You can’t write a pathetic blog every day (almost) without learning a few things. Like,
(a) Predicting is hard. Especially when it involves the future.
(b) Anonymous people bite harder than ones with names.
(c) We all love dogs. And hot women.
(d) Houses are not shelter any more. Or even investments. They’re obsessions.
(e) Lots of spouses despise me, but fortunately…
(f) I’m easy to ignore.
Jawal and his wife sat across the table from me this week, talking about how he wants to retire at age 58 (four years from now). They have no pensions, scant CPP earned, a combined income of $130,000, and a net worth of just over $1 million. Of that almost $800,000 is in real estate, and the rest in a couple of seg funds with bloated management fees and dismal returns that some buddy sold them.
We figured it out. No changes and they crater well before 70. “You need to use some of the equity in that property,” I said, “either by selling or borrowing against it.” Jawal gave me a sheepish grin and nodded to his wife, whose eyes were glued to the table. “She hates you,” he said. “So I brought her here to make her understand.”
An hour later she still hated me. More, actually. The reason was simple. Jawal and I viewed security as being life-long cash flow. She equated security with a debt-free house. The difference was too great to bridge. As I watched the elevator doors close behind them, I knew I’d never see them again. I’d failed.
So it’s easy to ignore people like me who warn against the pitfalls of a one-asset strategy. Why? Because everyone around you thinks the same. They see zero risk in having no balance or diversification and have never even tried to understand financial stuff. That’s the norm. It’s society’s common denominator. And it’s getting worse.
House-flogging Royal LePage did a survey the other day asking Millennials how they felt about maturing (sort of) into a society where houses have never cost more and the debt involved in getting one is epic. You can probably guess the results.
Millennials who ‘want a house’: 86%
Who think real estate today is a good investment: 80.3%
Millennials planning to buy soon: 55.1%
Planning to rent: 32.6%
Meanwhile mortgage insurer Genworth and Environics did a poll of the same confused generation (now generally 25-30 years old) and found that 55% of recent buyers in this age group ended up with a fully detached home, while 40% needed money from their parents for a down payment, and 39% worried afterwards that they couldn’t make ends meet. It makes you wonder what Boomer parents and their ingrained real estate bias are doing to their kids. Not only are they messing with their heads (peak real estate is a ‘good investment’) but also converting them from dependent children to debt slaves, in one easy leap.
By the way, about 23% of all the houses sold in Canada last year went to first-time buyers, who spent an average of just under $300,000. Almost 70% of them required CMHC insurance to swing the deal. Then eight out of ten signed up for a fixed-rate mortgage, which they will certainly be renewing at a far higher rate.
Now, I have nothing against owning real estate. Have some myself. But every time I see a 20-something salivating for a sterile condo or a slanty semi, I see a 60-something couple who risk running out of money before they run out of life. The odds of it happening have never been higher, given the inflated price of property and the depressed cost of money. It’s hard to imagine a worse moment to buy – with the certainty you’ll spend the next two decades in enough debt that saving’s impossible. Throw in a couple of kids, and your fate is sealed. The only salvation is if your house ends up being worth $4 million, like Vancity says. Fat chance.
So this blog won’t change anything. People will buy houses because everyone else is. They’ll teach their kids economic lessons that no longer apply. Most will fear what they don’t know, like financial markets, and then refuse to learn. We’re far more tribal than we think, and primarily ruled by emotion.
It will take a lot to teach people what security really is. But it’ll come.
Just don’t hate me. That would be pointless.
266 comments ↓
I feel kind of bad for Jawal, but he still needs to man up.
first! suckas!
Well this is depressing…
Only a mean spirit could hate the lovable and charismatic Garth…
But by the way, as far as point c) is concerned, some of us blog dogs (yes there are a few female readers) love cats and hot men!
Another great post…and so true. I think 80% of women are going to hate you. They are typically the ones who demand “security”. After all, only losers rent…
In regards to education – I would love to see a piece on “Getting Started”.
Rather than give my 19 year old $5,000 and co-signing his paper to help him into his own $100,000 condo…what about getting him started on his own investment portfolio?
Are the weightings the same? Do you go for riskier stuff? What kind of reading should he be doing?
The starting amount seems too piddly to interest a financial advisor of your stature…but I think today’s youth could benefit from a no-nonsense approach to “getting started”.
For that matter…maybe your getting started piece should be written for different age groups. There are an awful lot of 50 year old folks who haven’t got a dime saved. They would probably like to know if they have a hope, and what they need to do.
first!
Spring finally arrived today in Ottawa.
It is hopeless Garth. Even great returns on investments (over 65 thousand in her TFSA) won’t cure the desire for owning a home. I argued until I was blue in the face but still couldn’t convince my spouse that renting was a good option.
I’ve gotten over it. In the end if she’s happy then I am happy.
Yes agree especially if the house is paid off and they are mortgage free without any other investments. They should be borrowing against the house (tax deductible) to diversify into other forms of savings/investment (probably equity) that can provide cash flow. Worst case if the stock market goes down your losses are also tax deductible from past/future gains. The same does not hold true for a decline in the price of a principle residence.
Garth, you are right…
Why don’t we talk about investing… ETFs?
Why spend the time kicking a dead horse, why don’t we talk about how to make the most money investing?
I would love to discuss all the fine details of the balanced portfolios… Let’s talk about how to make the most money possible?
Smoking Man could share some half chapters and some money making FX trading porn wisdom – depending on the status of the JD bottle.
Let’s leave RE alone… long live making money.
Battle of the Ages
Mark late on yesterday’s post said:
The worker to retiree ratio is trending lower over time due to demographics, yet retirees own debt that ostensibly entitles them to an enormous amount of the output of the economy. It only seems logical that the retirees’ bond holdings will have to be devalued in order to satisfy the logical constraint that workers simply won’t work unless they are able to enjoy a substantial chunk of the fruits of their labour.
****************************************
That may be. Have you thought about the fact that the bonds may be financing the means of production, the factories , the infrastructure, the capital investments?
The wages of labour need to be paid, it’s true and labour will not be provided without a reasonable share of the output.
But the wages of capital also need to be paid and happen to be owned in good measure by retired people.
Capital (the entire installed infrastructure of the world)is increasingly important to the production of goods and services.
Are the young (those working) really supporting retires when the retirees own the capital means of production?
Is the dependency ratio completely bogus when it is recalled that the retirees OWN the production infrastructure?
Is a retiree that does not “work” but lives off the wages of capital really a dependent at all?
Have a field day responding, but remember your response will be opinion and not received wisdom so perhaps tone it that way.
First?
So if it’s the worst time to buy then it’s the best time to sell!
Maybe you’re looking at this backwards Garth. You should be congratulating people who took on ridiculous housing risk and have done great and encourage them to cash out now on top. Find them a greaterfool.
David #200,
“#197 Blacksheep
Couldn’t get past the 4 min mark. Germans had met little green men prior to WWII and said Germans were hired by the US after the war and then Area 51 happened with a UFO.”
——————————————
I thought ET went home?
As far as rocket scientists, here you go.
“Operation Paperclip (originally Operation Overcast) (1949–1990) was the Office of Strategic Services (OSS) program in which over 1,500 German scientists, technicians, and engineers from Nazi Germany and other foreign countries were brought to the United States for employment in the aftermath of World War II.”
http://en.wikipedia.org/wiki/Operation_Paperclip
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SWL # 208,
“#197 Blacksheep – The major point you are missing with the banks is about the interest they charge.”
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Not missing anything, because he wasn’t incorrect on the ponzi nature of banking.
Been discussing this stuff for a long time and not every body believes, the “chicken little” approach is the best format when one is attempting to spread truth.
I found many other faults with his video, but only commented on the one, I’m 100% sure is false and very damming to his credibility.
I commend him for taking the risk and believe he’s on the right track, he just needs to reign it in a bit (find a handler and focus on what he can prove) so he has a shot being accepted by a wider audience.
Unfortunately many will see him, as just some crazy old guy. His time spent in government, is not enough.
No hate here. My better half and I think you rock, Garth.
I hope Jawal’s wife is also pulling in an income, so he’s not alone in dragging himself to work years later than he’d hoped.
His wife has him by the balls. She will retire nicely as long as Jawal can make ends meet for her. When Jawal is no longer able to work, she will get a HELOC or reverse mortgage and keep paying someone to fix the 35yr old appliances.
Why are people so hung up on their real estate and the place where they happen to live? BC’s Lower Mainland has changed dramatically over 20 years to the extent, that it is neither affordable nor attractive to live here.
The world certainly doesn’t revolve around Vancouver and there is an entire world out there with affordable and attractive options.
Great post.
Seems like there are two realities, one for those that agree there is a bubble and one for those in denial. Either way, there’s still a bubble.
I’m one of those in the 25-30 age range. Of course id love to buy a house for a modest $300k in O Town but couldnt afford anything else after lie starting a family. A lot of my friends are in the same boat putting off these kinds of decisions / life events.
I hope things improve soon.
I love you garth! Most people just hate the messenger, that’s all
Funny # 212,
“Are you suggesting that for every Dollar loaned out, there is a Dollar in the bank’s vaults? LOL”
No, that’s Mark shtick.
“What’s the ratio now? 10 Dollars loaned out for every 1 Dollar in deposits (cash and equivalent)? Who knows, who cares anymore?”
All the commercial bank needs is a customers willingness to sign on the dotted line.
Fractional lending is a distraction, at least in canada as there is no ratio required to be held. You must have missed all the money creation discussion this weekend.
May I suggest you read this BOE pdf so you can tell when Marks lying…again.
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
The hope is West Texas OIL at $50 has found a floor but with natural gas at $2.50 BTU and a very easy and cheap substitute for oil; this is the opportunity the oil patch knows won’t last.
Like Jim Morrison crooned: Riders on the Storm
Hell hath no fury like a woman scorned… or told she is wrong.
As usual, a good sypnosis of the situation. I find a few things astonishing, from my 35,000 foot view of the situation:
1) It is very abnormal that 70% of the buying population requires a government subsidized program to buy. What does that really say about Canada’s economy, and our so-called “market” economy, when government runs such a pervasive program of effectively price fixing mortgage debt?
2) Incredibly few people have a longer-term view. Almost no financial advisor giving advice today was in the business 1960-1980 when the fixed income market was destroyed, and bonds destroyed value for their investors. The ones who do exist today, not only do they not have experience with that era, but many actually believe that a return to such circumstances is impossible.
Likewise, the other type of monetary instability, deflation, is equally misunderstood amongst the investing public.
3) Its very hard to challenge people with facts and numbers. Especially if they’ve spent most of their lifetime shielded from the raw reality of it. People like me can explain that you get roughly 3X-4X as much value from a common stock portfolio, as you do a contemporary RE portfolio. We can back it up with numbers and facts. Yet for some reason, the math is dismissed and they go buy the RE instead. Yes, we can say, “I told you so” a few years later when it all blows up in their face, but pretty hard to make many friends that way.
So what you are saying, is that it really is different here?
Oh sweet vindication
I actually bite hard either way…
And SM – don’t get carried away or I will start commenting on your nom de plume… ;-)
Item c) is bang on !!!!!!! The rest, well, are easy to ignore …
Are there examples of where large price movements end up becoming the new normal in RE or other markets??? NY is insanely priced… Did it happen gradually (incrementally grew at a slightly faster rate than other places) or did it hit a certain period and radiator surge and then container to grow more incrementally?
Strange. #16 is David W. I’m David W and retired. Is there an imposter here?
My sister in law got 20 grand from her parents to get a 215,000 townhome in Suburban Ottawa on 50,000 in income
Year later and she’s complaining:
why would the bank give me that much of a mortgage? I can’t afford to do anything! Why didn’t they tell me before I bought?
Sad……
“That may be. Have you thought about the fact that the bonds may be financing the means of production, the factories , the infrastructure, the capital investments?”
Of course Shawn. No doubt about it. There’s nothing wrong with bonds, especially if they are used for these purposes. But debt that is issued to prop up the value of assets which have long been depreciated is the debt that is particularly problematic.
In the context of RE, we see many families out there who, perhaps 20 years ago, bought a house for $200k, and now have a $400k mortgage against it. Was the extra $200k in debt and the asset appreciation real? Or is it just an example of the excesses in debt expansion? What happens to this family when the other side of the debt cycle is seen? Almost equally as important is what happens to the investors who made the additional loans on the belief of ‘appreciation’, and in speculation that debt could continue to expand at a rate much faster than the rate of growth in the productivity of the economy? Seems to me that both RE owners, and bond investors will have to live with the reality that there are limits to how much of the economy’s output they can commandeer!
As for your last comment about claiming some sort of ‘wisdom’ — I have never claimed anything of the sort, and always invite people to verify anything I say with other sources. I don’t view myself as a primary source, and nobody should either. Everything I say can be independently verified through deference to the facts of the situation.
I love hotdogs
Well Mr T, clearly you don’t work for Scotia Bank. You couldda told Mr&Mrs Jawal they are richer than they think. Get a Chip and live large.
Their kids will hate you. But they are not your clients.
Re #9 “Why spend the time kicking a dead horse”
Totally agree. RE crash is coming and how do we protect ourselves against it?
Garth,
Long time reader.
What are your thoughts on buying property in barcelona?
StrAtegy: long term 10 years+. Rent it out and let them pay the mortgage while the property value increase over time.
Context: will spend up to €400k for 1-2 properties, approx 30% of my net worth.
Any resources on how to crunch numbers to find a
worthwhile deal please advise.
Thanks for the consistent effort on the blog. Tremendous output.
Mike
Read an article today that shows interest in owning a home in the U.S. was at the lowest percentage EVER recorded! I found that interesting and also the poll that showed current home owners would not buy a replacement home.
Now, that could be demographics talking, or it could be the reality that people can usually rent their shelter for less than the fully allocated costs of ownership.
What I see most striking here, is the mind set between Americans, and Canadians, who still appear to be brick licking idiots. (MY opinion here only.)
We shall see who is the Greater Fool over time.
That said, I do own my own shit-box, mortgage free, and no I do not intend to replace it should I sell and move somewhat closer to year round warmth. I would rent, where somebody else does the maintenance, pays the high insurance & taxes, and worries about re-sale value.
This is very rare, almost unique situation that somebody in Canada would care about doing their job right.
Probably those guys will go to more suitable “financial advisor”, who is definitely going to tell them to mortgage the house to buy a condo, or even, what the heck – few condos! Party time, don’t you know buy know or newer even again, amen.
That’s the plan… No escape. Happy wife – you’re go fishing at 58, otherwise name Jawal will be synonym for sadness.
That’s why I move to US. Canadian women have their brains seriously screwed by Canadian socialism (and property idiotism).
Who are all those shows on HGTV targeted at? Women. Why? Because they are suckers for that stuff. No surprise Mrs. Jawal wasn’t falling for what Jawal (and Garth) were trying to sell.
It’s these kind of situations that make me agree with Freedom First, ie date women but don’t get attached, lest she decides to financially castrate me.
If you learn anything from Jawal’s story, it is that both parties in any relationship need to keep themselves financially responsible, to provide to a common budget. Jawal’s situation arose from him being the provider, and probably thought it is his responsibility to have her wife home while he works.
If someone isn’t working and learning about money and budgets, how is said person going to learn about financial assets.
“Are there examples of where large price movements end up becoming the new normal in RE or other markets??? “
Certainly in, for instance, a mining town, where a new mine is built, there can be justifiable long-term jumps in RE prices (or the opposite when a mine closed). But over the long term, and averaged out over a large enough quantity of housing units, housing prices cannot sustainably exceed that of the present cost of the inputs, depreciated accordingly for age and condition.
A good rule of thumb is that it “costs” approximately 3 man years of labour to build an average housing unit. Hence, over the long term, a brand new unit cannot cost more than the pre-tax salary of a man working for 3 years, and even less for a used unit.
If you figure the typical fully employed working man is making $60-$70k in the contemporary economy on average, this puts the justifiable price of Canadian RE at around $200k. Which is half of the currently quoted $400k.
The extra $200k that has been tacked onto housing prices is entirely the creation of the loose financing environment we have including government subsidized CMHC mortgage loans.
#10 Shawn Allen
“remember your response will be opinion and not received wisdom so perhaps tone it that way”
Could we maybe hang this up at the entryway of the Internet?
To #208 SWL1976 on 04.13.15 at 4:01 pm
Your money description is not correct and it is a common, and often repeated, misunderstanding of fiat money.
It has to stop … probably not. ha
Let’s try:
I use my $100 borrowings, at 10% interest, to buy corn seeds, which a third person owns, from whom I buy the corn seeds.
The seed seller puts the $100 in the bank at 0% interest.
I plant and water corn seeds.
I harvest the corn.
I eat some corn and save 100% of the original amount of corn seeds, plus an extra 10% of seeds.
I sell the same amount of original corn seeds back to the dummy earning 0% interest for the same price as he sold them to me.
Now I have $100 in my account to repay my loan.
Plus, I have 10% extra corn seeds.
I repay my $100 loan.
However, I owe $10 interest.
The banker shows a $10 debt owed by me and a $10 credit for himself, which you and I can say he logged into his accounting out of thin air.
Bankers likes corn seeds for some odd reason.
I sell banker the 10% extra corn seeds for $10, which he has in his account.
I use the $10 to repay the interest. That interest accounting entry is extinguished now too.
THERE IS NO PONZI waiting to collapse because interest was not printed, as you incorrectly say. Why? Because the banker-lender consumed some of the borrower’s excess production.
However, if the borrower produces nothing, then there is ponzi. That is what happened in 2008.
If ponzi is due to happen, it has nothing to do with the mechanics of money printing, like you think and say.
Vroooooooooooooooooooooooooooooooooooom
#208 SWL1976 on 04.13.15 at 4:01 pm
#197 Blacksheep – The major point you are missing with the banks is about the interest they charge. The bank creates 100$ to be paid back with interest, but they only ever created 100$ the interest charged was never created and therefore never existed. So, eventually with this ponzi scheme someone is left holding the bag of debt that never existed in the first place.
It’s really quite simple.
Why are people so hung up on their real estate and the place where they happen to live? BC’s Lower Mainland has changed dramatically over 20 years to the extent, that it is neither affordable nor attractive to live here.
The world certainly doesn’t revolve around Vancouver and there is an entire world out there with affordable and attractive options.
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Your right. It’s called RE money laundering and our great awesome defined pension govt just looks the other way…
Add something of value here or go away. — Garth
If we were to look a the root causes of this pretty awful pass, I’d have to say some pretty ranty things about how marketing and advertising is aimed at girls (from their formative years) and women (who make many, if not most, buying decisions for families). The fluffy princess syndrome, I call it.
And every princess has to have an enviable palace. Preferably with turrets on it.
And yes, I am a hot woman. It’s been 26 Celcius in the garden this afternoon and I have been digging for victory. And a nice cold glass of something. :-)
Its very hard to challenge people with facts and numbers. Especially if they’ve spent most of their lifetime shielded from the raw reality of it
Was this an attempt at irony? Lol
#23 waiting on the westcoast on 04.13.15 at 6:53 pm
I actually bite hard either way…
And SM – don’t get carried away or I will start commenting on your nom de plume… ;-)
…
It is open to all kinds of imagination , good one.
Speaking of fun places to stare at the phone. I will be making an in person appearance at Ceasers Casino in Atlantic city this weekend , Bring cameras , we can do selfies together, you can post them on Twitter
Look at me with Walter White..
Garth your stealing my thunder, I liked you more when you had the slide ruler and calculator in your calls.
You’ve gone totally Herdometer.. Who says you can’t teach old dogs new tricks.
Back to Mark bashing. I can’t bielive there is someone more loathed than I am.
Where did I wrong.
I know of a man who sets up a tax service booth every spring in the rotunda of a local mall. He is of the opinion that financial advisors know nothing whatsoever about taxes. His ‘financial advice’ includes this gem:
“Don’t sweat the debt. Money is dirt cheap and will remain that way for a very long time to come. Might just as well spend it on real estate or whatever else you want if you can get your hands on it. If the whole country’s in debt they can’t come after us all. There’s safety in numbers for the indentured.”
Now, he certainly does not do my taxes or, heaven forbid, supply me with financial advice. But he does supply me with comic relief. Priceless.
Imagine what kind of society we’d have today if we had never strayed aimlessly from 25-year mortgages and 25% down (and made consumer math mandatory in every grade beginning in high school).
it has taken a long time but it is now encouraging to read that this blog is swinging more to accepting that it is impossible to provide financial education to the anyone outside the choir.
I used to make a serious attempt to share my financial ups and downs to the younger people. it didn’t take too long before I was called an old man with nothing to do. Now I say screw them and I encourage them to do whatever turns their crank.
I see nothing wrong with holding a lot of realestate. owning land and houses is giving me an excellent lifestyle in my aging years. ;it is the government that is screwing us old gezzers the most.
Maybe it’s the beard?
#206 JimH
You are so uncritically eager to throw the baby out with the bathwater when it comes to the MSM, yet you gulp down the kool-aid with an equal lack of even a modicum of skepticism when ‘the truth’ is offered up by your internet sources when it comes to global banking, markets and “chemtrails”
Now there is no need to go into the chemtrail subject, but seeing them with my own eyes is proof to me. Now I don’t gulp down the kool-aid when it comes to my ‘internet sources’ I have been observing and studying this subject for years. Once you connect the dots and see how the pieces fit than it is easy to see where all of this is going.
The one thing that I find interesting about the skeptics to the truth is that they often say ‘that could never happen’ or ‘that’s impossible’ and that is the end of the conversation in their mind. They don’t need to prove that it could never happen or prove that indeed it is impossible, yet they expect absolute proof about the truth. I find it very narrow minded.
No I don’t believe everything I read or every video I watch, but the broad message is there and it is easy to see where this is going.
For once it would be nice if a skeptic of the truth had to fact check the fact that something is indeed impossible.
Garth, in this you are completely right. I belong to a Toronto Rotary Club comprised completely of young 30-something professionals. Guess what the number one desire among our members is? Home ownership, so far achieved by admit half of us, even those who are single. I know from our donations that club members aren’t rolling on cash, so I’m sure there’s lots of debt being taken on. I’m putting off purchasing as long as possible, making sure my wife trash our student debt while hoping the insane market cools.
https://www.youtube.com/watch?v=qE-x4WTsbMw
Disclosure of UFOs by Officers, Pilots and MPs oh my !! Canada and the USA are the ONLY places in the world that do not “regularly” report video and photos of UFOs on the 6:00 news……
bahhhhhhhhhhhhhh…………..sheep.
“A man convinced against his will is of the same opinion still”
stolen from the Internet.
#I’llProbablyRegretThis… #ButIfYouEnjoyed… #TheBoysFromBrazil… #OrYourTherapistWasDr.Cameron… #AtMcGill’sAllanMemorial… #WellThen… #HereItIs:
https://youtu.be/B2h6RPcpxvM
[NoteToGT: It’s PastaNight… with a little help from Ernesto: http://tinyurl.com/lsuatm2 – OhYes, as it happens this WeekEnd is shaping up as a ChalkBoardExpedition… without the SmartPhone. Just between the two of us, Nick did spend nearly a decade as the Editor of Jane’s Aviation Weekly… Way more fun than Paul Beaver’s beat…]
Your right. It’s called RE money laundering and our great awesome defined pension govt just looks the other way…
Add something of value here or go away. — Garth
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Disclosing that RE in Vancouver is going up because of money laundering while the govt does nothing is not valuable information? This is a RE blog right? Would you like some links?
Van real estate escalates because the locals keeping buying it. Now, scoot. — Garth
“It’s hard to imagine a worse moment to buy – with the certainty you’ll spend the next two decades in enough debt that saving’s impossible.” – Garth
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When my brother-in-law bought 3 years ago, I made the same argument, as well as others, against purchasing. However, it’s a good thing he didn’t listen to me. If he’d waited to buy in today’s market, it would have only become even more expensive. The Feds are determined to keep this party going and there’s no knowing when it’ll end. So, meanwhile, just keep the bubbly flowing.
The bubbly never keeps flowing. — Garth
#44 Pinstripe
As one geezer to another, we’re treated very well by the government and all the working hordes giving us tax breaks. Just finished our taxes and they’re way below what we once paid given pension splitting and other geezer deductions. It’s all about our health anyway!
Pinstripe is 45 not 44
Sir Garth:
We live in a democracy, where the majority rules. Take the number of real estate agents, divide that by the number of Garth Turners. Those are your odds of converting people to the correct investment decision. You are just out numbered. If every day you help out one couple to see through the mist created by the real estate sector you have done well. Please don’t get discouraged.
10 Shawn Allen
Have a field day responding, but remember your response will be opinion and not received wisdom so perhaps tone it that way.
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That’s about the most intelligent thing I have seen on the comment section for years if not ever.
It applies generally to life.
And rule of thumb – THE MORE CERTAIN SOMEBODY SOUNDS ABOUT SOMETHING the more likely they have their HEAD UP THEIR BUTT.
#21 Mark on 04.13.15 at 6:52 pm
“I find a few things astonishing, from my 35,000 foot view of the situation…”
I sure hope Mark doesn’t suffer from any lack of oxygen up there. Could lead to some strange economic theories being proposed…
#27 TS
“My sister in law got 20 grand from her parents to get a 215,000 townhome in Suburban Ottawa on 50,000 in income
Year later and she’s complaining:
why would the bank give me that much of a mortgage? I can’t afford to do anything! Why didn’t they tell me before I bought?”
Argh. My biggest pet peeve: People not taking responsibility for their own decisions. Complain when Banks turn them down (should’t that be the biggest red flag?) and complain when they lend them “too much”.
C. We all live dogs.
What to love about dogs, they are like Canadians, they obey and are stupid. +1 for cats.
Real Estate Psycho/Economic Phases
Phase One: “Prices are going to drop further. I’m waiting until they hit bottom.”
Phase Two: “I’m tired of waiting. If prices aren’t going to fall as fast as I think they should I’m going to make them be where I think they should be by putting in a “lowball” offer.”
Phase Three: “Hmmm there are a few SOLD signs out there. Greater fools, don’t they know this is a “dead cat” bounce?”
Phase Four: “Oh shit things are selling and prices are rising! WTF! I better make an offer before I’m priced out of the market!”
Phase Five: “WTF, I’ve been outbid on the last 3 houses I tried to buy?!?”
Phase Six: “Martha we need to make an offer over the list price in order to be competitive enough to buy this house before someone else does!”
Phase Seven: “Make it an unconditional offer. Home inspection be damned.”
SHIFT happens };-)
There is a silver lining here. Harper wants to expand the war in the middle east, and he needs boots on the ground to do it. So why not create a new military division of octagenarians who have run out of money to sustain themselves? Instead of the Devil’s Brigade we can have the Depends Brigade. They bid adieu to their illiquid home , get a nice tax break in passing it onto their kids, and then get parachuted into ISIS territory in a wheelchair loaded with RDX.
#52 Van Doom
I get where you’re coming from and felt quite the same for a while. Until I realized that native Vancouverites are just being brainwashed into buying their own real estate again and again. HAM may have set the bar higher but it’s not their fault when Vancouverites can’t keep up with them. Just stop trying to keep up with the Jones’.
The valuations don’t make sense. It’s not every native Vancouverites birth right to own a place in Vancouver. It got too expensive many moons ago and it keeps going higher. People are making the craziest bets and partnering with just about anyone to get a tear down and either build from scratch or reno it.
Well, it will work as long as the music doesn’t stop. God bless HAM because nobody else can afford to buy the places.
Those are your odds of converting people to the correct investment decision. You are just out numbered.
Ironically the RE bubble (now deflating) has kept other investments cheap. Actually bolstering the long-term returns of people who invest on the advice of people like Garth.
Being able to buy stock market averages at 15X earnings (closer to the bottom of the resource cycle in Canada no less!) with interest rates practically at zero and dividend yields that now exceed the 30-year T-Bond rate is practically a gift. Unfortunately most Canadians either addicted to RE, or simply ignorant of the math of the situation simply don’t understand. As the RE bubble continues to wind down, some pretty significant returns will eventually come to be vested with those who had the foresight to avoid the RE bubble.
It’s actually stunning that most people think like jawals wife. Male and female.
They will work till they die and everyone else will take all their money. And they do IT willingly.
It’s amazing.
I’m not sure what you do when logic, common sense and living for yourselves instead of others has no place in anyone’s conversation.
I guess housing has become all of that in the opposite meaning of what it should be for most people. They have become convinced that the opposite of reality is true.
Talk about conspiracy.
There wil be a lot of bitterness. I think for many it’s already beginning.
Jawal will work till the bitter end and have no security. How is this living?
Garth, with the new Ontario Pension Plan, plus the CPP, millennials won’t have the same issues.
Love your comedy. — Garth
Year later and she’s complaining:
why would the bank give me that much of a mortgage? I can’t afford to do anything! Why didn’t they tell me before I bought?
——————————————
The high price of RE will have an impact on Canadian society over the longer-run.
People in Canada’s major centres that have mortgaged up to the hilt will;
– have fewer children as they will not be able to afford them, this will require more immigration to spur population growth (and more good ethnic restaurants)
– spend more on mortgages and less on other consumer goods
– older mortgaged-up people will retire later or take jobs in retirement thereby taking away jobs from younger generations
– labour mobility could be reduced, especially if prices fall – people may not be willing to take the financial loss of selling
– on the upside people may be more house-bound thereby creating a sense of community – like “we are all debt-screwed together” so let’s BBQ some no-name wieners.
“Rather than give my 19 year old $5,000 and co-signing his paper to help him into his own $100,000 condo…what about getting him started on his own investment portfolio?”
What a great idea and opportunity for your son to learn and make mistakes when it doesn’t really matter…that much. They should teach banking/investment basics in high school instead of that useless b*llshit coursework prescribed by career academics with liberal arts degrees who do so to legitimize their own studies.
I totally use my thorough knowledge of the inuits staple diet in my everyday life.
47 SWL1976 on 04.13.15 at 7:48 pm
#206 JimH
The one thing that I find interesting about the skeptics to the truth is that they often say ‘that could never happen’ or ‘that’s impossible’ and that is the end of the conversation in their mind. They don’t need to prove that it could never happen or prove that indeed it is impossible, yet they expect absolute proof about the truth. I find it very narrow minded.
No I don’t believe everything I read or every video I watch, but the broad message is there and it is easy to see where this is going.
For once it would be nice if a skeptic of the truth had to fact check the fact that something is indeed impossible.
**********************
I couldn’t agree more.
Garth and blog dogs,
I am one of these millennials and I want to chime in here. I’m 31.
I just invested in the 40/60 diversified portfolio that Garth recommends and let me tell you, clicking on “buy” and spending the money was pretty frightening. I did all my research, picked some great ETF’s, told myself to expect volitility but stay the course in the long run.
That was Friday of last week, and my portfolio has lost 400$ since then. Again I was expecting fluctuations but 400$ is a lot of money to me (a whole work week) and it’s tough seeing that, even as a unrealized loss on the screen.
Aside from the up’s and down’s, the portfolio required lots of reading and learning to construct. Even now, I still have a lingering feeling that I am somehow being outsmarted by “real investors” more savvy than me somewhere out there.
I can see the attraction to RE. A lot of my friends have done really well in it (Toronto market) over the years, and it makes sense. You also get to enjoy your debt fueled purchase as you pay your mortgage AND earn some money. Seems like a win win.
Me? I want to me like that Freedom First guy. So i’m going to be brave and stay the course, but man it’s pretty frightening so far.
MF
One week? Seriously? Just ignore it and check back in six months. — Garth
Take the longer view: yield is going to disappear too. Has been gradually shrinking for years now. We’re surrounded by the yield-desperate – cashflow junkies – who still think real net economic “growth” is going on. Somewhere.
So they pile into leverage. Into every imaginable junk dividend-paying stock. Into the flakiest tech companies. Into the scruffiest and riskiest of ‘high yield’ bonds. Into even negative-interest-rate government debt…
See where this is going? “Growth” is a thing of the past. Just when they should be buying real assets and even real estate (not yet, but at some point) they are surrounded by people telling them that “cash yield” cannot lose.
Heard that before…
Houses should cost three times Income?
I never heard of that supposed rule of thumb until I read this blog.
No such rule seemed to exist in the ’70s, ’80s or ’90s that I know of.
Instead, the rule that I recall from the ’90s was a maximum of about 32% of income going to principle, interest and taxes and 40% for total debt service. This was the rule required by banks and CMHC as the maximum mortgage allowed.
Now the multiple of house to earnings that this actual rule results in obviously changes with interest rates.
Now for some simple math.
To pay a house off in 25 years is 4% per year not counting interest.
So per $100,000 of house we pay 4% or $4000. Now if the rule is we can pay 30% of income then we need to make $4000/0.30 or $13,333 per $100,000 of house.
This means someone making $13,333 could be approved for a mortgage of $1,00,000 using our 30% of income rule and this is if interest rates were 0%.
If they are making $100,000 they can be approved for $100,000 / 13,333 = 7.5 times $100, 000 or $750,000.
To pay off $750,000 in 25 years at zero interest rate requires $30,000 per year and the income has to be $100,000. Notice that they could get approved for a house that is 7.5 times income (not the mythical 3)
Now, what happens if interest is 10%? Well in year one, for a $100,000 house we have $10,000 in interest and still need to pay $4000on principal. (Okay this is not exactly how it works, since in reality with interest we pay off less than 4% of principal in year 1 but close enough)
Now we pay $14,000 per year and need to make 14,000 / 0.3 = $46,667
Now if we make $100,000 we can pay 100,000/46,667 or 2.14 times. So at $100,000 income we can get approved for a mortgage of $214,286. Notice this is 2.14 time income and again not the mythical 3 times.
The point of this is that obviously the amount of house or mortgage we can serve increases dramatically at lower interest rates. There is and never was any rule of thumb of 3 times income because such a rule would not account to interest rates.
The rule is 30% of income to principal interest and taxes.
House prices are higher because interest rates are lower.
Bleating that there is something wrong because house prices rose faster than income shows a lack of understanding of math.
Houses provide the illusion of wealth. The housing binge will never end.
I first heard The Eagles in 1992. Some good ones: Take it to the Limit; Already gone.
Also a fan of most Allman Brothers. Before my time.
“When my brother-in-law bought 3 years ago, I made the same argument, as well as others, against purchasing. However, it’s a good thing he didn’t listen to me. If he’d waited to buy in today’s market, it would have only become even more expensive.”
House prices peaked 2 years ago and have fallen slightly since (the headlines you see from the Realtors are mostly only up because the sales mix has changed quite significantly favouring transactional activity in higher-end and brand new RE). Your brother-in-law, most likely, is only even at best on the price of the house, but has roughly 5-10% sunk into transactional costs, and has spent the past few years making incremental payments into the mortgage and/or into maintenance that could have been invested for positive returns.
So had he listened to you, its likely he would have quite a bit higher net worth than he does today. However, to claim vindication for your beliefs probably wouldn’t go over too well with your brother as few people like to be reminded of the poor investments they have made.
As far as bubbly goes, I guess if you drink enough of it, RE might seem like a good investment, but sober people really need to look at the facts of the situation rather than being caught up in the hype.
People are idiots. You give them a loaded gun (an euphemism for huge mortgage) and they’ll blow their own (financial) brains out.
9 out of 10 times it’ll happen, probably closer to 9.9 here in Canada. Darwin’s theory on Natural (Financial) Selection at work here, just sit back and watch as it slowly weeds out inferior (financial) genes out of the Canadian gene pool. Banks aren’t as kind as Mother Nature.
thx for your blog Garth .. I guess it’s not easy to write an article every day !
The pay sucks, too. — Garth
So hubby and I both have gold plated pensions and owe about $300k on a $1.3 mil house. We have no other savings or investments. Hubby refuses my pleas to sell now at the top of the market (because renting is throwing money away) so all extra $ are going into the mortgage. I can’t convince him otherwise and when I mention this blog, well he thinks he knows best! So I continue to read this blog and fondle my worry beads.
The pay sucks, too. — Garth
We’ll pay you with scotch.
“Take the longer view: yield is going to disappear too.”
Woohoo! Cheap financing for corporations that want to actually borrow and do stuff. And many, many years of a strong equity risk premium! Just remember, there’s always someone on the other side of the debt, so if yields are suppressed, someone is getting awfully cheap money and should be able to use such to earn good profit.
“Notice this is 2.14 time income and again not the mythical 3 times.”
2-3X income Shawn is where the historic averages for RE have settled out. Your math verifies this. I think the point to be made, which I am sure you agree, is that the contemporary 6X income is entirely unjustifiable. I do believe we’ll see 2X income and even less as overshoot to the downside tends to occur after overshoot to the upside.
Bleating that there is something wrong because house prices rose faster than income shows a lack of understanding of math.
Not really. In the long run, house prices cannot rise faster than income because buyers would simply be entirely priced out and prices would thus fall back to affordability. Thus the present value of future lifetime income available for RE consumption is a logical upper bound on RE prices.
One week? Seriously? Just ignore it and check back in six months. — Garth
That’s the plan.
Thanks for the blog again.
MF
#49 Van Doom on 04.13.15 at 7:52 pm
https://www.youtube.com/watch?v=qE-x4WTsbMw
Disclosure of UFOs by Officers, Pilots and MPs oh my !! Canada and the USA are the ONLY places in the world that do not “regularly” report video and photos of UFOs on the 6:00 news……
bahhhhhhhhhhhhhh…………..sheep.
……
You need to ask yourself this question.
If full disclosure was announced, the complete truth, who brought you bastards here 200 thousand years ago. A dumb down geneticly modified violent mutant spiecies.
Your DNA was spliced altered, you where manufactured to be sex slaves and soldiers for an advanced race. You where to violent, to promiscuous and morally bankrupt.
The experiment was aborted. You where exciled to earth.
What would happen to religion if the world knew the truth. 80% of humanity believe in god, the church keeps most of them under control with fear, fables and fairy tails.
If the world knew, Every Rabbi, Preist, and Ayatola out of a job.. Then the real barbarians in you would come out.
Best to keep you all in Sunday school.
I appreciate what you do on this blog, Garth. But never in my life will I ever consider doing it myself. So, kudos to you. I sure hope you are not trying to convince people that there has never been a worse moment to buy real estate in Canada. You are being rational in a highly emotional world of real estate. You can try until you are blue in the face but those we feel the urge to buy will eventually buy, sooner or later. It’s a very powerful emotional thing that has driven our real estate state of affairs to this insanity.
When the tide ultimately turns, and it will, maybe then you can say “I told you so.” But I am not sure if you are the kind who takes pleasure with being able to say that.
#38 Oot of the Hoos – As you explained. It is clearly very, very advantageous to be a bank… Almost like the system was rigged.
Hence, the Federal Reserve Act 1913
Idiot SUckA!!
#70 MF on 04.13.15 at 8:26 pm
Garth and blog dogs,
I am one of these millennials and I want to chime in here. I’m 31.
I just invested in the 40/60 diversified portfolio that Garth recommends and let me tell you, clicking on “buy” and spending the money was pretty frightening. I did all my research, picked some great ETF’s, told myself to expect volitility but stay the course in the long run.
That was Friday of last week, and my portfolio has lost 400$ since then. Again I was expecting fluctuations but 400$ is a lot of money to me (a whole work week) and it’s tough seeing that, even as a unrealized loss on the screen.
Aside from the up’s and down’s, the portfolio required lots of reading and learning to construct. Even now, I still have a lingering feeling that I am somehow being outsmarted by “real investors” more savvy than me somewhere out there.
I can see the attraction to RE. A lot of my friends have done really well in it (Toronto market) over the years, and it makes sense. You also get to enjoy your debt fueled purchase as you pay your mortgage AND earn some money. Seems like a win win.
Me? I want to me like that Freedom First guy. So i’m going to be brave and stay the course, but man it’s pretty frightening so far.
MF
One week? Seriously? Just ignore it check back in six months. — Garth
…..
As a fellow citizen of the universe, from planet Nectonite let me tell you something very important.
The mind sends out Frequencys.. Fear imotes long slow waves, Love Faster shorter bursts.
You make a bet, sit down on a slot machine, talk to a chic
If your mind is at piece, with love and good thoughts
Everything is a Jackpot.
If your mind sends out fear waves you will never win a thing, ever..
Try it. Wine helps.
Something of value from a woman at home, investing for the future in family and finances. I am not earning a income but I do a lot of work supporting my husband, his mother (who has alzheimer’s), two teenagers and my somewhat independent elderly parents.
Strategy…
We are going to purchase a income property for our son to live in while going to University for Engineering.
Our self held mortgage will be held in our RRSP. It will have a interest rate of 6 to 6.5% (bank rate for one year closed) and will be fully tax deductible to my husband who pays a lot of tax.:) We will get back 50% of that interest back in tax plus….the RRSP grows.
My spousal RRSP (no contributions in the last 3 years) will begin to be drained by me while I stay home till the family grows up or passes away. Our son and two other renters will cover most of the mortgage and our son will get paid to do some light management duties like collect rent, lawn etc, it will drive his costs down.
I will do the interior decorating and get paid. Real estate may go down, but students need a place to live. Parents, prepare as university is not cheap! The rental is going to be a property that first time buyers and older people could downsize into. Many of these 4 and 5 bedroom huge houses are going to get the worst of the housing correction.
More than 70% of women work full time now compared to 30% in the early 70’s. The 30% not working now are likely doing what I do, or caring for small children. Working women make 65% of what men make.
Lower paid women are likely the ones who will take care of women bashers on this blog who insult them for caring about the type of home they have.
Men like cars, bikes, toys and women like homes.
Men and women are different and have different interest for natural reasons.
So what! Right now the asset bubble is in the home front, perhaps pensions will be next. Who will that be blamed on? Men are just as responsible for this housing problem as the wives and the millennials. Own up.
The RRSP mortgage has no tax-deductibility to it whatsoever. The rate of 6% will likely be disallowed by the CRA, as it is not a ‘market’ equivalent. Paying you to decorate an investment property you own will also be disallowed, as will be payment to your son for ‘collecting rent.’ You are negging for an audit, and rightly so. Get some help. — Garth
If the world knew, Every Rabbi, Preist, and Ayatola out of a job.. Then the real barbarians in you would come out.
Best to keep you all in Sunday school.
******************************************
So Jesus freaks are intelligent enough to get engineering degrees to make smart phones but if disclosure comes and they are told religion is not real……everyone will Jim Jones huh?
Sorry I don’t buy that…….
#78 Outtahere on 04.13.15 at 8:41 pm
So hubby and I both have gold plated pensions and owe about $300k on a $1.3 mil house. We have no other savings or investments. Hubby refuses my pleas to sell now at the top of the market (because renting is throwing money away) so all extra $ are going into the mortgage. I can’t convince him otherwise and when I mention this blog, well he thinks he knows best! So I continue to read this blog and fondle my worry beads.
***************************************
Yes I remember reading that “retired” people with mortgages is going to become an epidemic. I wonder what will happen when the govt is forced to claw the pension back or risk hyperinflation from money printing in order to keep paying the out…..
#70 MF on 04.13.15 at 8:26 pm
I am one of these millennials and I want to chime in here. I’m 31.
[…]
That was Friday of last week, and my portfolio has lost 400$ since then. Again I was expecting fluctuations but 400$ is a lot of money to me (a whole work week) and it’s tough seeing that, even as a unrealized loss on the screen.
********************************************
I started my portfolio in December 2013.
My annualized return rate is 12% so far.
Keep going.
#@James62IsTotallyOnToSomething… #Still,NotLikeIDidn’t… #RunThatByThePolicyMakersBefore,Though… #TheHorizontalMamboAlwaysWorks…
https://youtu.be/KTyLJftgoc0
It’s a new world with a new economic order. We have passed through several such ages. We were once a hunter/gatherer society and then moved into an agrarian society. When that happened hunter/gatherers saw a 50 fold increase in production by agrarians. Hunter/gatherers became somewhat obsolete. Then we moved into the industrial age and farms became mechanized. Where once a large part of the population was employed in agriculture then it became that very few were but the mechanization of farming yielded a 50 fold increase in production by a very small number of farmers. Then we moved into the tech age with a similar 50 fold increase in production by a very much smaller part of the population.
Now we are entering the information age but with it is coming a whole new economic paradigm, one in which finance is the engine that drives it. Debt is no longer what it once was – something to be avoided. Debt is a part of life.
I know it’s hard to get your head around. It was hard for hunter/gatherers to understand the SHOFT to agriculture where someone tended a field for months and months with apparently nothing happening. Such fools those farmers appeared. And then suddenly POOF a bountiful harvest. Who was the fool then?
I’m not so sure this new economic paradigm is one that will be quite so beneficial in the long run but I am quite confident that the practices of my generation have fallen way to a new order never to return again. Doesn’t seem quite sustainable to me but then I am sure with each change in the economic paradigms there were people, like me but then, entrenched in the ways of yesteryear left behind because they did not understand.
I don’t quite understand it other than you can’t stop change/progress or whatever label you put on it. It is what it is. Everyone it seems is doing it so… who am I or any one of us stuck in the past to say it’s wrong.
Live by your own customs, values and behavior and let others live, or die, by theirs. Principles never change but social behaviour can and does. Is this new paradigm right or wrong? Only time will tell as the underlying principles that govern our lives have little tolerance for ignoring them. Ultimately principles govern.
Illusion of wealth? Maybe. But then was wealth ever a function of a foundational principle in the first place?
Like I keep tellin’ ya…. SHIFT happens. Learn to ride the tide. };-)
I sometimes wonder where I would be without having found this blog and read great investment books like Malkiel’s Random walk or Hallam’s Milionnaire teacher. I would have a fat mortgage, no investments and shake my head at renters, like just about every breathing soul I know. Thanks Garth.
#70 MF
One week. Your experience thus far probably isn’t that much different than most at that stage. Let markets and time be your friends. You’ll be doing this for 40 years.
Good on you.
Keep reading and learning. As with all things experience is the best teacher. Don’t be afraid to ask questions or seek help. But alwsys do your own reading first. You never have to act rashly. Markets tend to give you many opportunities. Time is on your side. Garths portfolio advice can’t be argued.
Now here’s what you might look forward too. Of course in due time.
1. Your first $1000 day.
2. Your first $5000 day.
3. Your first $10000 day.
If you get good you and with time you may even see a $20000 day.
Your friends the won’t know what that feels like.
Freedom First indeed!
Um… Garth in the states it didn’t take a lot to teach people what security is…..
The crash taught them in a blink of the eye. Now they know
Mark my Words
Mark I was going to point out that your response to me at 28 addressing my question at 10 was not addressing my main point that retirees own much of the means of production and therefore the notion that they are dependent on younger workers did not seem valid to me. (Not those with big invest portfolios anyhow) Thought you might have something to say on the topic. The topic of battle of the ages. Whether the retirees own bonds or equities, the point is they own a big chunk of the productive income and therefore fully deserve a share of output even when retired.
But seeing your response to me at 80, I give up. I demonstrated that if people can afford 30% of income on principal and interest than the amount of mortgage they can afford is 7.5 times at zero interest rate and 2.14 at 10% and of course less than that at 15%.
Of course house prices can’t rise faster than incomes forever. What I said was there is no rule of three times income. The rule is about 30% of income on principal and interest.
You claim 6 times is unjustifiable, but you give no math to back it up. So I give up…
At current interest rates I suspect a 5 times mortgage is eminently doable. Combine that with a down payment and the house can cost 6 times income and it can be done. This ain’t your daddy’s housing market (or, not coincidently, your daddy’s interest rates)
People claim that houses are unaffordable but they are being bought at the so-called inflated prices all day long.
Whether its foreign money or grampa helping out the kids, the mortgages are being approved and the payments are being made.
People claim it’s all due to CMHC. But look, CMHC is actually profitable and the mortgage defaults are at record lows. I have been waiting years to see the defaults rise. They have not.
Hell will freeze over before we see house prices decline to two times income. That won’t happen because interest rates are not heading back to 10%.
#89 Van Doom on 04.13.15 at 9:07 pm
Actually I would think the government should welcome those who retired with a mortgage. CPP, OAS and godforbid GIS all pay peanuts. So if a so-called “Retiree” decided to go back to work because he/she is so stubborn as to wanting to pay off the mortgage instead of selling the goddamn house, there would be OAS and GIS clawback, as well as new source of tax revenue for the government.
It’s a win-win situation for gov and retiree. Gov gets tax revenue from a retiree. Retiree gets to work and pay his mortgage until he drops. FOR THE WIN!
Influencing collective behaviour is practically impossible: the power of propaganda, and advertising, is vastly overrated.
Re propaganda: “If you tell a big enough lie often enough, people will believe it” is a half truth. There has to be an underlying willingness to accept the mendacity. [Both Goebbels and Arendt recognized this fact.]
Re advertising: ads cannot create a need for a product, what genius advertising can do is discover a latent need for a product.
Ditto for Hollywood stereotypes: the stereotype has to preexist in the public mind BEFORE it can be realized dramatically. The shelf life of the type is wholly dependent on the collective psyche. Some types – the vamp, la femme fatal – are practically eternal.
All of which gets us to the house-horny wife and the deadly real estate bubble. Fear not: history is very clear that overcapitalizing on the nesting instinct has its financial limits.
If Canadian monetary policy aims to prolong Canada’s housing bubble – I can see Mr.Poloz end up like Norma Desmond (having shot the Loonie) descending the staircase: “I’m ready for my close-up, Mr. Harper.”
You’re ahead of the times, Mr. Turner, never a comfortable place.
If propaganda and advertising were as efficacious as people wish, the world would be easily managed.
The residents of Midfield Mobile Home Park in inner city Calgary (including Veterans) are being thrown to the curb in a tough housing market.
Bubbles has had quite enough!
Once Lucy, Julian, The Motel and Cyrus with his Corvette (aka Smoking Man) step up and gunplay erupts, the battle will be won.
http://calgaryherald.com/news/local-news/trailer-parks-need-to-look-out-for-one-another-bubbles-urges-nenshi-to-save-calgarys-midfield-mobile-home-park
Shitnado hits Cowtown.
Nice in that pic Garth…in the future with virtual reality and gadgets, sheeples will stay in phone booth size shanties, while virtually fabricating a pretend real space around themselves…..oh yeah and they will be driving something like this….
http://i.dailymail.co.uk/i/pix/2013/03/12/article-2292060-18968161000005DC-242_306x423.jpg
Size does indeed matter….especially when it is virtual
The RRSP mortgage has no tax-deductibility to it whatsoever. The rate of 6% will likely be disallowed by the CRA, as it is not a ‘market’ equivalent. Paying you to decorate an investment property you own will also be disallowed, as will be payment to your son for ‘collecting rent.’ You are negging for an audit, and rightly so. Get some help. — Garth
The tax specialist went over it for us. The mortgage rate is allowed if it is a “posted rate” that the banks use and charge for a one year closed. The one year closed is much higher than the 5 year closed. The bank rate is photocopied on bank letterhead for the auditors in case they come and verified by the bank statements. The income property is deducted by the highest income earner who is in the 50% tax bracket. Thus he gets an income tax break on the interest paid on the income property. The interest goes into the Self directed RRSP. Yes, the son collecting rent is a stretch, he might just decide to have a party.
Any repairs done by anyone other than the owner are tax deductible if a receipt is given and a check is written and the income claimed and the work legitimate, which it is. Banks do not like us sheeple to hold our own mortgages and only one bank we know of allows it. Taking money out of the RRSP before we have to turn it into a RIF may not hurt us either. I try to do a lot of homework and do it by the CRA book.
Good luck. Let us know how the audit turns out. — Garth
“Strategy…
We are going to purchase a income property for our son to live in while going to University for Engineering.”
Garth covered off the tax aspects so I won’t dwell much further. But a good rule of thumb is that engineering jobs in university towns are relatively scarce, and when they do exist, they tend to have quite a significant discount to pay elsewhere. Dis-incentivizing your son to take a job somewhere, by owning a condo he must manage and maintain year round, might have a long-term impact on his income that is far greater than the few dollars you might ‘save’ on owning versus renting.
Additionally, the overall metrics of the ‘investment’ should not be ignored. What would rent for your son and his room-mate partners cost, versus that of the net return on your money? There might be some exceptions, but in many cases, real estate near universities is already at a substantial premium because plenty of people other than you have similar plans to purchase.
Last but not least, having roommates as an engineering student isn’t something that I’d personally recommend. Its a lot of late-night assignment work, all-nighters to get projects done, and requires an environment with relatively few distractions. Roommates, particularly young roommates who may be into partying, sex/drugs/rock&roll, or be mentally ill, pose a huge amount of risk to the timely completion of an engineering degree. If you do the “math”, a couple hundred bucks a month extra rent for a single unit or a single dorm room near campus to be free of these distractions may very well be a lot cheaper than the “cost” of taking an extra year of school because a class or two was failed along the way. Of course it varies by student and personality type, but the more distractions a student has, typically the longer it took them to complete the program when I went through engineering at a top-10 Canadian research university.
#92 DA
Your general overview of historical events have to do with productivity.
And in all those periods people lived in homes of some sort.
Trading homes for more money and buying more debt to do it is very different from what you describe.
But no doubt the herd bought in to RE in Canada. They were greatly encouraged to do so.
If you look at history. The biggest cities correct last. They are now the Only ones left. These events are never different. It’s fundanentally misallocation of available productive capital. But that isn’t to say that you can’t make money while it’s happening if that’s your game. They count it all the same.
But if it’s about making money then selling is just as important as buying. No?
Congratulations to MF
#70 MF on 04.13.15 at 8:26 pm
I am one of these millennials and I want to chime in here. I’m 31.
[…]
That was Friday of last week, and my portfolio has lost 400$ since then. Again I was expecting fluctuations but 400$ is a lot of money to me (a whole work week) and it’s tough seeing that, even as a unrealized loss on the screen.
******************************************
You are doing well, congratulations.
You will find that you will get used to fluctuations.
Early in my investment career I put in $2000 on a mining stock and soon after lost $600 in one day. I lost sleep over that .
But you get used to it, these days with a larger portfolio, I can honestly say that I rarely if ever even give a thought to losses as I drift off. Eventually you will make and lose thousands in a day and not get excited either way because it is mostly just fluctuations and noise. The long term direction is up, you will get comfortable with that and learn to take the volatility in stride.
Keep on investing.
Yes, while it is true there is many Financial Infidels crucifying the liquid, balanced, diversified and Financially Prudent ideal as being a high risk strategy, I know for a fact that you have managed to convert and save a significant number of the brainwashed from their own personal financial suicide.
And you never know Garth, you have planted the seed of healthy financial principles in Jawal’s mate, and sometimes it takes time for the seeds to sprout. It always come down to their choice. I have learned for myself the difference between helping, and enabling. Too bad so many in our society have not learned the difference. Consequences are unavoidable. No exception.
“At current interest rates I suspect a 5 times mortgage is eminently doable. “
Yes, but ‘current interest rates’, are, at best, only lockable for 5 years. The question to ask in such case is will interest rates eventually rise to levels more typical of long-term averages, and will there be overshoot.
I’d suggest, “yes” to such. So running all the math based on the assumption of historically low interest rates persisting for the next 25 years may “justify” what ordinarily might be completely unjustifiable if a longer-term historical view is taken.
“The tax specialist went over it for us. The mortgage rate is allowed if it is a “posted rate” that the banks use and charge for a one year closed.”
Nobody pays the “posted rate” on a CMHC-insured mortgage (and mortgages must be CMHC-insured for eligibility to go into a RRSP!). So Garth is right here and your tax advisor is likely wrong — such will likely not withstand the scrutiny of the CRA, even if you could find a trustee who would allow such an arrangement.
I agree with the comment that some readers love cats (as well as dogs) and hot men (not necessarily in that order). I agree with the adage of “happy wife, happy life”. The trick is to re-invent happiness. I used to be one of those house-horny women. Then I discovered that empowerment comes in many forms. When you empower the women, the household situation improves. It’s not about convincing the wife. It’s about showing her that her financial future is in her hands and show her how she can be her own best advocate and watch the conversation change.
#ThenAgain… #Sometimes… #AugmentedWheelChairs… #ActuallyWork…
https://youtu.be/WbIVV9cVveo
#5 NoOneOfConsequence
“…what about getting him started on his own investment portfolio?”
#70 MF
“I just invested in the 40/60 diversified portfolio…”
Have a look at Garth’s portfolio for millennials which contains examples of specific ETF’s:
21 November 2014 “Trust”
“#102 Mark on 04.13.15 at 9:34 pm
Last but not least, having roommates as an engineering student isn’t something that I’d personally recommend. Its a lot of late-night assignment work, all-nighters to get projects done, and requires an environment with relatively few distractions. Roommates, particularly young roommates who may be into partying, sex/drugs/rock&roll, or be mentally ill, pose a huge amount of risk to the timely completion of an engineering degree……..”
To the contrary, I recommend to lead a much more balanced life….get the degree and live with some interesting people while doing it, else risk becoming anti-social dweeb….every academic worth his/her salt knows the best way to test out a new theory or thought is to expose it to rigorous peer review….which may explain why some of your more far-fetched thoughts are getting body slammed and choked out on this fine blog
#102 Mark
Your comments make a lot of sense. Great food for thought. Thank-you. This is our 1st go at helping an engineering student towards success at school, the
program is tough. Having few distractions is very important. More important than the investment idea and strategy.
Were you in a co-op program?
#70 MF
The emotions you are feeling is the price to pay of experience gained. After investing for several years, you’ll learn how to do it better. You can either choose safety at the risk of underperformance or choose overperformance at the risk of safety..a balanced approach falls somewhere in the middle.
#106 Female Blog Dog
You are very much admired on this blog.
But I fear you are one of few.
And I’m sure you are well on your way to a secure financial future.
#103 Obvious Truth on 04.13.15 at 9:35 pm
Productivity is an economic term.
I’m wondering about employment and debt?
Fewer hunter/gatherers, then fewer farmers, then fewer factory workers… And then on top of it higher levels of personal debt than ever before.
Is banking somehow the driver of the new economic paradigm?
“Make money while it’s happening.”?
Ultimately principles rule.
If it’s about “making money” ultimately you will have to do it in a manner that respects principles.
Are we doing that?
Oh right this is a Beagles blog.
Anyway you can pry this balanced portfolio out of my cold, dead hands.
Mark,
CMHC has to approve the RRSP mortgage if it is non arms length THEN it has to be insured by CMHC. Yes, you then have to have 20% down for an income property . Yes you do have to pay a one time tax deductible CMHC rate depending on your down payment on your rental.
The 2.5% CMHC fee is an expense. The more you put down the less CMHC you pay. The “posted rate” by a bank for a one year closed mortgage is higher than that of a 5 year closed. If it is a rate offered by the banks of Canada, it is a rate that the RRSP mortgage can legally charge.
Of course you can’t charge yourself 10%, that is not allowed.
The rules are based on what the banks charge and post.
The one year mortgage comes due once per year and the rate is adjusted to reflex the next years “posted” rate. The devil is in the details. The bank verified this for us as well as the tax specialist. The banks do offer high rates for mortgages. Look it up and ask them.
Dear Mom. I ran the CRA. You are offside and purposefully bending the rules. Your 6% will ultimately be disallowed. — Garth
Shit, Peter Mansbridge pumping HPV vaccine for 12 year old boys.
Jesus, one visit to builderburg, then bastards own you. You will say anything.
What are the odds of Heather Ricemen , the stearing commity chicola from Bilderburg, sneaking my book in her stores.
Now that would be funny.
$400 a day? That’s nothing. Mine dropped $1,200 just today. Get with the program and don’t check your portfolio everyday. It took me sometime before I’m comfortable with the daily fluctuation.
In fact I just put in $10,000 today 30 minutes after the market opened. If every time the market drops and I beat myself up because if only I could’ve buy at the end of the day instead, I would drive myself crazy.
haha, here’s a tip folks: real men never blame women ;) for whatever they do!
What she saw, was some intrisec value RE hides inside, DID U KNOW in many countries in the actual civilized world (aka not post-colonial wanna-be self-proclaimed “democracies”) -the property tax is 0.1% anaually and not the rip-off 1% like here. The guy that has 4 houses is set for life and 3 more generations, for he can rent some (of course, cash, tax free) and pay 0.1% property tax at a cheap market value. Like $100 bucks a year! Whiners, don’t pity those, pity yourself.
For what that is living a free life my friend, straight as God intended! So now that you just realized how back legendary America simply fell behind under legalized exploitation … time to grow some and pay respects to Jawal’s wife’s…. way of thinking….
Garth, start a movement to cut municipal services and property taxes in half, stop the waste. Ah, that was Ford actually, and you did not elect him. HAHAHA! Pay through the nose… or eventually spread the word, man-up, take control of your life back, reinstate the democracy and power to the lower class, for which you might finally set yourself free :)
#72 Shawn Allen
I wholeheartedly agree with your post. You can’t use multiples of income as a guide without reference to the interest rate environment.
Just one thing: your estimate is a little off – the yearly payment on the 10% 25 year 100k mortgage is actually $10,734. So for every $100k house at 10% you need $35,780, so you can afford 2.79 times income.
Using the same calcs at 2.50% interest you get a yearly
payment of $5,375, you need $17,919 per $100k, and you can afford 5.58 times income.
So if you think these low rates are here to stay a multiple of 6 is more reasonable than a multiple of 3.
http://www.tdcanadatrust.com/products-services/banking/mortgages/numbers-resl.jsp
1 Year
6.300%
Garth, Why are the banks allowed to do this then?
How is this right?
The banks can do what they please as commercial enterprises. You, on the other hand, are working hard at tax avoidance. The RRSP mortgage guidelines state that interest must be at market rates. Nobody today pays 6% on a first mortgage. Stop trying to game the system. Never works. — Garth
#47 SWL1976 on 04.13.15 at 7:48 pm
#206 JimH
You are so uncritically eager to throw the baby out with the bathwater when it comes to the MSM, yet you gulp down the kool-aid with an equal lack of even a modicum of skepticism when ‘the truth’ is offered up by your internet sources when it comes to global banking, markets and “chemtrails”
Now there is no need to go into the chemtrail subject, but seeing them with my own eyes is proof to me. Now I don’t gulp down the kool-aid when it comes to my ‘internet sources’ I have been observing and studying this subject for years. Once you connect the dots and see how the pieces fit than it is easy to see where all of this is going.
The one thing that I find interesting about the skeptics to the truth is that they often say ‘that could never happen’ or ‘that’s impossible’ and that is the end of the conversation in their mind. They don’t need to prove that it could never happen or prove that indeed it is impossible, yet they expect absolute proof about the truth. I find it very narrow minded.
No I don’t believe everything I read or every video I watch, but the broad message is there and it is easy to see where this is going.
For once it would be nice if a skeptic of the truth had to fact check the fact that something is indeed impossible.
———————————————
The alien cabal is coming, run, run, run. Chemtrails everywhere to soften us up for the coming FEMA internment camps… run run run.. one world government, jade helm 15, agenda 21..it’s all going down. The truth is out there.
Smoking Man: Its BILDERBERG, if you are going to say something ludicrous, at least spell it right. Put down the Scotch.
Today’s post, could be the story of my life. My sister gets it and like my Family (*full disclosure here) – we trust Garth and his incredible team to mange our money. It’s a very difficult and only for the most skilled.
Sadly – we are in the minority. Friends think I am less a man because I, sniff, rent, in Vancouver.
People are shocked when they say we sold our Apartment building and won’t be getting back in, any time soon.
They sneer.
Let them. They are about to find out that Mr. Turner has been right…..all along. he has begged, cajoled, joked, been stern, and it doesn’t matter….some people will never get it.
I have pals that think Credit cards are great and so I stopped the dinner party, Saturday with this quote from my Credit Card statement – it says it all.
Ready>?
My Bill is $1790.00 bucks. If I made the minimum payment of $10.00 a month > the debt would be payed off in, wait for it – 13 years and 11 months.
That was greeted with some flurry of discussion, I can tell you.
I am getting obsessed here. DEBT = death.
Hey Garth!
You’re a big reason why we’re still renting (and lovin’ it). I emailed you about all of this back in ’09, we also saw you when you came to speak in Vancouver. I found you by google searching “the truth about real estate” because I wanted something refreshing to come up in my search results NOT written by a realtor. And there you were :)
Me and my husband are early 30’s. Basically we spent the first years of our marriage renting a cozy suite, paid off student loans, used the rest to pay for a little more education, travel and be able to eat real food. We’ve put money into investments, RRSP’s, and some RESP’s for our kidlets. We rarely have heart palpitations about money. Now we rent a nice home for a steal of a deal.
Does having “our own home” (aka “our own borrowed home from the bank”) entice us? Sure, we have our moments, but I reeally don’t want to be a sucker and buy into this market.
I remember when my parents sold their beautiful home back in 1995 for only $525,000 in the lower mainland – granite counters, double bay garage, huge private yard, hot tub, etc. I don’t even want to know what that would cost right now. Decent, basic, family homes at the time were in the $200’s and now they’re in the 500’s.
I will wait for a real estate correction, and I don’t mind that it’s taken longer than we all predicted.
What’s been hard is that there’s hardly anyone our age we can talk to that’s of the same mindset. It’s hard to get through to other young adults that this lifestyle is advantageous. You’re absolutely spot on that houses have become an obsession. I don’t know how to be a voice to our generation because it’s falling on deaf ears.
Those that truly want to challenge what’s mainstream and be the author of their own future will seek out (and implement) advice like yours.
Thanks Garth.
My thumbs: > Please amend to read:>
It’s a very difficult job, and only for the most skilled.
That’s what I get for taking a shot at Smoking man. LOL.
#63 try not keeping up with the jones’ on 04.13.15 at 8:16 pm
#52 Van Doom
I get where you’re coming from and felt quite the same for a while. Until I realized that native Vancouverites are just being brainwashed into buying their own real estate again and again. HAM may have set the bar higher but it’s not their fault when Vancouverites can’t keep up with them. Just stop trying to keep up with the Jones’.
I agree with that bit. As the great Quentin Crisp once said, it’s a lot cheaper to drag the Joneses down to your level.
Your comments make a lot of sense. Great food for thought. Thank-you. This is our 1st go at helping an engineering student towards success at school, the
program is tough. Having few distractions is very important. More important than the investment idea and strategy.
Yeah, OTOH, I do know plenty who did make it through the program with room-mates. But rarely in 4 years. There can be some benefits to being more ‘social’. A lot of it would depend heavily on your son’s personality, but first year in engineering was, by far, the most stressful, and the most “weed-out” of times — and basically set the tone for one’s success or failure in the entire program. Roughly 2/3rds of the students who started the program left the program by the time 2nd year rolled around — roughly half due to poor academic performance (“required to discontinue”), and the other half due to displeasure with the workload and the stress.
Were you in a co-op program?
I worked summer jobs relevant to my field of study, and ran a small import business on the side, but no, I was not in a formal structured co-op program. They simply weren’t very popular at the time, and were more geared towards academically/financially failing students who needed a break and/or needed financial resources. Its a somewhat different world now though, so please don’t take my comments of my experience 20 years ago as being particularly relevant to today.
I have a friend who teaches engineering technologists at SAIT, and he remarks that students who are into significant video gaming almost always flunk out of the programs he teaches in. So if that describes your son, proceed accordingly.
So here’s the story
Reading this blog forever, four years ago I moved to southern ontario and said no house they are going to go under. I lost wife won.
Four years later I sold my house in three days and made $25,000. Not the greatest return, but made money.
Moving to Vancouver, I am winning the argument to rent. Here is the wife’s arguement. But honey explain this Garthie thingie to me again, we invest the $400,000 at 10% and rent for free????
But is that not risky and all that $3,000 a month is waisted paying rent. Here she comes……….
Honey darling lets by a $500,000 condo and we get $100,000 mortgage, then mortgage, taxes and condo fees are only $1,500 a month. Are we not better off with a mortgage. We save and drum roll $1,500 a month
Groan,
I really want to be liquid and rent, but I got as far as rent for a year till we find a place.
Help I know the math is not the greatest but I want to rent. No other debt, and have a defined pension and $100,000 in two TFA. Why does her logic sound good?
http://www.moneysense.ca/columns/loan-yourself-a-mortgage
Garth, I am certainly not trying to bend tax rules. I am trying to know the rules the best I can with the info provided by the banks, tax specialist and the above article. See this article by a Canadian Magazine that goes over this strategy. I am trying to read, learn and invest wisely from both a tax perspective and with common sense. If you ran the CRA I guess I will take your word for it that I won’t be treated the same as a “bank” lender for a first mortgage. Though I do not understand why the lending rules for the bank are not the same as they are for sheeple. Perhaps I am just dense and don’t get it.
In Ontario, the Liberal gov’t announcement of a cap and trade tax grab will only make things more worse for home ownership. Gotta replace the shingles? Price has gone up. How about a new deck? Prices are up. Uh oh, it’s 35 degrees with the humidity and the AC is not working. Too bad the price has gone up. How about a new kitchen? New bathroom? Hardwood floors? Paint? Too bad, so sad, it’s now more expensive.
Asset = something that puts money in your pocket.
Liability = something that takes money out of your pocket.
Not only are RE prices at unattainable levels without mounds of debt, but the cost to own a home is on the rise too. Monthly mortgage payments is what everyone looks at but they always forget to add in all the other costs, and they don’t realize it until they move in. By that time it’s too late.
” I don’t know how to be a voice to our generation because it’s falling on deaf ears.”
Little point in trying to convince the world of your views. Much better simply to take advantage by buying up the out-of-favour assets, watching the whole mess collapse, and profiting.
When you’re 55, and your big mortgage at the peak of the market friends are fretting about being unable to ever retire, you’ll thank your lucky stars that you had a good eye to value and a balanced portfolio. Which may even, probably even should eventually include buying a principal residence when prices return to more reasonable valuations.
To the contrary, I recommend to lead a much more balanced life….get the degree and live with some interesting people while doing it, else risk becoming anti-social dweeb….every
True, however, the risk of getting a bad roommate situation is so extreme, especially as a young person starting out without the wisdom and/or discretion that many older people have, that its pretty hard to recommend it. At least for a first year student.
Now, if its with someone known to the family previously, or with a girlfriend, or even someone known from school after a person’s gotten to meet someone, then I definitely would consider making an exception to my comments. But looking for ‘roommates’ as a first year student, at random — forget about it!
Garth, Why are the banks allowed to do this then?
How is this right?
The “posted rate” is a sort of default, back-up rate, that the banks use when they lack a full slate of underwriting information on a renewal borrower. It also serves as a reference rate for a particular term against which discounts are granted, and is incorporated into the calculation of the IRD (liquidated damages) if a loan is repaid early.
Mom at Home- You better encourage your son to get some valuable (paid) co-op internships while in school.
Engineering is a pretty tough racket in this country these days.
Great degree to have though.
Gartho baby,..I’ll take the broads… I’ll dispense with the dogs.
Checkin’ my bright post to you in January it follows that if the monkeys drop rates Wednesday, the a measurable black hole will appear over the big white north in October-November.
Oh yes.. vodka bitte !
Superb occasion to make some honest dough.
Look at the morons in that picture… think of the fact that they all vote.. :)
Oh “La Plus Meilleure Pays du Monde” :)
Garth – You use to say, in terms of a housing market correction, a long slow thawing off was in the cards for Canada. With rates now lower, hormones and emotions jacked up, is your prediction still valid or is it now adjusted?
#84 SWL1976, you can tell I am not defending the FederalReserve and the Bank of Canada.
I am for improving arguments so we have credibility and cannot be called ignorant.
Their credit booms and asset inflation and 2% cp inflation targets are damaging the economy (eg. housing) and empowering the world’s semi-communist-semi-capitalist governments, Jihad Barry-USA, ECB-Europe/Greece.
It is not the simple mechanics of banking that are wrong. It is mostly the grift it turned into, by way of 30x leverage and merger of banks with investment houses and insurance and the subordination of deposits to repos, which skim off all the good collateral in a crisis before depositors get paid. That is not the old structure of banking. FSB-Carney adds patchwork to the quilt.
I think interest rates are too low because the income streams have been competitively captured and there is not much room for error by the new loser central banking computer models making it up on volume, not price.
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#84 SWL1976 on 04.13.15 at 8:51 pm
#38 Oot of the Hoos – As you explained. It is clearly very, very advantageous to be a bank… Almost like the system was rigged.
Hence, the Federal Reserve Act 1913
To the contrary, I recommend to lead a much more balanced life….get the degree and live with some interesting people while doing it, else risk becoming anti-social dweeb….every academic worth his/her salt knows the best way to test out a new theory or thought is to expose it to rigorous peer review….which may explain why some of your more far-fetched thoughts are getting body slammed and choked out on this fine blog
I agree. The most successful engineers I know have balanced lifestyles. The antisocial ones always struggle in real life.
I just read that the SCHL (the one who insure mortgage) will increase insurance of 15% starting June 1 for those with a down payment of 10% or less.
(I cannot link the article, it’s a French article)
#67 Van Doom on 04.12.15 at 6:18 pm
“PUBLIC debate – anytime anywhere……so dont tell me Im hiding behind a keyboard. Ill film it and put it on YOUTUBE. Put your Taxpayer Salaries where your mouth is.”
It’s not a debate. You’re, essentially, blaming soldiers for the general’s poor planning.
PS: I don’t work for the government. Nor are the types of problems you complaining about exclusively committed by governments. Corporations aren’t perfect either. Plenty of waste in big corporations.
Dear Garth,
So sorry it feels pointless today. While you may not have been able to reach Jawal’s wife , like many of the blog dogs my husband and I are incredibly grateful for the financial perspective you’ve brought to our lives. I had decent financial sense but as an immigrant to Canada just couldn’t figure out the whole weird Canadian real estate lust thing.
Your perspective has steered us for the past few years. First it helped us stay the course renting and manage investments; then it helped us decide to buy within your Rule of 90, WITH conditions on the offer, with a BRA limited to a single offer. We got two price reductions out of the seller, too… the place was unloved and unstaged and we were prepared to walk away and keep renting if the seller didn’t meet our price. Our realtor looked upset every time I said “bubble” or “Garth Turner,” but who really cares what he thinks?
Thanks to you we are financially solid and underhoused — buying what we needed for shelter instead of gorging on debt that the banks would gladly have allowed us to take on.
#25 Waiting on the Westcoast on 04.13.15 at 6:57 pm
I think San Jose, CA, may be a place where large price movements ended up becoming the new normal. SJ was a real cow town in the early 70s with a little bit of tech (IBM); then, as the tech industry grew, RE prices exploded. According to Wikipedia (so who knows how reliable), “Results from the 1990 U.S. Census indicated that San Jose surpassed San Francisco as the most populous city in the Bay Area for the first time.[33] This growth led to the highest housing costs increase in the nation, 936% between 1976 and 2001.[34]”
House prices peaked 2 years ago and have fallen slightly since (the headlines you see from the Realtors are mostly only up because the sales mix has changed quite significantly favouring transactional activity in higher-end and brand new RE).
Readers should keep in mind that Mark has been unable to cite any source links for this opinion.
Because the opinion is wrong.
Its amazing to see how many people don’t work the mortgage calculator, and realize the pot of money they need to stop working.
I’ve figured for the lifestyle I want, the baseline is a paid for place to live, plus $1.25M.
The paid for place can be liquidated once you can’t tend to it, or the money runs out. But it solves the problem of ‘ya gotta live somewhere’, and over the hopefully 30+ years I’ll be mortgage free, its a better deal than renting.
So many are house rich/cash poor….its a timebomb for a generation.
#65 Obvious Truth on 04.13.15 at 8:19 pm
It’s actually stunning that most people think like jawals wife. Male and female.
They will work till they die and everyone else will take all their money. And they do IT willingly.
It’s amazing.
—————–
I am sorry. To me what is amazing is that someone would recommend borrowing against their house to invest in stocks. Lol. At least the so called “idiots” Jawal and his wife wil have a roof over their heads to call their own. Old people make ends meet. We need less money when we are old because we are boring and don’t travel due to health reasons. If Jawal and wife invest their homes equity in the market and it tanks then what do they have?
#7 David McDonald on 04.13.15 at 6:35 pm
It is hopeless Garth. Even great returns on investments (over 65 thousand in her TFSA) won’t cure the desire for owning a home. I argued until I was blue in the face but still couldn’t convince my spouse that renting was a good option.
——————-
Since the most a TFSA can be funded so far is $36.5k, you must be getting phenomenal compounded returns. About $29,000 profit over just a few years is staggering!
#92 aka Devil’s Advocate
“Now we are entering the information age but with it is coming a whole new economic paradigm, one in which finance is the engine that drives it.”
“…with each change in the economic paradigms there were people…entrenched in the ways of yesteryear left behind because they did not understand.”
Those whose finances are liquid and diversified will drive the “whole new economic paradigm”. They will be the “engine” best positioned, nimble and mobile, to grasp the opportunities of the information age.
Those “entrenched in the ways of yesteryear” buying houses just as their parents did, will find themselves tied to an illiquid asset and saddled with debt. They will be left behind because they do not understand that the old paradigm of the 30 year house and job are no longer relevant. They will be unable to ride the wave.
> Mom at Home
The TD Mortgage rate @6.30% you mentioned is one year open. One year close posted rate is @ 2.89%.
Big difference.
Anyways, I don’t believe you can apply short mortgage rate like one year (closed), but have to go longer.
I do believe you can do self-directed mortgage on rental property, expenses include CMHC premium, admin, set up fees can be tax deductible.
Simple rule is Self-directed mortgage normally advantageous when mortgage rates are as high as expected investment return.
Also, you are saying you are helping out your son in school, so your RRSP room, investment / repayment horizon maybe in question.
Self-directed mortgage is not very popular these days due to the low mortgage rates.
I personally know many people including professionals have wrong information on this product.
Chances are bank lender who is explaining this to you haven’t do this him/herself in entire career.
It is irreversible product, so I strongly recommend to seek real professional help.
#109 OttawaMike on 04.12.15 at 10:04 pm
“This blog needs less Mark and more cowbell.”
This blog is bold, refreshing and something I can’t quite put my finger on:
https://www.youtube.com/watch?v=mtqbk9pgPXw
#86 Smoking Man
I like it and I agree. Positive outlook is huge. Chicks definitely dig it. Especially if you have a six pack to go along with it.
#90 BG
Congrats on the gains!
Yessir. That is the plan and I am going to stick to it. Real estate in Toronto is a joke.
#94 Obvious Truth
Awesome response. Thank you.
I know I am going to be in this for the long haul. I’ve been reading this pathetic blog for a few years slowly educating myself. That is what forced me to finally bite the bullet, ignore all the real estate mania, ignore the doomers saying the world is on the verge of collapse (again).. and take the plunge. After all, I am not getting any younger and I feel like I’ve done enough due diligence to get started.
I will heed your advice and educate myself as much as I can. Investing is fascinating and the reward of financial freedom is the ultimate incentive.
I look forward to that 1000 or 2000 dollar gain day. 20000 is the ultimate goal, and I’m going to try my best to achieve it one day!
#104 Shawn Allen
Yeah it is difficult to comprehend losing money without actually spending it on something specific. I never gamble in casinos either. Definitely not used to this feeling.
I want to be where you are. A hardened veteran who takes the fluctuations in stride. Unfazed. Awesome!
#109 AfterTheHouseSold
Thanks for the link. Will check it out for sure.
#112 Beaman Local
Indeed.
I think Garth’s balanced approach is a happy medium between the two extremes. Perhaps at some point I will change (probably from greed or fear), but I am going to try to resist the temptation as much as possible. So far I have been able to resist the temptation to buy a condo in Toronto so that’s a good sign :)
2 questions for the blog dogs. I plan to rebalance in 6 months. What happens in the unlikely event that all my assets have depreciated? How can I sell off winners and buy losers if all have been losers? Do I just invest money I have sitting in cash? Or wait until there is some winner somewhere?
Also, even though I have a cash reserve for emergencies. I obviously still plan to save as much as I can and invest the proceeds. Where do I put this money? In the underperforming assets in hopes of restoring my optimal percentage allocation?
Thanks again,
MF
Oot of the Hoos # 38,
Your post is just a weak attempt to confuse.
———————————–
“I use my $100 borrowings, at 10% interest”
“I sell banker the 10% extra corn seeds for $10, which he has in his account.”
“I use the $10 to repay the interest.”
“That interest accounting entry is extinguished now too.”
————————————
Every other word typed, is irrelevant for the sake of this exercise.
So here’s the $10 question:
Were’d the banker get the money to buy your seeds ?
SWL missed it, but I didn’t.
Whether Banker, Baker or Candlestick maker, is irrelevant.
All three are constrained by the same monetary rules as you or I.
So were did the seed buyers money come from?
That right, he/she got it from some else whom borrowed it into existence…..
With interest : )
#TheDirector’sCut….
http://youtu.be/U4Z8PF-UfyU
You are WRONG! I love cats and hot men. FYI – women here too.
#65 Obvious Truth
I’m not sure what you do when logic, common sense and living for yourselves instead of others has no place in anyone’s conversation.
I guess housing has become all of that in the opposite meaning of what it should be for most people. They have become convinced that the opposite of reality is true.
Talk about conspiracy.
There wil be a lot of bitterness. I think for many it’s already beginning
***********************************
Nicely put.
What to do?
1) check out from the situation at hand
2) keep on preaching (fight the good fight)
3) invest accordingly – knowing the herds behaviour
4) ?
5) ?
Check out #housie on Twitter (promoted by TD bank). Brilliant way to inspire house lust.
Mark: “3) Its very hard to challenge people with facts and numbers. Especially if they’ve spent most of their lifetime shielded from the raw reality of it. People like me can explain that you get roughly 3X-4X as much value from a common stock portfolio, as you do a contemporary RE portfolio. We can back it up with numbers and facts. Yet for some reason, the math is dismissed and they go buy the RE instead. Yes, we can say, “I told you so” a few years later when it all blows up in their face, but pretty hard to make many friends that way.”
I’ve been in the bear camp since about 2006 and lost big time on real estate by not investing. The house i rent in Burnaby sold in 2000 for 300k. Now it’s assessed at 1.2m.
The buyer could have put 5% (15k) down and now it’s quadrupled. I went to
https://www.mackenzieinvestments.com/en/investor-education/tools-and-calculators
and entered 15k initial investment, a 7% annualized return, and added $1k/month subsequent investment for good measure. It came to $393,272. No taxes were considered. I figured the $1k/month would help offset the property taxes and maintenance that the owner would have incurred above and beyond the renter’s costs.
So I’m not surprised when real estate investors think you were crazy for renting. They DO see it all as a no-brainer investment. For many of them it has been a gold mine in the Lower Mainland.
Add to this that most people can understand real estate investment but find the stock market with its 2% MERs confusing and low performing.
My landlord enjoys driving by his investment. Since i started renting it from him in 2011, it’s gone from 800k to 1.2m. He could sell it to a builder in about 24 hours if he wanted to. So far I’m pleased he hasn’t but I expect the call any time. There are at least 3 houses per block in North Burnaby under construction. I pay under 2k/month for my 1.2m home and i’m hoping the landlord won’t sell because he thinks prices will keep going up, and he also probably doesn’t feel comfortable investing the proceeds of the sale. I think he’s the kind of guy that doesn’t trust the stock market and has made a fortune in real estate so doesn’t see the need to diversify.
I figure his motto is “If it ain’t broke, don’t fix it.”
#204 Sean on 04.13.15 at 3:47 pm
“The youth have been sold out by our government.
If I make 80k living/working in downtown Toronto and need to pay 1500-1700 to rent a 1-bedroom. Shouldn’t I be able to buy/afford a condo in a more reasonable price of say 250k or so, instead of the 350-450k range that prices currently sit?”
No, you “shouldn’t be able to buy/afford a condo in a more reasonable price” unless certain criteria is met. It’s not about you and your life. It’s call competition: for available units by renters; by investors trying to buy cash flow streams; by developers bidding up land values; by developers bidding up construction workers’ wages, etc. People with more money than you are playing under the same rules as you. If you want to buy a cheaper condo, move to a less expensive place.
————————————————————-
“We are getting screwed massively by having to pay an investors mortgage because we don’t want to take on insane 300k+ in debt to live in a shoebox with dim hopes of raising a family in one of the tiny and tinier units they keep building.”
Utter arrogance. Without those investors, the condo developers likely wouldn’t have broke ground on the place you’re living. So thank those investors for providing you with a place to live. Otherwise, go home to mum and dad. Or better yet: grow up.
————————————————————–
“Why can’t anyone explain who exactly these investors are that are buying up half the condos that go up and keeping the prices at insane levels. If you actually lived in a condo you’d see how insane it would be to put your trust in some amateur board for a lifetime of debt.”
They are boomers, first and foremost. Then it’s the millennials with aid from boomers. Then it’s immigrants moving to Canada.
PS: I live in a condo in DT TO. It’s owned by some Uzbeki boomer couple that live in Milton. As far as I know, they are hard working people who’ve saved up money and are now semi-retired (they seem to be on vacation when I call).
PPS: This is capitalism. Get used to it. It’s not going anywhere.
So smoking man you are an anti Baxter in support of penile cancer for our men?
Any cancer vaccine out there I would gladly take because I have seen the disease up close. Unfortunately I am too old for it.
Anti vaxxer.
Regarding Jawal’s story.
Mortgage free. $200k invested. Some CPP coming later in life. And $130k annual income at the age 54. Kids should be out of the house on their own by now.
Jawal, how much do you bring home? $6,500 – $7,000 a month? Can you save $4,000/month? That is $48,000 a year to add to your $200,000 that you pull out of mutual funds.
By any standards it is more than enough to jump start your portfolio ($200,000/start + $48,000/yearly) so in four years you should have something to fall back on (half a mil).
If saving $4,000/month is not possible, than try at least $2,500/month. I ran some numbers and in ten years you should have $840,000 invested with 7% return.
Stay by your wife, Jawal. You will be fine.
#70 MF on 04.13.15 at 8:26 pm
[…]
That was Friday of last week, and my portfolio has lost 400$ since then. Again I was expecting fluctuations but 400$ is a lot of money to me (a whole work week) and it’s tough seeing that, even as a unrealized loss on the screen.
Look at it this way. The instant you buy – anything – the money is GONE. Not 30 minutes later, or a week later, or a year later. Instantaneously. So you’re not losing anything just because quotes go down.
Market quotes are just what some unwashed heathen sold something to another one for, a couple minutes ago. It has nothing to do with the value of whatever your stuff is. ‘Your’ stock price can be bouncing around like a basketball between two teams on amphetamines. Doesn’t matter.
Your value is what sum total of the future income stream of it is into the distant hazy future, plus final purchase price. If it goes up quite a bit in the meantime, sell some off. If it tanks, buy some more.
Just don’t buy too high (like most everything is right now) or you’ll suffer a big drawdown that you’ll have to wait out for years. Just like housing. That goes for both stocks or bonds. A lot of the big boys are in cash these days.
Make sure your investments right now are higher interest bonds which you’ll get your money out of in a couple of years, and preferred shares that pay dividends which won’t get yanked anytime soon. Gotta have that cash flow in this day and age of deflation. A little moonlighting on the side would be good too for diversification.
Re the comments about how to handle “paper losses”.
Many years ago I traded options. From home. I had a terrific screen beamed via satellite out of Denver, for a pittance compared to what a Canadian screen would have cost. I did well for those four years, 72% options success rate, thank you. Of course I also had a real live broker.
ONCE I made it into the Barron’s options winners list,
with an IBM put which the broker originally thought was insane. I framed the thing. Some of my other favourite puts: Bre-X (ha ha ha), Canadair (wotta hoot!), Stelco (wotta joke). Humana (OMG). My calls centred on gold miners – and I got the idea that if you miss gold peak A, fear not, there’ll be an echo peak B (up or down).
I quit for a number of reasons but chiefly because of what I was: house husband and full time father. The brat could read the front page of a newspaper at the age of 4. Typed all his essays in Gr.1 and I thoroughly identify with housewives who give up a career for the kids. You can do this or that – but not both.
After cancer killed my wife – I dusted off the old texts and took an interest in the mkts again – firstly to preserve my sanity.
Took me two months to find a broker I liked.
If you don’t have – balls of steel – stay out of mkt investing. Currently the SPX is grossly overpriced. I don’t care how balanced, rebalanced and diversified your portfolio is (I hate the word portfolio) ten to one when your precious high-yielding preferreds tank, and tank they will, most of you will A) sh- your pants, and B) blame Garth.
His investment advice is presently solid, sensible, and will hold – until it doesn’t. Govern yourselves, quoting WashedUpLawyer, like an accordeon. But do try to minimize the self-satisfied bleating about how well you snore at night with your safe “portfolio” tucked lovingly under the pillow because – the devil Profit never sleeps and he’s watching you. With a grin. (Angels don’t trade.)
BARCELONA
Hey Mike 31
Barcelona is my fav place for a long weekend from England. Has everything, city life, shopping with low euros, easy beach access, great culture and great food.
I too have noted that prices for the city are well down and am thinking of a winter get-away studio flat. If you go small and inner city it would make a great Air B&B and so much cheaper than Paris and more interesting than Brussels. Probably pay for itself.
Northern Spain is more northern European by which I mean it has money and services work. Plus lots of low cost airlines flying in.
I really would check it out. Second choice would be Seville.
Saskatchewan farm prices going through the roof. No CMHC here.
1.08 Trillion moved illegally out of China last year.
Just coincidence. The locals are going crazy and printing monopoly money.
Let us just imaging that with some weird sort of financial alchemy, the government can continue to make Real Estate rise by 2% each and every year for the next 30 years.
Okay, lets look at it that way.
If you want to buy a small $500,000 duplex, you need to put down 10% or $50,000 plus another $20,000 for closing / transfer costs/taxes.
Now lets say your monthly mortgage / property taxes expenses are $2,500 per month vs $1,500 per month to rent the exact same place.
now lets say you can invest in the stock market and earn $10 per year return.
Take your $70,000 and earn $7,000 the first year.
Then you have saved an additional $12,000 for that year in less mortgage/taxes, so you add that $12,000 to the $7,000 and now you have $70,000 + $7,000 + $12,000 = $89,000.
Now do that each and every year for the next 10 years and at the end of each year this is what you get:
End of yr 1 = $89,000
End of yr 2 = $109,900
yr 3 = $132,890
yr 4 = $158,000 (rounding off)
yr 5 = $185,800
yr 6 = $216,400
yr 7 = $250,000
yr 8 = $287,000
yr 9 = $327,700
end of yr 10 = $372,470 or around $370,000
Now take that $500,000 house and rise it by 2% each year, and at the end of 10 years its $609,000.
So your for your $500,000 house you had to borrow $450,000. At the end of those 10 year you still owe about $420,000 on the mortgage. So $609 K – $420 K
nets you a gain of about $190,000. Subtract selling commission of 7% (about $45,000) and you’ve got a gain of $145,000. But now take away the $70,000 you had to put down in the first place, and now your gain is only $75,000.
So rent a place and have cash in the bank of $370,000
or buy a place and at the end have cash in the bank of $75,000 which is not much more than you started with.
Makes sense to rent these days.
#121 Garth, i agree no one pays 6% posted rate on the mortgage. But, try to break the mortgage. You will pay a penalty based on the posted rate. And that could be brutal.
#87, Mom at Home, do you want the Mother Teresa award? Unless you are looking after a bedridden Alzheimer’s patient, no, you aren’t doing anything particularly special. I worked in a large bank and there were working women and guess what, MEN of all things, doing just what you do and more, one guy was looking after a wife with MS and an elderly parent and working full-time. There was another woman with 4 kids including twins, who all turned out fine by the way, without having the benefit of Mommy around 24/7. There is nobody more self-righteous than a stay at home Mom is there.
Right now I am working full-time and arranging all the caregiving for an elderly neighbour with no kids that the hospital was about to discharge to an empty house to die alone in with no support. Never saw any Mommy in my area even notice he was alive. They never do anything for anybody that isn’t their direct family, it’s all my kids, my parents, me-me-me. So yeah your story worked on your husband, good for you.
#114 DA
From personal experience I can tell you that 15 years ago I could barely get a 300 k mortgage. And as of a couple years ago it seems I could borrow to almost infinity.
I think that has changed a tad recently. At least where I live. And in cottage country. Thank god. Hipsters were rummaging around for a while but the rules changed on them just in time. They were actually asked to put up real cash. And they disappeared along with their skinny jeans and audis. But they can’t just turn off the taps. They try to do it slowly. While shifting risk.
And yes eventually when tulip mania ends we have to go back to being productive. As the US among other countries found this out and the transitions were of course painful. But thats how markets work. It’s how you navigate them that counts. Garths approach charts a balance course.
That’s not to say I won’t still watch the odd episode of love it or list it with Hillary and Gillian. The last time I watched they put all the family bedrooms in the basement. Poof. Another unsellabe home in the post mania world.
god bless USA! The freest land where anyone may become President. Teach yours kids.
Letsee: 80s saw Bush Sr. as VP, then he became President. Next was Clinton. then Bush Jr.
Hilary was front and centre during Obama years (VP was Joe Who?) now she’s contending for 2016.
Almost 40 years of Bush-Clinton family rule. I can taste it.
#144 AfterTheHouseSold on 04.13.15 at 11:59 pm
I hear what you are saying but someone, be it homeowner, investor or state, must own the property which provides the roof over your head. You can rent or own it. Really, at the end of the day, a roof over your head costs money and there is no getting around that. Even if you own it free and clear there are maintenance and operational costs not to mention the opportunity costs associated of having hundreds of thousands of dollars tied up in that asset.
So, when you speak of “best positioned, nimble and mobile, to grasp the opportunities”, a landlord is not so far off taking advantage of such opportunities and will charge what the market will bear which will, ultimately, include a return on his/her investment for why would they do otherwise? Unless , of course it is a “state owned” property which I shudder the thought we might be headed that direction?
You can choose not to own and rent instead and that might suit your lifestyle but that doesn’t mean there aren’t costs a typical homeowner does not incur. You will, ultimately, pay someone to provide that service to you for if you do not no one will be of the incentive to provide it to you. Unless, of course it is the state, and the state, in my experience, is not nearly as efficient at such things, in the long run, as the private market.
Know what I am sayin’?
I love OurWayofLife in Kanada espoused by our glorious leader. What defines us is our Mission overseas. Spending billions. Dropping 500lb on their positions, conveniently locate in densely populated areas.
Where? I have no idea. Can’t find it on a map.
All I know is we must go Over There and Get Them. They sure are VeryBadMen.
Let me take this time to remind you all we have a Zero Tolerance Policy here at home. If your kid even attempts playing Cowpersons and Indegious People at school they will become suspended.
Re: David W, post 26
Hi David, our names are just a coincidence. Sorry.
I wish I was retired. Any advice for a young lad under 30 who’s married, working in a relatively stable gig, saving and renting?
My reply is to:
#148 Blacksheep on 04.14.15 at 12:24 am
Oot of the Hoos # 38,
Your post is just a weak attempt to confuse.
ooooooooooooooooooooooooooooooooooooooooooooo
Blacksheep, I included that part but I do have to add something to explain the accounting better, as you say.
It made me think.
Here it was:
“However, I owe $10 interest.
The banker shows a $10 debt owed by me and a $10 credit for himself, which you and I can say he logged into his accounting out of thin air.”
I add this:
The interest is an accounting entry. The banker increases the amount owed by the borrower by $10 and writes it in as an accounts receivable asset to the bank and the borrower does not get $10 added to his account, like he saw the $100 added to his account when he started the loan.
Instead the banker adds the $10 to (the banker’s) another account like it is earned interest, as he earned profit on the deal. He awaits the borrower to extinguish the interest owed part. (If you did study accounting this will make sense: It looks like a negative $10 balance to the borrower. The asset/liability double entry is really $10 as interest-asset and $10 equity or nearly-equity of the bank, so this works still: assets=liabilities+equity)
Where does the borrower get the interest to pay?
He sold the seeds to the banker.
When the banker pays the seed owner, the banker uses his $10 asset and his $10 nearly-equity double entry simultaneously. That extinguishes the borrower’s negative $10 balance.
The complex part for me is explaining how to do the negative balance of the borrower as an accounting entry. I invented that nearly-equity of the banker acccount instead of working with the borrower’s account. It works.
Closing the loop in an economy clarifies the outcome. I show the banker spending his earned interest as: taking part of the excess production of the borrower for his own consumption. It cancels all the accounting entries.
Printing the interest is not required.
The accounting mechanics are interesting to me. I am still certain I am correct. I can’t dominate the comments section with boring stuff. I hope that was enough.
Front page headline on CNN.com today:
“Canada’s economy is a disaster from low oil prices”
-spending reductions
-most LNG projects to be cancelled
-GDP “fell off a cliff” in January
-on balance low oil prices have been an unmitigated disaster
-“contagion” leading to falling house prices and a lower stock market
-consumer confidence and hiring at lowest levels since 2009
-high household debt, now the “rug pulled out” from under the economy Canada is heading for “a day of reckoning”
Shocking Teranet index , as predicted Tor or Van up nicely.
Shocking is Calgary. M/M up 0.19. Y/y up 4.37. Y to date -0.83.
I was ad expecting a slaughter….
What the hell.
#167 };-) aka Devil’s Advocate — “So, when you speak of “best positioned, nimble and mobile, to grasp the opportunities”, a landlord is not so far off taking advantage of such opportunities and will charge what the market will bear which will, ultimately, include a return on his/her investment for why would they do otherwise?”
I agree with the premise, but not the conclusion. Landlords (as a group) are (usually) compensated for taking risk, e.g. tenant, interest rate, neighbourhood, etcetera etcetera.
Some landlords manage to buy low, sell high and get below average vacancy/bad tenant losses. Those gains must be balanced out by other landlords who get screwed, to make the averages work. As well, there are times when it’s good to be a landlord and almost all prosper, and times when almost all lose compared to other opportunities.
Trading and Gambling vs. Investing
Nagraj on 04.14.15 at 3:20 am
Re the comments about how to handle “paper losses”.
Many years ago I traded options.
…
If you don’t have – balls of steel – stay out of mkt investing.
***************************************
Nagraj, you were not investing. You were gambling.
Trading options is a quick zero-sum game (negative after commissions) The traders as an entire population ALWAYS lose after commissions (every month, day, hour and minute).
Investing is a long-term gain of owning businesses where profits are made from the customers of the business and not primarily from other investors.
Stock markets are a combination of trading and true investing. Focus on the investing part to be a winner.
Yes, some traders win, most lose.
In the long term ALL index investors win. (Yes, ALL.)
Some stock pickers do better than the index, most do not.
Stock pickers as a population always trail the index, every year, month, day, hour and minute, due to costs leaking out as trading costs.
#77 Baz on 04.13.15 at 8:34 pm
thx for your blog Garth .. I guess it’s not easy to write an article every day !
The pay sucks, too. — Garth
—————-
Just pay yourself $1 a year like Steve Jobs did, and continue trying to make a dent in the universe.
I think it was Einstein who said that 94% of people were illogical.
Love your blog. Read it with my coffee every morning. I am a struggling student and maybe you could write a post about the best steps to make financially once graduated. You could discuss the best approach to paying off visa and student line of credits fast while saving in TFSAs.
“Readers should keep in mind that Mark has been unable to cite any source links for this opinion.”
I’ve cited plenty of sources. Its not opinion, its fact that there has been a significant shift in the sales mix. You pretty much have to have been living under a rock to not have seen the substantial changes that have been occurring in the markets over the past 2 years.
Readers should keep in mind that nearly everything you’ve posted to this blog has been uncalled for insults and trolling of one person in particular, and that has been me. Almost no other value added whatsoever.
Dear Mom. I ran the CRA. You are offside and purposefully bending the rules. Your 6% will ultimately be disallowed. — Garth
———–
BOOM! End. of. discussion
#155 Not 1st on 04.14.15 at 1:29 am
———————————————–
Actually the vaccine for boys will help prevent throat cancers, as well as a smaller effect on preventing spread of cervical cancers (most girls should have the vaccine, but if the boy is vaccinated and the girl isn’t, there is a good chance that boy won’t be infected in the first place).
You can’t use ‘the numbers’ to show that investing in the stock market has been better than buying RE in Toronto and Lower Mainland because those 2 RE markets have been inflated beyond belief and prices continue to inexplicably rise.
Adding to this; RE is levered and generally, most stock investors don’t employ a similar amount of leverage.
It’s an unsustainable double boon for RE in these 2 markets.
2 questions for the blog dogs. I plan to rebalance in 6 months. What happens in the unlikely event that all my assets have depreciated? How can I sell off winners and buy losers if all have been losers? Do I just invest money I have sitting in cash? Or wait until there is some winner somewhere?
In that case, in a balanced portfolio comprised of a collection of ETFs or funds that make up various asset classes, some will be bigger losers than others. So you would sell (or use the dividends from) the less severe losers, to buy more of the most severe losers. Along with, of course, your new contributions.
The whole idea is that you do this over the long term, adding your periodic contributions along the way.
#166 TurnerNation
at least they have upped the production cost of the theatrics
I am pretty sure this year’s show features Bush vs Clinton vs Paul (Rand).
keep everyone entertained/hopeful
Easiest way to make a spouse shut up about owning a house? Make him/her buy the damn thing, and the other spouse pay rent.
Then again, it’s also highly likely this will lead to a divorce because “You don’t love me!”
For Freedom brah!
INSANE:
http://sothebysrealty.ca/en/region/british-columbia/greater-vancouver-real-estate/3
#10 Shawn Allen on 04.13.15 at 6:41 pm
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That is interesting, but a simpler view is that the largest cohort of people will soon be retired and hold most of the wealth.
So I would agree that the working poor will not be supporting this cohort, it is logistically impossible.
With my balanced portfolio funds I rent a 5 bedroom/3 bathroom house one block from the beach in Vietnam for USD300/month.
My teeth-cleaning cost USD12.
@Shawn Allen, post #174:
Stock pickers as a population always trail the index you say? That’s odd, in June of last year I sold off my holdings in XEG-T, and earlier this year I have bought it again, as well as USO-NY and sold both again recently for a tidy profit. Would I have been better off to have just held on to XEG all along?
Any opinions on this company called Fortress Real Capital? It’s syndicated mortgages but CEO has had a mixed history for sure.
Anyone investing with this company ?
#70 MF on 04.13.15 at 8:26 pm
————————————————
Garth’s advice is good. A play on that, you could promise yourself that you’re only going to look at your portfolio monthly (or bimonthly)…or do every 6 months as Garth says.
If you must learn one thing, learn this: for most people, short-term fear is stronger than long-term resolve.
Say it again.
Short-term fear is stronger than long-term resolve.
Don’t be like most people. Avoid the fear, and stick with it for the long-term.
And read the following post above:
#174 Shawn Allen on 04.14.15 at 9:09 am
#78 Outtahere on 04.13.15 at 8:41 pm
——————————————————
If you have 2 great pensions why would you sell your wonderful house? Unless of course if you want to be mortgage free in the short-term, then downsizing would make sense.
You have to live somewhere….
#177 Student on 04.14.15 at 9:44 am
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Try to consolidate your debts to a single payment (on a line of credit for example). Pay off your high interest debts first. Negotiate with the credit card companies to give you a better interest rate.
Don’t accelerate payments on low-rate debt (such as mortgage). Your money is better invested at 6-7% for the long term.
Once you’ve paid off your debts, start saving in a TFSA. If you make a ton of money and plan to live more frugally in retirement, save in your RRSP first.
Re: Mom at Home – Self Directed Mortgages
___________________________________________
My review of self directed mortgages shows that there is really not much a big financial benefit of these except when the interest rate that you ‘charge yourself’ is higher than the return that you can make with a similar investments in your RRSP.
However, I think there are benefits (potential financial) that make sense:
1. You have much more flexibility with annual prepayments of the mortgage. Even if you have a mortgage agreement written with prepayment penalties, who are you going to pay these penalties to?
Yourself of course.
2. There are no absurd, mortgage payout penalties.
Banks using the ‘higher or 3 months interest or rate differential calculation’ make massive amounts of money when people break their mortgage. These usurious payouts are a moot point if you hold your own mortgage. And even if your mortgage agreement includes a mortgage payout penalty, who do you pay this to?
Yourself of course.
3. Not paying Interest to the Bank.
Your payment of mortgage interest to your RRSP will not save you money, but it would feel awful good to not pay this to bank.
4. As a part of your fixed income component
Holding a mortgage as part of you fixed income component is a pretty safe bet.
If you can’t trust yourself to pay you who can you trust?
5. If you have maxed out your RRSP.
Holding a Self directed mortgage will allow you to contribute more to your RRSP if you have no contribution room.
The contributions, being a return of capital, are not tax deductible.
Frankly if you were to write yourself a mortgage of 5 years at 4% I cannot see why CRA would dispute this.
6% seems a little high and may be reviewed.
Garth,
I’m not sure I see how using self directed mortgages can be seen as a tax dodge by CRA.
All money comes from your RRSP, has to be paid back to your RRSP in after tax dollars without a deduction.
And it all gets taxed when it comes out.
1. Is this strategy tax avoidance?
2. Is there a way to vette such a mortgage with CRA prior to setting this up so that you can be sure what you are doing is not offside with the taxman.
It sounds like Mom at Home may be getting some bad advice. But is there a way to get some good advice?
more pigg propaganda:
http://www.thestar.com/business/2015/04/14/house-prices-in-toronto-vancouver-hit-record-in-march.html
“….And hot women.”
***********************
Hey! Speak for yourself! LOL
#9 Let’s talk: “I would love to discuss all the fine details of the balanced portfolios… Let’s talk about how to make the most money possible?”
*********************
For the ‘fine details’ you’ll have to hire (for the lack of a better word) yourself a financial advisor — that info isn’t free.
So many otherwise smart people I know view home ownership as a necessary milestone in life. Gotta get married, have a kid, buy a house, have another kid, all in the span of 2-4 years. We millennials lack the finances to pull it off, especially here in Vancouver, but the cultural nesting instinct overrides the financial picture every time.
Stock Pickers as a Population Trail the Index
Doug in London on 04.14.15 at 10:28 am
@Shawn Allen, post #174:
Stock pickers as a population always trail the index you say? That’s odd, in June of last year I sold off my holdings in XEG-T, and earlier this year I have bought it again, as well as USO-NY and sold both again recently for a tidy profit. Would I have been better off to have just held on to XEG all along?
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You are an individual. Stock pickers as a total population always trail the index since the index is or should be the average of all investors. The indexers are ALL at the Index. Therefore the active stock pickers on average are also at the index but trail it after costs.
I too am stock picker. I did say some will beat the index, but only due to other stock pickers trailing the index.
Stock pickers like you and I must understand that while the index rises over time, trying to improve on the index by picking stocks is a game at which the average investor MUST lose while just under 50% can win before costs and some lesser percentage after costs.
To Pick Stocks one must logically believe they have some edge of skill or knowledge on the market.
Many explicitly or implicitly believe this. For some it is actually true.
Guess who got laid off today in Edmonton? :( Consolidating the other buyer from the semi-local other plant (That’s shutting down in Aug) to cover my work temporarily, and then who knows… I’m sure even though my position has been “Eliminated”, that the other buyer will become full time at my position once their plant shuts down in Aug.
Not a fun time in Edmonton. At least I rent (For this very reason) and can pack up and move if I find something down in Calgary (Good luck right now).
#198 Shawn Allen: You are an individual. Stock pickers as a total population always trail the index since the index is or should be the average of all investors. The indexers are ALL at the Index. Therefore the active stock pickers on average are also at the index but trail it after costs.
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If a stock picker rarely trades, and has a reasonably large portfolio, his costs can be negligible.
Example: 10$ commission on a $10,000 buy.
I you keep the stock for 5 years and then resell it, your cost is $10 x 2 / 5 = 4$ /$10,000 = 0.04%.
Given the ‘Mom at Home’s hubris “If you ran the CRA I guess I will take your word for it”, I bet $1,000 she still tries it her way. “If you ran” Do you not know who Garth Turner is?
And Mom at Home — I have two teenagers, work FT, make 3x more than my husband, and we are thinking of selling and renting – might as well downsize now and make use of the equity we’ve gained. We don’t need a 2500 sq ft house for three, soon to be two, of us.
We also know how much university costs — that’s why we have RESPs. We’re not leveraging equity to buy a house for them to live in. That’s a silly decision right there.
Thanks for sharing the non-conformist message, Garth. People who actually *are* rich generally understand that wealth acquisition and financial security are contrarian – you don’t get there by doing what everyone else does.
Dollar and debt shock is closer than you think…if you can believe the IMF….reality sucks.
Cascade of woes coming…
#172 Smoking Man on 04.14.15 at 8:48 am
Shocking Teranet index , as predicted Tor or Van up nicely.
Shocking is Calgary. M/M up 0.19. Y/y up 4.37. Y to date -0.83.
I was ad expecting a slaughter….
What the hell.
==============================
February was frozen.
March was momentary madness.
Hamburger town is anything but heaven.
It’s not a debate. You’re, essentially, blaming soldiers for the general’s poor planning.
PS: I don’t work for the government. Nor are the types of problems you complaining about exclusively committed by governments. Corporations aren’t perfect either. Plenty of waste in big corporations.
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This is Canada not the Soviet Union….where in fact we were taught as soliders to kill the “few”officers first in the 80s because there were so few of them….the soldiers would run ammock with no leadership.
On the contrary……the opposite is true here. We are so fat and bloated with managers in Canada’s public sector that all they know how to do is “keep the ball rolling” and waste as much money as possible.
My wife is a physio. Her boss is some MSc Social Worker who is 32, makes 70K a year and knows NOTHING about physio therapy……multiple this by 1,000,000 and welcome to Canada’s muni, prov and fed public sector…..
And in the private sector……they are not accountable to pissing away MY money like the public sector. Which of course is an oxymoron…..because there is ZERO accountability in govt. The occasional reprimand or firing or moving of some minister or worse “deputy (overpaid) minister” is a rounding error of 0.001% relative to all the money all the rest of the “managers” piss away every year to justify their jobs. I hear about it every day.
“Shocking Teranet index , as predicted Tor or Van up nicely.
Shocking is Calgary. M/M up 0.19. Y/y up 4.37. Y to date -0.83.
I was ad expecting a slaughter….
What the hell.
“
The Teranet methodology for constructing their index makes it pretty much useless for anything but longer-term trends. With pretty significant lag between price changes occurring, and actually showing up in the index.
So no, you are not going insane.
#155 Not 1st on 04.14.15 at 1:29 am
So smoking man you are an anti Baxter in support of penile cancer for our men?
Any cancer vaccine out there I would gladly take because I have seen the disease up close. Unfortunately I am too old for it.
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We are not anti-vaxxers……we are anti death, autism, allergies, diabetes or a myriad of other vaccine disabilities that are continually covered up by Govt and big pharma. When was the last time the “news” talked about the 3 billion dollars paid out by Big Pharma for vaccine related disabilities lately? Yes…..exactly.
I’m crazy? Go read the inserts for yourself…..
http://vactruth.com/vaccine-inserts/
You are anti-government, anti-immigrant, anti-vax and pro-alien life forms. I suggested yesterday that you leave. It’s now official. — Garth
#111 Mom at Home on 04.13.15 at 9:57 pm
#102 Mark
Your comments make a lot of sense. Great food for thought. Thank-you. This is our 1st go at helping an engineering student towards success at school, the
program is tough. Having few distractions is very important. More important than the investment idea and strategy.
Were you in a co-op program?
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Mark is a muppet, you should ignore him. Speaking as an engineering alumni of the U of Waterloo (that school is no joke) I would strongly against having your son live on his own, it is a terrible idea.
Having roommates is a huge part of university and a great life lesson. Some of these people also become lifelong friends – the kind you network with and go to weddings for. Why purposefully avoid this? Engineers in general skew to being less social than average, yet these soft/people skills often are what separates future leaders/managers from those who plateau financially stuck in a technical box. You do not want your son to be a mouse, you want him to graduate as a confident and assertive young man.
Also real talk – your boy is going to get drunk a handful of times while in school, it’s no big deal. Do not try and shelter him from this. Just have a talk about the difference btwn having fun and binge drinking.
Your son should go into residence in first year (preferably a co-ed dorm) so he can make new friends (and potential future roomates). If he likes the program you can look at a house for his second year IF the housing market is favourable.
Remember, Mark is the guy who claims housing in Toronto is cheaper now than it was 2 years ago, which is a blatant lie. He is a fraud and likely either a crappy engineer or someone who is borderline aspergers and can’t get along with others.
Also, going the no roomate route is more likely to make your boy turn out to be a beta woman hater like Freedom First.
I’m not sure re any “Agenda 21” but clearly in Ontario they are herding us into shoebox city condos and bankrupting us via highest utility prices and cap n trade. Protests have erupted over the new and perverse sex ed changes for grade 3.
The way is clear. Government re-education camps. History has proven. Did you really think we are different? dissenters might be drugged. One study proves everything apparently.
Things are really speeding up.
#171 Dominoes Lining Up on 04.14.15 at 8:48 am
And yet our loonie shot up to ¢80 today. WTH?
#158 Republic_of_Western_Canada
Thank you for this.
I am starting to understand how valuable the income stream is. Before educating myself I thought “investing” consisted of GIC’s, housing, and stocks. I figured stocks were all unrealized gains and losses and I had zero idea what a dividend was.
That said, I am a little worried that I bought high. A lot of folks are saying everything is over valued right now. Thing is I have been consistently hearing that for years and as a result, I’ve lost out on a lot of gains. I was a little tired of waiting and of missing out. It seems the consensus is everything is always overvalued to everyone. A buddy I worked with thought housing was overvalued in Toronto in 2004 lol. Like Garth says: fear paralyzes.
As for bonds. This is an area I do not fully understand yet.
->(Garth maybe you can touch on the bond market at some point?)
Right now I have a Vanguard bond index. Looks like it is a lot of Government of Canada bonds with differing maturities, some municipal and provincial bonds and some corporate stuff too. I am not quite sure what the average interest is, but I doubt in this low interest rate environment it is any good. The prefs I have a Canadian ETF for.
Amen on the moonlighthing.
MF
#118 Randy Randerson
Lol yeah I spent 10 G’s a few times on Friday and was glued to the computer for a few hours watching my money go down immediately. The screen said “Welcome to investing MF!” ….with a slap.
Like you, I will learn to get comfortable with it though. i will learn to resist the temptation to look every 2 hours and stretch that to every 2-6 months instead.
#190 Bottoms_Up
Agreed and thanks for the advice on rebalancing. Shawn Allen’s post at 174 was solid as well.
“Short-term fear is stronger than long-term resolve.”
That should be the mantra of this blog. Maybe we could throw in the word “diversify” in there somewhere?
#182 Mark
Thank you for the great response as usual.
MF
#174 Shawn Allen
Very good post. “In the long term ALL Index investors win.”
Explains nicely why the bulk of my holdings are the Index variety -but- not all. Why? Simple, there is a place for a calculated investment. Will I win? Who knows right now.
Some call it a bet, well, yeah, that is probably true. Sector funds like healthcare, investing in the oil patch recently.
This represents a relatively small slice (12%) of the whole portfolio.
Your record suggests your approach doing much the same.
Happy Returns!
Congratulations, MF. You’ve done the right thing. You might even wait until late December to be sure you’ll feel good about what you’ve done.
The first $100,000 is the hardest, but I still have moments of nervousness when I pull the trigger. If I stopped feeling this, some of the thrill would be gone.
I agree with you about enjoying Freedom First’s point of view. Napoleon is supposed to have said, “Woman is the idle man’s occupation, but the warrior’s recreation.”
As a warrior of work, I love being challenged and amused by a articulate man with a hot body, but I’ve never wanted to make a career of being a caregiver and service provider. Life offers too much.
And so it begins. I walk along here in the mornings.
http://m.thestar.com/#/article/news/gta/2015/04/14/glass-falls-from-king-west-condo-building-injures-man.html
MF
You won’t know the market is too high without hindsight. If your name isn’t Franky Foreshadowing, don’t bother with whether the market is too high or too low, for all we know this bull market could continue another 5 years just like back in the 80’s. Of course you’ll hear the back-to-back record breaking market high in a bull market, but that doesn’t necessarily mean it’s in bubble territory.
Keep calm and buy on.
“Remember, Mark is the guy who claims housing in Toronto is cheaper now than it was 2 years ago, which is a blatant lie. He is a fraud and likely either a crappy engineer or someone who is borderline aspergers and can’t get along with others”
I beg your pardon? Housing being cheaper is not a ‘blatant lie’. Its a fact well supported by consumption falling off a cliff, rising risk premia, Realtors refusing to release full sets of stats for public scrutiny, a median price rising faster than the mean transactional price (ie: changes to the sales mix), and an increasing amount of public desperation amongst housing vendors.
Your comments, and the fact that you needed to resort to insults to even make an argument in debate are a pretty sad reflection on your personality and character I must say.
DELETED
#209 TurnerNation on 04.14.15 at 1:05 pm
I’m not sure re any “Agenda 21″ but clearly in Ontario they are herding us into shoebox city condos and bankrupting us via highest utility prices and cap n trade. Protests have erupted over the new and perverse sex ed changes for grade 3.
The way is clear. Government re-education camps. History has proven. Did you really think we are different? dissenters might be drugged. One study proves everything apparently.
Things are really speeding up.
………
The Ding Bat just lost the ethnic vote with Sex Ed..what an idiot. Budget coming , served with your Cap and trade.
Not only will this activest angry bird screw up Ontario, but the liberal party will get decimated in the next election as a direct result of her insanty.
But it won’t be her falt cause we are all homo phobs.
Someone please ask her to read basic economics for dummies.
Wanted to state a couple of things I had always thought to be true and get your opinion…
1. Owning rental property has and continues to be more attractive.
-32% rate of rental is astronomical
-Money is historically extremely cheap- and will continue to be
-Millenials are struggling struggling more than ever to buy
2. Single-asset equity is scary and could conceivably have negative effect on $900,000 + homes but how much?
-Canada has 250,000 immigrant/year (don’t underestimate supply/demand)
-Money is extremely cheap to borrow
-USA has 56,000 immigrants/year at 340,000,000 population, dispersed throughout over 100 main cities.
-We have 4 main cities (Toronto, Vancouver, Calgary, Montreal)
-Demand concentration like that is globally unprecedented!!
3. We can find arguments for both sides of the equation. But what drives prices is ultimately demand/supply.
-Without drastic changes to: Interest rates, immigration policy, bank leveraging or geopolitical issues, supply/demand still says prices should increase.
Perhaps if all baby boomers were to have a fire sale and all at once cash in on their assets, relatively expensive homes could see drops in prices. In which case I believe you’re still better off owning than renting.
Thanks for punting Van Doomer!
Did ya hear about the philosophy student who always visited prostitutes before an exam?
He liked to put the whores before Descartes!
Jawal and I viewed security as being life-long cash flow. She equated security with a debt-free house. ”
The security in a house is that if it’s paid off then it’s outside of the banker system, cash in isn’t.
It depends on what you trust, bankers who break laws pay fines in the billions or fee simple title with the government.
#166 TurnerNation
“Hilary was front and centre during Obama years (VP was Joe Who?) now she’s contending for 2016.”
Depends on what your definition of “contending” is. Ms. Clinton’s negatives are very high, has a huge amount of baggage from some very shady dealings, and isn’t even particularly popular in her own party. All she really has going for her is name recognition. Any Republican opponent would love to run against her.
You are anti-government, anti-immigrant, anti-vax and pro-alien life forms. I suggested yesterday that you leave. It’s now official. — Garth
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Thank you Garth, you are doing a VASTLY BENEFICIAL public service by banning such ignorance and preventing the spread of misinformation.
#171 Dominoes Lining Up on 04.14.15 at 8:48 am
And yet our loonie shot up to ¢80 today. WTH?
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Crude is up.
#201 DM in C on 04.14.15 at 12:22 pm
We also know how much university costs — that’s why we have RESPs. We’re not leveraging equity to buy a house for them to live in. That’s a silly decision right there.
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My thoughts as well.
Best,
HD
Amazed that anyone still uses their ‘real estate value’ on their net worth statement. real estate only has any value when it’s sold. Tap it’s value only creates debt. Go to borrow against it and find that nobody will give you more than 40% of the appraised value….and every one laughs at real estate ‘evaluations’. Bottom line….real estate as a non fungible asset class….is worthless…..until sold.
The couple mentioned has a couple hundred thousand ( if it’s in cash) ….seg funds have big redemption fee’s as well…never mind the fee’s…( ouch).
I will give seg funds one comment though…. they can’t be attached by the CRA as they are written under the Insurance Act….however you have to be needing that protection as a private business owner…otherwise you have no business owning one.
Looks like Toronto.Vancouver and Victoria still showing a strong demand for real estate.The only ones buying in these 3 cities are your high income earners.I make $45,000 in Victoria and is well below the average wage,so both spouses need to make over $120,000 to even consider buying a house with a family.In Houston and Dallas you can still buy a newer house for under $130,000 but they make half our wage .The prices will stop going up when the wages can no longer afford it.
“I feel kind of bad for Jawal, but he still needs to man up.”
Somebody has to lose.
Why should it be the guy who DID listen and DID act ?
If you don’t have the fortitude to save your own life, then maybe you’re better off dying ?
MF-
Welcome 31 yr old new investor!! Congrats on this new area of life. (I too appreciate Freedom First’s points of view).
You say you don’t understand Bonds. Good, you really don’t “need” them right now. You need growth, and maybe a few reinvested dividends.
Bonds (debt instruments) provide bouncy in a portfolio. A portfolio of equity ETF’s, or Funds, or individual stocks is likely to suffer from one of those periodic meltdown things where they lose up to 50% of their value for a time.
It has happened 1973-74, 2000-2002, 2008-2009 people panic, poop their drawers, sell low and say “never again.”
Bonds help cushion that downside drop, but owning them costs you FROM having spent that money on equities.
When you hit age 50 Change from 100% equities to say 80% equities and 20% bonds. At age 60 tone it down to 60% equities 40% BONDS. simple guideline here.
Growth comes from equities, stability from bonds. (REITS are a form of equities), (convertibles a form of Bonds).
Preferred’s are a form of Bonds as well.
Keep learning, keep investing, and don’t panic and think “oh shit” when values crash for a year….they’re “on sale” keep buying.
This way, you too can enjoy real Freedom…first. second and always!
Best!
#199 Mike in Edm on 04.14.15 at 11:49 am
Guess who got laid off today in Edmonton? :( Consolidating the other buyer from the semi-local other plant (That’s shutting down in Aug) to cover my work temporarily, and then who knows… I’m sure even though my position has been “Eliminated”, that the other buyer will become full time at my position once their plant shuts down in Aug.
Not a fun time in Edmonton. At least I rent (For this very reason) and can pack up and move if I find something down in Calgary (Good luck right now).
#200 Squatter on 04.14.15 at 11:51 am
#198 Shawn Allen: You are an individual. Stock pickers as a total population always trail the index since the index is or should be the average of all investors. The indexers are ALL at the Index. Therefore the active stock pickers on average are also at the index but trail it after costs.
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If a stock picker rarely trades, and has a reasonably large portfolio, his costs can be negligible.
Example: 10$ commission on a $10,000 buy.
I you keep the stock for 5 years and then resell it, your cost is $10 x 2 / 5 = 4$ /$10,000 = 0.04%.
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He said ” … the active stock pickers on average …”
BTW: Shawn Allen was spotted checking out a few McMansions here.
Other dogs?
Ricci heiress convicted of tax fraud (14 Apr 2015)
Nina Ricci fashion heiress sentenced for tax fraud on millions at Swiss HSBC (14 Apr 2015)
Transcripts of phone conversations between Ms Ricci and her daughter emerged in the financial newspaper Les Echos, in which she boasts about how she had changed banks to escape prosecution. Ms Ricci says: “I was never troubled. So I bought a chalet in Klosters, and now it’s fine.”
It worked on me! I’m happy to rent. I’m EXCITED to rent. I have a bigger selection of things to choose from, I pay less, my investments are growing and I don’t have to worry about selling a house if I want to move somewhere else.
I owned a house. I was miserable at it. I’m not cut from the same cloth my grandparents were. They loved having a garden and doing yardwork. I loathed that stuff. (I liked having a vegetable garden, I just hated actually going out and doing anything with it. I’m much happier with plants in pots. Still grow tomatoes, even!)
When we sold our house and moved, we took some nice profits. We hung onto the money while we looked for a place to buy…and then decided that there was no rush. We finally had some savings to start with. We won’t retire rich, but we’ll be able to retire if we want to. We’ll be able to retire even if the government never gives us a single penny of income. As long as buying a house means giving that up, I’ll never do it again.
My advice to Jawal would have been to always keep one modest detached house (not strata) fully paid out and never borrow against it.
Particularly that late in the game. The last thing they should be doing is borrowing against their backup plan (the modest house).
The fact is companies that you invest in come and go. General Motors tanked in 2007/2008. US Banks that were deemed “too big to fail” disappeared overnight at the same time. What do you think happened to all those older folks that took the same type of terrible advice that you’re doling out? They’re still on the street homeless or living with relative 8 years later.
If you think Canada can’t have that type of financial collapse, think again. Target, Future Shop, Sony….they must know something.
Always, always, always have a piece of RE that you own outright. Even if it’s a piece of dirt with a mobile home on it. You never know when you all your fantastic “paper investments” vanish into thin air.
I will agree that condos and any kind of strata is a terrible investment. Especially the way they are being built now, with built-in problems and obsolesence that are designed to bring the builders/contractors a second windfall 10-15 years into ownership.
#162 Waterloo Resident
“So your for your $500,000 house you had to borrow $450,000. At the end of those 10 year you still owe about $420,000 on the mortgage. So $609 K – $420 K
nets you a gain of about $190,000. Subtract selling commission of 7% (about $45,000) and you’ve got a gain of $145,000. But now take away the $70,000 you had to put down in the first place, and now your gain is only $75,000.”
Your conclusion that it is best to rent is correct. Your analysis is not.
Your gain is not calculated on your mortgage balance. You mean equity?
Your gain would be based on the net selling price versus cost base. Using your numbers:
Purchase price $500,000 + costs $20,000 + interest for those 10 years $105,000 (at the current 2.75%, 25 year amort.) + property taxes for 10 years $36,150 (City of Toronto current rate) = $661,150
Selling for $609,000 – commissions $30,450 (5%) = $578,550
Net : Negative $82,600
Oot der Hoos # 170,
“I show the banker spending his earned interest as:
taking part of the excess production of the borrower”
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Sorry, but you still cannot explain:
Were the ‘borrower’ gets $’s to pay the banker, (the bankers earned interest) in the first place. Did the ‘borrower’, borrow $’s from a different bank?
Did the ‘borrower’ exchange (sell) a good, service or labour to a third party, whom they had borrowed $’s from a bank?
Were does the money to pay the additional 10% interest (not, created by new deposit) come from, in the very beginning?
I think this why some people refer to commercial banking as Ponzi. $’s from future lending (deposit creation) are required to cover interest of the pre-existing debts.
Constant expansion is required.
There are only a few places where you can get these at an affordable price located near a major city.
Quebec is the only place I can see myself living, particularly the Montreal or Outaouais region.
As long as I can make my money outside and don’t need a local job.
My friend works for the government in Ottawa, lives in Gatineau, I feel for her sanity. She was always so ambitious but she gave it all up for job security. Not sure she’s going to last till retirement.
#224 Bottoms_Up on 04.14.15 at 2:12 pm
You are anti-government, anti-immigrant, anti-vax and pro-alien life forms. I suggested yesterday that you leave. It’s now official. — Garth
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Thank you Garth, you are doing a VASTLY BENEFICIAL public service by banning such ignorance and preventing the spread of misinformation.
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Omg what a suck-hole… This is the internet and it’s a comments section …..garth posts his email if you wana send him a gift basket and dating tape
It’s my blog. My rules. It will not degenerate into a wacko hatefest. Keep it up and you’ll be next. — Garth
Seems like a good time to say thanks, Garth. I’ve been ignoring the pressure to buy, with varying levels of discomfort, for about 8 years now, and checking back here helps remind me that I’m not insane. I’ve referred a few other horny idiots here, and it helped some of them. This blog might not change anything for everyone, but it does for some. So, thanks for being tireless, annoying, and occasionally despised!
3 times income is the often cited ratio for housing affordability. I think some regions in and around the GTA are still affordable. I would say the average family now has both partners working. My partner and I are both in our mid/late twenties and make around 140-150k. We bought a detached 3-bedroom house in Burlington for 420k. So with a sizable 100k down payment, we fall within the affordability range. When looking for a house/mortgage we actually based our budget and pre-approval on the smaller income of the two to ensure there was room for retirement savings, emergencies, life enjoyment, etc.
2008 Global Equity total valuations : $26 Trillion
Today: $71 Trillion
World is richer. Are you?
Sell Canada, Buy USA.
“Amazed that anyone still uses their ‘real estate value’ on their net worth statement. real estate only has any value when it’s sold. Tap it’s value only creates debt. Go to borrow against it and find that nobody will give you more than 40% of the appraised value….and every one laughs at real estate ‘evaluations’. Bottom line….real estate as a non fungible asset class….is worthless…..until sold.”
Very true. And RE typically does not outperform fixed income (ie: mortgages) over the long term. Owners of mortgage-backed loans become richer than owners of houses over time, even including the imputed return.
Mortgage credit, at best, offers an individual the opportunity to consume housing in the present, in exchange for diminished future consumption.
Earlier, I stated that the average house, brand new, takes around 3 man years to construct. If a person has 1/3rd of their income to devote to housing, without interest, this should be something that one can save for in 10 years.
However, throw interest into the equation, at typical long-term rates (ie: 7-8% is the average long-term cost of a mortgage in Canada) — and you’re looking at paying 1/3rd of one’s income out for 25-35 years, to pay for something that only cost 3 person years to construct in the first place.
Hence, the reason why bank shareholders tend to get a lot richer over time than RE-backed borrowers.
Were does the money to pay the additional 10% interest (not, created by new deposit) come from, in the very beginning?
I think this why some people refer to commercial banking as Ponzi. $’s from future lending (deposit creation) are required to cover interest of the pre-existing debts.
Constant expansion is required.
So very true. And ultimately unsustainable and prone to violent non-linear events, as problems of confidence arise when the logical boundary conditions of credit expansion are reached. Either inflationary or deflationary. Precious metals are the only meaningful protection one can buy to protect from these events ravaging portfolios.
#238 Calgary Rocks
“Quebec is the only place I can see myself living, particularly the Montreal or Outaouais region.”
Having lived and having family in both I can tell you that the real estate market has slowed down quite a bit in Gatineau over the last 2 years. Montreal is starting to as well.
Employment opportunities are a bit difficult, granted probably better than Alberta.
What are big factors are income taxes (much higher in Quebec unless you make under $100,000 with 2+kids in childcare) and access to health care is not the best. At least in Gatineau you can cross into Ottawa for health care.
” times income is the often cited ratio for housing affordability. I think some regions in and around the GTA are still affordable. I would say the average family now has both partners working. My partner and I are both in our mid/late twenties and make around 140-150k. We bought a detached 3-bedroom house in Burlington for 420k. So with a sizable 100k down payment, we fall within the affordability range. ”
It should be pointed out that the 3X ratio is typically for buying a house that is in-line with one’s income and “class” in the overall social hierarchy of the world. Combined, you make roughly twice the average GTA income. So you really should be judging affordability as though you were living amongst people with a similar level of income. Yes, a rich person can live in a ‘welfare’ community (ie: a community filled with people of significantly below average income) and might find it personally manageable, but it would not be correct to state that the area is affordable by traditional metrics.
I don’t know what the average household income is in Burlington, but I suspect its nowhere near $100k/year.
Additionally the down-payment typically doesn’t enter into the whole discussion of affordability. Obviously the young will have less of a downpayment than older. But an older house purchaser should not be expected to take on an amortization to quite the same length as a younger person because they simply have less of a working lifespan ahead of them. The return on a downpayment also contributes to income (ie: not too hard to invest your $100k down for $7-$10k of annual income if you follow the general rubric for a balanced portfolio as outlined by Garth!).
#170 Oot der Hoos on 04.14.15 at 8:37 am wrote:
Closing the loop in an economy clarifies the outcome. I show the banker spending his earned interest as: taking part of the excess production of the borrower for his own consumption. It cancels all the accounting entries.
Printing the interest is not required.
The accounting mechanics are interesting to me. I am still certain I am correct. I can’t dominate the comments section with boring stuff. I hope that was enough.
You are correct. I wrote a little spreadsheet journal thing showing the steps so that people can see how it works out. Here it is.
How interest gets paid
But the basic fact is that the banker has to eat, if nothing else, so he has to spend the interest on food which he buys from the farmer. If he doesn’t have the interest yet, then he has to run up a tab with the farmer which they settle at the end of the year either by calling it quits on the interest or by the banker using some of the principal to repay the farmer for the food, thus giving the farmer the $10 he needs to make the interest payment.
Otherwise the banker will starve to death before the loan becomes due.
“2008 Global Equity total valuations : $26 Trillion
Today: $71 Trillion
World is richer. Are you?
Sell Canada, Buy USA.
“
Canada has underperformed, the USA has outperformed. Rebalancing a balanced portfolio implies doing quite the opposite — selling off overpriced US equities, and buying relatively cheap Canadian ones.
Only very recently has the TSX even returned to 2008 levels (~15,200), so plenty of upside available as Canada catches up to the rest of the world.
#219 Smoking Man on 04.14.15 at 1:47 pm
#209 TurnerNation on 04.14.15 at 1:05 pm
I’m not sure re any “Agenda 21″ but clearly in Ontario they are herding us into shoebox city condos and bankrupting us via highest utility prices and cap n trade. Protests have erupted over the new and perverse sex ed changes for grade 3.
The way is clear. Government re-education camps. History has proven. Did you really think we are different? dissenters might be drugged. One study proves everything apparently.
Things are really speeding up.
………
The Ding Bat just lost the ethnic vote with Sex Ed..what an idiot. Budget coming , served with your Cap and trade.
Not only will this activest angry bird screw up Ontario, but the liberal party will get decimated in the next election as a direct result of her insanty.
But it won’t be her falt cause we are all homo phobs.
Someone please ask her to read basic economics for dummies.
___________________________________________
Yes dummies!
Oops. Missed a quote mark. Let’s try that link again…
How interest gets paid
Both my wife’s salary (after 2 job changes) and my consulting rate have pretty much doubled since 2008.
That being said, so have major expenses like rent and taxes, especially since we live in NYC right now.
So yeah, more money but not buying that much more than before. Not that I’m complaining, savings rate is still OK and we can always move somewhere cheaper at some point.
#241 20something
Did you notice the little head-fake you gave yourself, to try to make real estate seem like a good investment?
You tried to justify a $420K house price in Burlington (of all places) as representing 3x your household income of $140K, and therefore reasonable.
Not so fast, my dear millennial.
3 X income is indeed a good historical average range for house affordability.
But it is based not on YOUR income, but on AVERAGE income. In your area, that would be closer to $80K.
Any house in Burlington over about $250K is over-valued. (Like so many across Canada.)
See how real estate horniness messes with our minds?
You are not alone in this type of non-thinking thinking, and you have me empathy.
This is a good example of how we are all screwed in this RE-drugged economy and why the coming crash will be so hard for so many for so long.
“Otherwise the banker will starve to death before the loan becomes due.”
Sounds about right over the long run. Producers almost always win out over middlemen. But there can be a lot of volatility inbetween. In your case, the bankers appears to be awfully wealthy, but in reality he’s left holding a claims against production that simply does not exist.
Of course the banker can try and repossess the farm, pledged as security for the loan. But bankers lack the expertise to run farms, and almost certainly would see production collapse nonetheless.
The whole scenario is a metaphor for the contemporary economy.
That couple sounds exactly like my parents. Except my dad is 65. Mom is 61. And 90% net worth in real estate.
My brother and I will be supporting them in their old age. It’s the Indian way. We’ve made peace with it.
I’ve been struggling to get them to sell of a townhouse that they had invested in. In Brampton. Take the profits and run I say. They think houses won’t go down. This, despite the fact, that we landed in Canada, smack in the middle of a housing crash in 1991, and watched family friends lose money then. Some lessons need to be relearned….
And that’s my parents. Who have actually witnessed a crash. Most immigrants in the GTA have never seen anything like that before, so they don’t even have the imagination to conjure up that idea.
20 something:
[b] “3 times income is the often cited ratio for housing affordability. I think some regions in and around the GTA are still affordable. I would say the average family now has both partners working. My partner and I are both in our mid/late twenties and make around 140-150k. We bought a detached 3-bedroom house in Burlington for 420k. So with a sizable 100k down payment, we fall within the affordability range. When looking for a house/mortgage we actually based our budget and pre-approval on the smaller income of the two to ensure there was room for retirement savings, emergencies, life enjoyment, etc. [/b]
You are arguably among the most responsible of your peers. I’ve never known any couple that put 100k down. Most young couples I know base their mortgage decisions on two incomes. This leaves little room for savings and makes them particularly vulnerable to any shock in their employment. Stats bear this out. While your personal debt-income ratio is 3x, this is definitely not true for society, at large. A significant correction would be necessary for societal debt-income ratios to return to that mean.
So unfortunately, that means despite your sensibility, your home’s value is still subject to the irresponsibility of your (and my) peers.
#232 Lilliooet, BC on 04.14.15 at 3:05 pm
“BTW: Shawn Allen was spotted checking out a few McMansions here.
Other dogs?”
I live in BC…. Where is Lillooet? ;-)
I am checking our Van Island to check out farmland starting tomorrow… Wife is still on board not to buy but gotta keep the dream alive!
#251 Linda on 04.14.15 at 5:16 pm
#241 20something
Did you notice the little head-fake you gave yourself, to try to make real estate seem like a good investment?
You tried to justify a $420K house price in Burlington (of all places) as representing 3x your household income of $140K, and therefore reasonable.
Not so fast, my dear millennial.
3 X income is indeed a good historical average range for house affordability.
But it is based not on YOUR income, but on AVERAGE income. In your area, that would be closer to $80K.
Any house in Burlington over about $250K is over-valued. (Like so many across Canada.)
See how real estate horniness messes with our minds?
You are not alone in this type of non-thinking thinking, and you have me empathy.
This is a good example of how we are all screwed in this RE-drugged economy and why the coming crash will be so hard for so many for so long.
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You are pretty arrogant.
And if you’re going to use the average of the local income for the income/house ratio (which by the way is dubious), then I’m sorry but you can’t just some blended GTA wide average that’s going to include shitholes that have no bearing on the price in Burlington.
In fact, you should be using the average household income for that specific neighbourhood in Burlington. And you have no idea what that is since he didn’t specify his area code.
Or maybe you can explain why the average income for all of the GTA should be used to evaluate the cost of housing in a specific area?
Maybe that means I should be able to go buy a house for $250k in Forest Hill too …. yeah I’ll get right on that.
re #169 David W #2.
Re your question of working in a relatively stable gig, saving and renting and what to do. In case you haven’t realized it yet from the Blog you are ahead of the herd.
Keep up the saving. Where to save is the BIG question and that is why I’m on this blog, to find out the answer, if any.
re #169 David W #2.
I’m new here and there appears to be a lot of in fighting here between certain individuals. Ignore it and pay attention to the facts and not rhetoric.
Regarding spreadsheet explaining interest and banking:
#249 Derek R on 04.14.15 at 4:28 pm
After 40 minutes of studying it, I verify it looks correct to me.
It is not double entry accounting, like my example.
It is a three way example and mine is two-way.
It shows a declining monthly interest amortisation over twelve periods.
It is a different but very good method.
You do not need more participants for proof.
Banker interest always comes from when banker pays to eat.
If banker causes asset or CPI inflation, we have a ponzi problem, but that problem is not described as: fiat money has to print the interest. No. That is all I am saying.
I acknowledge reading Blacksheep’s and Mark’s comments, so far.
“So, says this guy, “a housing correction is underway” with the GTA and YVR being “bubbles set to burst.”
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Yeah, yeah, yeah, We’ve been hearing this bunk for years! I only wish it were true.
re Teranet RE Stats. Of course I’d trust them (not).
http://www.teranet.ca/our-company/history
I might have got ahead of myself. re #261.
Year over year, national house prices were up about 4.7 per cent, according to Teranet, while Toronto was up 7.6 per cent and Vancouver up 5.3 per cent.
More BS.
Housing price changes:
Hamilton +8.4
Toronto +7.6
Vancouver +5.3
Edmonton +4.7
Calgary +4.4
Victoria +3.3
Quebec City +1.5
Halifax +1.1
http://www.thestar.com/business/2015/04/14/house-prices-in-toronto-vancouver-hit-record-in-march.html.
Oddly, since 2008 (meltdown) they have been owned by Borealis, the infrastructure investment arm of the Ontario Municipal Employee Retirement System (OMERS)
#251 Linda
#256 A box in the sky
Thanks for the feedback. Saving a large down payment takes discipline. I have a few close friends who took a similar approach so can verify that it does happen…as rare as it may seem.
Part of the decision to base the mortgage pre-approval/budget on one income was the fact that we wanted to cover for a possible job loss but also to ensure that we live affordably and use the remainder to save and invest for the future. We’re not looking at it as solely an investment strategy but more so as a place to live and eventually raise a family for the long-term.
Regarding the comment about price-to-income ratios: According to the census data from StatsCan, the average income in my area is roughly $130-$140K. It’s a well-established neighbourhood and an easy 15 minute commute to work. My understanding was that the affordability ratio of income-to-price is not based on averages over a large geographical area, as #256 points out, this could be swayed by the shitty areas.
You’d be hard-pressed to find a detached, 2-storey home anywhere in the city for under $475k now. I am comfortable with our decision, and with no other debts, feel that even if there was a decrease in the home’s value or an increase in interest rates, we can easily swing it and still have breathing room.
“Apartment boom builds in Toronto a sign more are giving up on home”
http://business.financialpost.com/news/apartment-boom-builds-in-toronto-in-sign-more-are-giving-up-on-home-ownership
If you walk around Toronto you will indeed see lots of appartment complex projects about to be built.
“She equated security with a debt-free house. ”
So long as there are property taxes – there is no truly debt free house. You owe money in perpetuity.
Wall Street’s top bankers are telling clients the Fed won’t raise rates in June
http://www.businessinsider.com/wall-streets-top-bankers-are-telling-clients-the-fed-wont-raise-rates-in-june-2015-4