COVID and the housing market

[nobbie48]

My wife has an unfunded TFSA. Her savings are dumped into a defined benefit pension at max allowable rate. If we come up with extra money, it can buy some years of service in the pension. I ran the numbers and I may be able to beat ROR of the pension but with risk. The pension removes the risk, is inflation adjusted and still returns a decent rate.

I borrowed to invest at the end of 2021. Dividends pay the loan. Currently investments are worth 10% more than original loan and loan is 17% paid off from dividends. Most of the money is in TFSA and more gets moved there each year as space opens (and dividends transferred out make room too). Tax paid was ~1% of loan. So I assumed the risk (which was very much not zero) and total after tax return over close to three years is in the ballpark of 26%. That's around 8% yearly after tax income from borrow to invest. In the interest of sanity, blood pressure and solvency, I did not max out heloc for this game. Bite size chunks. Pay off this loan over a number of years and repeat (next iteration will pay off faster as it gets existing dividends plus new dividends). Very, very few buys/sells to ensure that CRA doesn't call this a business.

My life won't change substantially without a cash injection (lottery/inheritance/etc) or paying off mortgage in a few decades. I didn't start chasing passive income until too late. I should have started early.

What percent of the population heard dinner conversations about how to survive instead of how to get ahead?

The mathematics of $100,000 at 5% against $100,000 at 10% is moot if you can barely meet the rent.

How many home buyers will be mortgage free by retirement?

 

[GreyGhost]

The mathematics of $100,000 at 5% against $100,000 at 10% is moot if you can barely meet the rent.

How many home buyers will be mortgage free by retirement?

That's where moderation on borrow to invest comes in (assuming you have access to money at a decent rate). I didn't have the cash (or cash flow) to buy the securities. With low interest rates, things were working well and the loan was going down quickly. At peak rates, it was in the ballpark of breaking even. Now making progress again. I assumed the risk and stress but the investment did not need my cash nor cashflow. I could have made it completely cashflow neutral if I used some dividend to pay the tax owed but I chose to pay off loan slightly faster. As it did not require input from me, technically I could have invested much more and been further ahead but if things went wrong (like reduced or suspended dividends), the house of cards could collapse as all of a sudden you need to be throwing in a bunch of cash to keep loan happy.

We will likely have a mortgage at retirement. Or maybe work until it's gone and then retire. It makes a major change in cashflow so lower income would be balanced by vastly reduced expenses.

 

[nobbie48]

What management fees? If you're borrowing to invest, hopefully you aren't paying a blood-sucking advisor to make the investment. If you are, you're doomed. Highest MER I pay is 0.39%. Most of the portfolio I pay zero.

Fwiw, the people I know that have the most disposable income are either investment advisors siphoning off money from their clients or lawyers siphoning money off settlements from government. Both are making many times more money than jobs with equivalent education that don't directly siphon money from others.

Growing up in a single parent home there was never enough coin to invest so knowing how to was as important as knowing how to saddle a camel. We've done alright with real estate. Some complex family issues add to the problem.

Right now the investment boat has enough fuel to get us to the other coast so we're just enjoying the cruise.

 

[backmarkerducati]

For pension, defined contribution is where many are these days. The big advantage here is typically the employer match.

They will match up to a certain percentage of your income. Some are 1:1 some are 1:0.5, others the first ratio until a certain amount and the second to another number and no match after that. Regardless, freeing up cash flow per month allows someone to maximize the benefit (the match), and they are not typically lumpsum friendly. Not many have so much unlimited cash flow as do it all. Above the match, I wouldn't.

Topping up (over contribution) a defined benefit may or may not be as lucrative, it depends on the plan.

As for paying it off, we are generally not talking about dropping a half mil to a mil in cash that was sitting around except for the usual ballers here. Being GTA, for most once you are down to ~100K (specially a house) you are near the end and maybe 20 years or if agressive each month as low as 15 years in, and 100K that was the example, it may be within striking distance as a lump sum at those points. There may be better options than to just keep stretching it out for a cheap investment loan...

 

[nobbie48]

With real estate dropping out of the feeding frenzy mode listings are more like the historic pattern.

Two bungalows were for sale looking very similar curb side. One went for just under $1.4 M the other has been sitting for a long time at $1.7M.

Both are clean and move in condition but the $1.7 one has tile and granite everywhere. The $1.4M one has laminate.

$300 K buys a lot of tile and granite in your choice of colours.

The one still for sale has a notice for variance posted which usually means a big reno on a place that appears to already have had a big reno.

 

[crankcall]

I borrowed 250 on a LOC in the 80s , miss timed the market and interest went up , invested money went south. Let’s just say it’s not always a sure thing . I had a big hole to dig out of .


Sent from my iPhone using GTAMotorcycle.com

 

[Scuba Steve]

Looking at building a house holy crap 900 k for a 2300 sq foot cape cod nothing fancy. Has me rethinking plans

Sent from my Pixel 5 using Tapatalk

 

[crankcall]

I have two friends that are builders , both at the end of thier careers . Both think building now only makes sense if you know what you want / and don’t want/ and building gets you what makes you happy . Or you have found the perfect lot. It’s too expensive for a custom build just to have a new house, it needs to be a passion project .


Sent from my iPhone using GTAMotorcycle.com

 

[Scuba Steve]

I have two friends that are builders , both at the end of thier careers . Both think building now only makes sense if you know what you want / and don’t want/ and building gets you what makes you happy . Or you have found the perfect lot. It’s too expensive for a custom build just to have a new house, it needs to be a passion project .


Sent from my iPhone using GTAMotorcycle.com

I have the lot my wife doesn't want to move unless the new house is perfect. The house on the existing lot could be renovated and expanded for less but that isn't going over well

Sent from my Pixel 5 using Tapatalk

 

[Hardwrkr13]

Looking at building a house holy crap 900 k for a 2300 sq foot cape cod nothing fancy. Has me rethinking plans

Sent from my Pixel 5 using Tapatalk

Of course it’ll be area-dependent but $391sq.ft. Is high. $300sqft is much more realistic with mid-grade finishings inside/out (plus service hookups and well if applicable).

 

[Scuba Steve]

Of course it’ll be area-dependent but $391sq.ft. Is high. $300sqft is much more realistic with mid-grade finishings inside/out (plus service hookups and well if applicable).

That was price plus septic and well even if I renovate and expand it will need a new well and septic I would also like to tear down and rebuild the shop but I don't see that happening soon.

Sent from my Pixel 5 using Tapatalk

 

[nobbie48]

I have two friends that are builders , both at the end of thier careers . Both think building now only makes sense if you know what you want / and don’t want/ and building gets you what makes you happy . Or you have found the perfect lot. It’s too expensive for a custom build just to have a new house, it needs to be a passion project .


Sent from my iPhone using GTAMotorcycle.com

Like a custom tailored suit, it's only custom for you. If it's your "for life" place and affordable, go for it. If it's a stepping stone learn to like other people's tastes.

I worked with a builder near Guelph that switched from new builds to renos. He had high standards and couldn't compete with the low ball contractors or penny pinching buyers.