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July 19, 2018 | Chill

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.

The doctor is IN. Who’s first for the tough love?

(By the way, I do not make these letters up. Nobody could.)

“Hi Garth! Your blog has been a daily part of my life for the last five years and I remember you fondly from CTV.  My 11 year old daughter used you for her Famous Canadian project at school.  (She loves your dog photos.)”

Fine suck-up. You may continue.

Feel free to use my story for your blog, but many of my friends and co-workers read it, so try to adjust some of the facts if possible. My mother recently passed away.  Her house is next door to mine in Toronto.  It was bought in 2004 and I had to co-sign the mortgage as my mother was 81 when she bought the place.  I lived there for three years, then bought the other house.  My mother rented all her life until then and her house is mortgage free.  I have about $150K left on mine.  TFSAs are not maxed out.  They have about $40K each.  My RRSP isn’t maxed either.  I work on contract, my husband is retired.  We earn about $100K a year.

I would like to keep my mother’s house, for one of my kids, and would like to rent it out for the next 15 years or so.  I already have had several families approach me about renting.  Would it be beneficial to take a mortgage out on my mother’s house and pay off my mortgage?  How long would I have to keep the house empty before CRA won’t suspect that I’m trying to do a fiddle?  Should I take a mortgage for a large amount, pay off my mortgage and then use the extra to invest, as you’ve been suggesting lately?  It sure would be nice to have some extra income so that I could actually turn down the occasional contract.  (I love what I do, but when I sign some contracts, I know they’re going to be a stressful headache.)

Any suggestions would be appreciated. Keep up the great work!

Sorry about mom, but it sounds like she had a long run. Nice. As for the house, co-signing a mortgage that’s paid off does not mean you own it. In order for you to re-mortgage or rent it, you must have clear title. So I’ll presume mother had a will and left that asset to you, as a tax-free gift of a principal residence.

Sure, you can place a mortgage on it and use the proceeds to retire your own home loan. If the property was subsequently rented, interest would be deductible from income. But you’re also establishing a new cost base for the property, since (as a rental) future gains in value will be taxed.

There are two bigger issues.

First, it’s likely the house has doubled or tripled in value in 14 years. That’s a windfall you’d be foolish (in your situation) to sit on or hand off to your kid in 15 years. Rents are pathetic, given property valuations, and the income you receive will be 100% taxable at your marginal rate. In other words, this is a poor investment – especially when it is mortgaged, must be insured and maintained, and has an ever-increasing property tax bill. Why is this an option?

Second, your finances suck – a pittance saved and a retired spouse. Why would you not sell mom’s house pdq and invest the money to secure your own future? Why repeat the mistakes of your parent, who obviously had 100% of her net worth in one asset – that you had to help pay for? Take the blinders off. You’re staring at a gift horse.


“Hello Mr. Turner. My son is a big fan of yours and he reads your blog every day and quotes your wisdom frequently!  I have started doing the same (reading, not quoting, but maybe that will come). So when pondering what to do about selling my old home, or hanging on to it, my son said that you would be the perfect one to ask.”

Adequate praise. You may proceed.

So here goes:
This is a question about Vancouver real estate and I bet you have had a plethora of them. I have a 115-year-old house in a nice east Vancouver neighbourhood, 2 stories of living space, 960 square feet each, and there is an attic.  I have a small mortgage of $52,000 remaining. My quandary is about whether or not to put more money in the house (it will need a new roof and I have been advised that I have carpenter ants). In terms of lifestyle, I have a large garden (a hobby of mine) and I love my neighbourhood. But I do not need to live in a 4 bedroom house. So I could sell the house and get the capital and buy a townhouse and have money left over to help my kids get into the market.

But as you are no doubt aware, the Vancouver market is volatile. My house and land have been assessed at $1.6 million and most houses still sell over assessment. Last year people were writing offers on the sidewalks with no subjects. Things sold in a day or two. But because of actions by the government, now things have slowed down quite a bit with single family detached home sales.

My question is (at long last eh?) do you have a crystal ball? Haha, but seriously I am asking:
1.     What could happen to the market? Would it be better to sell the house now or wait a year or two? I know you cannot say with any certainty but I feel you would be better informed than me.
2.     Also I wonder should I list my house first before buying something else? Or should I find the dream townhouse I want and then hope to sell the house quickly?
3.     The third option is to sell the house and rent. Vancouver rents are outrageous and I am not keen on paying someone else’s mortgage for them. Also I like security of tenure, knowing that I can count on being in the same place for a few years. I am 65 and quite healthy and active. I am hoping to live the Canadian average span for a non smoking moderately imbibing woman.
But I would like to be mortgage free. And I would like to help one son pay off a student loan and give the other enough money to start his own business or get into the real estate market here.
My other option is to fix the roof and the ants and stay in the house as I like it so much. But an old house breaks down and I am a retired woman who is not necessarily handy and does not have limitless funds. My after tax pension income and part time work as an educational consultant yields around $60,000 per year. I have no debt beyond the mortgage and have around $100,000 in RRSPs and TFSAs. Thank you for your patience with my long windedness. I appreciate any response.

Seriously? You’re asking me if you should put more money into a $1.6 million, paid-for house with just $100,000 liquid at 65 years of age? How could you live more than six decades and be so confused? Glad your son sent you here, even though he probably knows what’s coming…

YVR real estate is going down. Comrade Premier Horgan will not rest until he has punished ‘rich’ people like you by sucking off equity with market-killing taxes upon taxes. The frenzied, absurd, unsustainable days of the past are not coming back. If you can bail now, do it. And no, don’t buy before you sell. Why take that risk? If the perfect place doesn’t materialise, rent until it does.

Pumping more money into the property when you simply don’t have it (and real estate values are softening) makes no sense. Let some other fool feed the ants. Get out. Invest the money and more than double your income while still growing the portfolio so you can throw money at your children. As for buying a townhouse, that’ll still cost you almost seven figures. Besides, you’d be selling into a weak market (for detached homes) and buying into a strong one (attached). Not smart. So, yeah, rent. Try life as a millionaire, for a change.

Note to Sonny: make sure she reads this. Your inheritance is riding on it.

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July 19th, 2018

Posted In: The Greater Fool

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