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November 27, 2018 | The Escape

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.

Over the course of eight years as a hired financial gun I spoke an average of 100 times every twelve months, before deciding running a blog was a helluva lot simpler (and so much more glamorous). From crystal hotel ballrooms to grimy church basements with a borrowed bedsheet as my projection screen, I saw the nation.

Tough gig. But instructive. A lesson quickly learned was how local most of us are. In a world where mobility’s never been easier, people are like trout. They just want to swim home, live in their puddle and raise fingerlings. Sometimes that works out great. Other times, and places, it’s a disaster.

When asked why they stay in unlivably expensive Vancouver, for example, most people say ‘family’ keeps them. Because bonds of proximity have never been broken, they’re afraid to try. So they end up struggling in a city which pretty much guarantees financial insecurity.

While not being much fun, spending years on the road (with your spouse as a roadie) sure widens the view. Tired of being chained to the Big Smoke, a few years ago we contemplated where to set down other roots. The decision was a seaside town of two thousand souls. It was perfect. Now we spend lots of time in a place where nice houses cost four bills, nobody really needs a car, doors don’t lock and I’ve never smelled weed. It should’ve happened decades earlier. If I were a young man again, living in a time when technology made location irrelevant, the best road in the city would be the one in the rearview.

I thought of this as I read Joe’s letter.

My partner and I are 38 with kids: 5 and 3. We live in a Toronto house that we purchased back in 2008 when the world was burning. We were younger, dumber, and less aware of sound personal finance principles or what sort of sheer financial and personal chaos and upheaval becoming parents would be. As the story turns out, we were also very lucky. In the last 10 years, the value of the property has appreciated to more than double what we paid and our real estate agent thinks we can get about 850-900k based on houses just sold on our street.

Our mortgage has 130k left on it. Over the decade we’ve put in 130k from the combined property taxes, insurance, utilities, repairs, and renos – roughly 13k/year. If we were to find a fool to pay the theoretical going price and factor in the 3% commissions/fees, pay off the balance of the mortgage, subtract the decade of property-related costs above, we’d make out with about 6.2% annualized returns since 2008. Not terrible that our living arrangement also nearly matched what a long-term market average may provide, however, since 2008 the S&P500 returned about 13.9% annualized.

We are no longer enamored with the idea of owning a house and with the real estate bubble in the process of bursting, it is an opportunity to cash in. Living in this City with a couple of young kids and both of us spending way too much time working, commuting, and rushing around in a constant state of exhaustion has significantly eaten into our wellbeing and health. Let’s not mention the $24k a year in before/after/daycare fees – and I’ll keep mentioning it because it hurts – multiply that by 4 to get an idea of the total spent over the last 5 years with 2 youngs and no free-extended-family daycare situation to speak of.

We net about 130k after all deductions and have worked our savings rate back up to 30% with being frugal and have amassed 400k.  We have a few places in mind that we may consider relocating to where housing and/or cost of living are lower and our job prospects remain reasonable and we have social connections. Some options include Lunenburg, Halifax, Charlottetown, Niagara Region, or similar rural towns in Southern Ontario. Schools and family Doctors are an important factor. Renting a house will be our strategy. No more buying property, considering our net worth, unless we can nab something for a pittance the next time the world is set on fire.

Cutting out 1 or both of our commutes is the goal as well as removing the $24k Toronto childcare cost by one of us having flexible or reduced hours. We can afford to chop out 24-30k of our net income if we don’t need to use childcare. These are possibilities given the various trades and skills that we have and can leverage working from home or doing a variety of consulting/manual/contract work in a smaller community. The whole point is that we have some flexibility in adjusting our situation to optimize our finances and wellbeing at the same time.

At this point, I should probably be paying you by the hour to read this.

—- The Question —-

So, here’s the question: Is checking out of Toronto and heading out to the seaside financially and mentally sane? I’ve run some numbers and it’s possible to also keep the Toronto home and rent it out for $3k /month, pay some property management company, and have it cover the rest of the mortgage and produce some income over the years while it weathers the real estate ups and downs.

The first question, Joe, you’ve already answered. Not only sane, but inspired.

The second question has an equally simple reply: of course not. You’d have to collect more than $5,000 in monthly rent just to break even on the equity invested in the house plus its carrying costs. Most of that would be fully taxable and the house itself could become an illiquid, aging, expensive anchor in a place you don’t want to live in, occupied by tenants you don’t control and probably hate you. Why not collect your windfall, taxless gain and move on? Invest the cash in a balanced and diversified portfolio instead of sticking it all in one asset you must insure, maintain and babysit? If retiring early is a goal, you need liquid assets, not a pile of city bricks.

Cut the cord, Joe. It’s a giant, glorious, affordable and welcoming country. Be cool and you might even get to ride on my tugboat.

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November 27th, 2018

Posted In: The Greater Fool

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