The wrong plan

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  By Guest Blogger Sinan Terzioglu
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A survey by the Ontario Securities Commission found 45% of Ontarians 45 and older are relying on their home to fund their retirement. It also revealed close to 60% have little or no retirement savings.  As real estate values have been in a upward trend supported by the tailwinds of declining and now historically low interest rates, this sort of thinking has become more common and increasingly risky.

Many rationalize real estate is always a good buy as the population continually grows, land is scarce and because property has been a good hedge against inflation.  As many increasingly overleverage themselves to purchase real estate, however, they’re making dangerous assumptions and paying too much. Gains of the last several years are not sustainable, so planning a retirement based on a continuation of these increases over the coming decades is very risky.

It’s all about cycles

The cycle in real estate has a lot in common with other cycles.  Positive events lead to greater optimism and increased activity. Inevitably this causes many to think the cycle is unstoppable, so more and more risk is taken on with little thought about what can go wrong. This is very dangerous particularly for those that are borrowing wildly and relying on a one asset strategy to fund their retirement.  Real estate in Canada has never been more expensive from any valuation metric you look at.  As prices have increased buyers have become more and more comfortable with the risks because they extrapolate the gains into the future, but the reality is there has never been a riskier time to purchase property in many parts of the country.

Since the onset of COVID-19 governments and central banks globally have spent some $20 trillion to backstop credit markets and stimulate economies.  This is more than three times the amount spent during the financial crisis of 2008-2009.  Economic theory suggests all this increased money supply could lead to higher inflation, already in evidence.  Some will argue that supply chain disruptions of the last year have been a big contributor to the price increases and as the world economy normalizes so too will inflationary pressures. But higher inflation would lead to increasing interest rates and this could impact real estate much more than many realize.

Over the last several months properties listed in the GTA around $1M have sold for significantly more.  For those trading up with their increased equity and/or family help the risks don’t seem concerning, but for the first time buyers with no family help and average household incomes the consequences of over paying can dramatically impact long term financial security.  The outcome can be life-altering as increased monthly carrying costs significantly strain cash flows and the ability to save.

Consider a couple in their mid-30s with a household income of $200,000. They’ve been renting a house for $3,000 per month and are ready to purchase a property so they start looking around. Their savings of $325,000 are spread across a non-registered account, TFSAs and RRSPs.  They have been searching for a few months and have been outbid multiple times.  The plan is to spend no more than $1M with 20% down and to retain liquid financial assets but after being outbid multiple time the process has taken an emotional toll. They are determined to not be outbid again when the right property appears.

After seeing a home they like listed at $1M they decide to make an offer but based on comparable sales their agent tells them it will likely not sell for less than $1.2M.  In order to avoid being outbid again they offer $1.25M and their offer is accepted.  Emotions and fear of missing out have caused them to spend $250K more than they initially planned and now their down payment is going to be $250K – but with land transfer tax and closing costs their total initial outlay is closer to $300K which will essentially require most of their assets.

This couple has gone from having over $300K in liquid financial assets growing at a healthy rate to having only $25K in financial assets, a seven figure debt and an overvalued asset. They have gone from a position of strength to one that could have very negative consequences if interest rates start moving higher.  A $1M mortgage at a rate of 2% amortized over 25 years would cost over $4,200 a month.  During the initial 5-year term interest payments would total over $91,700.  However, if the environment changes and interest rates move higher over the next 5 years and their new rate at renewal went to 4% this would result in their monthly mortgage payment to be nearly $5,100 so over 20% more.  Not only would this put further pressure on their monthly cash flow but also impact real estate values as the cycle and psychology changes.  During the second 5-year term total interest paid would total over $150K.

Never forget real estate is rate-dependent

If interest rates were to rise as described in this scenario real estate values could very easily drop 15-25%.  A property purchased for $1.25M could fall in value to $1M yet the debt would remain.  As a result this couple would have seen their initial equity of $250K go to $0, however the lost opportunity cost over the following 25 years would be significantly more.  Had the couple avoided the emotional decision of chasing overvalued real estate, stayed the course with their $300K invested while only adding annual TFSA contributions earning an average 7% per year this portfolio would be worth over $2.4M by the time they hit 60.  This pot of liquid financial assets would comfortably provide an income of over $10K a month without depleting the capital.

The point of this example is not to suggest one should not purchase real estate.  As Garth says, if you can afford real estate go ahead and buy but do not make the mistake of assuming it is the only financial plan you need or that it is a good investment.  If you are a first time buyer or wanting to trade up I recommend being patient and not putting all of your eggs in one basket.

Renting is significantly cheaper so saving and investing the difference over the next few years would make a huge difference to your long term finances.  It is more important than ever to avoid falling into the common thinking that real estate is the only financial plan you need as most Canadians will not have employer pension plans and are not saving nearly enough.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

About the picture: “The collies are Rex and Lincoln, 1 1/2 years old,” writes blog dog Kris, in Toronto. “They are the only two survivors from their litter. We lost our beloved Danny collie last year and the welcoming site, ‘I Love Rough Collies’  has kept up our love and appreciation for this magnificent breed of dogs.”

81 comments ↓

#1 Elmer on 05.30.21 at 12:47 pm

Is the stock market overvalued?

#2 StundRsHole on 05.30.21 at 12:49 pm

Firstish

#3 mark on 05.30.21 at 12:49 pm

Vietnam has detected a hybrid variant which is a combo of U.K. and India spread through air!
https://www.reuters.com/…/vietnam-detects-hybrid…/

Looks like more covid variants, could be a bad one?

#4 50 YEARS OF MAPLE LEAF INCOMPETENCE! on 05.30.21 at 12:55 pm

The wrong plan is to buy anything in Toronthole, Sinan!

Especially Make Believes tickets!

What a pathetic, disgusting underperformance, yet again, by those losers last night.

For 53 years, this team of second-tier losers just cannot find a way to put a full 60 minutes into a game.

Now they are 0-6 in all recent series elimination games. Reminds me of their collapse to the Bruins in 2013.

https://www.nhl.com/news/game-of-the-decade-boston-stuns-toronto-game-7-2013-playoffs/c-313998466

Such an embarrassment to Real Canada.

#5 TerziogluTerritory aka Prince Polo on 05.30.21 at 12:59 pm

Speaking of pension plans, instead of Liberals giving $5K to homeowners for renovations, how about funding all Canadian newborns CPP accounts with $5K at birth? 65 years of compounding sounds extremely juicy.

#6 Madcat on 05.30.21 at 1:05 pm

Excellent post! I’m sending this to my family members who keep trying to convince me to purchase real estate (I keep trying to explain what you just articulated beautifully).

#7 Summertime on 05.30.21 at 1:20 pm

I think this time the situation is very different due to the following facts:

1. The inflation is already evident and will only accelerate from here on.

2. The interest rates can not be increased due to the amount of outstanding debt and due to the size and nature of deficits – it is structural.

3. The open world and automation suppresses labour market and wages in the developed countries. This kills the tax base and ensures ever growing deficits.

4. If you exclude housing and related financial services there is very little left in terms of real economy.

5. We are entering the High Carbon Taxes/Green Economy that will render the resource sector here relatively irrelevant.

This seems like one time game changing event as in the beginning of the industrial revolution, but with all the complications, including the move to a Green Economy, in an environment of peak debt and with very loose monetary policies

If you get caught on the wrong side of the windshield you will get smashed.

The savers, retirees, labour will be crushed.

Never in history was a SFH/house worth 20 times the annual gross income/30 times the net/after tax annual income of an individual with a Masters degree as currently in Vancouver and Toronto.

That is a huge time limited lottery jackpot win for homeowners, if one manages to convert the worth of the house to a protected asset/basket of protected assets, that will not lose it’s value when compared to the current price of goods and services and just moves to a cheaper place.

#8 Luca on 05.30.21 at 1:34 pm

But people have to live somewhere. And someone still has to buy and own the property and become a landlord if to support the people that will rent instead. So real estate will continue to become expensive since everything will still be selling regardless and we have low supply. If interest rates go up a lot doesn’t the whole bubble crash? The markets and bonds are safe either. At least with real estate the government will save you. Canada has a low foreclosure rate historically even in market crashes.

#9 crowdedelevatorfartz on 05.30.21 at 1:34 pm

Great reminders Sinan.

I’m looking to buy but not in these ridiculous times.
Sanity has to return to the land.
The govt chooses to ignore the warning signals
Let the market inflation whip sting these mortgage holders over the next few years and see how many are underwater, up the creek, without a paddle.

#10 Dolce Vita on 05.30.21 at 1:45 pm

“…45% of Ontarians 45 and older are relying on their home to fund their retirement. It also revealed close to 60% have little or no retirement savings”

You got my attention Sinan.

If ever there were a crying shame, that would be it.

A lifetime of debt servitude only to look forward to using your home, as ATM, in retirement.

Always beholding to the bank for a lifetime.

Golden Years alright, for the banks.

#11 Tarot Card on 05.30.21 at 1:46 pm

Thanks for the blog Garth
Thanks for the post Sinan

I agree with the financial analysis.

You can argue both sides of the coin.

No amount of common sense will stop people from buying a house. Almost everyone I talk to says the same thing it’s better to pay a mortgage and build equity then to see rent go down the drain. Does not matter on the math.
I will repeat that it does not matter on the math because most people a mortgage is forced savings.
Then everyone looks backwards and says look how much everyone has made in housing.

I think it comes down to understanding that people want something called ownership and are willing to sacrifice financial freedom for my house.

We all have to live somewhere is it a square box on the 20th floor with cooking smells, noisy neighbours the answer?
Or sitting outside looking at your garden having a morning coffee with the fire pit going? With a million dollar mortgage?

What makes you happy is worth more than money in the bank!
And besides the government has just proved that if you spend all your money and end up poor we got your back. And we will tax those nasty people who invested their money.

#12 Upenuff on 05.30.21 at 1:55 pm

If history is to repeat itself and mortgage rates begin to climb…. Those new into this crazy real estate market are going to feel the wrath that we have not seen since the early 1980s…….

#13 Sail Away on 05.30.21 at 2:07 pm

#11 Tarot Card on 05.30.21 at 1:46 pm

What makes you happy is worth more than money in the bank!

———-

Money in the bank makes me happy.

#14 the Jaguar on 05.30.21 at 2:15 pm

Sinan provides an excellent example for the class today. I might be developing a crush on the guy.
This part is intriguing…. ” Emotions and fear of missing out have caused them to spend $250K more than they initially planned and now their down payment is going to be $250K – but with land transfer tax and closing costs their total initial outlay is closer to $300K which will essentially require most of their asset”.
So, assuming they didn’t just have the 250G’s lying around in a useless bank account, there must also have been a more immediate ‘exit cost’ to cash out of registered or non registered accounts. It would be interesting to know exactly how often this was happening. Where is that ‘Roger the home inspector’ blog dog? Or maybe there is a blog dog who is in the residential appraisal business who can tell us how easy or hard it is to rustle up comparables which bear out the same ‘over bid’ scenario……
My guess is that in some scenarios the overbid is even higher. Much higher. And the peeps selling are making out like the woman in the IKEA commercial. ‘Start the car’!

Those dogs are like a couple of fashion models. All brushed and ready for their close up shot.

#15 50 YEARS OF MAPLE LEAF INCOMPETENCE! on 05.30.21 at 2:18 pm

Forget the pathetic, fraudulent Make Believes for a minute.

On the positive side for GTAHoles……

ONLY 2 MASS SHOOTINGS IN THE GTA LAST NIGHT!!!!!

WooHOOOOOOOooOOO!!

Only 1 dead, 7 in hospital!! In an entire evening!!

https://globalnews.ca/news/7905618/1-dead-multiple-victims-shooting-glenerin-thecollegeway-mississauga/

https://toronto.ctvnews.ca/three-people-walk-into-hospital-following-shooting-in-downtown-toronto-1.5448538

*Remember – like Sinan says, if most of you are house poor and have no retirement savings, there is one sure solution –

BUY LIFE INSURANCE – YOU’RE SURE TO GET SHOT IN TORONTHOLE!

Your families will be RICH!

After they put your ashes in the green bin, they can probably survive for MANY MONTHS in the wonderfully livable GTA, watching the Make Believes lose for another whole NHL season before they get shot too.

WINNING!

#16 the Jaguar on 05.30.21 at 2:20 pm

@#11 Tarot Card on 05.30.21 at 1:46 pm

” Almost everyone I talk to says the same thing it’s better to pay a mortgage and build equity then to see rent go down the drain. Does not matter on the math.” +++

—–
Tarot Card, can you do the math for me on that scenario when the market corrects downward 32% as it once did, but you still owe the same amount of money on the house? Bit of a head scratcher, huh..

#17 Sinan Terzioglu on 05.30.21 at 2:28 pm

#1 Elmer – I think the stock market is fairly valued because of where interest rates currently are and strong corporate profit growth over the next few years – Sinan

#18 So glad I sold on 05.30.21 at 2:32 pm

The couple will also have yearly property taxes as well which can be significant. Let’s not forget house maintenance issues which come up sometimes when unexpected.

#19 Frank Saracci on 05.30.21 at 2:33 pm

I have been in real estate and mortgage financing for 45 years. This is not going to very badly if we continue on the path of cheap debt, very loose policies on real estate and other financing.

A house but condo less extent is shelter, a place to live and not an investment. When it is paid off, it is an asset that can be sold and that is it. It typically would gain in value over time with a little more than inflation, 4%-5% a year at most.

However, with all this rampant speculation, massive, socialist, central planning keeping interest very low well below inflation and not tracking normal interest rate trends of 2%-3% above inflation so 5% to 6% mortgage rates should be today there should be a real adjustment to real estate prices.

There has not been the typical every 6 to 7 years real estate correction in prices in decades, since the early 90’s. This is why the best thing for Canada’s economy and for more housing availability is a 50% correction of current real estate prices over the next 30 to 50 months.

The only way for this to really happen is a Bank of Canada would raise interest rates to 3.75% to 4.5% over the next 30 to 50 months. This would fall in line with almost normalization of rates back to July-2007 to 2008. It has to be done or Canada is done for sure this time. No pain without gain.

#20 Debtslavecreator on 05.30.21 at 2:36 pm

DELETED (Anti-vax)

#21 Concerned Citizen on 05.30.21 at 2:39 pm

I generally agree that in the face of this housing market insanity, it’s not a good idea to exhaust your liquid assets (savings, emergency fund, etc.) just to buy a slanty semi. In fact, for young people with skills, unfortunately the best decision is likely to work abroad and/or emigrate entirely.

However, I take issue with this:

“Had the couple avoided the emotional decision of chasing overvalued real estate, stayed the course with their $300K invested while only adding annual TFSA contributions earning an average 7% per year this portfolio would be worth over $2.4M by the time they hit 60”

First, the same factors that have blown the housing bubble sky high – negative real interest rates, money printing – have also affected the stock market. With bonds yielding next to nothing and stocks at or near the highest valuations in history, how is a reasonably diversified portfolio going to pull off 7% going forward? In fact many are forecasting low or even negative returns for the U.S. markets over the next 10 years.

Second, this doesn’t account for inflation. $2.4M in 25 years is going to be worth considerably less than it is today, especially if the central banks try to inflate away and/or outright monetize the debt (as seems increasingly likely as they continue to pour gasoline on the raging inferno).

It’s called the “Everything Bubble” for a reason. They are no good options, just less bad ones. If you’re in a position to move to a lower cost jurisdiction – whether that by Calgary, Winnipeg, Texas, etc., that may be your best bet. That lets you put considerably less money towards housing, and then you can take the difference to save more for retirement to compensate for lower than historical investment returns.

If you’re young and can’t move, it’s going to be very, very challenging. The policymakers have intentionally screwed over young people.

#22 None on 05.30.21 at 2:40 pm

I’m not sure that renting is that much cheaper than buying. Rents have caught up at least in Victoria. Of course a housing correction changes that very quickly.

#23 Quintilian on 05.30.21 at 2:54 pm

Even the real estate pumpers cannot ignore inflation is taking hold.

But they argue that the government won’t let rates rise, (as stupid as this statement is, let’s assume it’s true).

As stealth inflation rages on, purchasing power declines, and if real estate prices go up even in single digits- how long will it take for the market to collapse from lack of purchasers?

#24 Phylis on 05.30.21 at 3:01 pm

Hey Garth, the hyperlink in
“Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments…”. Is broken, might be a typo of /ca vs .ca. (The others seem to be ok)

Fixed! Now it goes right to my cherubic, smiling face. – Garth

#25 Dirty Dan on 05.30.21 at 3:10 pm

https://www.youtube.com/watch?v=3m3xzRAr-jM

Green is good, fossil fuel bad.

– Cancels XL pipeline
– Tries cancelling fracking

Later on

– Greenlights Russian pipeline

Now Canada and Mark Carney get in on the hypocrisy

– XL pipeline bad
– Alberta oil bad

While later defending…

– Brazilian and UAE pipeline development good

We’re all a bunch of Greater Fools… it wasn’t about the environment. They just wanted to give us long lasting jobs AND said it was about the environment because they case so much about ut.

https://www.youtube.com/watch?v=3m3xzRAr-jM

#26 Nobody knows ... on 05.30.21 at 3:12 pm

The problem with the math is that you need assumptions. After 30 years of growth, people assume that not only do house prices always grow, but they grow a lot. And the math then makes sense. For some people, 30 years is a lifetime. And 30 years ago people were still calling each other on home phones, and nobody expects texting to disappear. So why should low interest rates disappear?
What does not make sense though, but Canadians don’t seem to get it, is to spend an entire salary (or more), for housing. This makes people with good salaries be in fact poor. And i have trouble believing that someone with a 1.2 million dollar house will drive beat up cars, have no vacation, and never eat out. Which means they will have to finance their lifestyle with more debt. And then the only thing their house will offer them is the ability to brag (or bitch) about being homeowners, and not financial security.
I personally think most people are not in the situation described above as outside of Toronto and Vancouver homes were affordable until not long ago. One thing is for sure, if it keeps going this way we will soon learn whether this is the new way of doing business or if it were all a sham.

#27 Tarot card on 05.30.21 at 3:15 pm

Thank you for your comments
First money is not the path to happiness
People have been lead to believe that.
I grew up poor and our family was always happy
Happiness is what you make of what you have.

Do the math
My point, was it does not matter about the math people will still buy.
But to make your point if house drop 32 percent which is a weird number and never will happen.
But for the sake of argument I paid 600,000 for my house three years ago and now worth $900,000 if there is a 30 percent correction I am back to what I paid?
So who cares?
If I am 30 in 25 years my house will be worth more always will be!
The math I was talking about was if you pay $3,000 in rent or $3,000 in mortgage almost everyone will want a mortgage even if the math proves renting and investing are better in the long run.

#28 willworkforpickles on 05.30.21 at 3:19 pm

Japan and China particularly are continuing to scale back on their US treasury purchases . With this demand from the main buyers of US debt falling, the US government will have to pay higher interest rates to sell all its bonds.
The gap between the debt to GDP ratio is steadily widening and has these main purchasers of US debt concerned as to being paid back with insane runaway debt creation skyrocketing the balance sheet upwards.
Inflationary pressures deflating the value of the US dollar is their other concern…(and will affect rates)
Any notion to scale back on government spending is purely bogus.
So who will purchase government bonds and keep the printing presses rolling going forward?
…those guaranteed higher interest rates…much higher interest rates…spiralling mortgage rates upwards here eventually.
Canada will follow the US lead as always to remain market competitive.
This will affect renewals and equity values a few years from now.

#29 south slope gardener on 05.30.21 at 3:25 pm

Garth, I suggest you remove the following:
#20 Debtslavecreator 

the link is for site pretending to offer a science based pod cast. I listened to the first 6 minutes and when they refuse to name what publication the ‘peer-reviewed’ study was published in, I knew it was nonsense. Thank you

Now deleted. The anti-vaxers are despicable. – Garth

#30 Sinan Terzioglu on 05.30.21 at 3:45 pm

#21 Concerned Citizen – Thanks for your comments. We are confident that a globally diversified portfolio will continue to earn approximately 7% annually so long as you are properly positioned with a healthy amount of preferred shares and invested in the highest growth sectors. The yields generated from preferred shares and various equity markets are attractive and we expect corporate profit growth to remain strong for the next few years. The runways of growth in technology and healthcare will continue to help deliver above average earnings growth for years to come and these are now the largest sectors in the US market. The largest companies in the US are earning incredible returns on their capital and they have very strong balance sheets which enables them to continually invest in growth and return cash to shareholders. Balance sheets have never been stronger. I believe equities will be moving substantially higher over the next several years – Sinan

#31 crowdedelevatorfartz on 05.30.21 at 3:46 pm

@ Garth.
Now it goes right to my cherubic, smiling face. – Garth

++++

I hate to be the bearer of bad news Uncle Garth but…… that’s not a smile…..

#32 Rote Hexe on 05.30.21 at 3:53 pm

Don’t follow the herd.

Hasn’t been mentioned recently.

#33 Barb on 05.30.21 at 4:07 pm

Collies are so dignified looking.
And their gentleness shows in their face.
Magnificent pair.

#34 Keith on 05.30.21 at 4:24 pm

45% of Ontarians 45 and older are relying on their home to fund their retirement.

Close to 60% have little or no retirement savings.

The average debt to income ratio in Canada is somewhere north of 150%.

So while a person may be better than the government at handling money, the average Canadian is hopeless. I can remember pages of classified advertising in newspapers during RRSP season, with 5 – 20 year mutual fund track records on display in large print. People were warned they would have multiple employers, no pension and they needed to take care of their own retirement. The Wealthy Barber is shaking his head.

The first generation after the demise of the company pension plan is ample proof that DIY retirement planning is failing. Run the same survey, and exclude household income over 100k. It will look much worse.

#35 paddy on 05.30.21 at 5:06 pm

“Consider a couple in their mid-30s with a household income of $200,000. They’ve been renting a house for $3,000 per month and are ready to purchase a property so they start looking around”…….

200k between 2 people leaves them with 9.2K/month(ontario) and 9.5K(BC) after the rent is paid, assuming they both make 100k and aren’t contributing to a DB pension plan…thats a lotta dough left over….to go do fun stuff with….but no we must buy a house…WE MUST!

Another great article Sinan!
Thanks as always.

#36 Ken R on 05.30.21 at 5:35 pm

#18 So glad I sold.

Maintenance issues? Just listen to people who visit their old neighborhoods; ” the places look so run down now”.
I hear it all the time; “that place used to be so well kept and then the original owner sold it.” When you overpay, no bucks for maintenance.

#37 willworkforpickles on 05.30.21 at 5:55 pm

So lets say you want to buy a house for around …xx number of dollars with a mortgage attached about $1,400000.00cad…pretty nice house – sort of…
You take out a 3 year fixed at a 25 yr am at a rate today of 2.14% and make monthly payments just over $6300.00 cad.

3 years from today you owe (with any luck) $1,200000.00cad
Then you go to renew and you find rates have normalized and are then 7.5% for a 3 year fixed 25 yr am. …and now your monthly payments become well over $9000.00.
You’ve paid down another $200000.00 along with your down and closing costs and all other $$ you added to your new place along the way…all for an asset that has deflated to half what you paid for it.
And what you still owe is miles above what it will be worth then with a much higher monthly payment going forward and on to oblivion.
(just an example and all hypothetical now of course)…but the pain starts as it all turns hyperactive.
Seen it before.
It can & will happen all over again.

#38 Michael in-north-york on 05.30.21 at 6:10 pm

#8 Luca on 05.30.21 at 1:34 pm

But people have to live somewhere. And someone still has to buy and own the property and become a landlord if to support the people that will rent instead. So real estate will continue to become expensive since everything will still be selling regardless and we have low supply.
===

Not exactly. Renters tend to accept a smaller dwelling, they don’t want to pay for space they don’t use. They know they can always trade up later.

Buyers tend to get a bigger place, because the transaction cost is a lot higher for them and they don’t want to repeat the process too soon. Plus, they expect capital gains.

#39 Ruth Chitiz on 05.30.21 at 6:16 pm

Investing $6 million dollars in a HISA yields less than $1,488 dollars annually.

#40 Concerned Citizen on 05.30.21 at 6:21 pm

#30 Sinan Terzioglu, I disagree that balance sheets have never been stronger. It’s quite the opposite, actually. A significant number of firms now classify as zombie companies, and price to book value has never been higher (see: https://www.multpl.com/s-p-500-price-to-book). Sure, a lot of intangible value is not listed on balance sheets nowadays – especially with regards to tech companies – but balance sheets are anything but strong. Even the big tech companies have seen their net cash decrease as they take on debt to buy back their stock at 30-40-50 times forward earnings. Remember how so many companies were in such terrible shape at the outset of the pandemic because they’d spent so much of the last 10 years borrowing to buy back their stock? Well, most of them are in even worse shape now.

Then, what about the impact of higher taxes going forward? And higher rates will make their corporate dead loads that much harden to handle when it comes time to refinance. Not to mention the fact that so much of company revenues are being debt-financed by governments right now (governments give people money, people buy stuff from corporates). If you believe that can’t continue indefinitely without inflation and higher rates, what happens when it stops?

Even if you put all your fixed income in preferreds, you’d need to earn like 10% or so (depending on allocation) from equities to reach that 7%. Not going to happen.

I am definitely in the camp that this is going to be a dismal 10+ years for equities, but we’ll agree to disagree.

#41 the Jaguar on 05.30.21 at 6:22 pm

@ Tarot Card.

Your point is taken if viewed from the perspective of buying lower in the past and being the beneficiary of increased price appreciation leaving you safe from market contraction. Your head is likely still above water, providing you resisted accessing that equity.
We’ll see how that works out for those who recently were swept up in the housing hysteria. It just may turn out to be true that ‘time is money’, and ‘timing’ is in life is everything. Planned or otherwise.

Anyhoo…, the week ahead here will be a hot one. 25,28,30,30, 25 degrees next five days. Thank dawg we don’t have humidity in Calgary. Most don’t have air conditioning, either. Who knew we were so ‘energy conscientious’ in this energy capital of Canada? I may have to work in my ‘skivvies’ to beat the heat. No worries, given these days ‘everything goes and nothing matters.’ It puts me in a dancing mood.

https://www.youtube.com/watch?v=kYNHX_CCNeA

#42 Linda on 05.30.21 at 6:24 pm

I agree with ‘the Jag’ regarding the collies! Definitely very good looking with magnificent coats & nary a knot in sight:)

There are many issues with RE these days. The prices being paid are mind blowing. Selling to fund retirement sounds good, but how many are actually doing that? Seems like too many are concerned they won’t be able to buy again should they sell; renting doesn’t appear to be an option they are willing to embrace. Also, how many of those selling will actually invest the proceeds to generate regular monthly income? Can’t help but think not a few will act like big lottery winners who blow the wad & end up bankrupt within a year or two. Because if the only asset they have is a house & they are now at the age of retirement, seems likely that they may not have very good money management skills.

#43 KAC on 05.30.21 at 6:25 pm

#11 Tarrot card

“We all have to live somewhere is it a square box on the 20th floor with cooking smells, noisy neighbours the answer?Or sitting outside looking at your garden having a morning coffee with the fire pit going? With a million dollar mortgage?”

———————————————————-

During my long lifetime I have spent decades living in SFHs and decades living in condominiums and I can state with certainty that both have advantages and disadvantages. The final choice is likely to depend on personal circumstances.

For any given neighbourhood the cost per square foot of living space is usually (but not always) higher for the SFH, as are the property taxes, maintenance and insurance costs.

For most SFH owners at least one car is essential, whereas for the owner of a well located condo it is not. In a good downtown location, many errands and entertainment options can be within easy walking distance. In a condo the cost of maintenance is included in the monthly maintenance fee and, in a good quality building, should be similar or less per annum than in a larger SFH. The addition of a concierge will inflate the condo fees but has significant security and convenience advantages.

In Vancouver one can buy an old house in a less desirable neighbourhood for around $1.5 million or, for the same money one can buy a 1,000 to 1,500 sq.ft. condo in a reasonably luxurious and well maintained building in a very central location. At the extreme ends of the market, Vancouver’s most expensive condo at Three Harbour Green was listed at $58 million, which would also buy you a very, very nice house.

A $1.5 million condo might be ideal for a couple but would probably be a nightmare for a family of four or more. Well located but less luxurious “boxes in the sky” are far less expensive.

Families with children will enjoy significant benefits with a SFH. The garden for the children to safely play, often much more indoor space, a larger kitchen and a separate “family room”. On the negative side they will also need at least one car, probably two.
I would not want children needing to go out on the balcony or a Downton street to play. Parks, however close, are no substitute for a good garden.

A child free couple living in the condo may not require a car because their need for one is greatly reduced because taxis and car rental/ride-sharing is readily at hand.

Noise from bad neighbours can “usually” be addressed by the Strata Council and quickly remedied. In buildings with a weak and ineffective Council the police can be called, just as they can with an SFH. In a SFH, when polite requests fail, the police are generally your only option.

Cooking odours can be an issue in both types of dwellings, unless the SFH is on a very large lot. BBQ smells, particularly fish, can be a real issue. I once lived in a SFH on a 100 x 160sq.ft lot and my neighbour loved to BBQ dried fish. The smell was unbearable outside and often entered my house. No amount of polite discussion could dissuade him. Closed doors and windows were a partial,solution. Legal action for the tort of nuisance was a possibility but extremely expensive to pursue.

In a modern condo the hallways are pressurized and cooking smells should not be a problem unless originating from a balcony BBQ. The Strata Council can fix that issue if it’s a nuisance.

As for noise, a well designed concrete building should not have many problems. In my SFH I once had a neighbour with an obnoxious teenage son who liked to sit in his car in the driveway with the windows rolled down and his mega sound system cranked up to eleven. Polite requests garnered an abusive response. Eventually repeated calls to the police reduced but did not end the problem. This was in a nice middle class neighbourhood with immaculately maintained homes and one inconsiderate family. Fortunately it was not a crack house.

Bottom line, both types of homes have their advantages and their challenges and neither is perfect, it all depends on you own situation. I believe a family with children are better suited to a SFH in a nice suburb with good neighbours, whereas a single person or a couple who enjoy having many conveniences such as shopping, restaurants, nightlife, medical facilities, etc.,etc., all within walking distance, the right condo can provide an excellent lifestyle.

Before somebody responds with the tired old point “you don’t own any land with a condo”. Please look at the condos near you. What are they built on? Who do you think owns that land? So which is more desirable, full ownership of a small patch of less valuable land or a small share of the ownership of a much larger and vastly more valuable piece of land.

Different strokes for different folks, at different stages of their lives, but I strongly agree that using one’s home as one’s single retirement strategy is insane.

#44 Voice of treason on 05.30.21 at 7:26 pm

I agree with everything said and generally agree with what Garth has preached since I started following this blog (probably around 10 years ago).

However, I am at the point where I will believe it when I see it. There has been no crash (early Garthism), no soft landing (mid garthism) and not even a slowing. Real estate is making many many millionaires. Any while I have been cautious, my friends that threw caution to the wind and over bought on principle residents or across multiple rental properties at what seemed like crazy prices are now all counting the profits.

Again – the logic espoused here makes sense and I agree. But apparently the rest of Canada isn’t listening. Hope to be proved wrong quite frankly!

#45 Lionsroarin64 on 05.30.21 at 7:39 pm

Well said, Sinan. It’s five years since I sold my pretty – and pretty leaky – Vancouver condo, started renting and asked Turner Investments to look after my nest egg.

I’ve never looked back and appreciate the sensible, valuable advice Garth, Doug, Ryan and you share everyday on this blog.

#46 crowdedelevatorfartz on 05.30.21 at 7:52 pm

@#42 Linda
“Can’t help but think not a few will act like big lottery winners who blow the wad & end up bankrupt within a year or two. Because if the only asset they have is a house & they are now at the age of retirement, seems likely that they may not have very good money management skills.”

++++
An employee of mine retired last Sept.
His Union pension is $1500/month.
He’s been drawing CPP since the age of 60.
He now qualifies for old age pension.
All together ? About $2600/month.
They have zero investments and savings.
We gifted him a 10k RRSP as a retirement bonus so that his 2020 taxes would be reduced at source.

He looked at the numbers and sold his place in Nov.
After the dust cleared he had about 400k in his jeans.
I suggested he rent and invest and live off the money.
( Both he and his wife smoke two packs a day each, are obese, diabetic, alcoholics, no exercise….the works).

If either one of them see 70 I will be amazed.

Invest?
Nope. They bought a 30 year old trailer with cash (200k) put another 50k into it for windows, furnace, shed, A/C, etc.
Now?
He has about $150k and it’s burning a hole in his pocket.
He plans on going on a posh vacation when all the Covid crap is over…..IF…… his circling shark school of kids dont talk him out of it first….

#47 oops on 05.30.21 at 7:56 pm

100’s of years in the making. Why is that plan bad…I want names!

#48 Steven Rowlandson on 05.30.21 at 7:58 pm

.
“A survey by the Ontario Securities Commission found 45% of Ontarians 45 and older are relying on their home to fund their retirement.”

They are being silly as there are far too many underpaid and under employed Ontarians to support such financial fantasies except at prices and rents at1960s and 1970s levels. Then there is the non zero risk of a mass die off due to problems related to the vaccines causing spike protein growth which in turn will cause a variety of disorders…. Dead people need no homes.

#49 crossbordershopper on 05.30.21 at 8:08 pm

land is scarce? really, in Canada. I drove from Prince Albert to La Ronge sk, today. trust me, Canada has no people and land beyond the horizon.
its that people want to live all next to each other thats the primary problem, govt services concentrate etc.
but land is not scarce in Canada.

#50 The Woosh on 05.30.21 at 8:19 pm

Had the couple avoided the emotional decision of chasing overvalued real estate, stayed the course with their $300K invested while only adding annual TFSA contributions earning an average 7% per year this portfolio would be worth over $2.4M by the time they hit 60. This pot of liquid financial assets would comfortably provide an income of over $10K a month without depleting the capital.

————————————

Good article. Unfortunately, past performance is not an indicator of future performance and there should be a caveat indicating that an average 7% worked well in the past but there’s definitely no guarantee that this will continue being the case going forward. You can plan all you want and it can all still flush down the toilet. Stuff happens, you know, like pandemics, clueless Bank of Canada governors, boneheaded politicians who upend the economy, etc.

When I read the above paragraph, it reminds me of conversations I’ve had with the “financial planners” at the bank and why I manage my own multi-million dollar portfolio myself. Using “earning an average 7%” in a financial conversation should be banned.

#51 crowdedelevatorfartz on 05.30.21 at 8:29 pm

Fartz on Mars the Movie.

https://www.theverge.com/2021/5/28/22457316/nasa-ingenuity-mars-helicopter-navigation-glitch-sixth-flight

#52 Nonplused on 05.30.21 at 8:36 pm

#7 Summertime on 05.30.21 at 1:20 pm

“5. We are entering the High Carbon Taxes/Green Economy that will render the resource sector here relatively irrelevant.”

No, it won’t. Carbon taxes affect consumers, not producers. Think of it as an expansion of the GST, which is really what it is.

Most of the oil and much of the gas leaving Alberta heads to the US. I don’t see the US ever having carbon taxes at least not on a wide scale. California probably will if they don’t already but never Texas.

As for the green economy, well, if it ever does have a noticeable impact it is years away. We’ve been building wind turbines for 30 years and so far they add less than 4% to the global energy picture. They can’t build them fast enough to keep up with demand growth, let alone replacing existing energy supplies.

And because wind and solar are intermittent, there is that whole storage problem which has not been realistically addressed. Natural gas, oil, and coal all store quite nicely to be available when needed. But the cost of keeping these supplies on standby for when the wind doesn’t blow or the sun goes down is quite high, nearly as high as using them all the time and forgoing wind and solar.

————————————-

As I discussed here two days ago and yesterday, the new grant program is going to make little difference. It is simply not enough money to encourage someone who has a $1.25 million dollar mortgage to spring for new windows all around.

As Fartz pointed out;

“ahahahaha.
They’re reimbursing the GST on the windows!”

And that’s about it. To get the full $5,000 you probably have to spend at least $50,000. Nobody who has a house built to 1990’s standards or better is going to do it.

Lots of people are complaining that the so called $5,000 grant is “unfair”, but if you go on the website and explore the details there is no “$5,000 grant”. $5,000 is the maximum total of a bunch of little grants that barely cover the GST. It is a gimmick really. You’ll have to spend a whole lot of money, money most people don’t have, on often unnecessary upgrades, to capture the full $5,000.

Most of the houses out there that could capture the full $5,000 should probably be torn down and rebuilt to modern standards rather than have a bunch of triple pane windows installed in a 75 year old house. Otherwise it is a waste of windows.

#53 Nonplused on 05.30.21 at 8:55 pm

“…45% of Ontarians 45 and older are relying on their home to fund their retirement. It also revealed close to 60% have little or no retirement savings”

Well, my grandparents did the same thing, only the goal was not necessarily to “fund retirement”, it was financial security. The idea was that you pay off the mortgage so you never have to pay rent again, then you keep saving your mortgage payment for whatever years you have left, then you retire on CPP and your savings with no mortgage.

The windfall that they received on the crazy house appreciation went mostly to my parents and aunts and uncles. My grandmother was still living in the house when she went to the ICU for the last time. It sold for a crazy amount of money compared to what they had paid for it. But when you compare it to real inflation, probably not so shocking.

#54 Manny Alvarez on 05.30.21 at 8:56 pm

I agree that renting is cheaper. I have been renting for 30 years now and have kept all my rent receipts and have paid total $396,451.36. I came from a very poor country and very mismanaged government country and seized my opportunity in Canada to work hard, save, help my loved ones that live in my original homeland, country. I am very greatly to Canada.

I have lived always in a 900 to 1100 square foot apartment sizes in the GTA. It may look like money wasted paid to a landlord but it is not. I am 51 now and have worked mostly full-time for the last 30 years, 29 years total between 55 to 65 hours a week in specialized delivery and courier jobs. Started at $36,000 a year now making $77,000 a year.

I have managed to accumulate through savings and maximizing my RRSP’s, reinvesting RRSP refunds, TFSA’s, non-registered money $2,056,719. My annual return interest, dividends, capital gains 6.45% before compounding over the last 30 years. I did everything myself with 45% in equities, 35% in bonds, GIC’s, 10% in foreign bonds, 10% real estate. I am currently able to save between $3,700 to $4,000 a month and continue to rent. It is cheaper than owing a house and I don’t have to worry about repairs, maintenance, insurance and many expensive costs, taxes etc. Do what is best for your personal situation.

#55 Arthurhew on 05.30.21 at 9:02 pm

DELETED

#56 Nonplused on 05.30.21 at 9:12 pm

#25 Dirty Dan on 05.30.21 at 3:10 pm

One of the problems I have with the whole “green economy” is replacement. For example, has Tesla discovered an alternative to tires and plastics and lubricants currently made from oil? What about the asphalt for the roads his electric cars will drive on? What about the asphalt shingles for the garage (nobody parks a Tesla outside).

So the oil will still come out of the ground. But with it will come the lighter hydrocarbons like gasoline. What do we do with them in an all electric world? Flare them? That solves nothing.

And if you want to increase the number of products and decrease the amount of gasoline produced, you use heavy oil from the oil sands.

Wind power is no replacement for asphalt. It is the wrong plan.

KXL will eventually be built. They need asphalt in Texas and shale oil isn’t a very good source of it.

#57 Nonplused on 05.30.21 at 9:18 pm

#41 the Jaguar on 05.30.21 at 6:22 pm

“Anyhoo…, the week ahead here will be a hot one. 25,28,30,30, 25 degrees next five days. Thank dawg we don’t have humidity in Calgary. Most don’t have air conditioning, either.”

Just move your WFH station to the basement for the week and open the windows in the evenings. There is a green solution right there.

#58 crowdedelevatorfartz on 05.30.21 at 9:18 pm

@#54 Manny A

Awesome!
Well done.

#59 Trina Kennedy on 05.30.21 at 9:39 pm

I have been renting the last 6.5 years as no lender will give me a loan, mortgage to buy a house. I am 26 making decent money, currently $42,700 a year for 44 hours a week but they are all multiple part-time jobs but have been working steady for 6.5 years now.

All I could do is rent and after all my living expenses, income taxes, CPP, EI, all deductions etc. I am currently saving $1,400 a month. I do have my RRSP, maxed out and TFSA almost 50% maxed out with decent balances, RRSP $57,000, $39,000 and a small financial cushion savings account $8,000 which is 5 months living expenses.

Avoiding credit card debt, payday loans, high interest debt in general, keeping car loans payable within 3 years at $300 or less a month plus trying to max out my RRSP first, taking the RRSP tax refund putting that in TFSA plus other savings etc. is what I know really helping me alot the last 6.5 years.

#60 Tammy Simms on 05.30.21 at 9:52 pm

Trina Kennedy, if you keep on that trend and can get a decent 5% a year annual return over the next 14 years by the time your 40, you should have at least $540,000. Keep going as you are in really good shape with no debt.

Debt, even low interest debt is a big deal as you get older and older as you can’t work forever.

#61 Winterpeg on 05.30.21 at 9:58 pm

A very concise and clear article on the perils of buying in today’s market, Sinan. Exactly what Garth has been telling us ongoing, (minus the classic sardonic wit.)

#62 Juve101 on 05.30.21 at 10:10 pm

Your best post to-date Sinan.

#63 mike from mtl on 05.30.21 at 10:24 pm

Honestly my 2¢.

There will be no crash or even serious correction in residential RE in our lives. The everything bubble whilst dangerous is not completely unmanageable case in point the current reality here and everywhere in the G20. The once in one century crash and pandemic proved “money” is worth nothing.

Serious respect to Garth and Co. hammering away for nearly two decades; all important cost of borrowing is not suddenly going to be expensive.

#64 Shawn Vaughn on 05.30.21 at 10:28 pm

Hey Manny, I understand where you are coming from. My young brother works for little above minimum wage $14.35 an hour at a local pizza place 6 days a week that is really busy for years now.

The boss is so grateful for my brother having trouble keeping a worker that wants to work so hard and be so dependable. My father made a challenge with my brother to save $10,000 and my father would match 50% of that.

Guess what, 18 months later he saved $20,000 and got the $5,000 from my father much sooner than my father ever thought. My young brother 21 is becoming assistant manager next month with a big bump up in pay, 15% pay raise to $16.50 an hour, $500 one-time bonus and better working hours.

Decent incentive rewarded with hard, reliable, dependable, responsible workers, work ethic is what is missing alot now and if not reversed will be the ruin of this great country Canada. The punishing of this and rewarding the entitlement mentality of freebies, government free stuff, benefits etc. is making Canada an economic, financial basket case. Canadians be careful what you wish for.

#65 the Jaguar on 05.30.21 at 11:14 pm

@#57 Nonplused on 05.30.21 at 9:18 pm
#41 the Jaguar on 05.30.21 at 6:22 pm

“Anyhoo…, the week ahead here will be a hot one. 25,28,30,30, 25 degrees next five days. Thank dawg we don’t have humidity in Calgary. Most don’t have air conditioning, either.”

Just move your WFH station to the basement for the week and open the windows in the evenings. There is a green solution right there.+++

It’s more complicated than that, Nonplused. Think 007.
There’s no basement in this scenario.

Freedom of movement is critical to my success. Can’t you just strap me on the bow of your boat in my Honey Rider bikini and take me for a spin around Waterton Lake or something…..just to cool off… Help out a fellow Albertan. We’ve got to stick together, after all…

https://www.youtube.com/watch?v=FQXnfjBd-hA

#66 wallflower on 05.30.21 at 11:46 pm

Regarding 45 over 45 … I was reading somewhere that many no longer ‘save’ from earnings. Gains are coming from things like crypto and real estate.
To me, seems like the story’s plot is a twisted ponzi cousin.

#67 Dr V on 05.31.21 at 12:19 am

59 Trina

“I am 26 making decent money, currently $42,700 a
year for 44 hours a week but they are all multiple part-
time jobs …..”

While your savings rate is admirable, I was making this kind of money is the mid 1980s with one job. I went back to school so I could earn better money and do something that I truly enjoyed.

Do you really want to be doing several part time jobs at $19/hr+/- for the next 14 years?

#68 Ponzius Pilatus on 05.31.21 at 1:10 am

#56 nonsense
Wind power is no replacement for asphalt. It is the wrong plan.
———————————
They just build a bridge with crushed up glass bottles.
There are billion tons of rocks ready to be crushed up and put into service.
Last much longer than bitumen.

#69 BillyBob on 05.31.21 at 1:27 am

#54 Manny Alvarez on 05.30.21 at 8:56 pm
I agree that renting is cheaper. I have been renting for 30 years now and have kept all my rent receipts and have paid total $396,451.36. I came from a very poor country and very mismanaged government country and seized my opportunity in Canada to work hard, save, help my loved ones that live in my original homeland, country. I am very greatly to Canada.

I have lived always in a 900 to 1100 square foot apartment sizes in the GTA. It may look like money wasted paid to a landlord but it is not. I am 51 now and have worked mostly full-time for the last 30 years, 29 years total between 55 to 65 hours a week in specialized delivery and courier jobs. Started at $36,000 a year now making $77,000 a year.

I have managed to accumulate through savings and maximizing my RRSP’s, reinvesting RRSP refunds, TFSA’s, non-registered money $2,056,719. My annual return interest, dividends, capital gains 6.45% before compounding over the last 30 years. I did everything myself with 45% in equities, 35% in bonds, GIC’s, 10% in foreign bonds, 10% real estate. I am currently able to save between $3,700 to $4,000 a month and continue to rent. It is cheaper than owing a house and I don’t have to worry about repairs, maintenance, insurance and many expensive costs, taxes etc. Do what is best for your personal situation.

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

What a inspiring post!

Thanks for sharing your actual figures. You have admirably put paid to the lie that rent is “throwing away money”.

Living life on your own terms. Respect!

#70 Kevin on 05.31.21 at 6:47 am

All this real estate stuff is not always what it seems.
I was posted to Victoria BC in 1977, real estate was normal, maybe a bit expensive and then the interest rates went nuts in the early 80 and so did the RE market. I bought my first house in 82 at 12% interest rate and was happy. Friend Billy Valgardson was at 18%.
I sold that place in 86 with a small profit. the Victoria RE market has just continued higher because people want to live there. Its bloody nice there.
I watched the same thing happen in Costa Rica in 1992 93. The Locals lived a beautiful life along the coast, there was one beautiful lagoon at Langosta, not a building insight and the people could swim and cook over an open fire all daylong. just pure paradise, and then it was discovered by outsiders and it became a condo. Locals went from making 45 bucks a weeks to 200 and could not live within 20 miles of the coast.
I lived in New Zealand in 1997 2001, RE went nuts and never went down, locals who where not rich are relegated to the less desirable locations.
The RE market in GTA went nuts in early 90s and then fell back in less desirable neighborhoods. It took 20 years for those areas to recover. It Happened in Nova Scotia around 2005.
The one common thread is that the prices of everything went up in all of these markets and some went down after the frenzy, but the really desirable locations never went down a dime. If you buy in an average suburb you are at the mercy of the average market.
RE can be a good investment, but you have to consider liquidating it before you buy it. Who will be your target buyer, and do they have money.

#71 unbalanced on 05.31.21 at 8:24 am

Haven’t read all the comments yet, so this may have been said already. By cashing in too much of your RRSP’s you will have added income to claim which may put you in a higher tax bracket. Just saying.

#72 Triplenet on 05.31.21 at 8:44 am

There’s also the little matter of mortgage ‘ cleanup’.
The outstanding balance after the 5 year term is ~$838,000 with an asset value of 1M.
The equity/mortgage ratio has to be ‘cleaned up’.
Ouch.

#73 Miss Boomer on 05.31.21 at 9:13 am

DELETED

#74 renting is not so bad on 05.31.21 at 9:15 am

#54 Manny

Great story, you have more discipline than 99% of the population. It’s true that renting is not throwing money away, you get a place to live after all.

The problem is, renting is forever, and mortgages are 25 years. Plus, all your investment gains are taxable (minus the new TFSA), including the RRSP, when they are withdrawn.

The very nice house you could have bought 30 years ago would have been paid off 5 years ago and the $2M gains you would be sitting on would be tax free. And you would have had a nicer place to live all that time.

Huge difference.

#75 Dharma Bum on 05.31.21 at 9:16 am

Once upon a time in a magical land, long, long ago, people scratched together a meagre sum of money and put it toward the purchase of an abode – a place to reside – while they lived out their lives, toiling, socializing, playing, resting, and generally grinding it out.
Overshadowing this blissful way of life was a fat mortgage that slowly got chipped away at until eventually, about 25 years later, it disappeared. The people who worked their whole lives – living in the house they so cherished (and likely raised a significant brood to boot) – to pay off that mortgage were delighted and relieved when that day finally arrived. Oftentimes, they held “mortgage burning parties” to celebrate this milestone event.

But then a strange thing happened. The people that scrounged their life savings for the opportunity to finance a roof over their heads discovered that the amount they paid for the house way back when had miraculously increased tenfold. Hallelujah! They were rich! Thanks to real estate. Then they lived happily ever after.

Thus was born the concept that if you want to be rich and have something to retire on, buy a house when you’re young, and wait. The same fairy tale continues to be told today.

And so it goes.

The thing is, so far, they’ve all been right.

#76 Tbone on 05.31.21 at 10:13 am

To the posters with low pay . Seriously look into getting into the trades.
After you are licensed in 5 years you will have the potential to earn 6 figures a year and never have the fear of being un-employable

#77 Nobody knows ... on 05.31.21 at 10:20 am

#74
Mortgages are 25 years if you pay them off. If you keep borrowing against the house to renovate and go on vacation they can also be forever. I guess time will tell.
And again, hindsight 20-20. We base everything on past performance. Obviously if house prices keep going up 10% per year or more it makes sense to buy.
And then of course, you need to actually afford to buy or be willing to change your lifestyle. In order for me to buy the equivalent of what i rent, i need to come up with an extra 1000$ per month only for the mortgage payment. Then there is insurance and maintenance (money and TIME, which i value). Even if the bank gives me the cash, i will be very strapped for cash every month. So a house really becomes a big sacrifice. It’s a personal choice whether to make it or not. I rent under market value, but even market value would increase my rent by 500-700$, not more than 1500$, plus vaporized savings. And BTW, these houses i am talking about are roughly 100 years old. So you can imagine what ‘maintenance’ might mean.

#78 Cici on 05.31.21 at 12:53 pm

@#54 Manny A

Wow, congrats to you on living within your means, sharing with your family and community, and for saving/investing like a superhero to support yourself, everyone you love and the economy without the need for aid or subsidies.

On the otherhand, you’re kind of making me like a drunken sailor, because I don’t even have a quarter of what you’ve managed to build, and I’m only a few years younger. Regardless, I can happily say that so far, renting has also been a better option for me. In my case, having gone through two significant relationship blow-ups, both occurring during times of RE headwinds, I would have paid big time in terms of transaction fees (buying and selling), mortgage break fees, minimal gains or in one case, losses, that would have had to have been split between already fractured parties, legal fees, and of course, mortgage interest and upkeep costs and renovations.

After all, most of the RE winners who like to brag about their big gains haven’t been through divorces or breakups, live in areas that have had monumental price inflation, and fail to account for the costs of ownership (mortgage interest, transaction fees, upkeep and renovations) when calculating their actual “gains.”

Now, I’m not trying to diss ownership (it has its advantages, and I do love mowing the rental lawn!), but I still think that for many it’s an overblown and unnecessary cult that can wreak havoc on personal finances if not managed properly. You are proof that renting is often a better option.

#79 Doug in London on 05.31.21 at 10:05 pm

I’ll stick with that bore you to tears strategy where my exposure to real estate is in the form of REITS and REIT ETFs. Boring is good.

#80 Exodus 2020 on 06.01.21 at 12:42 am

Renting sucks. $2100 for two bedroom, I need a three soon, two kids share bedroom, super tight and stressful but a third bedroom is $900 more for 150 extra square feet. Not as glamorous as the old days, at least owners can lock in their monthly costs more than renters, and trade up with gains.

#81 Frank B. on 06.01.21 at 7:27 pm

Rent will not stay the same year after year.
Landlord can tell you at anytime that the party is over. Have to try finding something else. For more, for less?
Moving sucks.

Buying your own place means its yours. Do with it as you wish. It becomes forced savings and investment in your end.