Bad attitude

not cool

John needs a kick in the butt. Let’s do him.

Your blog has me scared and unsure where to go. I was one of the ones who profited in the tech boom in 1999/2000. I was VP-R&D in a small public company (that no longer exists!). The stock went from $0.20 to $7.00 over a month in Dec. 1999. I exercised options and cashed out in January and was left with about $1 million cash. Most of my friends exercised but didn’t cash out (so that any further growth would not be income but capital growth). I was promised another whack load of options for the next year, so I spent the money freely. Then the crash came. Within three months, I got a severance package and was out of a job. My friends had a whopping tax bills for their exercised stocks that had since dropped back to $0.10. They were worse off than I was. But after the crash, I had just enough cash left to pay my $500K tax bill. *sigh*

Since that time, work has dried up everywhere. I had a yearlong stint at a local hardware manufacturer but they’ve also struggled and it didn’t last. I’ve been working as an instructor at UBC for the last few years but the changes to retirement age and the crumbling funding of education in BC has left me on the bottom of the seniority ladder with more cuts looming next year. Having a “permanent” position doesn’t mean squat anymore.

I’m no longer dreaming of the golden retirement, Mr. Turner. I’m 48 and hope that the education system has enough steam to carry me to retirement but that doesn’t seem likely. I have about $100K in my RSP. My wife has $40K. No other assets. And I’ve got a 4-year-old and I don’t see much good in her future either. I’m not sure what I’m looking for from you, sir. Maybe absolution? No, not really. I am man enough to own my mistakes. And judging from your blog, fools are not tolerated.

Thank you for your time. Any advice is greatly appreciated. – John in East Van

First, no absolution. You’re right. You blew through a million bucks. Now live with it. Second, fear and insecurity will get you nowhere, John. Stop sounding like a loser. You’re halfway through your life and already moaning about limping across the retirement finish line. Kinda pathetic. (Google ‘Roy Thomson’. The billionaire built his empire after age 60.)

Third, get the hell out of Vancouver. As cool a place at it is to hang out, it takes at least 50% more money to live there as anywhere else in the country, with a decelerating economy and a real estate market in danger of imploding. You may not own a home, but the up-to 40% correction the next few years will bring to BC housing could hollow out the local economy for a decade or more. Just imagine what that’ll do to post-secondary school funding.

Needless to say, even if prices fall by a third over two years in East Van or beautiful Part Moody, and even if the media tells you the boom is back, don’t buy a house. Doing so would suck off all your savings, up your monthly cash flow needs, rob you of mobility and flex, and promise future losses. There’ll be no lasting recovery in that market – just temporary plateaus on the journey down, when realtors will pull in a new crop of greater fools, aided and abetted by the property whores on Global.

Fourth, make the most of what you’ve got. An ‘RSP’ is not an investment, but rather just a taxless shelter in which various assets can be placed. So what’s in yours? Not mutual funds, I hope, with their blood-sucking fees and dodgy management. Ditto for stocks, which have too much volatility for a family in your circumstances. A far better choice are ETFs, exchange-traded funds, which are cheap, liquid and diversified.

Fifth, if your RRSPs are at the bank, move them. Open self-directed plans with an online brokerage, like TD Waterhouse, Questrade or Investorline, where you have access to a plethora of ETFs, as well as preferred shares, real estate investment trusts and bonds. Check out a website like ca.ishares.com for an extensive selection of exchange-traded funds – providing the most efficient way to achieve balance (between things that grow and things that pay you income), aplus diversification.

Sixth, you and your wife should both open TFSAs, and spend the next two years getting them fully-funded. The current limit between you is $51,000, with an extra $11,000 a year in contribution room. You can’t deduct contributions from taxable income, but neither is there any tax payable (unlike your RRSPs) when you take money out. Growth is also tax-free, which means these, too, should be populated with things like ETFs, instead of brain-dead GICs or high-interest savings accounts.

Seven, budget. Nothing’s more critical than savings and investing if you’re going to look after your kid and your own futures. Set up a PAC – pre-authorized contribution – which will automatically transfer funds monthly from your chequing account to your investments. This will help ensure you don’t blow extra money on anti-depression meds.

Of course, it would be helpful if your wife found work. Then you could channel cash into an RESP for your child, and collect the free government money that comes with it ($500 from them if you contribute $2,500).

If you have modest pension plan at the university, ask if you can commute it. By taking control of the contributions you will probably achieve far more growth than ultra-conservative pension administrators usually do. After you top up the TFSAs, open a joint non-registered investment account for you and your wife. Move your preferred shares in there so you can claim the dividend tax credit. And make sure you get the right preferreds – top quality (banks), no rate threat (perpetuals) and at the right price (like now).

If all of this is too much, get some help. I wrote about fee-based advisors a few days ago.

Finally, remember how you made that million? Yup, it wasn’t by wiping college kids’ noses. Entrepreneurship remains the best path of wealth accumulation, and in the digital age (which you helped found) that doesn’t mean spending big bucks on staff or infrastructure. Surely the talents that made you an R&D executive can birth an online business to supplement your teaching – and help you plan an exit from Moldy City.

Don’t know much about you, John. But the attitude sucks. Man up already.

Did I mention leaving Vancouver?

138 comments ↓

#1 RonH on 07.01.13 at 5:05 pm

A swift kick like only a horse can give. Ouch!

#2 VanPerfecto on 07.01.13 at 5:09 pm

You can get a rental townhouse in Vancouver in the SE area for $850 a month. You will have to put down $2000 which you get back when you move. For $850 a month you get 2 bedrooms and a den, a small yard, car park and approx 1300 sq feet. If you want to go cheaper and choose the 2 bedroom apartment option you are looking to pay about $650 a month. There is no reason to move out of Vancouver. I would max out your Spousal RRSP and use the refund to top up your TSFA and RESP. If your wife doesn’t work you will pay very little tax when it is taken out at retirement time

#3 TurnerNation on 07.01.13 at 5:18 pm

The pic: memories of Bandit’s house training days?

#4 James on 07.01.13 at 5:24 pm

A relation of a relation is a single mother and has lost her house to foreclosure.

While the house sat empty there was a flood inside, and the resulting damage lowered the value the bank could sell the house for. Apparently this is her problem, and she now has a $60k mortgage, three kids, and no house.

I remember hearing stories like this four years ago. Now I am hearing them in BC.

#5 EIT on 07.01.13 at 5:26 pm

John, do that thing where you meditate and become one with the universe, realizing that you already have everything you need. Hummmmm.

#6 Victoria Real Estate Update on 07.01.13 at 5:27 pm

The spring market is the most active time of the year in terms of house sales across North America.

The vast majority of the time the spring market is also the strongest time of the year in terms of house prices. This is true with all Canadian cities, including Victoria.

The spring market this year in Victoria was very weak. Prices declined. In comparison to previous spring markets in Victoria, prices declined a lot this year. Clearly, house prices in Victoria are in a strong downward trend that will continue for a long time. Prices in Victoria have declined in 8 of the last 10 months.

Let’s compare the price gains/losses (March through May) in Victoria, going back a number of years. Source: Teranet.

2013: (-4.1%)

2012: (+0.7%)
2011: (+1.6%)
2010: (-0.3%)
2009: (-1.0%)
2008: (+2.4%)
2007: (+3.1%)
2006: (+7.9%)
2005: (+6.8%)
2004: (+6.8%)
2003: (+3.4%)

I think this spring market price plop has set the tone for the rest of the year. If Victoria house prices took a dive of -4.1% during the strongest 3 months of the year, then think about how much house prices could plop during the weakest months of the year (July – December).

Victoria’s housing bubble has started to deflate, but there is much deflating left to do. This will take years.

The Canadian housing market was boosted with excess credit for 13 years as a result of lax lending standards. Housing bubbles worldwide have crashed after similar excess housing market stimulus. Canada’s correction/crash is next. The whole world is watching.

Girls and guys, now is not the time to buy a house in Victoria. House prices will continue to decline for years. If you buy now you will be in a situation of negative equity almost immediately. Many of our friends bought near the peak and have come to realize that doing so was a major financial blunder. Renting for now is a no-brainer. You will be able to buy within 15 to 24 months at much lower prices. This is the way all major national housing bubbles deflate and Canada’s current housing bubble is one of the biggest in the history of the world. Buying now would cause you extreme financial hardship for many years.

Until next time – Cheers!

#7 Big Fan of this Pathetic Blog on 07.01.13 at 5:43 pm

Hi Garth

Hope you are enjoying the day. Great post today and yesterday. I cruise in every once in a while and check up.

I started reading your blog a few years ago now and prayed that if I read it long enough, it would start making sense. Those pathways had not been fired in my brain. The only consolation, if it is one, is that I see that I am not the only one! :)

So finally it did start making sense. Thank you.

Recently a 30-ish young man who is financed to the hilt, (I didn’t know ‘hilts’ could be that big for such a young fellow) and working feverishly for a bank looked at me sadly for being a renter. That I wouldn’t ‘join the feast’, so to speak. I had shared some ideas with him once before (but they weren’t what he wanted to hear).

This time I said nothing, but inside said a prayer for him and his lovely young family.

I keep directing people to your blog, Garth. No one does it like you.

Keep up the great work

#8 Dennis on 07.01.13 at 5:46 pm

Aren’t RESPs a bit of a deception? They’ll add $500 to my $2500 every year, but won’t my kid get taxed when we cash out? And since I’ve lready paid tax on that $2500, aren’t we essentially paying tax twice?

#9 Retired Boomer - WI on 07.01.13 at 5:49 pm

Hi John-

First, WELL DONE during the Dot-com era. That said, you have drive, a good mind, and history CAN repeat itself. Never exactly, but it rhymes well.

Second, Garth’s advice is right on. Especially ther ETF idea, and funding the TFSA. A house you don’t really need at this moment in time, just affordable rent, and a location with a future. Your city has the deck stacked against it at the present.

Yesterday is over, tomorrow not yet here. Plan for that. I don’t understand the technology of today very well, but sure enjoy using some of it. You possibly do know it, and can profit from it.

At home, the budget idea is a sure-fire winner. I have never met the people who went bust using a budget, but I am certain there is an example somewhere in the US pr, Canada. Most likely a person who “thinks” he has a budget, but never lives accordingly.

Good Luck, John. In a few years write back and let the blog dogs know how well you are doing.

#10 Randy on 07.01.13 at 5:55 pm

That’s pretty solid, practical advice Garth…but the response is usually..”How did I know that I was gonna live so long “……Thanx, Derek Sanderson….

#11 Koshy Alex on 07.01.13 at 5:57 pm

Price cuts are coming to the prime locations in toronto

From guava.ca

C2564161 – M4S – 273 DAVISVILLE AVE Toronto, Ontario– $899,888
Price Change. Feb 23: $1,048,000 Apr 16: $899,888 Mar 19: $999,800
Renovated 3 Bedroom Detached Home In Prime Davisville Area. Bright & Spacious Home Has Been Fully Upgraded And Renovated. Modern Kitchen With Upgraded

C2623080 – M4S – 273 DAVISVILLE AVE Toronto, Ontario – $799,000

Price Change. Jun 18: $799,000 May 2: $889,888
Renovated 3 Bedroom Detached Home In Prime Davisville Area. Bright & Spacious Home Has Been Fully Upgraded And Renovated. Modern

I don’t see a sold sign, so assume it did not sell even at 799,000. Times have changed, last year there would have been a bidding war for these properties !!!

Now a semi, 180 DAVISVILLE AVE is listed for
$869,000 !!

#12 Seth P on 07.01.13 at 6:16 pm

My favourite post so far. Thanks Garth for all your time and dedication. Like many others (I hope) most of it I’ve been thinking about already and now it’s time to take action.

I really love the entrepreneurship mention. I’m self employed and now moving into more of a traditional entrepreneurship role. There are so many amazing opportunities out there to turn a lean start up into a scalable money making machine. At 35 (Self Employed for 16 years) I have few words of advice:

* Pick a specific Niche / don’t become the joker of all trades
* Plan to be a true entrepreneur NOT simply self employed (there is a big difference)
* Hire slow, fire fast.
* Plan to start something that is scalable – something you can increase production very easily
* Build something that doesn’t rely on you being there 24 / 7 – you should be able to walk away from your businesses for months at a time and still generate profit.
* Seriously consider the passive income streams, there are lots of opportunities out there.
* Consider making a product (scalable + won’t require a lot of ongoing support).

Love the blog. Thank you for sharing your knowledge.

#13 Donald Trump on 07.01.13 at 6:17 pm

Re the porcelain throne:

I once had one about that big

#14 craig on 07.01.13 at 6:32 pm

81 years later……..and they’re still running the show.

Q’s forever!

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it”. — Congressman Louis T. McFadden in 1932 (Rep. Pa)

#15 T.O. Bubble Boy on 07.01.13 at 6:37 pm

He really did spend that money freely… sounds like $500k dissapeared in just a few months?

So – this guy doesn’t even own a house? (which really would have saved him, if he had bought in Vancouver in 1999)

This anecdote shows clear evidence for anyone in a high growth / technology type company that you need to diversify investments outside of the industry/company you’re in.

#16 pathcontrolmonk on 07.01.13 at 6:45 pm

I have been in recruitment my whole career, placing / hiring people to and from around the world. One of the biggest obstacles to closing candidates on an opportunity is their lack of flexibility in regards to location, in many instances you can’t get people to move across town never mind across the country or the world. Conversely, those who are the most flexible (Dubai isn’t too hot, Atlanta isn’t too conservative, Londoners aren’t that boring), always have options, make much more money and have more rewarding careers. Did I mention that if you stay abroad for more than 2 years you don’t pay tax in Canada? If you get a job in Hong Kong, Singapore, or Dubai you can live tax free and an IT worker can easily sock away $50k / year. As Garth said, that big sucking sound in Vancouver will only just get louder.

#17 not 1st on 07.01.13 at 6:52 pm

Life losers returning to academia to teach the next generation how its supposed to be done. Our education is garbage as a result.

And before you cry crocodile tears for this goof, think about how he and his company ran that worthless little tech stock up, got all the brokerages to follow it and recommend it to mom and pop and then the owners bail. Exercising options is just another word for leaving others holding the bag.

I suspect his tech company was based on bogus fundamentals and all hot air hence why he can’t repeat the feat.

#18 LS in Arbutus on 07.01.13 at 6:59 pm

#8 Dennis – RE RESPs

The contribution, in your example, of $2,500 is not taxed when withdrawn.

Only the $500 top up the gov’t gives you (known as the Canada Education Savings Grant (CESG) )and the investment growth is taxed, and this is at the recipient’s tax rate.

The contribution, CESG and investment growth can grow on a tax deferred basis.

Assuming a student going to school is the recipient, they will have a very low tax rate, or the CESGs and accumulated investment growth could be taxed at zero in fact as the basic personal amount in 2012 was $10,822.

#19 Victor V on 07.01.13 at 7:00 pm

Slaughterhouse smell repels Toronto condo dwellers

http://www.thestar.com/news/gta/2013/07/01/slaughterhouse_smell_repels_toronto_condo_dwellers.html

Ross says he didn’t know there was an abattoir down the road when he moved in — it was winter, when the plant’s fetid barnyard smell is muted, and his real estate agent neglected to mention the round, pink neighbours.

“People who move here in the winter, when the summer comes, they’re like, ‘What the hell?’

“The stink is ridiculous,” he added…

….Real estate agent Brad Lamb is the ultimate King-and-Bathurst condo person — he sells units in several buildings in the odour orbit, and lives across the street from the slaughterhouse.

Lamb hates the pigs. “I’m not sure what it is that I smell,” he said, “but it’s a very unpleasant smell.” He guessed it was probably feces.

“We shouldn’t be smelling that in what is really now a residential area,” he said.

He also objects to the sight of the pig transport trucks with ventilated siding rumbling along Wellington Ave. “You see their snouts sticking out,” Lamb lamented.

#20 Joe on 07.01.13 at 7:01 pm

Remember the time vs cash formula.
Don’t waste all of your time worrying about cash.
Imagine that you were to die much earlier then expected, what would you change?
Make the changes now, don’t fall into the money trap, it’s a big ole lie that far to many fail to grasp in till they are old and regretful.
There are places you can live that are much cheaper then
BC aka (Bring Cash)
Huge retirement communities in Mexico/Panama/Costa Rica/Cuba/Ecquador/Peru/Chile….
Loads of people enjoying great lifestyles with tons of opportunities.
Friends of mine bought 2 condos for around 350k outside of Puerto Vallarta one they live in and one they rent out, it pays all the bills plus money in the bank plus when they want they home swap their unit out and travel around the planet.

Sun, pool, ocean, tourism, cheap lifestyle, great area.
Invest in your present as well as your future.
Adios

#21 Bigrider on 07.01.13 at 7:06 pm

John, see if you can partner up with someone, pool your resources together and buy a commercial property of some kind.

Rinse and repeat.

You will then be able to forget about, mutual funds, ETF’s TFSA’s and every other alphabet soup financial market nonsense that’s out there.

Wish I had but still stuck in the secular bear market of the past 13 years when I should have been with the dummies licking bricks.

The secular bear market that increased 136 per cent in four years? — Garth

#22 eastvan on 07.01.13 at 7:13 pm

Bad advice Garth.

Renting in Vancouver is not much more expensive than other Canadian cities. Why leave the place you love to save a couple of hundred a month? John can save that much in heating costs and not having to buy snow tires.

Love East Van? — Garth

#23 Andrewski on 07.01.13 at 7:22 pm

John, If you haven’t already, apply for (at least) $1 million life insurance, a 20 year term, for you & the Mrs.

#24 eddy on 07.01.13 at 7:23 pm

“You may not own a home, but the up-to 40% correction the next few years will bring to BC housing could hollow out the local economy for a decade or more.”

Meanwhile back in 2010 you could buy a Leaside bungalow for $650,000.
Nowdays it’ll cost you over $900,000. That’s a 40% increase in THREE years

Completely untrue. — Garth

#25 Hellforabasement on 07.01.13 at 7:23 pm

Strange; cashing out $1 million in options should have left him with a $250,000 tax bill as they are capital gains and taxed at 50% of your tax rate.

As of a few years ago the government started taxing options at time of exercising, don’t trust us to plan ahead, probably a good idea for most…..

#26 Donald Trump on 07.01.13 at 7:24 pm

Thank you for your time. Any advice is greatly appreciated. – John in East Van

====================================
Dear John Letter…

If you expect sympathy forget it.

You have to admit you won the lottery with the Dot.Com bubble….and you blew it.

UBC etc…..actually I have more respect for REALTORS than the $$$ pimping these degree mills have.

The student loan bubble may exceed the housing bubble.

You have moved from one frying pan to another…maybe try for a trifecta.

#27 Bigrider on 07.01.13 at 7:25 pm

#21 Garth to Bigrider- ” the secular bear market that increased 136% in four years”

No , the secular bear market that has seen the indices essentially flat and basically no higher than where they were 13 years ago.

Oh, and with two 50% declines peak to trough drops thrown in just for a little excitement

You must own mutual funds. That would explain it. — Garth

#28 AK on 07.01.13 at 7:36 pm

Dow Should Hit 30,000 in 10 Years: Baron

#29 mark on 07.01.13 at 7:52 pm

After watching a show last night on how quickly people can fall through the cracks, I realised how lucky I, and this guy are, to have savings that can at least buffer us for some time.

Health problems leaving someone on welfare and with the indignity of $40 to get them and their kid through the next 2 weeks after bills are paid don’t look much fun.

You could be doing better, John, but in truth you ain’t doing that bad.

#30 timmy on 07.01.13 at 7:54 pm

Get out of Vancouver and move to where? Toronto? Where the unemployment rate is higher and the city is run by a corrupt buffoon? Calgary? Totally dependent on the price of oil, which is slowly declining due to fracking in the US?

#31 tim on 07.01.13 at 7:58 pm

“Entrepreneurship remains the best path of wealth accumulation…”

Right on, Garth. Now we’re talking.

#32 stinky in downtown on 07.01.13 at 7:58 pm

Garth, you will laugh if you read this article.
The world famous Brad Lamb complaining about the stink around his Condo! Isnt’ it ironic? LOL

http://www.thestar.com/news/gta/2013/07/01/slaughterhouse_smell_repels_toronto_condo_dwellers.html

#33 Donald Trump on 07.01.13 at 8:04 pm

Try these…

I will be attaching my name to …oh..never mind…

http://www.readersdigest.ca/travel/canada/canadas-10-strangest-crudest-and-rudest-town-names

#34 CrowdedElevatorfartz on 07.01.13 at 8:11 pm

@#22 eastvan
Ah yes, East Vancouver, that cornucopia of cultural clashes.
From “The Cultch”(formerly known as the Vancouver Cultural Center but the new “name” is oh soooo trendy dont you think?) at Venables and Victoria to “Broadway and Commercial” where residents are now up in arms over the possible destruction of …….wait for it……a Safeway store!
To build….. “gasp”!
More Highrise towers!

The best thing about

E
VAN
S
T

Is the tacky sign at Clark and Great Northern Way.

#35 craig on 07.01.13 at 8:14 pm

Funny he never mentioned how and where he blew $500K tax free dollars in a few months.

Nose candy?

Now he’s teaching our kids.

Dumbass

#36 saltpony on 07.01.13 at 8:15 pm

I thought it was said with love.
Tough love perhaps.
Maybe a bit hidden; it isn’t too hard to find.

He doesn’t really have to sit at his keyboard…
but he wants to. He wants to help.
That’s love.

Thanks Garth, Love Canada.

#37 Macduff on 07.01.13 at 8:15 pm

If you bought $1000 worth of gold in 1992, it would be worth around $3800. According to longrundata.com, if you had invested in a recently listed stock called Starbucks, and reinvested the dividends, it would be worth $102000 today!

#38 KommyKim on 07.01.13 at 8:17 pm

I’ve worked with a few people who formerly worked for Sea Star Optics which was bought out by SDL, and then by JDS Uniphase. Since JDS was an American company, their HR department miss-advised the employees about the tax implications of stock options. (Yes, they were dumb to listen to a non-tax expert.) Like John, many of them failed to cash out before the stock crashed. Many went bankrupt. Some, after a long battle, did finally manage to have their tax bills forgiven:
http://www.canada.com/ottawacitizen/news/story.html?id=7e85020a-5522-460a-b6cb-526358eba111

#39 benchwarmers on 07.01.13 at 8:20 pm

“It ain’t over till it’s over.”
Yogi Berra

#40 AK on 07.01.13 at 8:36 pm

Another Moron calling for a $10,000,00 Gold

#41 Peter S on 07.01.13 at 8:40 pm

Garth, when you say to get out of Vancouver do Maple Ridge, Langley, Tri Cities etc count as alternatives?

I met a Finance guy for a major auto dealer when
puchasing a vehicle lately.(Not a KIA).
He is very professional & well educated and just moved here from Winnipeg. I asked him if he found housing pricey here. He moved to Maple Ridge and said housing was the same price as Winnipeg but superior quality of life in every way in MR.

#42 Nemesis on 07.01.13 at 8:49 pm

Not for nothing do I call that RainForest academy TheBordello… albeit, it’s a truly GlobalThang these days.

Alas.

#43 Mikey the Realtor on 07.01.13 at 8:55 pm

#40 AK on 07.01.13 at 8:36 pm

Another Moron calling for a $10,000,00 Gold
————————————————

Don’t be so harsh, you already embarrassed yourself once tonight by posting some nonsense about DOW at 30k yet you have the nerve to call someone else a moron, time for your mommy to tuck you in bed before you hurt yourself.

#44 T.O. Bubble Boy on 07.01.13 at 9:00 pm

@ #25 Hellforabasement on 07.01.13 at 7:23 pm
Strange; cashing out $1 million in options should have left him with a $250,000 tax bill as they are capital gains and taxed at 50% of your tax rate.
___________________________

That is not the case… stock options are considered income (not capital gains).

However, that may have been changed since 1999 when this guy “John” made and lost his $1M.

#45 Dean Mason on 07.01.13 at 9:03 pm

I have a friend and his wife that worked at a Chrysler plant in Windsor for 18 years and closed in 2008.All their coworkers were spending money on a big houses,SUV’s,vacations,expensive clothes,shoes,electronics etc. and not much saving money.

My friend and his wife are Canadian citizens since 1992 and arrived in Canada in 1987.They are from Hungary and saw under a communist government how the poor and the poverty they lived through really woke them up.

They saved their money and were smart to put it in RRSP’s,government bonds,government strip bonds,Canadian bank shares,GIC’s.They were smart to pay off their mortgage in 9 years with a $328,000 paid off house today.

When they lost their jobs in Novemer-2008 all their coworkers were worried but my friend and his wife were not happy but knew that they were really better off than all their coworkers which gave them time to think and breath giving them options most others would not have.

They have accumulated $625,000 in investments by 2008.They had $156,000 in Canadian bank shares in their non-registered joint account,$415,000 in RRSP’s made up of Canadian,provincial strip bonds.They had $54,000 in laddered GIC’s in case for a job loss or some other unexpected event in their life and $23,000 RESP’s.They have 2 kids.

They both received severance packages of $54,000 each and put the most they could transfer to RRSP’s was $19,560 each so $39,120 in their RRSP’s and the rest was $46,000 after income taxes was put in a savings account for awhile.He now works as a welder fitter which he went for some training and she is a janitor at a high school.

They were unemployed for 14 months and now are making about $79,000 a year together.They are both 51 years old now.They have now in 2013,$600,000 in RRSP’s,$56,200 in TFSA’s,$187,000 in Canadian bank shares, $39,000 in GIC’s and $219,000 in LIRA’s they transferred.

They have no debts of any type and and both kids are using the RESP’s worth $35,000 which they started college 2 years ago.They started saving $25,000 a year since 2011 maxing out their TFSA’s,RRSP’s every year.They have about $1.10 million dollars in total investments that are earning about $53,000 a year or $1,020 a week.

Their next goal is to try to exceed their current total incomes by $21,000 so $100,000 a year and have close to $2.0 million dollars by the time they both 60 years old.They told me that Canada Day is their favorite day of the whole summer.Happy Canada Day!

Congratulations on recovering from the Chrysler episode. But it’s time to dump the bonds. — Garth

#46 brainsail on 07.01.13 at 9:04 pm

“First Person: I Nearly Lost My Home Because I’m Bad at Math”

“Even though the loan officer could answer any questions I had, I didn’t know what to ask. I just assumed if the bank wouldn’t lend me more money than I could afford to pay back.”

http://finance.yahoo.com/news/first-person-nearly-lost-home-because-m-bad-184600981.html

#47 Tony on 07.01.13 at 9:09 pm

Re: #9 Retired Boomer – WI on 07.01.13 at 5:49 pm

Well done if his name is Paul Phillips but it isn’t. It wasn’t uncommon to make at least a million a day or lose the same amount in a day back in the dot-com era. Just like today people chased something that was never there. At least the market indexes were a lot less overvalued then rather then todays’ markets. The P/E ratios today probably are about four times (in excess of two-hundred) what they were back in the dot-com era for the people who can actually fathom what’s going on in this era.

The P/E ratio for the S&P in 2000 was 44. Today it is 18.6. Stop making stats up. — Garth

#48 Mark W on 07.01.13 at 9:15 pm

“Third, get the hell out of Vancouver.”

Say that openly in this city and watch the locusts of public opinion rain down hellfire on you infidel.

You have not been drinkin’ the Vancouver Kool Aid.

“The Best Place on Earth” so the license plates say.

Vancouver is the best place in Canada to live they are forever telling us.

The rest of Canada is cold winters and bugs everywhere.

There is nothing worth knowing about east of the Rockies.

We are forever being told this in Lotusland (trademark pending).

Get the hell out of Vancouver …. sacrilege …. if they could burn you at the stake in Vancouver they would do it.

Drink the Kool Aid …. drink it up!

#49 Tony on 07.01.13 at 9:24 pm

Re: #45 Dean Mason on 07.01.13 at 9:03 pm

Looking forward to the future your friend will probably end up just like the guy who blew almost all his money in the dot-com era. Anyone with that kind of money in Canadian bank shares is just begging to go broke.

#50 Vangrrl on 07.01.13 at 9:28 pm

#20 and #48:
SO true!! :)

#51 Raj on 07.01.13 at 9:29 pm

Great post any advies ons moving out of toronto if sombody working in downtown toronto

#52 Dean Mason on 07.01.13 at 9:31 pm

Garth,why would they dump government bonds yielding 5.10% to 5.30%. In 2007,30 year U.S. bonds hit 5.55% and then dropped again.In Canada,the most government bonds were yielding was 5.30%. We will be lucky to reach that again in the next 4-5 years.

Insufficient yield, taxed as interest, due for capital loss if sold. — Garth

#53 keep drinking the cool aid on 07.01.13 at 9:47 pm

The P/E ratio for the S&P in 2000 was 44. Today it is 18.6. Stop making stats up. — Garth
___________________________________________

so, you’re comparing today’s market to the dot com bubble and saying it’s not overvalued?

you don’t have a leg to stand on..

18.6 P/E is historically high. (http://www.multpl.com/)
the Shiller P/E (http://www.multpl.com/shiller-pe/)

worse yet, the dividend yield is a pathetic 2%
(http://www.multpl.com/s-p-500-dividend-yield/)

by all historical measures, this market needs to lose 50% before it becomes a buy…

I said the previous poster was lying. — Garth

#54 Mortgage B on 07.01.13 at 9:49 pm

The increase in mortgage rates and the decrease in the amortization to 25 years makes the last quarter of the year very interesting.
In 2009 the interest rate was about 3.65% with max amor rate of 35 years. Compare that today to 3.39% with an amor rate of 25 year that’s loss of 15% purchasing power.
Those who are renewing mortgages this year are getting lower rates however if you project it over the next five years it appears that they will be renewing at a higher rate

#55 Dean Mason on 07.01.13 at 9:55 pm

#28 A.K.

In 2000,the Dow Jones reached 11,300 and if the Dow Jones hit 30,000 in 2023 that is 23 years later.This is 4.33% annual compounded return.Yes,you will get dividends too but in 2000 long term U.S. 30 year bonds were 6.74% and U.S. 30 year strips were 6.94%.

The Dow Jones would need to be 52,881 in 2023 and 84,583 in 2030 with all dividends reinvested as well.

#56 Ford Prefect on 07.01.13 at 9:59 pm

Quite funny the dot com meltdown. It was obvious that it was a bubble – prices were being determined by number of hits on sites, not earnings. I never could understand the appeal but the price of oil etc. was at ridiculously low prices then, around $10 a barrel. That I could understand – it was going to go up big time. So I bought lots, along with railways -easy on energy, a real bonus when oil prices rise. Have never looked back. So obvious and yet so hard to see for the Johns of the world.

#57 Bad attitude — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer on 07.01.13 at 10:01 pm

[…] via Bad attitude — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#58 AK on 07.01.13 at 10:03 pm

#43 Mikey the Realtor on 07.01.13 at 8:55 pm
#40 AK on 07.01.13 at 8:36 pm

Another Moron calling for a $10,000,00 Gold
————————————————

“Don’t be so harsh, you already embarrassed yourself once tonight by posting some nonsense about DOW at 30k .”

——————————————————————–
The truth hurts, hey Mikey.

Having said that, there is a brain between your ears. Now put it into good use instead of throwing insults.

#59 Dean Mason on 07.01.13 at 10:13 pm

Only an idiot would sell a 5.10% and 5.30% yields government bonds.In order to have a big capital loss yields would have to be much higher than 5.30%. Are you saying we going back to 6%-7% yields like in 2000?

Individual government bonds have the advantage of holding them to maturity so no principal or capital losses occur.The the same pattern in the bond market will happen as 2004,2007,2010 were 5.00% to 5.50% yields peak and drop again to lower bond yields.

As for income taxes,$100,000 split between TFSA’s interest income tax excluded and some dividend income from Canadian bank shares they will have tops $35,000 each as fully reportable income. This leaves them $15,000 each as only taxable after personal amounts for a total $6,700 in total annual income taxes or 6.70% of $100,000.

#60 Dean Mason on 07.01.13 at 10:17 pm

To Tony #49

They have a $250,000 term life insurance policy that will cover them until 2033 if all their shares go to zero.This is not going to happen,a 50% drop is possible but as we just seen they have mostly recovered plus dividends paid.

#61 Donald Trump on 07.01.13 at 10:23 pm

Garths new mantra should be “Never bet against Vancouver”,……….( and pssttt quit taking cash from Warren Buffet to pump the USA).

I hear from a very unreliable source that COV Clowncil will raise the minumim wage to $50 /hour and freeze housing prices.

#62 detalumis on 07.01.13 at 10:33 pm

#45 I know people like your Chrysler friend, some of my parents’ friends were the same. It’s a certain Eastern European immigrant trait. I have a neighbour the same, she rides a rusted old bicycle to her job as a senior in-home diaper-changer and they own not 1 but 2 houses worth at least 1.4 million (both falling apart because they don’t spend a dime on repairs), that’s land value here. The fire department is called when their chimney catches fire from burning wood they salvage from the garbage. Their sole goal in life is accumulating money, not spending it, not enjoying it, their kids will do that for them when they die.

What exactly would be the point in having 2 million at age 60, when you just spent many years living on less than 3,000 a month you certainly would not all of a sudden do a 180 and spend any of it. It just piles up, maybe you get a better LTC bed when you have dementia or maybe not.

#63 Dean Mason on 07.01.13 at 10:40 pm

The total income taxes when they are both 60 years old is actually $9,600 or 9.6% of $100,000.This is because they are not eligible for any of the age amount which is at 65 years old.

The $6,700 total annual income taxes is when they are 65 years old and they are eligible for the age amount.This is why they are paying 6.70% of $100,000.It does not matter which way you look at it, 6.70% or 9.60% it is a low income tax rate.

Once you have no debts and lower expenses not being paid to go to work like extra gas,repairs and depreciation of a vehicle,clothing,C.P.P.,E.I.,union dues if applicable etc. it is much easier to save much more money.They estimated that they will be able to save $55,200 a year or $4,600 a month easily.

This is about double what they can save today.

#64 Rawd on 07.01.13 at 10:44 pm

#17 not 1st on 07.01.13 at 6:52 pm

Well put, if you’re not smart enough to save, maybe you shouldn’t be teaching in the first place. Hard to feel sorry for this guy at all. I’m 29 and have 50K in my RRSP, so this guy should have much more than that.

#65 Hellforabasement on 07.01.13 at 10:45 pm

#44 bubble boy.
Wrong, stock options are not taxed as income.

#66 Devore on 07.01.13 at 11:08 pm

#17 not 1st

Exercising options is just another word for leaving others holding the bag.

You clearly know nothing of which you speak, as usual.

When you exercise an option, you receive a share, at a pre-set price, as long as certain conditions are met (such as share price, vesting period). Unexercised options just poof. At the end of the day, you have shares in a company, how is that leaving someone holding the bag?

Many average people who receive options sell their shares upon exercising the options, because Revenue Canada taxes the difference between exercise price and share price, which can add up to much more than a person might be willing to spend out of pocket.

If you have never received options before, that is fine, but there is no need for this kind of attitude.

#67 Westcdn on 07.01.13 at 11:14 pm

Pecunia, si uti scis, ancilla est; si nescis, domina. Acta deos numquam mortalia fallunt (latin)
Roughly translates as “learn to manage money and it becomes your slave, otherwise money becomes your master”. I am no expert but I believe the statement comes from Roman times slightly before their collapse. In my mind, it points out the importance of managing credit/debt and it is not a new problem. In my youth, many boomers spoke against the establishment. I suspect we boomers must drop promises made to us over the last 30 years in order to give new generations a better future. I can’t help notice the last 30 years involved cheaper money by the year – to me, it was a process of taking from the future to pay for the present.
I see people taking on 1m$ mortgages. If you try to pay it off in 30 years, you must reduce the principal by 33k$ per year (after tax). Obviously many people don’t intent to pay the debt and hope to flip the property to a greater fool at a profit – good luck to the average Joe, may interest rates stay low, your income grow and deflation never show.
I can’t let the Edward Snowden story go without comment. “What webs we weave when we seek to deceive” – Shakespeare. I am stunned by the number of people who are okay with spying because “I have nothing to hide”. I suspect many want a nanny state from cradle to grave and will forgive “whatever it takes” to find and punish bad people. I certainly don’t want to wear the bad label these days. Is there a sociopath pill somewhere?

#68 I see on 07.01.13 at 11:21 pm

$32.36 for this book!??!! No wonder he became a billionaire!

#69 Cory on 07.01.13 at 11:22 pm

Garth, you always hammer on mutual funds and I agree with you, most are overpriced garbage and charge ridiculous fees. However, you have quoted Dennis Mitchell from Sentry on your blog so you must read his commentary and respect his abilities? His REIT fund is the only mutual I own and have ever owned. I’ve watched him for years on BNN before buying because I think he absolutely knows his stuff.

#70 Mr. Anderson on 07.01.13 at 11:30 pm

#37 Macduff….hindsight is a wonderful thing.

#71 JSS on 07.01.13 at 11:42 pm

Garth – What is an entrepreneur? Would someone who owns an RV parking and storage yard be considered an ‘entrepreneur’?

#72 Donald Trump on 07.01.13 at 11:51 pm

Britain’s Bad Housing

http://topdocumentaryfilms.com/britains-bad-housing/

Earlier this month, Prime Minister Gordon Brown placed housing firmly at the top of the government’s agenda, unveiling plans to build three million homes by 2020 – possibly the biggest building programme in Britain for 30 years.

But in this edition of Dispatches, reporter Andrew Gilligan investigates the private house builders charged with solving Britain’s chronic housing shortage.

Gilligan raises serious concerns about the way in which house-builders currently operate. He exposes the business tactics which are used to manipulate the planning process, questions the quality of houses and shows how public authorities have allowed developers control over housing policy.

Gilligan uncovers the underhand ways in which some developers seek to gain planning permission. He reveals the dirty tricks used by one lobbying company on behalf of a developer in London to influence the local planning committee and discovers cases where developers have made donations to local political parties which control the planning committees – around the same time their applications for profitable developments are being considered.

With housing in three-quarters of the country now too expensive for first-time buyers, Gilligan examines one of the government’s key solutions to the astronomical pricing – building more ‘affordable’ homes.

But he discovers that previous attempts to build cheap, good quality homes in the past have failed dismally with prices for flagship schemes inflating by more than three times the original target price.

===================================

Sound globally familiar?

#73 Kurt on 07.01.13 at 11:51 pm

John’s biggest mistake was pissing away $500,000. His second biggest mistake was staying in Vancouver. Leave. Now. I did, it was the best decision I ever made.

#74 Mister Obvious on 07.02.13 at 12:47 am

#30 timmy

“Get out of Vancouver and move to where? Toronto? “
—————————

Nope. North Surrey.

#75 TRON on 07.02.13 at 12:50 am

No doubt Vancouver is expensive and if it were not a good place to live then people would move I guess. But they don’t and put up with the things that suck like most people do in every city.

I moved here from Montreal in ’75 and enjoy going back for a visit now and then.

You need to live here to decide you don’t want to live anywhere else and people who just visit have no idea how nice of a place it is to live.

I lived on a nice street in east van for 10 years and had great neighbours from China, Italy, India, Scotland and Vietnam. Good families who cared about their kids and their neighbourhood.

Before easterners start talking trash about Vancouver they need to have a look at their own cities. They should make sure they do it from a tall building; it’s a bitch not having any mountains to down from:)

To my friends in Quebec…HAPPY CANADA DAY!

#76 Kalergie on 07.02.13 at 1:16 am

I’m a 30 year old immigrant from Europe. My other half is also from a former communist country and the story in post #45 is what every new Canadian is dreaming of. A real CANada-do attitude! :)

As for John, where is his wife in this? I am sensing tension at home. Is his wife making him feel bad about losing the million? If she is not bringing home a pay-check, she should at least strengthen and support him to return to what he did to make the million. Behind every strong man, there is a strong wife! Maybe a wife’s attitude adjustment would be a number 9 in your list of recommendations.

#77 a prairie dawg on 07.02.13 at 1:35 am

re: blowing each other up

Well my neighborhood put on a good impromptu fireworks show for Canada Day.

I was just dragging all my stuff outside (including my fire extinguisher) to get setup, when a neighbor a few doors down started his backyard barrage. lol Showing good Canadian cooperation, I waited for a pause before setting off a few of mine. He took the cue and started to do the same. We’d alternate to give the other a chance to get setup. A few others within a block or so joined in, and we had a small war zone here for about 25 minutes. (except with people randomly cheering and lots of dogs barking) lol

At one point I heard a neighbor lady a few doors down exclaim, “Holy Shit, they’re everywhere.” It made me laugh.

O Canada! ;)

#78 Gord In Vancouver on 07.02.13 at 2:08 am

Vancouver Hypocrites

Interesting – the same people who used to call renters losers, second class citizens, and money wasters are now telling John that it’s perfectly OK to rent in Vancouver.

#79 NFN_NLN on 07.02.13 at 2:12 am

#46 brainsail on 07.01.13 at 9:04 pm

“First Person: I Nearly Lost My Home Because I’m Bad at Math”

“With my first home purchase as a single woman…”

Comedy gold…

#80 Captian and Mrs Slow on 07.02.13 at 2:40 am

Dude surf right over to MMM Mr Money Mustache he deals with this situations all the time

Mr Money Mustache

#81 Buy? Curious? on 07.02.13 at 2:49 am

Garth, tell the dude to stay exactly where he is. If BC turns into some kind Stupid Area, keep them in one spot separated by mountains, we could encourage more to stupid to move over there. Think about how easy it is, just come up with a catchy line and watch the stupid people’s eyes light up. “Best place on earth!” Really? Didn’t they host the olympics? Yeah, that’s right. I almost forgot about it. It’s rain, rain, rain.

http://www.youtube.com/watch?v=wKymckf5lgs

#82 ozu on 07.02.13 at 3:01 am

Did you buy this Garth,
http://news.nationalpost.com/2013/06/04/ten-things-you-should-know-about-the-near-record-breaking-25m-condo-sale-in-vancouver/

$25M condo in Vancouver
$68,063 in annual taxes

#83 Jane54 on 07.02.13 at 3:10 am

John get out of town and get out of Canada.

Read all the academic jobs worldwide in either the Higher Education Chronicle of the Times Higher. Hit either website. Go onto the websites that specialise in the global teaching market.

Most offer more money than you are on right now, with free accommodation and private schooling for children. Education is an easy way to live the ex-pat lifestyle.

Vietnam is a hot one right now. Look forward and not back.

Garth it is true that by expecting such huge holdings from relatively young people you can inadvertently make folk feel down on themselves! The key to financial redemption is understanding where you went wrong, learning from it and then moving forward rather than in this case the navel gazing.

John – everyone got burned in the dotcom crash, this was the nature of the beast. Lessons learned.

#84 bigrider on 07.02.13 at 6:57 am

#27- Garth to Bigrider-“You must own mutual funds. That would explain it”

LMAO.

I own financial assets. That’s what explains it.

#85 Mikey the Realtor on 07.02.13 at 7:23 am

#58 AK on 07.01.13 at 10:03 pm
The truth hurts, hey Mikey.

Having said that, there is a brain between your ears. Now put it into good use instead of throwing insults.

—————————————————–

haha, you must be a comedian, you throw out more insults then anyone else…roflmaof

I guess the dow prediction conformed with your interests while the gold prediction did not, dont get bent AK, mommy will make it ok.

Goto go, I have appointments set up for viewings, I’ll be back to check the daily rhetoric later on.

#86 Victor V on 07.02.13 at 7:43 am

Prognosis grim for Toronto condo investors

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/prognosis-grim-for-toronto-condo-investors/article12911613/

Based on a 3.05 per cent mortgage rate, a five-year fixed mortgage with 20 per cent down-payment and 25-year amortization period requires a payment of $1,265 per month or $15,187 a year on an average condo, a 7-per-cent increase from just one month ago. Monthly maintenance, including utilities, will set the investor back conservatively $4,000 per year on a one-bedroom downtown condo. Take another $2,600 per month off for real estate and income taxes.

All that is left is $535 per year, for a net rental yield of 0.16 per cent. And a repair or a paint job could wipe out that profit in a flash.

The question becomes, why would an investor take on the risk of owning a condo for virtually no annual return?

The answer: They are not. Even before rates began to spike in May, Toronto condo sales were flagging, with sales down a whopping 55 per cent in the first quarter of 2013 versus a year ago. Diminished affordability was no doubt a contributor to the sales slump as the market felt the pinch from the new regulations requiring a shortened amortization period – the equivalent of a 100-basis-point increase in the five-year mortgage rate.

#87 Onthesidelines on 07.02.13 at 7:46 am

#52Dean Mason on 07.01.13 at 9:31 pm
“Garth,why would they dump government bonds yielding 5.10% to 5.30%.|

“Insufficient yield, taxed as interest, due for capital loss if sold. — Garth”

They’re in their fifties, are holding close to a half mil in bullet proof risk-free government bonds yeilding more than 5% and you tell them to sell?

You lost me completely here.

A yield of 5%, taxed as income, minus inflation, equals less than a GIC. Some investment. Plus as rates rise in future the bond will lose the capital gain it accured as rates fell. Unwise. — Garth

#88 Ret on 07.02.13 at 7:56 am

Does anyone have a link to Canadian strip bond daily/ weekly valuations? Are they still being issued? Is there a secondary market? Liquidity issues?

I want to track yields/prices to get a sense of what’s happening in this market with interest rate changes.

#89 TurnerNation on 07.02.13 at 7:57 am

Just saw this on Bloomberg’s page. A familiar situation?

About a third of Hong Kong’s property agents may lose their jobs over the next year if the government persists with its real estate curbs, according to realtor Midland Holdings Ltd. (1200)

Home prices have more than doubled since early 2009 on an influx of mainland Chinese buyers, near record-low interest rates and a lack of new supply, prompting the government to introduce a raft of measures to quell concerns of an asset bubble.

http://www.bloomberg.com/news/2013-07-02/hong-kong-property-agents-may-lose-jobs-on-curbs-midland-says.html

#90 T.O. Bubble Boy on 07.02.13 at 8:08 am

#65 Hellforabasement on 07.01.13 at 10:45 pm
#44 bubble boy.
Wrong, stock options are not taxed as income.
———-
Granting a stock option – sure…. But when an employee exercises & sells stock options, that is a form of employment income:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/fnncl/scrty/stckpt01-eng.html

#91 Kent on 07.02.13 at 8:45 am

#82 Jane54

I want to move to Uruguay but my wife isn’t too keen. Might help if one of us could speak spanish.

#92 jess on 07.02.13 at 9:23 am

asian faces adorn the web page
http://www.rent2owncanada.ca/

cbc.ca has a story regarding this company and the multiple law suits.

#93 Calgary Rip Off on 07.02.13 at 10:26 am

Here is a reality check to that person that sent you his complaints about mismanaging his time and money. First, how did he spend 1 million dollars? Two, why did he wait until age 44 to have a child?

I dont understand modern society. At no time in history has so much been available: Clean drinking water, refrigeration, medications, vitamins, warm housing, clean clothes, soap, the list goes on and on.

And the majority of the population around today would be dead and long gone if the above had not been invented. The so called “problems” of today’s society are nonsense. No longer do you have to worry about clean food, soap, and drinking water. Those problems have been solved. But here are people like the dot.com idiot above who dont know what is valuable.

Think about it: So much free time to not have to deal with mundane things such as soap and water.

Every day I live like a KING: Plenty of fresh food(thanks refrigeration and shipping), secure dwelling, well paying job, vehicle that runs(no horse required).

Most of the so called problems that the majority think are problems are not problems but selected issues to focus on because the real problems dont exist. Try moving to India where in some parts you can get very very sick, or the middle of Siberia in the winter. Then you can say you have real problems.

People like the dot.com moron above need to be eliminated from the gene pool.

#94 Onthesidelines on 07.02.13 at 10:28 am

“A yield of 5%, taxed as income, minus inflation, equals less than a GIC. Some investment. Plus as rates rise in future the bond will lose the capital gain it accured as rates fell. Unwise. — Garth”

You still lost me. Average taxes on the 25K interest income would be 10.5% or $2,600. Big deal. They’re still walking away with over $22,000 or 4.5% interest from a no-brainer, risk free investment. How that is worse than a GIC which (like all income) is also subject to inflation is beyond me. Better still, maybe they could park such investments into one of those TFSA accounts you’re always talking up.

What would you suggest as an alternative? An ETF or REIT or Preffereds…all of which come with 99% more risk than the government bonds? And for what…. a measly half or full % point more in income?

Lousy advice, methinks.

Learn the tax code. Then learn bond risk. — Garth

#95 Toronto Condos Set To Crash on 07.02.13 at 10:30 am

Condos set to crash and crash hard!

Prognosis grim for Toronto condo investors

Warren Buffet is fond of saying that “you never know who is swimming naked until the tide goes out.” Well, when interest rates start to climb, Toronto’s condominium investors may be about to get a lesson in the perils of swimming in the buff.

Bond yields worldwide jumped in recent weeks as the Federal Reserve hinted its bond-buying program could soon begin to wind down. The Canadian bond market has not been immune to this force, with 5-year government bond yields up from 1.33 per cent five weeks ago to 1.84 per cent last week.
Ten-year yields are up 80 basis points over the same short time span. (A basis point is 1/100th of a percentage point.) Posted mortgage rates in Canada have moved higher in lock-step, with the cheapest five-year fixed mortgage rate up 65 basis points over the same period, putting it back above 3 per cent.

This puts significant pressure on Toronto condo investors. Yet a recent blog post on Urbanation, a website that tracks Toronto’s condo market, touted the invest-to-rent option – presumably because the previously popular invest-to-flip option is no longer profitable – noting that the average rent for a Toronto condo is now $1,856, handsomely up 10 per cent from two years ago.

Based on the average condo sale price of about $330,000, this appears to be a healthy rental yield of 6.7 per cent – on the surface, it’s a tidy sum compared to the low-risk option of parking money in a “return-free” savings account at a chartered bank. What the report failed to mention, however, were the carrying costs.

So, here are the sober math facts of the net rental yield. Interestingly, banks do not charge a premium for an investment-property mortgage (under a puzzling assumption that there is no added default risk to investment properties versus owner-occupied purchases) so the posted rates apply to an investor.

Based on a 3.05 per cent mortgage rate, a five-year fixed mortgage with 20 per cent down-payment and 25-year amortization period requires a payment of $1,265 per month or $15,187 a year on an average condo, a 7-per-cent increase from just one month ago. Monthly maintenance, including utilities, will set the investor back conservatively $4,000 per year on a one-bedroom downtown condo. Take another $2,600 per month off for real estate and income taxes.
All that is left is $535 per year, for a net rental yield of 0.16 per cent. And a repair or a paint job could wipe out that profit in a flash.

The question becomes, why would an investor take on the risk of owning a condo for virtually no annual return?

The answer: They are not. Even before rates began to spike in May, Toronto condo sales were flagging, with sales down a whopping 55 per cent in the first quarter of 2013 versus a year ago. Diminished affordability was no doubt a contributor to the sales slump as the market felt the pinch from the new regulations requiring a shortened amortization period – the equivalent of a 100-basis-point increase in the five-year mortgage rate.

However, potential buyers are also worried about a price correction. Price gains in the condo market were a skimpy 1.2 per cent in May, which is a far cry from the 10-per-cent-plus returns investors had come to expect before the federal government’s mortgage crackdown. Double-digit returns made condo purchases worth the risk; 1 per cent annual returns, not so much.

Added to the reduced affordability and flagging price expectations that have beaten down demand is that builders are using flawed demand projections. Urbanation cites the latest household formation number for Toronto of 34,000 units per year, according to the Census published by Statistics Canada, as the expected annual sales figure for condominiums.

The problem is that – at best – only half of those households are interested in high-rise living. According to the same Census report, the true household formation rate for condo demand is 17,000. This 50/50 split between single-family households and multi-unit dwellers has not changed in Toronto in the past 10 years. As such, the often-heard argument that shifting demographics will absorb this excess inventory does not stand up to the facts.

With these facts in mind, the pipeline of condo construction becomes much more daunting. Condominium builders completed 17,000 units in the past year, yet still have more than 50,000 units under construction. As such, the facts are that builders are sitting on more than three years’ supply at a time when it will only take another 50 basis point rise in mortgage rates to put a rental investor into a position of negative carrying costs.

From oversupply, to reduced price expectations, to surging mortgage rates, the Toronto condo market is feeling the squeeze from all sides now. Here’s hoping the spike in mortgage rates is short-lived.

Sheryl King is an independent macroeconomic strategist with more than 20 years experience in the international financial industry and central banking.

Economy Lab delves into the forces that shape Canadians’ standard of living. Find it at tgam.ca/economylab, or follow it on Twitter via @Economy_Lab
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/prognosis-grim-for-toronto-condo-investors/article12911613/

#96 Nemesis on 07.02.13 at 10:38 am

@Jess/#91… et al

Warning – Don’tClickThrough: there be ‘CreepyCrawlies’ slumbering on that URL – Exploit JavaScript Obfuscation [type 156] Port:80 synattack…

[I’ll bet SmokingMan knows how to deal with those!]

#97 Bucky on 07.02.13 at 10:41 am

#45, 62
An old highschool teacher of mine is in the same boat, her family immigrated from Germany just after WW2, still has the first dollar she earned. Failing now and won’t/can’t take care of herself, has enough money to hire a caregiver but refuses to spend the money, no close family left.

Sigh, flip side of the no savings generation. Every financial book should include a sidenote on the dangers of hoarding.

#98 Grantmi on 07.02.13 at 10:53 am

#73 Kurt on 07.01.13 at 11:51 pm

John’s biggest mistake was pissing away $500,000. His second biggest mistake was staying in Vancouver. Leave. Now. I did, it was the best decision I ever made.

And where did you move to?

#99 Katie on 07.02.13 at 10:56 am

I don’t think he mentioned his wife was unemployed – why do you assume she is?

Preschool child and no mention of other income. Reasonable assumption. — Garth

#100 dienekes on 07.02.13 at 11:22 am

Hurry up Gold Bugs, buy Barrick now.

#101 Old Man on 07.02.13 at 11:36 am

#95 Nemesis – There is a link in this room that I clicked on, and my Microsoft Essentials sent me a message for investigation. This was a first, as they wanted me to click send to Microsoft, as it was being flagged for an analysis.

#102 Old Man on 07.02.13 at 11:47 am

I checked my log and it was called: Exploit Java/CVE-2012-4681 (SEVERE).

#103 T.O. Bubble Boy on 07.02.13 at 11:48 am

@ #94 Toronto Condos Set To Crash on 07.02.13 at 10:30 am
Condos set to crash and crash hard!
….
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/prognosis-grim-for-toronto-condo-investors/article12911613/
______________________

Funny, I just saw Mr. Toronto Condo (Brad J Lamb) driving a new $250k Mercedes:
http://www.mercedes-benz.ca/content/canada/mpc/mpc_canada_website/en/home_mpc/passengercars/home/new_cars/models/sls_amg/c197.flash.html

I guess he couldn’t be seen in a 3-yr-old Bentley anymore?

#104 Smartalox on 07.02.13 at 11:54 am

Having worked at a few tech boom companies, including two in Vancouver, I can tell you that a 30 year old “VP of R&D” cashing in a million dollars worth of options at the height of the tech boom, has more to do with being in the right place at the right time, and the greed of IPO bankers than any real ability to create value.

Like the latter day, real-estate millionaires, who attribute their windfall to their eminent skill or wisdom, these instant tech millionaires thought it was easy, that they could repeat their feats and sustain their wealth. Twas ever thus in Vancouver, first it was penny stocks, then the tech boom, now real estate.

It’ll be interesting to see what the next scheme for unearned wealth will be.

#105 Kate on 07.02.13 at 12:29 pm

John, all you described are not problems. You guys in Canada do not know what the real problems are.

Best of luck.

#106 retired Boomer - WI on 07.02.13 at 12:31 pm

#103 “It’ll be interesting to see what the next scheme for unearned wealth will be.”

It’s always interesting, and there seems to be a never ending supply of suckers just waiting to give their cash over to an unbelievable story. Nothing AT ALL new in that is there?

P T Barnum said it best, but todays world might want a slight twist to his coinage:

“There’s a seeker born every minute.”

#107 Old Man on 07.02.13 at 1:10 pm

John indeed needs to move from Vancouver quickly, and begin to think out of the box with the skills that he has, and how best to use them to make some money; not just the money, but rather acquire a new vision. I say the big city environment is not his gig anymore, as too much competition with peeps that have substantial net savings and job positions.

John must start over by looking for something unique in a smaller city environment, whereby, a demand exists for him to establish a business; teach part-time as a supply teacher; and set up a website for his wife to sell something at home on the web. The key to life today is identify a demand, and supply it without any competition.

I recently looked at a couple of guys who established a small home service computer business for customers; knew them both. They have gone international in the past 5 or 6 years, and was shocked by this all, so they now are receiving royalties or something. Now as for the wife know a home based business that she could run servicing an aging population, but cannot talk about this all.

John the sky is the limit with your skills, so start to think out of the box, and the key is always look for a demand and supply it; not in a major city center, but
somewhere in Canada with a smaller population and say no more than 100,000; perhaps look to the East.

#108 craig on 07.02.13 at 1:12 pm

Housing and gold have topped out and are trending south. We all know that.

So what stock or sector will be the “next one” to take off?

Thoughts?

#109 technik on 07.02.13 at 2:14 pm

food/agriculture

#110 TheCatFoodLady on 07.02.13 at 2:14 pm

Demographics give the long term answer. Medical services catering to aging boomers – ortho, cancer & cardiac treatment. REITs including nursing homes & seniors’ residences will be a growth industry for th next many years. Home based care of all types – from light housekeeping, meal prep, shopping & home maintenance should do well.

#111 Old Man on 07.02.13 at 2:36 pm

Well the RCMP have just disclosed a new terror plot to blow-up the B.C. Legislature in Victoria, and a couple of evil doers have been arrested. Just another reason for John to split from Vancouver. Canada Day has come and gone when Canada was a neutral country loved by all in the world, so what changed the equation? Then came in Caesar who in his perverted wisdom changed our foreign policy, and this is the result of a madman who has put us all in harms way. Caesar must go at the polls in the next election or all will be lost.

#112 spaceman on 07.02.13 at 2:38 pm

john, take a trip to India. these people live on scraps, and if they work, make less than a dollar a day.

Like you I had a lot of fun, blew a lot of money. But smartened my ass up late in life. Started saveing insteand of blowing it. Having some steady poontang helped, didn’t go to the bars anymore.

Also, there is a shitload of work in IT, but you have to find a niche, mine is networking, cisco to be exact. The net is still alive, and I believe we will all be amazed where it goes next.

Environmental Engineering and studies and Renewable Resources, are the next big occupations.

#113 Smoking Man on 07.02.13 at 2:49 pm

The Herd, sorry to report this bubble heads.

http://business.financialpost.com/2013/07/01/the-buyers-are-back-as-canadas-housing-market-defies-doomsayers/?__lsa=d090-f059

After a long cold spring that dampened house hunting, May sales of existing homes rose 3.6%, the biggest monthly gain in almost 2-1/2 years, returning the market almost to where it was before Canada’s Conservative government tightened lending rules in mid-2012 to stave off a housing bubble.

Interesting to see you believe everything you read in an article that quotes only real estate-friendly sources. — Garth

#114 Sebee on 07.02.13 at 3:00 pm

Blow each other up….you weren’t kidding Garth.

http://www.theglobeandmail.com/news/british-columbia/rcmp-to-announce-bc-terrorism-charges/article12917205/

What a mad mad world! In CANADA of all places!

#115 Donald Trump on 07.02.13 at 3:01 pm

#110 Old Man on 07.02.13 at 2:36 pm

Well the RCMP have just disclosed a new terror plot to blow-up the B.C. Legislature in Victoria, and a couple of evil doers have been arrested.
=================================

Yeah, its epidemic out here…

I just heard that a terrorist was caught trying to blow up a bus, but burnt his lips.

Thankfully, our health care system covers such incidents.

#116 craig on 07.02.13 at 3:18 pm

#109 TheCatFoodLady

good points and a good opportunity

Garth are you saying the ” May sales of existing homes rose 3.6%” is not true?

#117 Gary M on 07.02.13 at 3:41 pm

Is AK Garth’s alter ego?

#118 Smoking Man on 07.02.13 at 3:57 pm

Interesting to see you believe everything you read in an article that quotes only real estate-friendly sources. — Garth
……..
Garth you of all people should know by now, I’m not really conventional here, I don’t trust MSM on any topic, advertising and political agenda infomercials.

I only trust human fear and greed, I can spot that on any chart.

Typically as is the case with the Canadian real estate market, the curve has been a gentle assent. Usally, but not always a major correction take place when you get a huge spike in the chart braking the pattern as was the case with Arizona, Florida, Las Vegas…..

We will get a crash here make no mistake, but we need a huge rapid price raise before that can happen. Owners will attempt to take profit in mass, causing an over supply.

But they ain’t afraid of fix rates going up a bit. That won’t scare em…. To list in mass.

Just saying…..

#119 Mister Obvious on 07.02.13 at 4:05 pm

#103 Smartalox

There’s a lot of truth in your comment.

I was one of those ‘share optioned’ employees in the right place at the right time during the late nineties. I’m quite sure I was working hard and creating value but I’m also aware of the role that luck played for me.

—————————
#89 T.O. Bubble Boy

“…when an employee exercises & sells stock options, that is a form of employment income”

Absolutely. But what’s really sad is an employee who exercises options and then does not sell.

At that point they have converted profit into risk. I know people to whom this has happened. Even if the share value falls to zero you are fully taxed on the value at the time of exercise. A horrific outcome.

I suppose you could offset future capital gains with the loss, but still, who wants to get into a mess like that?

#120 frank le skank on 07.02.13 at 4:22 pm

#115 craig on 07.02.13 at 3:18 pm
I’m not sure what geography you’re referring to but RE sales in the GTA were down 6.16% in May 2013. That decline is compared to May 2012 unrevised numbers.

#121 Smoking Man on 07.02.13 at 4:34 pm

#113 Sebee on 07.02.13 at 3:00 pm

Tell you how that went down.

Couple of idiots chatting on line saying stupid shit, it gets picked up by CSIS

They get infiltrated and encouraged to do something then helped by the Infiltrator. Where as if left alone too stupid to do anything. They get busted as they should and Politicians pat them selves on the back.

And we end up losing more freedom and privacy…

It’s a viscous cycle…

#122 Timing is Everything on 07.02.13 at 4:58 pm

#114 Donald Trump

Hey, Fox newzzzz is on top of it with ‘recent’ AFP photo dated Nov. 16, 2001

‘Royal Canadian Mounted Police team keep watch from the roof of the Government Conference Center, November 16, 2001.’

http://tinyurl.com/nvrdm4o

I’m back on sno-cones. Wow.

#123 Canadian Watchdog on 07.02.13 at 4:58 pm

Congrats Canada! You made it to Bloomberg's chart of the day: 1 in 10 Canada Families Highly in Debt

#124 Smoking Man on 07.02.13 at 5:50 pm

Canadian watch dog.

Ya but notice it’s just debt, nerve show assets in the mix,

You think Canadians got it bad, look at these poor souls

Buddy just sent me this link, you serious
Roflmao pictures speak louder than words…

That’s hard times

http://www.news-journalonline.com/article/20130702/NEWS/130709957/1025?Title=5-Daytona-women-arrested-in-prostitution-sweep

#125 craig on 07.02.13 at 6:06 pm

The monthly U.S. labour report later this week, if it misses, watch out below. The projection is for 165,000 waitresses and drive through servers.

We’ll see.

#126 Devore on 07.02.13 at 6:06 pm

#121 Timing is Everything

Hey, Fox newzzzz is on top of it with ‘recent’ AFP photo dated Nov. 16, 2001

It’s stock photography. You may have heard of it? CBC uses them all the time, you know, budget cuts.

#127 Donald Trump on 07.02.13 at 6:12 pm

#121 Timing is Everything on 07.02.13 at 4:58 pm

========================

I don’t know what the big surprise is. Canada and especially BC is a hot bed for terrorists.

However the blessing is we have the case solved and accused charged before it even happens. This reminds me of movie “Minority Report”.

This and our gun laws helps me sleep safely at night.

#128 Devore on 07.02.13 at 6:14 pm

In other news, money renters who are bad at math much more likely to default.

http://blogs.discovermagazine.com/d-brief/2013/06/24/poor-math-skills-make-a-mortgage-default-more-likely/

People who have trouble figuring out the benefit of a 50% sale on a $300 sofa are 4-5 times more likely to default. Math and numerical ability is a better predictor of mortgage defaults than financial literacy, type of mortgage, IQ, type of employment, or nearly any other factor. Basic math skills.

Sure explains a few things around here.

#129 Donald Trump on 07.02.13 at 6:40 pm

True Story:

A guy worked in the Film Industry special effects.

Was talking to another guy on his cell phone about various upcoming shoots.(this was over 10 years ago)

Same guy is later approached by a couple of cops.

He says “whats up?”…and they say that the word” BOMB “was mentioned in his cell phone dialogues.

He explained that BOMB would be in reference to special effects explosions. Cops thanked him and left.

Hence these types of red- flag words are picked up by surveillance many aren’t even aware of.

#130 TurnerNation on 07.02.13 at 6:40 pm

Does it pass the smell test? Your own decision. But this time they have us thinking a group of ‘locals’ did it. So now we’re all suspects. Good thing they can spy on us.

Today’s daily t-t–terror alert brought to you by…

Canada can’t account for $3.1B in anti-terror funding, AG finds … – CBC
http://www.cbc.ca/…/pol-auditor-general-spring-report-federal-spending.html

Apr 30, 2013 – Canada can’t account for $3.1B in anti-terror funding, AG finds … Ferguson said he’s not concerned the money is missing, it’s the information …

#131 TurnerNation on 07.02.13 at 6:52 pm

A few more Bay St. layoffs today. Different firms. Paring as needed.

#132 D.D. Corkum on 07.02.13 at 6:54 pm

#8 Dennis on 07.01.13 at 5:46 pm

When withdrawing money from an RESP, you do not have to pay tax on the portion that is a return of contributions.

The remaining amount represents investment gains that have not yet been taxed, and these can be taxed in the name of a beneficiary who typically earns less income and thus pays a lower tax rate.

#133 TurnerNation on 07.02.13 at 7:36 pm

Smoking man just want to say…thinking for a sec…we’re told it was an “inert” device – made so, by the feds.
When a suspicious package is found it’s removed and destroyed. Are we to believe they risked their own lives and dismantled it, made inert, then reassembled and left at the building? All without detection? The feds I mean. To what end – our own fright?
Hardly. All I see is a bucket of rusty nails.
Show me how these kids obtained and designed anything at all.

#134 Dean Mason on 07.02.13 at 7:55 pm

To onthesidelines #93

I don’t know if you read my #59,#63 posts but I explained how much income taxes they will pay because they have some dividend income,TFSA income so really the most they can pay on $100,000 is $9,600 which is 9.60%. When they are 65,6.70% tax rate because of the age amounts.

Inflation at 2.50% $50,000 +income taxes $6,700-$100,000=$43,300/$2,000,000=2.165% net return.

GIC’s are maximum paying 2.60% after taxes,inflation they would be losing money -0.21% per year 2.50%+0.312%=2.821%.

If they earn 7.00%, only 20% is dividend income non-registered and 10% TFSA’s so 70% is all taxable as they are in RRSP’s,LIRA’s.They will not get dividend tax credit in TFSA’s,RRSP’s,TFSA’s.This means $140,000 in annual income leaves $70,000 fully taxable and $28,000 dividend income.

Using dividend tax credit,gross up dividend tax credit,personal amounts,age amounts all at 65 years old means they will pay $7,200 in annual income taxes.Inflation is another 2.50% $50,000+$7,200 income taxes=$57,200.$140,000-$57,200=$82,800/$2,000,000=4.14% net return.This 7.00% return comes with more risk,volatility and I do not know anyone in the last 13 years that achieved a 7.00% return every year.If one year you make 22% and than another year you lose 15% this will affect your tax calculations greatly and a retiree has to still depend on a 4.50% to 5.00% yields from bonds,REIT’s,etc.

It would also lead to a clawback of Old Age security the years your up much more than 7.00% return.

#135 Jas on 07.02.13 at 11:29 pm

When will the house prices come down in Surrey, BC? (They come by the plane loads from India and bring cash like HAM was from China). And jobs are nowhere to be seen…
Perhaps after all we do not need a maths prof. to balance this equation….it will take care of itself.

Garth, what %age of your stock market investment is cash at present?

#136 Denisa on 07.03.13 at 12:12 pm

Garth,
Man you know how to do someone…
Enjoyed the read.

#137 Steve on 07.03.13 at 4:56 pm

“If you have modest pension plan at the university, ask if you can commute it. By taking control of the contributions you will probably achieve far more growth than ultra-conservative pension administrators usually do. ”

For the record, the UBC pension plan is unusual. The employer contributions are more than double the employee’s, and the employee gets a lot of control over asset allocation. The faculty pension plan’s funds are well above the median for Canadian funds and outperforming composite indices. For example, 10-year returns of 8% and 11.2% for the balanced and Canadian equity funds. And that’s on top of the 219% return I get instantly from the employer contributions.

The stated aim of the UBC Faculty Pension Plan admins is that faculty retire with a pension income equal to their income before they retired, and they manage to do that most of the time. I’d say John’s pension isn’t his principal concern.

#138 Ken Nash on 07.04.13 at 5:58 pm

Thank you Garth Turner for the motivation. I own an equipment leasing company, the go to guy for dot coms back in the day. Table at Harbour 60 and a condo Front & George just because, in addition to my home and a rental property. My main funding source was in the World Trade Centre. Deals dropped from an average million a month to nothing for awhile my income from $30k a month income to 0. I had started investing at an early age around 22 and had a strong retirement plan. Used some of it carry my staff at $30k a month for year this was a mistake. Most of it is gone the past decade was a searing panini for me. There’s still a bit left so each brat gets $100k regardless when I die.

So where does Garth come in? First saw you on Allan Greg. Read your book and in 2008 sold my huge house on the Rouge Park. Moved to a modest bungalow within 300 meters of the Go Station which is a transit hub. It was in the book. Added bonus the brats want to go to the city take the train call me if your arrested.

In the fall of 2011 contacted an agent and told them wanted to sell the rental property in a hurry by April 2012 before the mortgage changes. The jerk sure got here fast enough to sign the listing and then it languished. Told me all the time real estate is fine your over reacting. I think the turd was trying the burn both ends of the candle. When the listing expired, missed the peak of the market I fired the dead beat. Why? I read your blog. Agent doesn’t perform fire him. Hired an new agent and had the place sold in a month and tenant out April of this year. Sigh of relief. The first laggard agent most likely cost me about $40k from the peak. The house was in Scarborough nice neighbourhood. I got $414 for a renovated home and the dump across the street with a tree leaning on it sold for $445 12 months before. Didn’t come as a surprise it was all in Garth’s blog.

Now I can get back to work. The kids are young adults and self reliant, no parents to care for investments mostly gone. Wanted to sell this one too a year ago and rent but the first fired agent screwed up. But we like the place so staying. I’m 57, single and dating sites leave me feeling stalked.

I crave being entrepreneurial.

Today you gave me encouragement Roy Thomson started his empire at 60. Good stuff I like working and some guys in the finance field are up there 80’s and one 90. They all know what day it is and current events. Unlike some can’t wait to retire at 55 and by 70 are asking where their puppy from when they where 6 has gone.

So thanks Garth you most likely saved me from losing another hundred thousand for sure. Next time I’m riding the Forks of Credit will make sure to drop by your place and buy something. If it’s still there.