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March 14, 2018 | Measuring up

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Yup, it sucks being old. Apparently it also sucks being 30something. So many pressures. Big anxiety. Kids. Houses. Careers. Uncertainty. What is the correct path?

Below are three notes from three couples struggling with decisions. These letters are real, received in the last few days, and a wee sample of the Dear Garth mail that forever flows. So step into the confessional with me. Let’s see what we can say to these tortured, self-absorbed kids.

“Hi Garth.  My husband and I read your blog religiously.  We need to run a decision by you.  We are 33 years old with two children.  We don’t plan on having any more children.  We are currently living in a semi in Hamilton and would love to be back in Burlington where we grew up and where our family is.   We currently owe 344,000 on our mortgage and 9,000 on our car.  That is all the debt we have.  No savings. According to our realtor we could list our house for 620,000-630,000.  However, 276,000 minus 50,000 (moving costs) = 226,000 down on a house.  Do you think it’s ridiculous and/or foolish to buy a house in Burlington for 700,000-800,000?  My husband makes 88,000 a year and I make 92,000 a year.  Do you think it’s smarter to wait and see what the housing market does?  Do you think it’s going to go down?  Any advice would be helpful.  Brenda.”

Not a lot of detail there, B, about where you work, pensions or why you make almost $180,000 a year and have no savings (it’s all in the house, right?) – but a few things need to be said. First, realtors claim lots of crazy things to get listings and the suggested list price might be optimistic. If you sell for $600,000, pay 5% commish, break the mortgage, and finance a move, you’ll have about $200,000 (at best). Buying a new place for $750,000, plus land transfer tax, will result in a mortgage of roughly $570,000.

So what do you gain for $230,000 more in debt, probably at a higher rate? Unlikely it will be a better house, given the premium in Burlington over Hamilton. So it’s mostly emotional (people are like migrating salmon) and family-based. Fine. Now get over it.

Burlington is 15 kilometers from Hamilton and it takes 12 minutes to drive there. You’re willing to plunge your family into a deep borrowing hole just to be a few minutes closer to mom? Absurd. Your responsibility as parents is to reduce debt, start saving money, open an RESP and tax-free accounts and grow up. Not necessarily in that order. Next?

“I’m reaching out for your opinion on a debate that has been tyrannizing many a Sunday morning in our living room,” says Dave.

“My girlfriend and I are both in our mid-30s (the moisture is partly evaporated), moved from Vancouver to Toronto and have been paying $3000 a month to rent a modest 2BR townhome. We’ve been itching to get out of the city since we got here and find us a nice detached SFH in the burbs. We are looking at an area where we have friends and family, at houses in the 600-800k range, and have noticed that prices have dropped up to 100k since this time last year. Still high in my estimation, but better than when we got here.

“My girlfriend still owns her condo in Van which a realtor friend out there priced around 800k. She currently rents it out for $2750 a month, and costs her < $1000 a month (the mortgage is almost gone so at this point it is mostly strata fees and property taxes). So she nets $1750, less taxes (which I understand are only going to go up) and funnels the remainder into savings.

“The dilemma that’s been cooling our coffee for the past 2 years has been whether to 1) sell the condo there and buy a house here, or 2) keep the condo there and rent a house here, at least until the market quiets down. I should mention that we also have sufficient down-payment money for option 3) keep the condo AND buy a house here.

“Now I figure the first option would essentially keep all our wealth locked up in a single, volatile asset, but have the net effect of simply relocating that single, volatile asset from Van to TO (where we could live in that single, volatile asset). On the plus side we would get to be proud homeowners – she would finally get to participate in the conversations about dream renos when we go out to dinner with our friends; I could finally go to Canadian Tire and buy a shovel like a real man. The second option is the status quo, which gets us some monthly income to help cover the rent here, and lets us both save more for when we finally do decide to buy. But it means we have to delay the orgasmic gratification of edificial proprietorship even longer – and the foreplay has been going on quite a while now. The last option is her preference, but I worry that would be pushing it and would leave everything we have uncomfortably stuffed into RE.

“(I realize I am talking about what is clearly my girlfriend’s wealth as if it is my own, so I just want to say in all honesty that we do plan on getting married soon.)

“Anyways, if I’ve learned correctly from your blog, I suspect your advice will be option 4) sell the condo, max out our TFSAs and RRSPs, park the remainder in a balanced portfolio, and keep on renting. The gf is laser-locked on the idea of owning, so I’m curious of your thoughts on buying vs. renting, or more appropriately when to buy, for a couple who can actually afford either, and who are looking for a long-term family home rather than a Rocky-and-Pitbull-endorsed get-rich-quick scheme?”

So why do you bother writing me when you already know what to do? Ah yes… her laser-lock on a house. Got it.

Practically, you’re living in an affordable place while the GF earns a GIC-type return on her Vancouver condo (the net on $800,000 in equity is 2.6%, fully taxable). So, obviously, you’d be better off financially dumping the Yaletown property (YVR condos have probably peaked) and investing the money for a few years. That would give time for (a) 905 houses to shed more of their value, (b) your liquid assets to touch $1 million and (c) you to grow a spine and marry her.

There. Just what you expected. Next?

“I have a question related to career trajectory and future plans,” whines Devon. “We could use the advice!”

“My wife will soon sign on permanently with her job for a salary of $110,000. Currently, I make $53,000, plus $17,000 a year renting out our basement. We will probably save most of my wife’s salary as we have a low overhead. I’m currently on EI as we just had a baby and that plus the rent covers all of our living expenses.

“I have been accepted into teachers college in the fall but, we have been talking about how nice it would be for me to stay home with the kids. My current work has a part-time option, for roughly $26,000 a year working 3-7 pm just down the street from our home.

“We were crunching numbers to see what we could afford, we put our total projected income (post teachers college) into a tax calculator and saw that the more we make the greater the taxes paid. This lowers the incentive to put in the extra hours/schooling/years for the larger paycheck when we have an opportunity to stay local, raise our family, and reach our savings goals if we continue to keep costs down.

“We max out our RRSPs every year and we are working on maxing out both of our TFSAs by the end of 2019. We have a mortgage that is around $210,000 and the basement apartment pays for the mortgages, bills, and taxes. Our goal is to become semi-retired in our early 40s. We would like to have over a million in investments by then. I’m 30 and she’s 31.”

Let’s summarize: you’re 30 and crave retirement in ten years. You think a million dollars at 40 will last you for four decades and educate your children. You’re considering getting more education, but see no point in employment when you have to pay additional tax. You’re on pogey, parenting. You’d possibly consider working evenings, close to home.

It might be too much to expect ambition, Devon, but common sense is a basic requirement of getting married, producing children and asking your spouse to be the beast of burden. Stopping work in your forties? To do what? And a million at that age, without additional income, is wholly insufficient. You’ll discover that when you apply at Wal-Mart on your 63rd birthday.

Waste your time if you want. Don’t waste ours.

Okay, blog, please tell me this is not how most 30-year-olds think.

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March 14th, 2018

Posted In: The Greater Fool

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