times over who I suspect have not reported the income. They now sit on units they can’t sell which are in part financed by HELOCs on their principle residence. If Revenue Canada comes a knocking… they will be wipped out and then some…

#35 Jayman on 11.04.09 at 9:26 am

I have never understood how people can take on large mortgages when we are in a period of instability as we are today. It’s pure emotion.

Canucks Fan should certainly wait for a year at least. Buy something he can easily afford and pay it off asap. The interest is a killer.

My wife and I bought in TO in 2001, 25% down, 25 year am. I was a bidding war and we paid over asking. I was terrified when we first moved in.

Eight years later it’s paid off. Even if prices fall 25% in TO in the next year or three and we have to sell at the bottom, we will have not lost any money. That calculation includes all improvements, taxes, and interest. My goal was to have a small place with a yard close to subway and live in it without paying anything. I do understand that I have not worked in opportunity costs and inflation into my calculation.

Best of luck to all in the future. Get debt free!

#36 $fromA$ia on 11.04.09 at 9:45 am

#9 Rich in Calgary-“Garth, my question to you is, do you think that Flaherty’s comments are an indication that we may also see the end of 35 year ams in the near future?”

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Think about this a little. If flaherty made the move from 40 to 30 and abolished the zero or even 5 down and made it 10%, what would you think would of happened to the real estate market? ANSWER (Its like telling the public that ya the Fat turd f$%cked up) OOOOPs! Flaherty- (7 months after watching the U.S. economy tank & USA RE tank.)”NOBODY and I mean Nobody saw this thing comming!”

You think that would put downward pressure on the real estate market?ANSWER You Damn Right!

You think that unhappy Canadians would want another election after watching their RE crash with the U.S.?

Shhhh, don’t tell anybody, it’s our secret.

#37 dd on 11.04.09 at 9:56 am

Move the cash. There are a lot of great investments out there earning from 6-10% in divs. Ya, you gotta do your homework but it beats the 0% in the bank.

#38 David Bakody on 11.04.09 at 9:59 am

Good morning ladies and gentlemen ….. Where did we go wrong? Our children and grandchildren appear to be all spoiled beyond belief ….. far too many have too much money at a young age …. early prosperity …. 100’s of thousands of dollars in their hands before they are 30! (no life experience)

I have not checked this out but why are profits up for auto sales? Could it be the new 84 month lease plans like I wrote about? The big three are now playing the interest game using the car/truck as the carrot, locking these fools into long term monthly payments and service/maintenance. I was speaking with a friend in Tim’s and he said he was quoted $1350 + HST for 4 winter tires with rims for his newer Toyota, installation and those green caps extra plus HST again! Sorry I made a good deal on my winter tires and rims and have a good trolley hydraulic jack acquired years ago and a stick of white chalk and change mine in my driveway in about an hour.

#39 Oakville Owner on 11.04.09 at 10:04 am

“If they renew their loans in three or five years at just 6% (and it will be higher, trust me), ”

Garth- Can’t wait to see if this prediction comes true. Alot of your fellow authors, such as David Cork (Pig and the Python) and David Chilton (The wealthy barber), share your view on RE not being the great invesment it once was, however they both warn of interest rates staying very low for many….many years due to the “boomers” being in their saving years (not as much need for loans as there was in the 80’s).

My plan now was to buy the cheapest house in the best neighbourhood and pay as much of it off while rates are low. Value of our place has jumped approx $100 000 over the last year and we have managed to pay off over $20 000 in principal. Sure we may lose some or all of that $100 000 increase over the next few years but in 13 to 15 years I will own the place and never have to worry about paying rent when I retire. I think the only folks that have to worry are the 0/40yr or 5/35 yr ppl with nothing down.

Owning the rigth type of home in the right location, location, location will always make good financial sense.

#40 Devil's Advocate on 11.04.09 at 10:05 am

#32 Grantmi on 11.04.09 at 9:00 am

RE the unreported taxable income of property flippers

I agree. This is a very real inflationary pressure on real estate. Hopefully what goes around comes around and these jerks are forced to pay back through the nose that which they raped from the economy. For the consequences they have caused at the expense of average hard working citizens, there aren’t penalties severe enough for such behavior in my opinion.

You and I pay our taxes while these bastards live a good life on the backs of folk like us. These idiots sleep blissfully at night thinking the world is their oyster and that the rest of us and Revenue Canada are fools. Fight back! If you know of such a leech report the bastard or you and I will be forced to pay for their unreported crimes and lavish lifestyle through higher housing prices and taxes. You can do it anonymously just do it…

#41 BigAl (Original) on 11.04.09 at 10:10 am

#1 G-Know on 11.03.09 at 11:44 pm
“$145,000 in savings for a 29 year old. The guy must be a financial genius. Who has that kind of money at that age?”

I still think this is the huge thing that’s being overlooked – The generational download of wealth. Tons of folks in their 20’s, 30’s, 40’s being gifted or inheriting the wealth of their boomer parents. Thousands upon thousands of young people across the country coming into serious, easy cash, and all scrambling for homes. It’s not just low interest rates, I believe THIS is equally contributing, if not more so, to the sales.

#42 Schroedinger's Bull on 11.04.09 at 10:18 am

You don’t have to live in a residence in order to designate it as your principal residence, but you can only designate one principal residence for each year that you owned it. Your principal residence exemption is calculated by first designating a principal residence for each year that you owned it (you can choose not to use all of the years of ownership, and there are good reasons to do this) and then pro-rating the exemption based on #years designated/#years owned.

This ensures that if you own two residences simultaneously you will have some tax liability for one of them, because you can’t use the same year twice.

In a normal situation, where somebody has a first property that they rent out and own a second home, or in a situation where somebody owns vacation property, the income from the second sale would simply be a capital gain, subject to 50% of their normal marginal tax rate.

However, if your intent was to purchase real estate assets and sell them for a profit (not live in, or rent out the premises) then you are ‘engaged in an adventure in the nature of trade’ and the CRA would deem any income from flips to be Business Income, which is fully taxable at your marginal combined income tax rate.

This, of course, depends on two things. The flipper actually reporting the income as business income, and/or the CRA auditing any capital gains and principal residence exemptions. Bad news for the flipper is that they have 7 years to audit…if they do audit you, as somebody mentioned above, the onus is on you to prove that you were not engaged in a business, but rather intended to live in or rent out the secondary residence. If you’ve done it multiple times you’re pretty SOL.

#43 Calgary Rip off on 11.04.09 at 10:20 am

What is it with these precocious people that want to buy real estate as an investment first? How about a decent place to live for a decent price?

This blog is riddled with investment nonsense.

What is more important is:

1)Can you make the payment when interest rates increase? Not if but when. In Calgary expect foreclosures for the people who bought maxed out in 2007.

2)Is it in a decent neighborhood. No gangbangers, wild dogs, raging gangs.

3)How far away is your work.

4)Do you like the place? What’s more important is land around the property but that’s hard to find in Calgary. Expect to be ripped off in Calgary, prices are DOUBLE at their true value. This is due to the huge influx of population and the oil rich goons.

Lastly, that 29 year old moron should be more concerned with wasting his time seeing what’s happening with interest rates and waiting patiently, and realize that persons in business are only reporting opinions as there are no facts about the future. That’s why it is the future.

His best move is to get the hell out of Vancouver, as soon as possible because cities like that will always be overpriced, that’s here to stay. Calgary likely falls under the same heading because it’s also to big and people are willing and able to sell their souls for their investments.

#44 Larry on 11.04.09 at 10:23 am

Canadian real estate prices are in for a serious correction. We’re no different then the folks in the US, UK or Japan. Here in Calgary you would only get a condo for the same price as a 4 br house in Atlanta go figure.

#45 Devil's Advocate on 11.04.09 at 10:41 am

http://tiny.cc/VpEoJ

GOLD… rational, irrational, money or trinkets of adornment… fact is it is going up. 50% in the last 12 months already and the “fear and greed” factor is likely to push it a lot further before the year is through let alone the economy improving.

What do ya figure there Garth?

I prefer other commodities which are less moved by G&F. But, as I have said repeatedly, gold is fine as an inflation hedge, at 10-15% of a diversified PF. — Garth

#46 Happy Renter in North Van on 11.04.09 at 10:46 am

Re: Flippers not paying taxes…

I think CCRA has bigger fish to fry… My Brother-in-law works there and says phony charitable organizations issuing receipts are a HUGE scam and a focus of the organization.

Garth, do you remember issues in this area when you were Minister? And, why doesn’t CCRA have some type of system where they can match charitable receipts given with receipts claimed?

#47 Devil's Advocate on 11.04.09 at 10:47 am

It’s not the investment opportunities in GOLD, it is the commentary on the state of the economy GOLDs rise makes that I mention it.

#48 Canucks Fan on 11.04.09 at 11:00 am

Garth – thanks for the quick turnaround time on this! I emailed you yesterday afternoon and by evening it was already posted – amazing…

A poster, I forgot the number, was correct – I’m looking for some advice on WHERE to park the cash so I can put it to use. Even though I’m content renting, I’d prefer not to work to the bone until I’m 65 (or dead) like a number of the people my age that have bought real estate at 5/35 or 0/40.

FYI I was lucky enough to get through university debt free (lived at home and had scholarships throughout) and made good money through stock options in my first couple of years in the IT industry. I haven’t seen more than a 4% raise in the past 3-4 years and layoffs have started so you never know when you’ll need that cash cushion.

That being said, I still don’t see many options for parking cash right now!

#49 Canucks Fan on 11.04.09 at 11:02 am

Also, one more thing, the stock I do own is tied up in a blue chip IT company for which I work (10%), income trusts (30%), oil/gas mutual fund from CIBC (25%), and some gold / oil and gas exploration penny stocks on the vulture (35%).

#50 PeckedToDeathByDucks on 11.04.09 at 11:05 am

Wazoo-itis

Lookee here, anudder young fellow asking for advice and with that oh so common condition of money coming out of the wazoo!

#51 Onemorething on 11.04.09 at 11:07 am

Not to long ago owning your own home meant exactly that, the deed, the title was yours and there was no outstanding mortgage.

In the 50’s people bought houses outright for cash or had it paid off in less than 5 years, 10 years were for slackers.

Couples rented space from their parents, shared dinners together and had one family car.

They went on picnics, camping trips, had big family Sunday Dinners. They saved as much as they could, paid down that house and put aside reserves for a rainy day.

These days were magic, we are going to return to them and we will not see it as positive. What a waste!

Let your new wife in on a little secret, if you do buy a home in the next 12 months anywhere in VAN, she will get nothing in the divorce.

At least if you split over a nesting issue, you will likely control most of what you have above and let her have the couch.

For what to do with the money, anything pegged to the USD is going to be in trouble but you can bet all currencies will step in and do the same devaluing.

Gotta find 5-7% stable investments in bank preferred.

I live in Asia and even the government sponsored pension funds are paying 6%. Our company funds paying 10% but you must keep a nice chunk of liquidity ready to strike.

Forget RE, unless you can play the 50’s game, and even if houses become affordable and the $750K house is $375K, rent will follow downward so there may still be absolutely no value in buying a home.

Plus, what the hell will Canada look like then!

Good Luck!

#52 David Bakody on 11.04.09 at 11:11 am

Two homes in my back yard are still on market both 2 story homes with no garage. One is spotless beyond belief and the owner has done everything was ever needed. No offers and they are priced just over 225K each. What do people want I just do not know, I remember once when lived in Kitchener and one couple said: We wished it looked bigger on the outside , hello? a four bedroom with attached garage with a master bedroom you could hold dances in! People are funny
(Art Linkletter) speaking of Art Linkletter …. remember his shows where he said “Kids say the funnest things …. hello we are those kids to-day LOL. in any rate the home sold because it had fenced back yard for someone with a dog …. go figure.

Off to the Valley for a nice fall dive with my wife & our daughter (home from Hong Kong) for lunch at the Blomidon Inn. Now Hong Kong housing and business is whole new ball game.

#53 Watched Bubble Never Pops on 11.04.09 at 11:12 am

#8 Jim

“I don’t see how the market will correct substantially, except maybe for all of the cheap, small and poorly built condos.”

Nobody can predict what will trigger it. All we know is that booms and bust happen.

#54 taylor192 on 11.04.09 at 11:47 am

#1 G-know

I am 30yo with $90K in my RRSPs, $50K in my trading account, $100K equity in my house, and ZERO debt (paid off car, CCs paid every month). Wanna know how its done?

Have your family go bankrupt when you’re a teenager. I got the best education on finance from first hand experience. That, and some luck.

I went to school to become an engineer, cause it pays well and is interesting. There’s other things I’d rather do, yet this pays the bills better than those. Started at $70K. My first car was a $2K 19990 Toyota Camry which I drove for a couple years even while making $70K. Didn’t take a real vacation till I was 27yo. Bought clothing ONLY during sales, clipped coupons for groceries, … Maxed out my RRSP every year since 24yo. Watched my RRSP grow double-digits every year (even with the crash, I was still up). Used the HBP to buy a house at 25yo when rates were then at all-time lows. Furnished the house with used furniture, and DIY all renos. Used a LOC to open a trading account. Paid off LOC with continued double-digit gains. …

So you see it is possible, yet I had to make some tough choices (driving POS car while making good money, saving rather than vacations, …), got lucky (double digit gains, lowest interest rates at the time), and sacrifice (engineering rather than what I want to do).

Instead of hating, ask how they did it. Then ask, could you do the same?
Could you drive a POS car while making great money?
Could you forgo vacations to save for retirement?
Could you resist spending money on latest fashion trends and wait for sales?
Could you carry coupons to the grocery store?
Could you choose hobbies like reading/running that are free?

#55 Keith in Calgary on 11.04.09 at 12:03 pm

Canucks Fan should get the bulk of “his” money, not the joint funds acquired post mariage, out of the country and into a foreign currency investment somewhere.

That is what I have done……

#56 Hovering on 11.04.09 at 12:05 pm

Hal smith

grandma and devil’s advocate forgot to mention that your friend the condo flipper could be reassessed by the cra, (made to pay taxes on the condo flip profit), penalized by the cra (made to pay a percentage penalty for not paying taxes on the condo flip) and charged with tax evasion and made to pay a fine and or go to jail

some people think that since the condo assingment they own hasn’t been built yet they can flip it for a profit and never appear on the tax man’s radar.

I seem to vaguely recall someone telling me once about things seeming to good to be true.. or a gift horse and his mouth or something.. oh well it’ll come to me

#57 jess on 11.04.09 at 12:34 pm

rinse lather repeat cycles

Build a crap building call it affordable housing.
After sixteen years tear it down since it is cheaper than repairing.
Blame the architect, contractors,builders, the city for lack of maintenace ,the tenants, and finally the government ,who won’t lend the money.
So leave it as a green space so your housing list grows
vacancy rate stays low/keeping market rates high
The newer developers/holding co./reits love this since it rationalizes their present market rents. You know for all those empty nesters that apparently the city has an over abundance of.

=========================
KITCHENER — Following months of study, the board of directors of Kitchener Housing Inc. voted Tuesday to tear down four David Street apartment buildings and construct a single three-storey in its place.

The move depends on getting the funds from upper levels of government.

It was a unanimous decision, made easy by the numbers.

It would cost about $2.46 million to redesign and restore the four buildings, which contain four units each. The cost to demolish and construct a new building with 16 units is $2.48 million. If two more units are added to the new building the cost is $2.6 million.

#58 Canucks Fan on 11.04.09 at 12:59 pm

#54 – Great post. I agree that seeing your parents live a frugally throughout your life definitely has an impact. I didn’t get here by going away on an expensive vacation every year (instead I went camping or “staycationed” instead) or driving around in a fancy car (my dad is in the automotive industry and I’ve benefited from a couple of nicish vehicles that cost me less than $5000 each).

#55 – Any advice on where? I’m very interested but I’ve had difficulty finding somewhere safe that actually pays well enough to make the whole hassle worthwhile.

#59 Cassandra on 11.04.09 at 1:02 pm

Garth, big cyber-pat-on-the-back for your tireless fight to burst the Great Canadian Property Bubble. Sound advice on RE delivered almost daily. Good on ya.

I found your blog a few months ago after my sister sold her apartment in the ‘bull trap’ in February 2009, hoping to move up to a slightly bigger property as the market was heading down… and found herself on the hide-a-bed at my place as we both watched in stunned amazement at the bidding-war madness that ensued last Spring/Summer.

In order to make some sense of it all I found this discussion here, and it has been enlightening. Thanks. Sis is waiting it out.

I must say though, the “wifey is pressuring me” theme that comes from your correspondents so often is getting a little worn thin. Very biblical. So done before.

In my experience it is those afflicted with the Y chromosome who are more likely to get involved in high-risk ventures (such as investing for profit in the lofty real-estate market of Canada today, or deciding it’d be a great idea to bail out failed automobile companies) and those who lack it are more likely to be financially conservative. Those are just generalizations of course.

But it’s not your fault boys. We won’t blame you for it. We realize it exists so you can go out and bag that mastodon or fight the enemy if necessary. And sometimes it really is necessary.

So if maybe once in a while things get a bit heady from financial deregulation and you go forth and <a href="http://bring your country to its knees by mistake…

…oops…

I’m sure it’s not your fault.

Probably, it’s the wife’s.

#60 Mike (Authentic) on 11.04.09 at 1:03 pm

WHEN “INVESTING IN REAL ESTATE” GOES WRONG.

Alert — This just came up today.

http://www.realtor.ca/propertyDetails.aspx?propertyId=8847149

Purchased 14 months ago for $600,000 by “RE investor” + he added a new kitchen, flooring, bath, updated electrical and furnace, for sale today for $339,900.

$260,000+reno loss. I’m sad to see they lost so much, but you have to be EXTREMELY CAREFUL (as Garth says) to “invest” in RE, it’s RE speculation not investment.

Imagine for a minute that was you that lost $260k…

Mike

#61 Bill-Muskoka (NAM) on 11.04.09 at 1:07 pm

#33 Grantmi on 11.04.09 at 9:11 am

Oh! Just so you know I’m not whistling dickie

Uhem! I believe the proper term is ‘Dixie’. The other is called fellatio! LMAO!

#62 Devil's Advocate on 11.04.09 at 1:18 pm

#56 Hovering on 11.04.09 at 12:05 pm

What you may have been referring to is the flipping of a condo before it was ever completed referred to as an “assignment of contract”. When one does this they enter into a firm and binding contract with the developer, put down say 10% and then list it right away on MLS hoping to sell it before they ever have to pay for it. The profit (the lift) is paid to the Seller along with the deposit and the Buyer assumes the contract. SO… the seller never actually shows up on the land title and thinks they are invisible to the CRA.

AGAIN… THE SELLER NEVER ACTUALLY COMPLETES THEIR TRANSACTION BUT RATHER ASSIGNS IT TO ANOTHER BUYER FOR A FEE (THE LIFT/THE PROFIT) THUS NEVER SHOWS UP ON TITLE AND BELIEVES THEY ARE INVISIBLE TO THE CANADA REVENUE AGENCY. THINKS…

Clearly you can see how such practice further pushes prices up. Cearly you can see how much tax revenue has probably NOT been reported over the course of the last 5 years.

#63 Men With Hats on 11.04.09 at 1:21 pm

Put it all on black .

#64 Genghis on 11.04.09 at 1:33 pm

Year-to-date (ending Oct 2009) price increase of 13.6% in the Ottawa metro area.

http://www.ottawacitizen.com/business/Ottawa+housing+market/2183493/story.html

This is truly nuts.

#65 rp on 11.04.09 at 1:55 pm

I’d like to counter the idea that 30 year olds with six figure savings are spoiled brats. My wife and I have a young family and we are in this boat. We largely got there by not spending lavishly, by moving every year or two to pursue career opportunities, and with family members helping out to keep costs low (not just giving us money). There is no doubt that we are recipients of a great generosity, and some of that has found its way into our bank account as dollars. But it comes with great future obligations, many of which will be paid in dollars. Our parents’ retirements are far from secure. The media talks about the retirement crisis, and how millions of people have no savings or investments to sustain them into old age. We know these people. The thing is, they did invest in something, and they invested everything they had. We just have to make sure those investments pay off.

#66 The VULTURE on 11.04.09 at 2:08 pm

Where the REALLY BIG MONEY LIVES…

Big boys play in the Real Estate sandbox…always have, always will…….

Quebec police continued their crackdown on corruption in the province’s construction industry Tuesday, arresting 10 people allegedly tied to what authorities say is a vast money-laundering operation headed by the Hells Angels biker gang.

Another four individuals were being pursued by police, including the purported head of the scheme, Hells Angels member Normand Marvin Ouimet. According to police, Mr. Ouimet had been trying to take control of masonry companies by using threats, intimidation and extortion. The plan, police say, was to create a consortium of masonry companies as part of a conspiracy to corner the market and help the biker gang launder drug money through false consulting contracts for construction projects.

Police seized more than $9-million in financial assets, including homes, bank accounts and building projects, as part of an investigation that began in 2007. Among the suspects are a union representative, businessmen and building contractors. Accountants and real-estate agents were part of another scheme, police say, to use land development projects to launder dirty money as part of a web of illegal activities plotted by the biker gang. Portfolio managers allegedly were used to funnel the money to overseas bank accounts. A total of 147 charges have been laid against the individuals.

http://www.theglobeandmail.com/news/national/quebec/quebec-corruption-crackdown-yields-10-arrests/article1350324/

#67 Glenn on 11.04.09 at 2:11 pm

“I’ve been able to keep the new wife satisfied with a honeymoon in Asia, new furniture, and the ability to stay at home while she looks for work. Once she finds something though I know her nesting instinct will kick in…”

New wife? As opposed to last years model? Lucky for him, she is already shopping for a divorce lawyer. As well as commiserating with all her friends for a truly spectacular tale of “abuse” and “neglect” for the (all female?) jury. This, of course, is right after she runs this poor sap over in the shiny new BMW he just got for her. Ahhh…Western Society and feminism, where men subsidize their own obliteration, and do it with a smile.

#68 kitchener1 on 11.04.09 at 2:25 pm

RE#57 Jess

So true, I work on the maintenance/facilities/property mangement side of the business, but mostly on the commercial side.

Most commdity components of a structure have a life span of about 30 years (give or take depending on maintance–assuming top quality products where used at the construction stage) re: chillers, boilers, elevators, pipeing etc…

Thats why you see a lot of older condo’s/office towers that are in better shape then newly built-10 year old ones.

However, from what I have seen in my industry over the last 10 years, most new builds are designed to max engineering specs for maxium value. Look at condos that have 2 elevators, that should have 3, they all build 6 PH units instead of 10 to get away with max engineering spec. Its not uncommon for many new condo;s to have major elevator problems within the first 5 years.

Same is true for office towers, install one air handler unit instead of 2 for construction savings. The problem is that the life span of the units are decreased 20-30% when running on 90% plus compacity as their specs assuming a 60-70% load in order to acheive 25-30 year span. That life span is decreased further if proper maintenance is not followed.

In a lot of cases, where capital is available, it is cheaper to do a new build then to retrofit as retro’s never work out well.

Older buildings tend to be over engineered in most regards, hence their longevity.

#69 tam on 11.04.09 at 2:38 pm

I blame this whole bubble on wives.

#70 Cassandra on 11.04.09 at 2:40 pm

Another letter from a guy is having to keep wifey reigned in lest she go hog wild and bankrupt the household by her irrational hormone-induced investment decisions.

It’s a good thing the world is run by the much more intelligent, prudent, introspective men. Like those guys in Iceland.

#71 The Great Gazoo on 11.04.09 at 3:02 pm

Here is some wonderful perspective from the US FED today:

the Fed said household spending “appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

That was somewhat more upbeat than September’s statement, which referred to spending as “stabilizing.”

Yeah, ongoing job losses, sluggish income growth, lower housing wealth sounds VERY UPBEAT.

#72 Emma on 11.04.09 at 3:12 pm

re: tax evasion.

I’ve often thought that if I lose my analyst job, I’ll try to get the CRA to pay me a commission to match up renter’s deductibles with the owners of a house since it seems no one actually claims their rental income. It’s not just the odd basement apartment. Most of my uni friends had landlords that refused to give them documentation even when there were 4-6 units in the property and it was in no part owner occupied.

I would go so far as to say that it’s general practice – what else would be holding rental property prices so high? Though it is cooling down, ICX still has a ton of multi-family properties listing seemingly great profit margins but not one mentions the after tax profit. What looks like a 12 year hold ends up being about 20 years if you pay tax on the income, 25 years if you are actually going to maintain the place – and if you’re mortgaged to the hilt it’s 40 years or more in some cases. Case in point: http://www.icx.ca/propertyDetails.aspx?propertyId=8676750

It seems to me that the flippers and the slumlords would bring in more cash than phony charities. Not only does the CRA not get the landlord’s tax on 80K a year, but they are also crediting all those uni students so the documentation is right there – no investigation required.

#73 Watched Bubble Never Pops on 11.04.09 at 3:28 pm

“When a house stops being a place to live and becomes an investment commodity, the market’s living on borrowed time.”

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2009/11/the-good-news-about-cheap-money.html

Speculative activity has been modest (in Canada). Only 5% of home purchases have been from investors, versus 40% in the U.S. (before the housing crash).

That’s an inane statement when unknown numbers of people have bought with little or nothing down based on a view they ‘can’t lose’ on capital appreciation. That makes them investors. — Garth

#74 E.O. on 11.04.09 at 3:32 pm

I am really surprised by the number of people who have commented with what I would assume is jealousy about this situation, because the negativity is unfounded.

1. He does not actually have that much money in savings. He has the correct amount in savings for someone in his income bracket. Remember at 29 years old he has worked his way to his current yearly earnings.

2. This guy has obviously not stupid. I am sure his wife is not either. Yes she is currently out of work, but that does not make her a money grubby gold digger.

3. I am in a very similar situation. I am back in school at 27 years old hence I don’t work. I worked previously, but wanted to make more money and now am doing something practical with good earning potential (engineering). My spouse makes about the same amount as this guy. We have about the same amount in savings and no debt. People in this situation have saved money by renting, payed off student loans, avoided the credit trap, NOT had kids (even though many of us have wanted to) and we are trying our best to come out on top. I don’t expect you to feel ‘sorry’ for people in our situation, but I do think you should respect that we have worked hard to get here.

#75 jess on 11.04.09 at 3:40 pm

kitchener1

..maybe tents,cars, and trailers in parking lots are the solution to this cheaper nomadic “just in time architecture.” Perhaps this is why car companies see a future with tv. in them. ;^)

#76 Keith in Calgary on 11.04.09 at 4:21 pm

Canucks Fan…….

Lotsa choices……..consult a professional who deals with Canadian ex-pats, GOOGLE will help you with that, and perform your own due diligence obviously……and be prepared to buy some airline tickets.

It’s all perfectly legal provided the country has a reciprocal tax treaty with Canada.

In my case I am getting a 10% annual return (14% to maturity) and paying a 15% local tax on it……with government bonds……versus getting 2-3-4% here and paying a 42% tax on it.

Ahhh, Canadians are taxed on world income, cowboy. — Garth

#77 Bill-Muskoka (NAM) on 11.04.09 at 4:32 pm

Most of my uni friends had landlords that refused to give them documentation even when there were 4-6 units in the property and it was in no part owner occupied.

#70 Emma

That is ILLEGAL in Ontario. The Residential Tenancies ACT (RTA) specifically address that issue (among most others) and where such is done it constitutes an ‘offense’ punishable by a fine upto $25,000 for an individual and $100,000 for a corporation. People really need to take advantage of knowing their legal rights and it is all online for free. Filing an action with the Landlord and Tenant’s Board is a mere $45

109. (1) A landlord shall provide free of charge to a tenant or former tenant, on request, a receipt for the payment of any rent, rent deposit, arrears of rent or any other amount paid to the landlord. 2006, c. 17, s. 109 (1).

Former tenant

(2) Subsection (1) applies to a request by a former tenant only if the request is made within 12 months after the tenancy terminated. 2006, c. 17, s. 109 (2).

234. A person is guilty of an offence if the person,
(h) fails to provide a tenant or former tenant with a receipt in accordance with section 109;

Other offenses can be viewed here

Know your RIGHTS and make sure they are upheld or you, too, will be a Greater Fool.

Additionally, you can claim the rent, and should, on your annual tax return as well as any property taxes you paid. The Landlord must give you the information. By including the Landlord’s name and address the Minister of Finance and CRA will KNOW if they are claiming the rental income.

Help cleanup the rental scam industry by following the LAW!

#78 Grantmi on 11.04.09 at 4:36 pm

New TD offering!!

____________________

TD Waterhouse would like to inform you that the following New Issue has just been announced.

TD Bank Monthly Pay Step-Up Extendible Notes, May 2010 to November 2019

Short Description: Offering of Extendible (at Issuer’s Option) Step-Up Notes
Maturity: May 24, 2010
Coupon: Year 1 @ 3.15% s/a
Year 2 @ 3.25% s/a
Year 3 @ 3.35% s/a
Year 4 @ 3.55% s/a
Year 5 @ 3.80% s/a
Year 6 @ 4.05% s/a
Year 7 @ 4.50% s/a
Year 8 @ 5.00% s/a
Year 9 @ 5.50% s/a
Year 10 @ 6.00% s/a

Price: $100.00 CDN per $100 par value.
Yield to Maturity: 4.14% semi-annual ; 4.19% annual
Settlement: November 24, 2009.

#79 Bill-Muskoka (NAM) on 11.04.09 at 4:37 pm

#70 Emma

Likewise, landlords are required to abide and meet the Ontario Building Code, Fire Code, and National Codes, including the Electrical Codes. Most places, with a few exceptions require two entrances to a dwelling unit, unobstructed and meeting fire spread ratings.

In many cases, including Bed & breakfasts, a building permit and inspection is mandatory when a Change of Use occurs. It illegal to simply say ‘I am going to make my home into a lodging facility so I can pay my mortgage, or make money.’ In fact, ‘granny apartments’ are illegal in most jurisdictions.

There are too many death traps that skim by because people still act like the landlord is just that a Land Lord.

#80 Watched Bubble Never Pops on 11.04.09 at 4:48 pm

#72 E.O.

“I don’t expect you to feel ’sorry’ for people in our situation, but I do think you should respect that we have worked hard to get here.”

I agree.

And if they’re jealous, you should rub it in their face a bit more. It’s fun.

#81 Downsized and Delighted on 11.04.09 at 4:50 pm

#71 Watched Bubble – I agree with you. Garth’s comment is inane – not yours.

I was in the U.S. at the peak of the market and I can validate that every Tom Dick and Harry was not only invested in his own house, but owned another one or two on the side. I went to one private open house where a Doctor (an MD) was trying to unload his flip. He had worked on the house himself to get it ready.

Now maybe he was a really bad doctor, but it opens one’s eyes to the fact that there was more money in flipping than doctoring.

Have you seen many doctors at open houses here Garth?

When you have any documented evidence ‘every Tom, Dick and Harry’ owned multiple homes, I’ll respond. — Garth

#82 same situation on 11.04.09 at 4:53 pm

I agree with #72.

I have about the same amount saved as canucks fan and got there by saving 65% of my paycheck, no help from anyone. I live at home but pay all the bills. Some of us actually have common sense and don’t rely on freebies from our parents.

Is it a coincidence that i’m also in engineering?

#83 jess on 11.04.09 at 5:08 pm

Speculative activity

called the carry trade isn’t it?

#84 Bill-Muskoka (NAM) on 11.04.09 at 5:32 pm

#78 same situation

So, is your PARENT’s house paid for in full? Do you pay the mortgage, taxes, insurance? You claim you ‘pay all the bills’, does that include food, utilities, maintenance?

#85 Brendan on 11.04.09 at 5:37 pm

“I still think this is the huge thing that’s being overlooked – The generational download of wealth. Tons of folks in their 20’s, 30’s, 40’s being gifted or inheriting the wealth of their boomer parents. Thousands upon thousands of young people across the country coming into serious, easy cash, and all scrambling for homes. It’s not just low interest rates, I believe THIS is equally contributing, if not more so, to the sales.”

This is absurd and presumptuous. As a 25 year old with a much larger (self-earned) nestegg its frustrating to hear. Not all young people with considerable wealth were “gifted” it or inherited it.

#86 Keith in Calgary on 11.04.09 at 6:29 pm

Garth……

This was taken directly from the current and still valid reciprocal tax treaty in force in my particular case……I have to report foreign income and assets, but double taxation is not allowed.

“where a resident of Canada derives income which, in accordance with the provisions of this Convention, may be taxed in (country X), Canada shall allow as a deduction from the tax on the income of that person, an amount equal to the income tax paid in (country X), including business-income tax and non-business-income tax.”

That means you still pay the full freight here. — Garth

#87 Keith in Calgary on 11.04.09 at 6:32 pm

Forgot to say, that one must structure ones own tax affairs back home to maximize this benefit. You can’t have too much income tax payable here, over and above your income somewhere else, or this doesn’t work as well.

#88 Emma on 11.04.09 at 6:36 pm

#75 & 77 Bill-Muskoka

You’re right, most of those places were death traps – including one with extension cords run OUTSIDE from another unit to fix a ‘shorting out’ problem. Two exits?? I can’t remember ever seeing two exits in any of them!

Then there was the guy who charged 3 girls one third of the rent each and when one had a boyfriend move in, he decided the boyfriend would pay an equal, fourth rent (thus raising the rent 33%). Didn’t get away with that one though.

My friends did claim their rent and get tax credits for them – but no one at CRA ever put two and two together. Hence my future job – on a small commission, I could make a killing!!!

#89 DaBull on 11.04.09 at 6:53 pm

#59 Mike (Authentic)

If you look at the titles, from the Spin II system, they actually bought 2 lots with houses for a total of $632K in Dec 2007. They subdivided into 3 lots. Sold the one to the left for $340K, are currently selling the one to right for $339K and either keeping or selling the new empty lot they created in the middle. Made their money back and either have a lot which didn’t cost them anything or are going to sell it for a tidy profit. Not everyone is a stupid as you think they are.

#90 jess on 11.04.09 at 6:57 pm

Be patient my sheeple! According to the bansters AND Jesus , if you allow us to prosper first then the crumbs with fall from OUR heavens. Stay tuned my sheeple.

“Varley joins Goldman Sachs International adviser Brian Griffiths and Lazard International Chairman Ken Costa as London bankers who’ve gone into London churches in recent weeks and invoked Christianity to defend a banking system that critics say has created wealth and inequality in the U.K.

“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,” Goldman’s Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”

http://www.bloomberg.com/apps/news?pid=20601208&sid=aySZ9TS.aODA

#91 john m on 11.04.09 at 7:05 pm

Personally i think “canuk fan” is full of crap….an income of $85k before taxes with a stay at home wife and hes 29 and saved 145k in one of the most expensive cost of living areas in Canada…………cmon now……………..

#92 Sotiri on 11.04.09 at 7:17 pm

Canada’s home prices have skyrocketed in this recession. When the dollar was at 97 cents US a couple weeks ago, average Canadian home prices hit roughly $320,000 US – an all-time high. Residential mortgage debt has over doubled since 2002. We will surpass the US in per capita residential debt within the next year. In 2009 alone, we will add 100 billion in fresh residential mortgage credit (equivalent of about 1 trillion in the US on a per capita basis)

#93 Nostradamus Le Mad Vlad on 11.04.09 at 8:06 pm

#18 Jeff Smith — Good post, and esp. with different countries like Russia, China, etc. holding US T-bills, almost none of which will ever be paid back.

One reason that several places are seriously looking at replacing the greenback altogether, and going with something else. Worth glancing over — Four Reasons — the main word is ‘Yet’.

A lot of countries are re-positioning themselves against the greenback, and China is a great example. They are using returns on their investments to buy up copper / gold / zinc + more hard assets around the world — link — Indonesia’s Resources.

#26 David Bakody — “. . . property taxes are going up 10% . . .” — A few days ago, Chicago raised their property taxes around 10%, and Kelowna’s goes up an average of 5% per year.

Ohh, to sell and rent; I’m getting to old for this now phony BS now.
——
The Eye is the centre of a hurricane; this may go with the link about a huge commercial RE crash arriving shortly, this being the second side.
——
I never knew Walt Whitman was this smart (first para.). — Whitman
——
Any of you ever seen a Rainbow and Moon?

#94 winnipegger on 11.04.09 at 8:07 pm

Emma #70, #83

Received a letter from a local Revenue Canada office a few days ago re matching the rent I reported on my return with landlords’ receipts (two, as I moved during the year). Since my return was straightforward (I didn’t claim any deductions on rental properties I don’t own) and all the information requested had already been submitted, it is clear that they are doing the kind of trawl for tax evaders that you suggest.

#95 same situation on 11.04.09 at 8:11 pm

#82 Bill-Muskoka

Yes the house is paid for. And I pay for property tax, house insurance, utilities, phone/internet/tv and maintenance. I also pay for their medical prescriptions and car insurance. Both my parents are retired but they do buy their own food.

#96 Downsized and Delighted on 11.04.09 at 8:56 pm

Dr. Dick (aforementioned at the open house), Tom the real estate agent who owned 3 properties and rented one to me (and was foreclosed on shortly thereafter); and Harry – let me see- there were thousands of Harry’s who bought second homes in Nevada or Miami.

You can try to compare Canada to the U.S. Garth, but there is a big difference. The biggest problem areas in the U.S. are the second home markets. Do “I” have to document that for “you”. I thought it was common knowledge.

#97 same situation on 11.04.09 at 8:58 pm

#89 john m

I don’t know canucks fan and he may be lying but…

145k, 29 yrs old, 85k/year (assuming univ grad 2002 so 6/7 years working full time)

145/7 = ~21k per year. And I didn’t even factor in any profits in investments since 2003. It’s very do-able….

#98 Emma on 11.04.09 at 9:13 pm

#92 winnipegger

Damn, there goes my back up job!

Good for the country, though.

It does suck that they’d make you prove that you rented… I’ve never had receipts (except when I lived in Quebec). Would they accept a lease agreement?

#99 sold in 2007 on 11.04.09 at 9:19 pm

#3, CCRA has lots of time to track those people down don’t worry.

I know someone that lived in just such a property before it was sold. Now 3 years later the tax man is knocking.

#100 GregW., Oakville on 11.04.09 at 10:07 pm

Hi Garth, FYI 9min video, on FOX tv

Ron Paul: It’s “business as usual” in Washington, but Americans are waking up!
By tmartin • November 4, 2009
http://www.ronpaul.com/2009-11-04/ron-paul-on-fox-business-its-business-as-usual-in-washington/

#101 Gord In Vancouver on 11.04.09 at 10:45 pm

Mark Carney Must Be Relieved

Fed sees rates near zero for “extended period”

http://www.reuters.com/article/businessNews/idUSTRE5A01A620091105?feedType=RSS&feedName=businessNews

#102 Schroedinger's Bull on 11.05.09 at 1:14 am

Keith in Calgary:

Typically you wouldn’t be saving on taxes in the situation you describe. You only get to treaty out of the foreign tax paid.

In your example, you pay 15% local tax vs. 42% here? Well what that really means is that you pay 15% down there, and then (42%-15%) up here…still adds up to 42% any way you slice it, you’re just splitting it between the two jurisdictions.

#103 Mike (Authentic) on 11.05.09 at 7:33 am

#87 DaBull — I was told by the home owner and the developer the purchase price of the home. It wouldn’t surprise me to find out now there something is no on the “up and up” there.

#104 Mike (Authentic) on 11.05.09 at 7:42 am

Follow up to :#87 DaBull.

I re-read your post and noticed you cheaked on the MLS or Realtor system, you won’t find them there AND I’m going to call you out as a liar, sorry.

Unfortunately, the homes were never sold on the MLS or reported sold on the MLS*, they were private sales in 2008. Also they could have not have been sold in 2007 because:

A. I know ALL the owners of each of those 3 homes. (One lived there since 1948, the other 1965 and the one of the left 2007)
B. The home on the left was purchased for $514 in 2007, not $340k
C. I know the developer and what they paid for them all.

Mike

#105 Bill-Muskoka (NAM) on 11.05.09 at 10:32 am

#93 same situation on 11.04.09 at 8:11 pm

#82 Bill-Muskoka

Yes the house is paid for. And I pay for property tax, house insurance, utilities, phone/internet/tv and maintenance. I also pay for their medical prescriptions and car insurance. Both my parents are retired but they do buy their own food.

So, the biggest monthly outlay does not exist in your situation I see. Now, to be honest, do your parents also draw CPP and OAS? How about being on the Trillium/Ontario Drug Plan?

You come here essentially bragging about what a smart person you are and your wealth accumulation, but I suspect you’re not quite the ‘family hero’ you claim to be mon ami! Details tell the Truth, and you did not include them all.

I have no problem with families working together, and more should, but to portray yourself in the brief manner you did raises my suspicions as to how honest you have been. Your move!

#106 DaBull on 11.05.09 at 12:14 pm

Now I know your full of shit. First Spin II has nothing to do with MLS or Realtor(r). It’s run by the Alberta Government. The Spin II doen’t lie, it’s the guaranteed to be accurate and correct by the Alberta Govermnent. And anyway even if it was a private sale it would still have to be registered at land titles and that’s the Spin II system is, you idiot. So lets say it wasn’t registered. Then who every you say bought that for $514K doesn’t own anything. If they tried to sell they couldn’t because they wouldn’t be the registered owner.

#107 Bill-Muskoka (NAM) on 11.05.09 at 1:10 pm

#96 Emma on 11.04.09 at 9:13 pm

It does suck that they’d make you prove that you rented… I’ve never had receipts (except when I lived in Quebec). Would they accept a lease agreement?

Your address on bills, driver’s license, healthcare card, banking statements, etc. would prove your residency.

As to receipts, I suggest using CANLII which is a search engine for all Canadian Law.

You can determine not only the law of the province./territory, but decisions that have been made, including the federal level.

#108 Mike (Authentic) on 11.05.09 at 1:15 pm

#104 DaBull “Now I know your full of shit”

Garth, can you get rid of this troll? He is just trying to blow smoke up my ass on something he knows nothing about and wasn’t involved.

#109 Emma on 11.05.09 at 2:00 pm

#105 Bill-Muskoka (NAM)

Nice link! Call me a geek but that’s hours of entertainment right there!

#110 same situation on 11.05.09 at 5:40 pm

#103 Bill-Muskoka

you asked me this
“So, is your PARENT’s house paid for in full? Do you pay the mortgage, taxes, insurance? You claim you ‘pay all the bills’, does that include food, utilities, maintenance?”

I just answered the questions. I’m not saying I am a hero nor am I bragging about my wealth accumulation. I think you’re reading too much into it. I’m just saying that one can save and accumulate 145k at age 29 without cash handouts. That’s all I’m saying. I understand that living with your parents is a FREEBIE and I’m doing it to save up for decent down payment.

Only one parent collects OAS and GIS as the other is not old enough (housewife). No CPP. We live in BC. If you want full details, leave your email.

#111 Bill-Muskoka (NAM) on 11.05.09 at 6:04 pm

#107 Emma

Well, guess that makes me a Geek as well as a Heretic today? LOL

There is no substitute for knowledge!

#112 Taxpayer like you on 11.05.09 at 7:51 pm

106 Mike

Sorry, but Bull has cited the ultimate resource. If he has the expertise, the info should be obtainable, and will be absolutely correct. He does not need to be “involved” in
the situation. And remember – neither were you. Please be very careful before calling fellow bloggers liars.

#113 commercial property to let on 11.06.09 at 2:44 am

Even if you are renting out offices, you’re the landlord. If it breaks, you have to fix it. That means you’ll have to pay out quite a bit to ensure the building remains in good condition. There will be a few major bills if you do happen to hold onto the property for many years.

#114 Bill-Muskoka (NAM) on 11.06.09 at 9:39 am

#108 same situation I find it nice that you and your parents are able to work together, as I think families should, and that you are able to prepare for the future, both your’s and their’s.

I also appreciate you openness. We see so much BS posted here and experience tells we old farts when the red flag should go up as a warning against fraud. You passed the credibility test with me. Good luck.

Hopefully, people will garner something from your approach. I think for too long families have lost what it is all about. Corporations have more unity of purpose.

The people in BC, and most other places, like to whine about the Asians, but they known how to work together for their own good. Generations living in the same household, all contributing to the same pot. That has been lost in our ‘I gotta be me and free’ culture.

Apparently your parents know what parenting is about because you feel comfortable living with them still. Too may parents act like Lords and show little respect towards their children’s emotional needs. No wonder we have so many dysfunctional youths in our society.

Likewise, the constant influx of behavioural stimuli from the entertainment sector has taught children to think their parents are their enemy. The MSM has been, as they always are, a major influence to spread marketing of such cultural time bombs.

Have a good day and see you in the newer posts.