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March 4, 2018 | Sunk

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.

“You may find this image useful for your blog,” David said, in sending me the shot above. “I saw these signs sprouting on Bantry Ave in Richmond Hill this morning… the end must be near in the 905. An $80k loan, interest only payments at 10.32%, ‘rates subject to change’…”

Well, as stated here last week, with 25%-30% declines in housing values across York Region these days, including the smoky epicentre of R-Hill, we’ll soon be needing teams of Médecins Sans Frontières to treat an epidemic of heart palpitations. And the war has just begun.

The good news is the fat loan rate on the eighty grand won’t increase this week. The Bank of Canada’s gone poodlish again given what’s just happened. That includes (a) a budget from Mr. Dressup obsessed with gender parity but doing nothing to combat investment-sucking US business tax cuts, (b) NAFTA-killing tariffs the protectionist American president is preparing against Canadian steel (and 9,000 jobs in Hamilton alone), (c) disastrous housing numbers soon to be released in the country’s biggest market, impacting consumer confidence, (d) moaning and piddling on Bay Street (the TSX is down 5% this year) as the headwinds mount, (e) the deflationary agenda of Comrade Horgan in BC where brutal new taxes are about to tank household net worth and, of course, (f) a giddy 7% increase in the amount of money people just borrowed against their houses – which appear destined to fall in value. Great strategy.

So, no bank rate increase this week. Let’s hold at 10.32%.

Today’s post is dedicated to financial morons. They may be the kind who borrow money based on lawn signs from a guy named Vito whose office is a used Hummer.

They may also be the kind Ned, from Calgary, describes.

“Within the last few days I’ve seen multiple posts online from landlords here asking if they should ditch their condo at a loss,” he tells me. “This is just a tragedy … these guys sound pretty young, how do they bounce back from a $50K loss when that number is probably their net income??? I wish more people read your blog and invested their money wisely. My RE aversion means my portfolio is still sitting at a double-digit gain… even after the recent ‘correction.’”

He sends along this post from a site which seems to be some kind of moronic support group:

“Just trying to wrap my head around capital losses and when it makes sense to sell an investment property. Bought about 6 years ago for 200k, 170k left on the mortgage, could maybe, if lucky, sell for 150k today. We get $1050 in rent for it, but our costs are about $1650 a month (atrocious condo fees)… so we’re trying to decide if we should wait it out for a few more years and hope that prices rise a bit so we can recoup some of our losses, or try and sell it and use the capital losses to offset the amount we would have to pay to get rid of it. Since $400ish of that goes against the principle, we’ve been trying to see it as only a $200 loss a month, but that only becomes true if we eventually sell it for what we payed for it… sure have better uses for that extra money every month. Looking for suggestions or examples of anyone in similar situations.”

Quel mess. Down payment gone. Negative equity. Underwater mortgage. Negative monthly cash flow. If this loser doesn’t sell he’ll suffer a $7,200 annual loss which will eventually be disallowed by the CRA. If he bails he’ll kiss his deposit goodbye plus have to take a fat cheque to the lawyer’s upon closing. Meanwhile the tenant is subsidized and happily grows her net worth. So much for the myth of real estate always going up, and the reduced risk posed by ‘affordable’ condos. More will be learning this lesson.

Finally, a nod to the moronic Mills surveyed by BeeMo who believe a TFSA is designed primarily “to save for a major purchase.” This is even worse that the reason a majority of Canadians cite having a tax-free account, which is “for emergencies.” Yikes. How did we ever go so astray?

There’s more, says the bank. Almost half think TFSA contributions are linked to income (thank T2 for that one), while 60% don’t actually know the annual limit. Over 80% of people fail to max the amount put in and ‘not having the money’ is the main reason. Given that the contribution limit is a paltry $450 a month, this tells you plenty.

There is only one vehicle – universal to all, regardless of income – within which gains are free of tax, from which a taxless stream of money can be drawn, completely unreported to government, and therefore not affecting benefits, pensions, investments or savings. No, it isn’t for buying an ‘investment’ condo.

We may be about to get the country most people deserve. Won’t they be surprised.

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March 4th, 2018

Posted In: The Greater Fool

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