Plans

Here’s the plan. Buy a house. Pay it off. Hope for the best.

That’s the strategy so many people follow. And today, with real estate at ridiculous levels, it means scores of families are trapped. Debt-servicing costs are so high there’s nothing left at the end of the month for the other stuff – an RRSP contribution. Or feeding the TFSA. Or the kid’s education fund.

Remember that scary stat from yesterday? The average Canadian in the first quarter of this year saved $20 a month. Twenty bucks. It’s nothing. Financial failure. If for some reason real estate stops appreciating, or goes into reverse, or the market tumbles and owners can’t easily sell, it’s a crisis.

Many people justify this strategy by saying (a) I got a fat mortgage and used leverage and (b) paying the loan off is the same as investing because I’m building up equity. So bug off, Garth.

Okay, relax. I understand there are valid reasons for paying down a mortgage – even aggressively, as many do (doubling up payments, making prepayments or lump sum deposits). Especially today, where home loans are often huge (a $1 million borrowing is now common in the GTA and Vancouver).

Paying it off: the Holy Grail

For example, many people have taken long amortizations – thirty years – in order to keep the monthly low. But the longer the am, the more money is sucked off as interest, so it makes some sense to pay it down. Also people nearing retirement should be trashing debt (sadly over a third still have a mortgage after they stop working).

There’s also the argument that when GICs and high-interest savings accounts are paying 2% that paying off a home loan at 3% is financially smart. Besides, this is a forced-savings plan. Facing a monthly mortgage payment makes you be disciplined, since otherwise you might spend half on women and weed and waste the rest. There are psychological benefits, too, since people have this weird nesting instinct and think they can retire and live on air, so long as they have the house paid off.

And speaking or retirement, a paid-off house also represents a pool of equity which can be tapped into as necessary through a HELOC or one of those evil reverse mortgages. Of course, it can also be sold for (hopefully) a tax-free capital gain later, and provide money to finance thirsty underwear or one of those sexy motorized wheelchairs. Yahoo.

Cruise some of the most popular financial web sites, especially those aimed at women, and you will see this pay-off-the-mortgage, trash-debt meme is at the heart of all advice. True enough, debt sucks. Especially when the economy turns south, asset values fall and unemployment goes up. A big, throbbing mortgage can squish you.

But wait. There are bigger goals.

But this is not a blanket strategy. There are also good reasons to just feed the mortgage the minimum amount and get invested in things like your TFSA.

First, you need to diversify. Seriously. Real estate is like every other asset class, prone to fluctuations. If you put all your net worth into one property at one location in one city, you’re courting risk. That could be from macroeconomic events (a recession, rising rates) to the micro (the guy next door buys an 80-foot motorhome, or the city approves a cell tower across the street). Always have a Plan B.

Second, houses don’t pay you money when you get old, droop and stop working. In fact, they cost money. You need cash flow far more than a roof when you retire, and it takes most people decades to build a pool of financial assets.

Third, the returns from portfolio investing have far outstripped real estate investing over the past decades, and across the country. Sure, some pockets have rewarded people with speculative returns on houses, but that’s not the norm. And those lucky folks only reap the windfalls if they sell. For most people a B&D portfolio churning out 6-7% returns for a few decades – especially in a tax-free account like an RRSP or TFSA – is the best guarantee of lifelong security. You can always rent a place to live. You can’t rent an income.

Fourth, with mortgage money today available in the 2% range, why pay it off? That’s close enough to the inflation rate to be essentially free cash. Take your spare funds and invest them in a nice collection of ETFs instead of making up for your lender’s mistake.

And , finally, consider how to best weather some kind of economic storm. When it hits the fan, houses become illiquid fast. Financial assets, in contrast, can be liquidated in seconds giving you instant cash. Portfolios don’t need to be insured. There are no property taxes, closing costs when you buy or fat 5% commissions when you sell. No maintenance. No grass-cutting or dog hair to scrap out of the hot tub filter.

So think about it. A one-asset strategy could be asking for trouble.

What to do, then, if you have giant real estate debt and it keeps you up at night?

How to slay a Godzilla loan

Try this: a weekly-pay mortgage instead of a monthly one. It ends up making the equivalent of one extra monthly payment per year. That trashes amortization faster and saves a bundle, with a relatively small additional expense. (Just ensure you get the right kind of weekly mortgage, where each payment is one-quarter of the monthly one.)

Or, better, ignore your cheapo-rate home loan, invest and save like a crazed, financially-rabid beaver and when the mortgage comes up for renewal use a hunk of the portfolio growth to pay down the principal. Man, that will feel good.

 

79 comments ↓

#1 Mr Fundamental on 08.30.19 at 4:15 pm

Great article, I agree with most of it.

I’ve been paying off my mortgage “slowly” since 2005, instead putting my extra money to work for me in RRSPs/TFSAs/RESPs just like you describe. 8% long term return in equities sure beats a 2-3% mortgage prepayment. Plus diversification like you mention.
Good stuff.

#2 Oh Canada on 08.30.19 at 4:17 pm

“Debt-servicing costs are so high there’s nothing left at the end of the month for the other stuff – an RRSP contribution.”

I suggest everyone move to the US of A! Income levels are higher than here with buckets of cash left over to enjoy life and invest after paying the mortgage. Canada is a trap and you will never get ahead!

#3 NotLegalAdvice on 08.30.19 at 4:19 pm

Is the real estate market correcting next week? Next month? Next year? 2021? When’s it going to bottom out in the GTA?

Great post btw, I follow this: “save like a crazed, financially-rabid beaver” completely.

#4 Flop... on 08.30.19 at 4:23 pm

I have been lobbying some of the guys at Howmuch to move north so we can get more help for data shy Canada.

They said that they saw Stephen Harper on the news this morning and are still scared…

M45BC

“Mortgage Debt Across the U.S.

Owning a home is a major life milestone for many Americans. In order to afford a home, most people will need to take out a mortgage and pay it off over time. Mortgage debt has hit a new peak since the 2008 financial crisis, rising to $9.406 trillion in Q2 2019. Interestingly, residents of some states incur significantly more mortgage debt than residents in other states. Our latest visualization takes a closer look at how housing debt varies by state, as measured by mortgage balance per capita.

According to the New York Fed, the average mortgage debt per capita in the U.S. is $33.680.

Top 10 States with the Highest Mortgage Debt Balance Per Capita

1. District of Columbia – $63,430
2. California – $55,920
3. Hawaii – $54,980
4. Colorado – $53,250
5. Maryland – $51,590
6. Washington – $49,320
7. Virginia – $47,570
8. Massachusetts – $47,140
9. Utah – $43,310
10. Connecticut – $41,980

Despite rising mortgage debt, mortgage rates are close to historical lows. As a result, many homeowners are flocking to refinance their mortgages. Weekly mortgage refinances are skyrocketing, and retailers like Walmart are reaping the benefits of consumers spending the extra money in their pocket.

Although mortgage rates are low, they can’t compete with this brand new Danish mortgage proposal, in which banks will offer an interest rate mortgage of -0.5% a year. Yes, that is a negative number! In essence, this means that homeowners will pay back a lower amount than they were loaned. The effect of this new proposal on the Danish real estate market still remains to be seen.”

https://howmuch.net/articles/mortgage-debt-by-state

#5 mj on 08.30.19 at 4:39 pm

does anyone know the odds for the bank of Canada to cut rates next week?
thank you

#6 Wait There on 08.30.19 at 4:52 pm

https://en.wikipedia.org/wiki/Esprit_De_Four#/media/File:Fourplay_Esprit_De_Four.jpg

Recognized today’s picture

#7 Larry B on 08.30.19 at 4:59 pm

Greed and Fear are the primal drivers of human decision making. The entire capitalist system is set up to exploit these attributes. Until a person/couple can stand against these forces, they are but sheep in the economic stew.

If you can learn to say NO to yourself, there is hope. Live on less than you make and be disciplined in paying off debt. If you can’t understand the difference between needs and wants, you have to step back and assess what you really want in life.

Debt is not evil in itself, but never to reduce/eliminate that debt will leave you an anxious and vulnerable person.

Garth is correct (as usual…lol) that growing assets is essential and a home is but one leg of that fiscal stool.

How you accomplish that goal has many paths and books that have been written on how. One way, write a book .

I lived well below my means, paid my first house off in 5 years and 8 months. Bought a second house for cash (after living in house 1 for 10 years). Paid for house 3 in 3 years. All while doing the RRSP thing. (NO TFSA’s yet) Did the B&D portfolio with all extra cash. I don’t even have a degree nor a trust fun…thx Dad…lol.

If you feel you “need” the latest phone/TV/iPad and new vehicles (seems a truck and SUV are minimum), expensive vacations, eating out and the latest fashion designs; you better win the lottery.

Needs vs Wants
Live on less than you make
Pay down debt as quickly as reasonable
Build assets via a B&D portfolio
Wake up and stop being manipulated into poverty.

#8 Andrewski on 08.30.19 at 5:08 pm

I find it interesting that people all know someone who’s made out like a bandit with big real estate profits, but those same people know no one who has lost their shirt in the real estate market. Who likes to admit their real estate failures?

A block up from where I reside the tenants trashed the home they were renting, hadn’t paid their rent for months and disappeared in a midnight move! The owner has to renovate the inside from stem to stern.

#9 Alessio on 08.30.19 at 5:25 pm

Garth you keep putting houses in the same bucket as funds and stocks. They’re not. They’re a roof over your head. No worries of being evicted. No worries of using someone else’s bathroom or kitchen appliances. Actually owning something you can renovate and use all aspects of like the backyard. Sometimes quality of life is better than 7% taxable return on an etf. Happy long weekend.

#10 Dolce Vita on 08.30.19 at 5:50 pm

Very good advice.

Or stay out of debt. Rent until you can afford to buy a home where the payments don’t put a dent in your budget and stick to it. Have at least 9 months of expenses in savings in case of a layoff. What I did. The rest, save and invest the best you can.

And don’t worry about what other people are doing and comparing yourself to them.

Yesterday we read where that all ended up for an entire generation (and those to come).

That was good Garth. Yes indeed, that was good.

#11 Mean Gene on 08.30.19 at 5:51 pm

The residential real estate bias is an evil mistress.

#12 Yukon Elvis on 08.30.19 at 5:53 pm

#5 mj on 08.30.19 at 4:39 pm
does anyone know the odds for the bank of Canada to cut rates next week?
thank you
……………………………….

50/50. Yer welcome.

#13 enarhem on 08.30.19 at 5:54 pm

On form today Garth I see! “thirsty underwear” indeed!

#14 Lost...but not leased on 08.30.19 at 5:57 pm

One of Steve Saretzky recent interviews:

…Canadian Feds bailed out the Banks to the tune of $70 Billion during the market crash of late 2000’s…….wheareas in US they let SHTF aka long overdue correction.

Other observations:
—- The banks can create credit faster than developers can build .

—- He talked to Oklahoma builder who said their RE market is dead….EXCEPT for starter homes…(here in BC…no such thing as starter home per se..)

FUTURE ???

The debts(esp. via Gov’t) will never ever be paid down(unless a JUBILEE)….interest rates will have to remain low and more $$$ created out of nothing.

Average person will be forced into more speculation…ironically stock etc. markets ….which for all intents and purposes are simply on par with RE but more affordable yet primed for greater manipulation.

In the next real estate cycle …..we will again see prices double etc.. ….because they HAVE to…given inflation and devalued $$$$…its built..err baked into the system.

Simply Stir and Repeat:

#15 Dolce Vita on 08.30.19 at 6:01 pm

2 GDP REPORTS TODAY, June 2019 Monthly and Quarterly.

Nothing to panic about.

A “slightly improving slowdown?”, Savings Rate up, YoY Construction took it in the ‘nards and people DON’T believe StatCan.

May–>June 2019 MoM GDP:

All Industries +0.2%
Goods -0.2
Services +0.3
——————

June 2018–>June 2019 YoY GDP

All Industries +1.5% >>>>>> slowdown?
Goods -0.7%
Services +2.4%

Construction = -3.7%
——————

2nd Qtr 2019:

GDP = +0.9%*
Household Saving Rate = +1.7%

*StatCan claim 3.7% annualized, 0.9%*4 = 3.6%, rounding?
——————

When asked at Garth’s least favorite business affairs website the question:

“Do you think Canada’s economy is as strong as the 2nd Qtr 3.7% headline suggests?”

1,150 Respondents answered:

https://i.imgur.com/PVuEert.jpg

About 80% of the people are not buying that 3.7% number from StatCan. AGAIN, the Year Over Year GDP Growth Rate from June 2018 to June 2019 was:

+1.5%.

From the prior Qtrly Report (March 2018 to March 2019) the GDP Growth Rate was:

+1.3%.

A “slightly improving slowdown” it is.
—————————————————–

Buonanotte e Ciao d’Italia and steady as she goes Canada.

#16 Fred on 08.30.19 at 6:03 pm

I currently have one mortgage on an apartment building to the tune of 800k, while I understand the benefits of not paying off the mortgage quickly; it leaves you susceptible to rate hikes every 5 years, mortgages won’t be in the 2’percent range forever, isn’t it better to chuck away while each payment has a larger impact ?

#17 leebow on 08.30.19 at 6:05 pm

#8 Andrewski

Very few people manage to lose money in this environment. Gotta do something crazy dumb.

If not for tenants, being a landlord would be a piece of cake. I did rentals for five years. Made every mistake possible and still got out with a nice profit. Totally lost faith in humanity though. Contractors, tenants, foot thick tax returns. Very unlikely that I’ll ever do that again.

#18 sunshine on 08.30.19 at 6:06 pm

1. Invest now and then seek investments to pay lump sum during renewal. But then Stocks move up and down and what if they were down and you were renewing your mortgage?
2. You were once trashing RRSPs calling them ‘disasters’ or ‘time bombs’…why you changed your opinion?
3. What if RRSPs and TFSA are maxed out? Would you pay down mortgage or would you rather take HELOC and invest and diversify?
4. And books…..?
Thanks,

#19 Sail away on 08.30.19 at 6:17 pm

#12 Yukon Elvis on 08.30.19 at 5:53 pm
#5 mj on 08.30.19 at 4:39 pm
does anyone know the odds for the bank of Canada to cut rates next week?
thank you
……………………………….
50/50. Yer welcome.
—————————

After thinking long and hard… your guess is as good as anyone’s

#20 Shawn Allen on 08.30.19 at 6:28 pm

The mythical average Canadian

The average Canadian in the first quarter of this year saved $20 a month.

*****************
Okay, savings are low but the average is a statistical artifact.

As someone politely pointed out yesterday and got a bit slapped for it, the average includes the retired who of course typical draw down savings as opposed to save more. Demographics explain much.

And, in order for some of us to be above average others have to be below average. Brutal math. Give silent thanks to them?

#21 theoryAndPractice on 08.30.19 at 6:49 pm

#9 Alessio on 08.30.19 at 5:25 pm

Garth you keep putting houses in the same bucket as funds and stocks. They’re not. They’re a roof over your head. No worries of being evicted

>>>Firstly, experiment not paying your mortgage :

https://canadianmortgagesinc.ca/information/what_happens_when_a_bank_forecloses_on_a_mortgage.html

>>> Secondly, experiment not paying your property taxes:

https://www.thestar.com/business/personal_finance/2010/09/07/property_tax_10_things_you_need_to_know.html

https://en.wikipedia.org/wiki/Land_ownership_in_Canada#Crown_lands

Well, you can go above and beyond try both at the same time, just to see which one is acting first.

#22 Yanniel on 08.30.19 at 6:50 pm

“If you put all your net worth into one property at one location in one city, you’re courting risk. That could be from macroeconomic events (a recession, rising rates) to the micro (the guy next door buys an 80-foot motorhome, or the city approves a cell tower across the street). ”

Or mother nature events: Imagine what a “Dorian” could do to your your house.

#23 Dolce Vita on 08.30.19 at 6:56 pm

In yesterday’s well written Blog Garth quoted a Household Savings Rate of:

+0.7%.

Firstly Garth, give me credit for keeping mum about that number – you were on a roll and a very good one at that (same today).

In today’s June 2019 GDP Qtrly Report, the Savings Rate was:

+1.7%

In my prior Comment I posted a survey where people don’t trust annualized Qrtly GDP numbers by StatCan.

I don’t blame them.

WISDOM of the CROWD – a well known and documented Stats Phenom.

Finally and for the record here are the Household Savings Rates published in recent Qrtly GDP Reports with their revision changes (done in later quarters):

4th Qtr 2017 = 4.5% –> 2.3%
1st Qtr 2018 = 3.9% –> 1.3% –> 1.9%
2nd Qtr 2018 = 3.4% –> 1.0% –> 1.5%
3rd Qtr 2018 = 0.8% –> 0.9%
4th Qtr 2018 = 1.4%
1st Qtr 2019 = 1.1%
2nd Qtr 2019 = 1.5%

Wisdom of the Crowd correct not to believe StatCan, well 80% of them.

———————-

‘Outta Here.

#24 oh bouy on 08.30.19 at 7:02 pm

@#18 sunshine on 08.30.19 at 6:06 pm

3. What if RRSPs and TFSA are maxed out? Would you pay down mortgage or would you rather take HELOC and invest and diversify?

____________________________________

pay off your mortgage, relax and enjoy your wealth whilst you still have your health.

#25 Rargary on 08.30.19 at 7:33 pm

Or, better, ignore your cheapo-rate home loan, invest and save like a crazed, financially-rabid beaver and when the mortgage comes up for renewal use a hunk of the portfolio growth to pay down the principal. Man, that will feel good… never thought I’d read you write that Garth!

#26 Linda Stephens on 08.30.19 at 7:34 pm

People, they have fooled everyone. Remember compound interest back in high school. This is the what they have convinced everyone to be a speculator and trader. They have pushed more risk on the little guy and make you think that real estate is different because you live in it or can rent it.

How are you going to pay your property taxes in 25 years when your mortgage is supposed to be paid off when your property taxes is $10,000 to $12,000 a year for a modest house? What do you think electricity, utilities and other monthly, maintenance, insurance bills will be in 25 years? Garth is right that you can’t rely on your house and at the mercy of renters to keep up your retirement.

People since the 90’s have been watching too many late night, evening real estate seminar shows on those U.S. T.V. channels.

#27 Bytor the Snow Dog on 08.30.19 at 7:50 pm

#150 Teachers on 08.30.19 at 3:52 pm sez:
“The Smoker must be excused, because he has an inferior complex of not getting educated. Instead of blaming himself, he projects the blame on the teachers which becomes a defensive mechanism, for becoming a loser in the employment market of today.”
=================================

Teachers stopped “teaching” in the early 1970s. Education has been indoctrination since then.

OH Gar-arth! Wonky software, again.

#28 Shawn on 08.30.19 at 7:50 pm

The post WW2 total annualized return for the S&P500 is 11.2%. Will it be lower or higher for the next 50

Are the best days for the USA behind it or ahead of it?

See Pascal’s Wager. There’s only one way to bet. Investors need to “have faith”.

#29 Long-Time Lurker on 08.30.19 at 7:58 pm

>A little dated reading. I had it on file.

Germany in Uproar as Negative Rates Threaten Saving Obsession

By Nicholas Comfort , Stephan Kahl , and Birgit Jennen

Most Germans live by the credo that saving is a virtue, but the European Central Bank’s negative interest rates risk making a mockery of the national obsession, prompting politicians to seek ways to insulate thrifty citizens and keep the burden on the country’s beleaguered banks.

Finance Minister Olaf Scholz says he’ll look into whether it’s possible to prevent German banks from charging most retail-banking clients for deposits, after such a measure was proposed by the leader of Bavaria. Lenders have rejected the idea, saying bans don’t ultimately help clients and could even destabilize financial markets….

https://www.bloomberg.com/news/articles/2019-08-25/germany-in-uproar-as-negative-rates-threaten-saving-obsession?srnd=premium-africa

#30 Long-Time Lurker on 08.30.19 at 8:06 pm

Anyone know what happened to IHCTD9? I suspect he’s building that rocket stove-gasifier as summer is ending.

September should be interesting.

Red China has troops and armoured personnel carriers in Hong Kong now. They snuck them in at 4am a few days ago. Hong Kong could go critical mass (martial law) any day now. That’ll throw a spanner into the global financial system.

#31 SoggyShorts on 08.30.19 at 8:07 pm

#153 oh bouy on 08.30.19 at 4:44 pm
@#141 SoggyShorts on 08.30.19 at 1:21 pm
#131 oh bouy on 08.30.19 at 12:13 pm
Only problem with spending time in these places is that the locals absolutely despise you. round eyes are perceived as predators. Its all sunshine and rainbows til’ it isn’t.
**********************
Nonsense. They may “hate” tourists as much as everyone everywhere in the world “hates” tourists, but more often it’s like how some people “hate” the customers at their job. Also, expats are totally different. If you actually put in the effort to learn some of the language and culture you can become part of the community.
Saying that locals “absolutely despise” round eyes” is the same as saying all North Americans despise all immigrants– of course some people hate some people, but a sweeping generalization like yours is way off.
________________________________

nope. its the truth.
expats are worse than the tourists.
***********************************
Total crap.
Sure, they hate you if you are the stereotypical bad tourist (loud, disrespectful, obnoxious & drunk)
But if that’s been your experience, I’ve got some bad news for you: It’s not just Asians who despise you.

#32 Balance on 08.30.19 at 8:07 pm

When thinking about balanced financial planning I recommend people also consider the risk of not owning real estate. True, real estate prices can decline while debt remains unchanged, so be ready to weather that storm. But what if real estate prices double in three years while rents increase by 50% and incomes remain unchanged?

That’s a different storm which I found too far-fetched to even consider five years ago when I elected not to buy an overpriced $600K house I could afford, and instead rent. Today in the Fraser Valley it has proven that this was a terrible call, and it has created a real financial burden for many of us who now rent that house currently valued at $1.1M even after the recent pullback.

I’m certain that kind of run up won’t happen again now. But then again, I was certain of the same thing five years ago.

#33 Dale Daneks on 08.30.19 at 8:28 pm

I am a pilot for the Malton Airport and have no more mortgage. I just keep stuffing my RRSP’s, TFSA’s and other regular accounts with their credit union GIC’s. They have 2.8% rates which is not bad with those 3.5% GIC rates I stuffed alot of money in earlier this year.

A few other banks are paying still 3.0% GIC’s as well.
Alot of other credit unions I stuffed them too with 3.5%, 3.6%, 3.75% earlier this year too. The $39,600 a year interest is okay until 2024.

‘A pilot for the Malton Airport’. Yes, very credible. – Garth

#34 expat on 08.30.19 at 8:35 pm

#5 mj on 08.30.19 at 4:39 pm
does anyone know the odds for the bank of Canada to cut rates next week?
thank you
………………

100%

If tehy don’t cdn exporters are in deep trouble. It’s a currency issue.

Of course not. Markets do not expect a cut, and none is likely to be delivered. Oct 30th is the date. – Garth

#35 leebow on 08.30.19 at 8:39 pm

#32 Balance

Then we all move to Garth’s home province. Or Georgia.

#36 Ace Goodheart on 08.30.19 at 8:50 pm

#33 Dale Daneks:

The Malton Airport? That is what Pearson used to be called back before it was Toronto International.

Are you a time traveler?

So another year of carbon taxes to fight against climate change that clearly isn’t happening.

Fall is here on schedule. Cooler weather is on the way. Going down to eight degrees up here in Muskoka tonight. The usual for this time of year.

Meanwhile at our Federal government the nuttiness continues.

The world is most surely ending. And the only way to stop it from doing so is by high, high taxes.

The Feds know more than the rest of us.

While we are out shovelling our driveways this winter, they know that it is really getting warmer.

When we scrape the ice off of our cars, they are thinking palm trees.

Salt on the steps to melt the snow = tropical weather.

I used to hang with a group of folks in high school. Stoners. I never did it. I was a beer guy. No smoke. No shrooms. No acid. Never did that stuff.

I stopped associating with them cause they got too paranoid. Became doomers. Were convinced it was all going to end.

Our Federal govt are a bunch of trust fund stoner kids.

Convinced the world is ending. Climate change. Will kill us all.

They have to tax us to death to save us.

Stoner kids.

It’s not real.

It’s just the drugs…….

#37 DINK on 08.30.19 at 8:51 pm

Everyone figures the house is just the mortgage,taxes, insurance, but it an expense of 2t3% of the value of the house a year. Last year needed new furnace so converted to electric as oil is out so that was $12K, this year half the roof tiles are failing $5K.
Look at stats Canada long term house appreciation the rate of return is low 2-3% that same as short term investments except if you hit the bubble timing but then subtract real costs plus expenses. A house is an asset with continuing liabilities and if you do not maintain to modern standards then it will be below market value and you will low ball bid target for the flippers. So maintaining the house has the lowest return of investment types and I would rather keep $50K in a portfolio where I average 9% rather than go overboard in a kitchen Reno!
Just about no one gets this point. No one has written this up. Best to use rent vs buy calculator. I did before I bought but a house was 15% more expensive per month but long term the rental equivalent flips into saving but siphoned off a bit with upkeep and inflation. Over 30 years in unadjusted dollar terms it is around half the cost. Now why did I spend $100K in that period making a garden other lowering my mowing time from 60 min to 25 min.

#38 What goes up.... on 08.30.19 at 8:54 pm

A one-asset strategy is DEFINITELY not a bad strategy if that asset is GTA housing. Period. Anyone that says differently has not been paying attention the last 10 years. There were plenty of RE prognosticating naysayers during that time and they have all been proven to hugely wrong.

A one-anything strategy is foolish. – Garth

#39 Julio Fuentes on 08.30.19 at 8:58 pm

What is wrong with Malton airport? I work there at night shift for 13 years now since I came as an immigrant from Mexico. I have an account with the credit union Airline financial Credit Union with a friendly staff and great rates.

#40 Flanneur on 08.30.19 at 9:08 pm

For us it goes, Corp, rrsp, Tfsa, mortgage, non reg. All equity till no mortgage. Only buy, no sell.

#41 Damifino on 08.30.19 at 9:19 pm

Anyone needing a “forced” savings plan has an immature relationship with money. Repairing that relationship should be the first order of business. Garth has spent a decade on this blog attempting to educate the innumerate masses.

Clearly, much work remains.

#42 oh bouy on 08.30.19 at 9:26 pm

@#31 SoggyShorts on 08.30.19 at 8:07 pm
#153 oh bouy on 08.30.19 at 4:44 pm
@#141 SoggyShorts on 08.30.19 at 1:21 pm
#131 oh bouy on 08.30.19 at 12:13 pm
Only problem with spending time in these places is that the locals absolutely despise you. round eyes are perceived as predators. Its all sunshine and rainbows til’ it isn’t.
**********************
Nonsense. They may “hate” tourists as much as everyone everywhere in the world “hates” tourists, but more often it’s like how some people “hate” the customers at their job. Also, expats are totally different. If you actually put in the effort to learn some of the language and culture you can become part of the community.
Saying that locals “absolutely despise” round eyes” is the same as saying all North Americans despise all immigrants– of course some people hate some people, but a sweeping generalization like yours is way off.
________________________________

nope. its the truth.
expats are worse than the tourists.
***********************************
Total crap.
Sure, they hate you if you are the stereotypical bad tourist (loud, disrespectful, obnoxious & drunk)
But if that’s been your experience, I’ve got some bad news for you: It’s not just Asians who despise you.
_________________________________________

LOL, if insulting a stranger over the internet because they don’t agree with you makes you feel better, have at er’ son. this dialogue says more about you tham me.

#43 oh bouy on 08.30.19 at 9:32 pm

@#38 What goes up…. on 08.30.19 at 8:54 pm
A one-asset strategy is DEFINITELY not a bad strategy if that asset is GTA housing. Period. Anyone that says differently has not been paying attention the last 10 years. There were plenty of RE prognosticating naysayers during that time and they have all been proven to hugely wrong.

A one-anything strategy is foolish. – Garth
_____________________________

getting into gta real estate was a fantastic play 10 years ago. basically like winning the lottery.
not so much right now.

#44 leebow on 08.30.19 at 9:57 pm

#38 What goes up….

You are suffering from the hindsight bias.

#45 Hamsterwheelie on 08.30.19 at 10:40 pm

I think we’ve all heard my broken record – buy an old building – renovate it into 4 units – take the nicest one with the garden & garage- then let the building pay you. More square footage than a condo and a heckuva lot more light on this corner lot. I get to putter round the gardens, live within walking distance to everything and can command decent rent because of it.
Some people say they don’t want to share a building with tenants but honestly it’s like a condo but with better construction and your neighbours pay you to live there.
We had a big old house and it became clear within a couple of years that I didn’t want to spend that much time cleaning & would rather have my investment pay me.
No, it’s not perfect but for folks that don’t earn much the leverage onto a property ladder sure has been helpful.
People keep saying how smart we are but maybe they’re lyin’ since I don’t see them following suit ;-)
Also all y’all who wanna be renting will want great landlords & may like to be in an owner occupied building since everything gets maintained & no problem tenants will be tolerated.

#46 45north on 08.30.19 at 10:45 pm

Lost but not leased:

The debts will never ever be paid down. interest rates will have to remain low and more dollars created out of nothing.

we’ve run out of rope.

Here’s Martin Armstrong:

The central banks tell us they will lower interest rates, in order to stimulate the economy through bank lending. this is an outdated theory that has never worked.

Surely the central banks persist with this excuse not because they think it will work but because they can use the theory as a smokescreen.

https://www.howestreet.com/2019/08/29/big-bang-in-full-motion-set-to-collide-in-a-real-mess/

here’s Conrad Black:

On Wednesday, Johnson sprang his great surprise: he obtained from Her Majesty the Queen, in the most extraordinary constitutional development in her 67 years on the throne, the prorogation of Parliament until mid-October, when the government will present a comprehensive program of reform.

https://nationalpost.com/opinion/conrad-black-the-europeans-now-know-they-need-to-take-boris-johnson-seriously

events are taking on a momentum of their own

#47 Sail Away on 08.30.19 at 10:55 pm

#38 What goes up…. on 08.30.19 at 8:54 pm

A one-asset strategy is DEFINITELY not a bad strategy if that asset is GTA housing. Period. Anyone that says differently has not been paying attention the last 10 years. There were plenty of RE prognosticating naysayers during that time and they have all been proven to hugely wrong.

A one-anything strategy is foolish. – Garth

———————————————

Hmmm… let me point out the discrepancy: a few days ago we were all congratulating Garth for his 48-year one asset strategy. Re-thinking that Garth?

#48 Ponzius Pilatus on 08.30.19 at 11:18 pm

#33 Dale Daneks on 08.30.19 at 8:28 pm
I am a pilot for the Malton Airport and have no more mortgage. I just keep stuffing my RRSP’s, TFSA’s and other regular accounts with their credit union GIC’s. They have 2.8% rates which is not bad with those 3.5% GIC rates I stuffed alot of money in earlier this year.

A few other banks are paying still 3.0% GIC’s as well.
Alot of other credit unions I stuffed them too with 3.5%, 3.6%, 3.75% earlier this year too. The $39,600 a year interest is okay until 2024.

‘A pilot for the Malton Airport’. Yes, very credible. – Garth
———–
On the Internet, every loser can be a pilot for the Malton Airport.

#49 salonist on 08.30.19 at 11:45 pm

https://www.macleans.ca/politics/ottawa/canadas-coolest-pm-its-not-trudeau/

garth turner the supplier

#50 Ferdinand McMillan on 08.30.19 at 11:46 pm

You’ll never live in paradise if you’re neck deep in a mortgage or balls deep in a HELOC. Get out from under, and then get out of Canada. Live. Don’t wait till you’re seventy nine and a month away from dying. Those naked Swedish models, as long as they’re legal….are a joy to behold. Take control.

#51 Smoking Man on 08.31.19 at 12:20 am

The untouched. Waves of over eating oozing out of every crevist of a mist placed braw strap..

The un loved.. It’s not about the feast. It’s about how you value your self.

Look into mirror, no matter what is says back…

Love yourself… I do it everyday…

Works..

#52 Old Dog New Tricks on 08.31.19 at 1:10 am

Paying off the mortgage early is usually not the best long term financial move. The math doesn’t lie. It’s almost always better to invest when mortgage rates are low. This is not really an argument that is easily won with people who would rather have the good feelings of a mortgage free home. Whatever works for you.

#53 SoggyShorts on 08.31.19 at 1:17 am

#42 oh bouy on 08.30.19 at 9:26 pm
I was simply posting a theory of how you could come to your ignorant (and arguably racist) conclusion that Asians “despise all round eyes”.
Was my guess at your character insulting because it was accurate or because it wasn’t?

#54 SoggyShorts on 08.31.19 at 1:31 am

#37 DINK on 08.30.19 at 8:51 pm
Everyone figures the house is just the mortgage,taxes, insurance, but it an expense of 2t3% of the value of the house a year.
********************
Yep. Here’s an example:
My parents bought a house in Calgary for ~150K in 1992
it’s probably worth 450k today and they’ve put about 150K into it.
Roofx2, furnace, windows, fence, deck, paint in&out, minor landscaping, 2 major bath renos and a serious kitchen remodel.
Add in property taxes and mortgage interest (despite clearing it in 12 years) and I’m pretty sure their returns were awful.

This blog and it’s readers talk a whole lot about the GTA and Van, and fair enough- they’re interesting- but 70% of Canadians don’t live there and that means most are getting mediocre returns if they have a 1-asset strategy.
Even in those 2 areas, most people did just “ok” or worse on RE outside of very specific timeframes.

#55 dharma bum on 08.31.19 at 8:21 am

Skyrocketing property values within relatively short time periods are freaky economic aberrations that people have come to think are anticipatable normal occurrences.

Young people fearlessly dive into huge mortgage obligations thinking that the costs are irrelevant because the price of the house is guaranteed to outweigh their monstrous debt in no time at all.

It’s usually a big mistake. Especially nowadays.

The best way to buy a house is to buy one priced so that you can get it with as much money down that you can afford while still having money left over to invest in financial assets.

Don’t put all the eggs in a single basket (*cliche alert*!).

People these days get in way over their heads because they are too emotional about the house ownership fantasy and don’t think things through from a longer term pragmatic standpoint.

They stifle themselves financially right from the get go.

It’s all part of the misguided madness that has infested the minds of so many of todays youth.

Like “woke” and “gender essentialism”.

And by youth, I mean anyone under 48 years old!

#56 n1tro on 08.31.19 at 9:30 am

#16 Fred on 08.30.19 at 6:03 pm
I currently have one mortgage on an apartment building to the tune of 800k, while I understand the benefits of not paying off the mortgage quickly; it leaves you susceptible to rate hikes every 5 years, mortgages won’t be in the 2’percent range forever, isn’t it better to chuck away while each payment has a larger impact ?
——-
Not when the return from a portfolio is 6-7%. You can always pay a big chunk of the mortgage upon renewal from the fat returns as Garth suggested.

#57 Bytor the Snow Dog on 08.31.19 at 9:31 am

#33 Dale Daneks on 08.30.19 at 8:28 pm sez:
“I am a pilot for the Malton Airport and have no more mortgage. I just keep stuffing my RRSP’s, TFSA’s and other regular accounts with their credit union GIC’s. They have 2.8% rates which is not bad with those 3.5% GIC rates I stuffed alot of money in earlier this year.

A few other banks are paying still 3.0% GIC’s as well.
Alot of other credit unions I stuffed them too with 3.5%, 3.6%, 3.75% earlier this year too. The $39,600 a year interest is okay until 2024.”

Garth retorts :” ‘A pilot for the Malton Airport’. Yes, very credible. – Garth”
—————————————————-
I find him totally credible. It’s just a miscommunication on the definition of “pilot”.

The passengers bring their luggage, and he’ll pile it.

I’ll show myself out.

#58 n1tro on 08.31.19 at 9:53 am

#36 Ace Goodheart on 08.30.19 at 8:50 pm
#33 Dale Daneks:

Convinced the world is ending. Climate change. Will kill us all.

They have to tax us to death to save us.

Stoner kids.

It’s not real.

It’s just the drugs…….
————
I wish it were just drugs. If so, cut the supply and after a bit of withdrawal, the person has rational thoughts again.

I think it is more a mental disease. How else do you explain wishing for a hurricane to hit specifically a spot of a person that disagrees with the brain washing that you have on climate change?

https://nationalpost.com/news/former-pm-kim-campbell-apologizes-for-tweet-rooting-for-hurricane-dorian-to-hit-trumps-mar-a-lago-resort

Forget how many innocent people the hurricane takes out as long as the person you hate suffers right?

Trump has said some ‘un-presidential’ things and I agree but I wonder if the same measuring tape is used for his critics.

#59 TurnerNation on 08.31.19 at 9:54 am

Cell phone tower? People should welcome those.
Science and government tells us it’s all fine and good. Load em up into dense urban areas.
(You get the science [that is paid for].)

Never forget this battle is for our minds. The human instinct which has kept us going forever it no longer to be trusted

#60 crowdedelevatorfartz on 08.31.19 at 10:19 am

@#48 Ponzie Pilates
“On the Internet, every loser can be a pilot for the Malton Airport.”
++++
I ride elevators daily for my own tiny brained amusement.
You’re insinuating that I don’t ride elevators?
That I dont ” attollo frequenti pedit”?
You are so wrong my confused Pilates instructor.
So wrong.
Sometimes, the comments anonymous people make…are 100% true.

#61 BillyBob on 08.31.19 at 10:24 am

Greetings from El Comandante in Buenos Aires, here on layover for a couple nights. Weather is fantastic, winter highs around 17C, beautifully cool after the unseasonably hot weather in Euroland. Tiring long direct flight, fortunately not too much action along the ITCZ this time.

As someone who actually is a pilot and expatriate, the comments from both those who claim to be the former and deride the latter are highly amusing. I’ve been an expat for nearly 15 years now, all over the world. Do the people claiming expats are universally “despised by locals” even realize how laughably stupid they sound? As always, it’s painfully obvious that the loudest mouths are the least informed.

I’ve lived in the Middle East, East Asia, and Europe. As a full legal resident in each, not as a tourist, nor a dilettante Nat Geo documentary-watching “expert”. Never had any issues with anyone whatsoever beyond the routine interactions that take place everywhere.

In every community there are people living in harmony, and those who don’t/won’t fit in. No different anywhere in the world. And if you think there aren’t plenty of people in Canada who don’t resent, envy, dislike, or quarrel with one another, you haven’t been reading the comments section here um, ever. The irony is that the types of people who are willing to attempt expat life generally aren’t insecure enough to worry about winning a popularity contest in their new locale lol. I think this is what irks certain non-expats and drives petty envy.

So: why is always the obviously least traveled, least educated, inexperienced and smallest-minded folks with the strongest opinions on things they would never have the courage to attempt themselves – such as leaving their home country and culture and venture out towards something different and risky? Hmmm. *rubs chin*

That will be today’s rhetorical question to ponder when I head out to Al Carbón again tonight with my lovely crew to eat another sirloin the size of my head and wash it down with a bottle of Malbec, for a pittance of what you’d pay at The Keg or similar bland establishment.

Buen día!

#62 JPM on 08.31.19 at 10:43 am

Having read this article I’m wondering what I should do. Married, 2 teens, paid off $600k house. Only $100k rrsp with max contributions every year. Should I get a small mortgage to fill the $60k room we have in tfsa’s and fill the resp’s?

What say you? I like the feeling of mortgage free but I don’t have enough investments at this point to generate the retirement I want (at minimum $120k year in retirement)

#63 David Hawke on 08.31.19 at 10:57 am

Wow, #42, thanks for proving my assessment of your travels, or lack thereof, however, I may have been incorrect about the 1%er, more likely just a frustrated wannabe!

#52 Once again Spot on!

#64 Bytor the Snow Dog on 08.31.19 at 11:42 am

Amazon Madness!

https://www.forbes.com/sites/michaelshellenberger/2019/08/26/why-everything-they-say-about-the-amazon-including-that-its-the-lungs-of-the-world-is-wrong/#ece6b925bde0

#65 crowdedelevatorfartz on 08.31.19 at 11:54 am

@#60 BillyBob.

Good one.

As an Argentinian once said to me about The Keg steaks.
“Their meat is SHEEET!”

What time is dinner? 10pm or later?

#66 Vampire Studies Phd on 08.31.19 at 12:02 pm

43 salonist – looks like Garth was joining in the applause.

Now regarding paying down the mortgage vs investing, there could be tax implications to paying off big chunks at the end of your term by selling investments. Either option you are paying with after-tax $$, but the latter could trigger a large gain having to be declared in one tax year.

I paid off chunks of my mortgage every year, paid out in 7 years. My mortgage allowed 10% every calander year too, so I got one extra in there by sending a cheque dated Dec 31 and another dated Jan 1.

#67 crowdedelevatorfartz on 08.31.19 at 12:11 pm

@#61JPM
You have a house “worth 600k” right now.
You have 100k in RSP’s and nothing in TFSA’s?
You want “a minimum ” of 120k per year in retirement?
OK
How old are you?
How long before retirement?
How much do you (and spouse) pull in annually?
How many other “loans” do you have?
Do you have a pension waiting other than CPP and OAS?

Questions questions questions.

I had zero savings at 30 years old.
No debt.
Pay cheque to pay cheque.

I decided to change things.
I would borrow money annually to max out my RSP’s , use the tax refund to help pay off the loan quickly ( within the year).
Kept doing that year after year until all my unused RSP room was used up.
I still contribute to RSP’s to reduce my tax burden.
I also contribute to TFSA’s and other investments.
I’m well on my way to retirement at 65 with a well funded retirement portfolio plus CPP and OAS to goose the funds that much more.
But thats me.

Should you borrow against the house at historically low interest rates to toss a whack of cash in your unused RSP’s? Up to you.
Will you be disciplined enough to take the tax refund and put all that money back on the loan? Up to you.

Talk to a financial advisor and or read up on it.
Squirreling money in the bank and ignoring the tax savings of RSP’s and TFSA’s is financial folly especially if you have 20 + years to go before retirement and only have 100k set aside.

Its up to you.

#68 Renter's Revenge! on 08.31.19 at 12:37 pm

#20 Shawn Allen on 08.30.19 at 6:28 pm

I agree with what you said.

I’m also wondering if they changed the way the “savings rate” was calculated at some point in the past. For example, maybe debt repayments used to be counted as savings, but not any more, lowering the “savings rate”.

Mathematically though, shouldn’t the savings rate always be zero? I.e. one person’s savings always becomes another person’s (or bank’s) debt or disposition? Otherwise where would the money go? Tin cans and mattresses?

#69 jess on 08.31.19 at 12:40 pm

transparency – beneficial ownership
who gets to look into that database?

Sun, Sand, and the $1.5 Trillion Offshore Economy

The British Virgin Islands is nominally home to 400,000 companies, and desperate to fend off the transparency movement.
By Stephanie Baker

“Beneficial Ownership Secure Search System, or BOSS,”

https://www.bloomberg.com/news/features/2019-07-03/the-bvi-s-struggle-to-protect-its-offshore-economy

#70 Ace Goodheart on 08.31.19 at 2:25 pm

#57 N1tro:

The climate change folks are hoping for a robust hurricane season.

They need something to prove they’re right.

Although you can’t directly link climate change theories to hurricanes and floods, this doesn’t matter to them.

A big scary storm can frighten people into accepting high carbon taxes.

And all that tax money is heading their way courtesy of liberal socialist governments that donate heavily to the NGO set.

“The climate change folks are hoping for a robust hurricane season.” That is incredibly ignorant, and beneath you. Nobody is wishing for death, destruction and misery for millions of others. Apologize or leave this blog. – Garth

#71 jess on 08.31.19 at 2:58 pm

summer camps signing up the kids playing the virtual stock market ….i wonder within the “literacy” if at the end of the program the consequences of their choices is demonstrated and goes beyond the “pitch” of becoming a millionaire . For example:

non market values + market values =?
count what you can count / describe what we can’t count / the consequences of the choices
https://www.youtube.com/watch?v=gYDbLCTHFxM

You’ve heard the expression, “Everybody talks about the weather, but nobody does anything about it.” Well, jobs are the new weather. Read on to learn about the jobs (and dollars!) directly supported by the resources of the oceans and Great Lakes.

Econ 120: Two-Minute Economic Lessons (Ecosystem Services)
https://geozoneblog.files.wordpress.com/2016/07/story_map_employers.jpg
What is the Ocean and Great Lakes Economy?
https://coast.noaa.gov/digitalcoast/topics/economy.html

#72 Think Twice on 08.31.19 at 3:11 pm

Just a little problem with the last Window 10 update, and messed with it today. Then got this brilliant idea of restoring it back to August 30, 2019. I received the typical success, almost two hours later. Never again, just isn’t my day.

#73 SoggyShorts on 08.31.19 at 3:44 pm

#45 Hamsterwheelie on 08.30.19 at 10:40 pm
I think we’ve all heard my broken record – buy an old building – renovate it into 4 units – take the nicest one with the garden & garage- then let the building pay you.
*****************************
I liked this idea 20 years ago when I finished high school but I’m not sure how feasible it is these days.
Really it’s a bit like adding even more leverage to a 1-asset strategy:
If you live in a city where the rent vs own math is skewed towards rent being a better deal then isn’t buying a 4-plex going o be 4x as bad?

Of course, this means if the math shows the opposite it would be 4x better, but that’s very rarely the case after you factor in maintenance, taxes, and for example if you live in Alberta, (where RE has been flat for a decade) you get zero cap gains on the building so every penny you sink into it other than the principal portion of your payments has an opportunity cost of 6-7%… far more during this bull run.

Buying a property at 6x(or more) income, tearing it down and building a 4-plex to charge enough rent to cover at least 75% of all costs AND provide better than a B&D PF doesn’t seem likely.

#74 PeterfromCalgary on 08.31.19 at 5:37 pm

The USA is blessed with the biggest and most diverse economy in the world. They have a GDP of 20 trillion dollars! That is trillion with a t.

A trade dispute with China will hurt it a little but it takes a real big shooting war to seriously injure an economy as big as the USA.

#75 Ace Goodheart on 08.31.19 at 5:57 pm

#69 Garth’s response- Kim Campbell just wished a hurricane would hit the area around Mar a Lago.

She is not the first.

When we had flooding this spring in Ontario and Quebec we got article after article about how the flooding was caused by “climate change” and how we all deserved it for our careless burning of carbon.

When Alberta went up in flames the first thing we heard from the climate change folks was that the folks up in Fort Mac deserved it because of their involvement in the tar sands.

Climate change folks are the radical environmentalists our parents used to warn us about joining, better organized and with more money and political connections.

Campbell was moronic. She apologized. Your turn. – Garth

#76 Ace Goodheart on 08.31.19 at 6:32 pm

You know the libs have about as good a chance of winning the next election as the UK does of surviving as a functioning country following Brexit.

Andrew cares about “climate change” about as much as I do.

Ie…It’s over.

Enjoy it while you still can

Come October we’re back to business as a country and the circus can move on to another town…

#77 Ace Goodheart on 08.31.19 at 11:45 pm

#74 – climate change theory started out as “global warming”. The earth would heat up. Glaciers would melt. The oceans would rise. It would get unbearably hot.

The theory worked on the big picture. Because its founders knew that you could not blame individual weather events on atmospheric changes. The connection is impossible to make.

Ask any of the great global warming theorists and they wi tell you the same thing- individual weather events cannot be attributed to a single cause. The weather is too complex. You cannot say with any certainly that this flood or that storm was caused by too much carbon dioxide in the atmosphere. The connection cannot be made. There is no science to support it.

But global warming is dull. Hard to sell. The planet isn’t really all that much warmer. The glaciers didn’t melt. There is actually more ice on Greenland this year then there was last year (heavy snowfall last winter). Antarctica’s glaciers aren’t all receding. Some are getting bigger. And those ice shelves that fell into the ocean? No effect. They were already floating anyway.

The radical enviros needed something to sell. They needed shock and awe. They needed extreme weather.

Remember- you cannot link a weather event to an atmospheric phenomena. Ask any climate scientist. It is not possible.

But floods and hurricanes and tornados scare people. So if you blame them on “climate change” you can frighten governments into action. Action = taxation.

Global warming theory has essentially been hijacked by the radical environmentalist movement.

And they are selling extreme weather.

They do seem to live for storms and floods and forest fires. They hijack the news feed as soon as it starts. Blame the hurricane on climate change. The floods were caused by climate change.

Even though that is scientifically impossible to prove.

Is it a large step to make to consider they might on some level want these events to happen?

I apologize.

I have no proof.

Sorry

#78 Hamsterwheelie on 09.01.19 at 6:30 am

#73 soggyshorts – Hamilton has been the miracle of all these things in terms of timing for us. Low buying cost. Medium building cost (we were heavily involved in all aspects) and relative to buying costs – high rent income. The city is experiencing a renaissance, has a major University, multiple hospitals, a major port, lots of industry etc. Agreed that it’s an unlikely scenario but it happened here.

#79 Mr Canada on 09.01.19 at 10:18 am

Returned from a nice cruise, dined and socialized with several Americans (we were all similar age, mid 50’s, employed, educated professionals), same income bracket etc plus one Canadian who was transferred out of Canada by his US employer 10 years ago. Consensus, which Canadians are programmed to respond: “yeah, but” – is they generate significant more free cash flow net of taxes even after paying employer health premiums. They also certainly leverage the mortgage interest deductibility rule by investing in other asset classes and create additional cash flow streams from stocks, rental properties, etc. Not overly scientific, but one final observation: they certainly spent well on the cruise !