- the source for market opinions


August 5, 2021 | Dr. Garth

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.

Enough withAdd New macroeconomics, politics or doing battle with unhinged anti-vaxers. Life’s too short to spend arguing semantics, debating with bricks, or fighting trolls. Let’s get this blog back to its real work of helping people find marital bliss & inner peace through real estate lust.

First up is Jason. Retirement looms. But what to do about unlocking his housing windfall?

“My bride and I find ourselves in a situation where the kids have recently moved out (university) and we are empty nesters,” he writes. “We would like to downsize the house in preparation for retirement (5 years or so).

What’s the best way to sell (and buy smaller in the same market) without giving all our equity to the Real Estate agent?  Private sale?  DIY Realtor (like Property Guys), or…just bite the bullet and use a local Realtor?  I have thought about posting on kijiji and offering a “house trade” for a smaller house with cash but…maybe that’s dumb.  Your thoughts on this would likely help many of us “pre-retirement X’ers” who are looking to be prepared for a decent retirement in the next few years.

The housing market has cooled since March and this will continue (more on that here tomorrow). More listings and less demand lie in the future as Covid retreats, workplaces open and people vacation, shop, repopulate cities and focus way less on personal space. In short, this is no time to cheap out on exposing the property to the widest possible market in order to get the best price.

You can easily FSBO, but will still need to buy MLS exposure through a licensed agent (for a few bucks). The trouble here is buyer suspicion. For Sale By Owner used to mean “cheap deal”. Now it means “greedy seller who wants the same price without paying a commission.” Like you. Buyers have zero come-back if the deal sours over false information, which is not the case when you list with a reputable broker. In short, private sales are a negative. As for Kijiji, when reasonable people won’t buy a beagle online, why would they grab your house?

Get an agent. Haggle the commission down a little if you can, but benefit from the professional reach, experience, marketing and negotiating skill this person brings to the effort. In any case, you probably made a killing on windfall market gains with the real estate, so don’t be cheap. People who identify as women (chicks) hate that.

“I’ve been following your blog for a few years now for the dog pics (and some real estate tips),” says Mark, in Toronto. “I haven’t seen you touch on cash out refinance lately so wondering if you’d take pity on a lost soul and give some advice.”

At 34 Mark doesn’t need much. Single, no kids, $160,000 income, a property worth $700,000 with over half a million equity and a $500,000 liquid portfolio.

Wondering if it’s a good idea to get a cash out refinance to unlock some equity in the property and invest it in broad market funds (since low rates are ending soon), or pay off the mortgage next year, or get a HELOC and invest that (I heard interest is tax deductible). Or a combo of the above. I don’t want a second property rental nor tenants. I’d like to retire in 10 years. Yes I’m one of those FIRE cultists.

Leveraging up real estate equity to invest in financial assets is an appealing idea. After all, if you use HELOC money and make interest-only payments they become 100% deductible from taxable income. So a home equity loan at prime plus a half turns into a loan costing a little less than 2% for Mark and he can hopefully reap 6% or 7% or greater returns during the Roaring Twenties. His half-mill becomes seven figures by the time he’s 44 and he can retire comfortably in Beamsville (not in 416).

Pay off the mortgage (he says the rate is 2.6%)? Dumb idea. First, you might want to relocate when you retire (see above) and the RE market could turn by then. So why shovel more money into equity? Second, the mortgage rate now is less than inflation. It’s free capital. Use yours to invest, instead. Third, the FIRE people need two things to survive: (a) frugality and (b) a big pile of cash. Paid-off real estate in Toronto is only useful when you sell it to a greater fool.

Finally, here’s Donald. He’s 41, an O&G guy in Calgary. Also makes $160,000 and has saved $100,000. Renter. Engaged. Has a truck, motorcycles and RV. “Have been reading your blog for a long time, and never thought I’d say this…..but looking at buying a house. The Mrs. is getting all hot and randy for a house, and I think this might be the right time to jump on one.”

The young lady I’ll be moving in with is an HR professional, wants kids, and has always dreamed of a nice character home to raise a family. We’ve been dating for over a year. She owns a condo and would like to rent it out for when we move in.

We don’t have bidding wars here, and most people think we’re never going back to the office. My office is currently on a pilot project with a week on week off back in the office, full time should happen in September. Pending inspections, we might go with the second option and throw down $75,000 between the two of us on a $850,000 place. All roads are pointing to ownership, but I would love a second opinion if you have time.

You probably love her, Don, but downshift a little. First, if she owns a condo it should be sold, not rented if a house deal happens. She’s keeping it as insurance in case you flame out and start buying more Harleys. Never a good sign. Second, marry her or live together and see how this works out. Buying a house with both of you on title and each equally responsible for eight hundred grand in debt is a leap. Why can’t you cohabit the condo for a while? And be careful about Cowtown. The downtown commercial vacancy rate is obscene and being a oil-and-gas guy means your employment is not exactly rock solid.

Anyway, good luck. Enjoy the coming minivan.

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August 5th, 2021

Posted In: The Greater Fool

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