# First property



## jcgd (Oct 30, 2011)

My brother and I are considering buying a property together, and I want to see what everyone here thinks. I'll give some information about myself, and then my general plan. 

I am 23, living in Calgary. I am a journeyman electrician and I clear $2100 every two weeks. I currently rent and will continue to do so for the foreseeable future. I have $14k in debt I am servicing at $800 per month. All my monthly expenses leave me with $1900 a month in disposable income. I save about $13k per year in rrsp/ tfsa, etc.; half of which from my employer matching my contributions. I currently have about 20k in savings. I partied for a few years, but I'm now on track with my finances. I moved to Calgary when I was 18 and put myself through schooling. At this time I am supporting my gf while she attends university and also paying for the majority of it, using about $500 of my $1900 disposable income per month. 

My brother is looking to move out when he graduates in December. He still lives in NS where I believe the housing market is much more reasonable. (ie. not so bubbly)

We both have $5k from a small inheritance that we would like to use together on a downpayment. I have been pre-approved for $280k but we are planning to find a house around $200k that he will live in and rent out the addition rooms. Worst case scenario, I can cover the entire mortgage. The basic agreement is that he covers basic maintainence and finding tenants while I take care of repairs and other expenses. 

We plan to buy in late spring giving me time to save another $5k and pay off about $4k on my line of credit, as well as get my ducks in a row. 

Any opinions or advice? Thanks.


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## marina628 (Dec 14, 2010)

Here is my opinion ,your brother is getting benefit of living in the house where you get nothing except for whatever you make when you sell it.Your brother should be treated as a tenant to be fair to you.So if house rents for $1400 plus utilities your brother should be responsible to pay that and his business if he gets roommates to share the house.If he manages to live for free again his business.This amount of rent should be deposited to cover the bills , if there is money to be spent on repairs ,property taxes etc then you each pay 50%.I have 5 rental properties in Ontario ,over the years we have done two with partners , one a family friend the other was a relative.Both times since we were the one with the extra financial investment it never worked out and we bought our partners out both times because we did not see point of taking all the risk and always having to put in more money only in years down the road to give them a share.IMO I would buy a house where neither of you lived in ,brothers or not this rarely works out...


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## Jon_Snow (May 20, 2009)

I think you should check out Garth Turners blog.


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## the-royal-mail (Dec 11, 2009)

Well, you seem to have quite a bit of cash on hand. That's good. My only concern is why you are paying interest on a $14K debt when you have more than that in savings. Why not pay off that debt post haste?

I also think you should have enough cash saved (in addition to a separate rainy day savings fund) for a 20% down payment. That does not appear to be the case right now.

I don't think it's a good idea to get into this type of arrangement with friends/family though. Just my opinion though.

It just seems to me you are carrying the weight of a gf and soon a brother in a joint property venture. Why is that? Could you not do these things on your own for simplicity? If someone gets married and divorced, it could get really complicated really quickly.

IMO you are trying to take on too much. Esp when you're still in so much debt. So for all these reasons I am afraid this plan doesn't pass the TRM test. I'm out. Sorry.


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## jcgd (Oct 30, 2011)

Some good points. I might sound like I'm looking for validation, but I'm just trying to explain my point of view here.

My brother, living in the house, will be paying the same rent as the other tenants. Any positive cash flow (which there will be if we buy) will be split 50/50. All profit will be reinvested, however. I'm choosing not to live there, because I don't want to move back to NS. 

I am capable of covering the entire mortgage if need be, but in the case that there are funds needed, we will split it, also 50/50. I want to buy something easily affordable by only myself, to leave two buffers. One being that I could afford more on my own and also have my brother as a contingency. Together we could essentially afford over twice what we are looking to buy. We would have to wait to put together a bigger down payment though.

The repairs I may have to revisit. I kinda figured since he is paying to live in the house (market rent) he will be the acting property manager. The way I see it, he is doing his share by taking care of the place, etc. By paying for the repairs myself I figured I would be doing my fair share. I may have to revisit this issue, however.

May I ask what went wrong with your other partners? I am young, and ignorant in this respect. Finding help is difficult as most people think it is better to keep working 9-5 and forget about investing. Support is hard to find.


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## jcgd (Oct 30, 2011)

Jon_Snow said:


> I think you should check out Garth Turners blog.


I've been reading it for about a year and a half. I went from about 20k debt to what I have now since I started reading it, and everything else I can find.



the-royal-mail said:


> Well, you seem to have quite a bit of cash on hand. That's good. My only concern is why you are paying interest on a $14K debt when you have more than that in savings. Why not pay off that debt post haste?


Good question. Most of my saving is in RRSPs. Also, much of it has dropped in value of the last while so I do not want to pull money out. I would be buying high/ selling low and also taking a tax hit. I think with the low interest rate I'm paying and the current situation I'm in, I'll have more money if I keep investing in the RRSP, taking the tax credit and firing it back in, etc.



the-royal-mail said:


> I also think you should have enough cash saved (in addition to a separate rainy day savings fund) for a 20% down payment. That does not appear to be the case right now.
> 
> I don't think it's a good idea to get into this type of arrangement with friends/family though. Just my opinion though.
> 
> ...


Maybe I should save up some more cash before proceeding. That is a good point, I don't have much of a rainy day fund. My gf and I have been together for a long time. Marriage is in the plans, we have just prioritized. School is #1 in the list. We are common law at the moment and everything we have we've built together. 

One other reason I haven't paid of my debt (and this will probably seem ridiculous) is that I have been trying it for years, and someway or another is seems like I cant squash it. I've made a good dent now, but two years ago I decided to start packing away money and forgetting about that, and servicing the debt separately. So far I've managed to get my net worth in the positive. Too many people I know always try to pay off their debt first and save after and they slowly get nowhere as it seems you have one debt after the other. I consider the $14k our car which we own free and clear, a 2006 Civic. 

What is the TRW test? I will have to look into it, and it seems the consensus is that I'm not ready for this. I'll have to adjust my plan. Good thing I asked for some advice. I'm just bored and looking to get ahead a bit. I like investing and am getting antsy. But I'm not so antsy that I want to throw away money.


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## jcgd (Oct 30, 2011)

@ The-Royal-Mail

I just read the thread in your signature, and it has some good points. Thinking about my current financial state I see some changes I should make.

First, I haven't save for the other tiers. Does this seem like the proper order to tackle things: 

Match employer contributions to my RRSP. This is my first priority because you never leave money on the table. Tier 3

Start paying off debt more rapidly. Priority #2.

Put the $5k cash I have into TFSA. Tier 2. Add more when debt is paid off to get to around $20k.

Once debt is paid off start on Tier 1. I say this only because as I open up my LOC (18K credit) I can use it for an emergency fund until I have Tier 1 built. I think this tier will need about 20K total (10 months living expenses)

Once this is all done, then I should start saving for other investments? Does this seem like the logical order of things?


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## R.O.V. (May 16, 2010)

From personal experience I can tell you entering a business agreement where only one party is putting up hard cash is probably doomed for failure...more so if a family member is involved. I also have followed the advice on this board by first eliminating all debt (including mortgage), maxing the kids resp's, tsfa's and building emergency savings. I have just now reached to stage of really learning to invest...changing your situation may take a couple of years but you'll be way ahead in the end...and as according to Garth maybe RE bubble will have 'popped' (somewhat) and you'll get a better deal!


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## jcgd (Oct 30, 2011)

R.O.V. said:


> From personal experience I can tell you entering a business agreement where only one party is putting up hard cash is probably doomed for failure...more so if a family member is involved. I also have followed the advice on this board by first eliminating all debt, maxing the kids resp's, tsfa's and building emergency savings. I have just now reached to stage of really learning to invest...changing your situation may take a couple of years but you'll be way ahead in the end...and as according to Garth maybe RE bubble will have 'popped' (somewhat) and you'll get a better deal!


We will both have the same amount of cash invested, so the same amount riding on the deal. But I am leaning towards rethinking this whole deal. At the very minimum, waiting until I am in better financial shape.

Many, many people are taking Garth the wrong way. He is not saying people should not invest in real estate. He does it for a living. He is saying you shouldn't believe it will rise indefinitely. He also doesn't think it is going to drop like a rock. He thinks the most bubbly areas, such as the GTA, Vancouver, etc. may drop up to about 30%. Other areas like Calgary, around 15%. Many places have already been coming down, like Kelowna and some areas, like those in NS and other small areas, aren't up all that much. This is the only reason I was considering my home town of Dartmouth. It hasn't gone crazy and the market has been pretty slow over the last few years. It's one of the few places I know intimately that hasn't gone crazy over the last decade.

However, it seems as if I am getting ahead of myself. I'm just anxious to get the ball rolling.


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## the-royal-mail (Dec 11, 2009)

Hi jcgd, thanks for reading my signature. I am very encouraged to read that you seem open to our suggestions.

IMO tier 3 should be the last priority since that is usually in the form of an RRSP that will not provide immediate relief in case something happens. As such, in your case (IMO) your priorities need to be:

1. pay off that debt
2. fortify tier 1
3. fortify tier 2
4. fortify tier 3
5. then start saving for your house downpayment or whatever you will want to do by then.

Keep in mind this will take several years. Structuring your finances thusly takes a lot of discipline. Part of the idea is to mentally gear down and "detox" from the psychology of instant gratification. At the same time, you reverse things to where you save the money first, prior to spending it. It won't be sexy and it won't be fun. It's mostly a paper exercise but if you manage your finances via excel or some other offline simple method, you should be able to see the progress.

If something happens while you are working towards this goal, deal with it and then get back on track after the clouds lift. Just don't choose to do foolish things like trips, new houses, new electronic gadgets and cars and other such items. Detox yourself from this type of spending and protect your interests now and for the rest of your life.


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## crazyjackcsa (Aug 8, 2010)

I'm quickly learning why our more "prickly" members got to be that way, ridiculous question after ridiculous question posted by people you aren't actually paying any attention.

It's all upside for your brother, he lives in a house somebody else is paying for. It's all downside for you.


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## jcgd (Oct 30, 2011)

crazyjackcsa said:


> I'm quickly learning why our more "prickly" members got to be that way, ridiculous question after ridiculous question posted by people you aren't actually paying any attention.
> 
> It's all upside for your brother, he lives in a house somebody else is paying for. It's all downside for you.


Are you saying I'm asking ridiculous questions and ignoring the answers? I'm trying my best to be open to opinions. That's the only reason I asked for advice. Yesterday I thought my plan was great. Now I'm thinking it's not the best idea.

Aside from that, I'm sorry, but I'm still failing to see how my brother is getting a better deal than me. My take on it is this:

He puts down the same down payment.
He pays market rent, so whether he lives in the house or not is moot, IMO.
We split 50/50 any profit
We split 50/50 and equity or capital gains when realized.
He manages the property, takes care of the place, has repairs done, etc.
I cover repairs, but relax the rest of the time.

Sorry if this is redundant. If it is, there is clearly something I'm not considering and I want to know what it is.


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## jcgd (Oct 30, 2011)

the-royal-mail said:


> Hi jcgd, thanks for reading my signature. I am very encouraged to read that you seem open to our suggestions.
> 
> IMO tier 3 should be the last priority since that is usually in the form of an RRSP that will not provide immediate relief in case something happens. As such, in your case (IMO) your priorities need to be:
> 
> ...


Okay, I have some more things to consider then. I will adjust my plan. A few things I have on track are the "detox" and at least practice at the structuring.

For example, I have the gadget phase out of my system. I have an iphone, simply because it dropped my phone bill from $110 per month to $67. I made back my money if four months, and I need a phone. I could have something cheaper, but I use it a lot, and I am seriously addicted to forums, etc. when I am on the bus and that. I've gotten the gorging out of my system before I got down to it about two years ago. No more big screens and toys from me. Only the hobby that I will never give up. You do have to live a little after all. I provide for myself, my gf and her schooling with $2100 per month, which I think is pretty good.

All my investments, rent, saving, debt, and bills are set up as automatic payments. I'm terrible at doing it myself, and I would rather not see the total amount I make. I prefer to pretend I only make what's in my account once the rest is gone.

The only thing I don't like with not dealing with tier 3 now. My company matches my contributions, $1.50/h for rrsps and 5% of salary for stocks. I can however make the stocks non registered, and use that to pay down debt INSTEAD of putting it in the RRSP. This results in me doubling my money and paying down the debt at the same rate I would if I stopped contributing to RRSP completely.

I think with this new plan I can have the debt gone in 10 months without using any disposable income. Using $500 of the disposable per month I can bring that to 8 months. Not too shabby.

It looks like I'll have to start a journal.


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## marina628 (Dec 14, 2010)

> May I ask what went wrong with your other partners? I am young, and ignorant in this respect. Finding help is difficult as most people think it is better to keep working 9-5 and forget about investing. Support is hard to find.


One partner was about 20 years ago our first attempt at being landlords ,after 2 years on a 5 year mortgage this relative bailed on us.We had house that the relative lived in ,much like you are proposing.He got a girlfriend who owned a house so he left and stopped paying any money on the property.

Second partner deal only happened about 3 years ago , was helping a friend get in the property ladder.We bought a house and he only had his name on title ,but he was handy so we thought what he cannot put in cash he will put in time as we wanted to finish the basement of this bungalow to rent out.We also agreed we will pay DOUBLE mortgage payments which was extra $500 a month .Well the most he ever came up with was $75 a month and my husband and I are not the sort to do 25 year mortgages .So after a year of him not finishing the basement and not doing anything ,we ended up giving him $20,000 and having him taken off the property.The house went up in value so we paid him his 50% ,not bad pay for doing 1 day work and signing a paper lol.
Since that time we will not even consider any sort of partnership.


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## londoncalling (Sep 17, 2011)

*Take the free $*



jcgd said:


> The only thing I don't like with not dealing with tier 3 now. My company matches my contributions, $1.50/h for rrsps and 5% of salary for stocks. I can however make the stocks non registered, and use that to pay down debt INSTEAD of putting it in the RRSP. This results in me doubling my money and paying down the debt at the same rate I would if I stopped contributing to RRSP completely.



Take the free RRSP money. It's a no brainer. How much difference in your take home will it make by opting into the pension plan? Reduce your spending accordingly in the interim.




jcgd said:


> All my investments, rent, saving, debt, and bills are set up as automatic payments. I'm terrible at doing it myself, and I would rather not see the total amount I make. I prefer to pretend I only make what's in my account once the rest is gone.


If you are capable of pretending you only make what's in your account then it should make the extra RRSP deduction easy to bear.




jcgd said:


> I think with this new plan I can have the debt gone in 10 months without using any disposable income. Using $500 of the disposable per month I can bring that to 8 months. Not too shabby.


 



jcgd said:


> It looks like I'll have to start a journal.



Always a good idea to track your spending, investments etc to see how they compare to your plans.


Cheers


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## jcgd (Oct 30, 2011)

marina628 said:


> One partner was about 20 years ago our first attempt at being landlords ,after 2 years on a 5 year mortgage this relative bailed on us.We had house that the relative lived in ,much like you are proposing.He got a girlfriend who owned a house so he left and stopped paying any money on the property.
> 
> Second partner deal only happened about 3 years ago , was helping a friend get in the property ladder.We bought a house and he only had his name on title ,but he was handy so we thought what he cannot put in cash he will put in time as we wanted to finish the basement of this bungalow to rent out.We also agreed we will pay DOUBLE mortgage payments which was extra $500 a month .Well the most he ever came up with was $75 a month and my husband and I are not the sort to do 25 year mortgages .So after a year of him not finishing the basement and not doing anything ,we ended up giving him $20,000 and having him taken off the property.The house went up in value so we paid him his 50% ,not paid for doing 1 day work and signing a paper lol.
> Since that time we will not even consider any sort of partnership.


Wow, that last one is scary. The first one doesn't make sense in that someone with money in on a deal, and part ownership is throwing their own personal finances under the bus by walking.

More things to consider. Thanks for sharing.


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## marina628 (Dec 14, 2010)

Most property managers get 1 month rent and then maybe 60 a month so I agree maybe pay him a fee in that range but what if a $10,000 repair comes up,how will you handle it.
With the Billions in ship contract , Nova Scotia probably not a bad place to invest in.You guys need to save more before you think of buying a house ,you are still young so a year or two is not a big deal.


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## jcgd (Oct 30, 2011)

londoncalling said:


> Take the free RRSP money. It's a no brainer. How much difference in your take home will it make by opting into the pension plan? Reduce your spending accordingly in the interim.
> 
> If you are capable of pretending you only make what's in your account then it should make the extra RRSP deduction easy to bear.
> 
> ...


I'm already contributing and receiving the matching. I enrolled as soon as I learned about it. It works out to be about $490 a month off my cheque. So I won't have to get used to anything. All I need to do is switch the stocks from going into my rrsp to non-registered. 

I do need to start tracking my general spending. Right now I kinda wing it; I simply don't by anything if nothing is left before payday. It's getting rarer and rarer though, and I'm finding I get through the pay period with more and more money in my account.


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## jcgd (Oct 30, 2011)

marina628 said:


> Most property managers get 1 month rent and then maybe 60 a month so I agree maybe pay him a fee in that range but what if a $10,000 repair comes up,how will you handle it.
> With the Billions in ship contract , Nova Scotia probably not a bad place to invest in.You guys need to save more before you think of buying a house ,you are still young so a year or two is not a big deal.


Evidently, right now I wont be able to handle it. It looks like this endeavor may be a year or two down the road. I think I'll have to discuss this part with him again. 

Better to think about all this now, rather than after we have a property.


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## londoncalling (Sep 17, 2011)

jcgd said:


> I'm already contributing and receiving the matching. I enrolled as soon as I learned about it. It works out to be about $490 a month off my cheque. So I won't have to get used to anything. All I need to do is switch the stocks from going into my rrsp to non-registered.
> 
> I do need to start tracking my general spending. Right now I kinda wing it; I simply don't by anything if nothing is left before payday. It's getting rarer and rarer though, and I'm finding I get through the pay period with more and more money in my account.


Then it sounds like you are on the right track so far...

To weigh into your real estate adventure... I think it is possible to make it work with a partner... I get along great with most of my family and we have similar mindsets with regards to spending and investing... However, I still would not go into business with them... or anyone for that matter on the off chance that things go sour...

If you do eventually decide to pursue a property purchase with your brother you must work out all of the details and get them in writing including about what happens if one of you wants out for whatever reason. I have a friend that bought a property with his room mate to save on costs and they are currently at a stalemate. Both are ready to marry in the near future. Both want the property. Both want the other to leave. Neither wants to address these issues for fear of losing the friendship. 

I would take the recommendation of hiring him as the manager and splitting the costs for the above reasons... However, I personally don't think that either you or your brother are in a financial sound enough position to buy a property. But at least you have a plan in place. By the way I am heading to Halifax/Dartmouth for the first time ever in a week's time. I hear there is lots to do/see. What do you suggest is a must ?


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## the-royal-mail (Dec 11, 2009)

crazyjacks may have been responding to the general feeling he (and I too admittedly) has been getting by a lot of new CMFers who come asking for our advice on something, but their minds are already made up and they only seem to listen to the advice which supports their opinion.

I do not believe you are like that. You seem to be listening more than most of the new members. What I've learned, is that it's definitely worth listening in CMF.

Anyway, yes, keep going with the RRSP then. Just don't increase the input until you beef up the other tiers. I've been working on tiers 1 and 2 for the past two years. Last year I had to buy a new car, so that set me back a bit but otherwise I remain on track. I am currently trying to decide if tier 4 (house down payment) or tier 3 should come next.

Any chance we could convince you to open the hood of your finances? I'm personally not comfortable with auto-debits, primarily for the reason you described. It's good to take control of your finances, which is exactly what the tier system is all about.

If you're really set on the house thing, schedule that for 5 years from now. You'll need that long (IMO) to structure your finances and save enough for the down payment. By that time, after learning about the value of your money, if you're still interested in doing that then you'll be fully prepared with sufficient capital/cash.


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## jcgd (Oct 30, 2011)

By "open the hood" do you mean you want me to be transparent will all my finances? I don't mind doing that at all. I never understood while some people are so afraid of sharing. It'll be good for when I have kids. My parents never told me how much they made, or what things like houses cost, so it'll be good practice. Everything I know about finances is self taught so far.

I'll start a journal, as this thread is wildly off topic.


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## the-royal-mail (Dec 11, 2009)

I suppose we have veered off the track of buying your first property, haven't we? 

By open the hood, I meant, don't blindly auto-debit everything and work with whatever happens to be left. Take more control by remitting the payments yourself and watching where your income is going. I'm not saying you need to post it online for the world to see (and I might even caution against sharing TOO MUCH online). You have spoken in generalities and I think that's fine.

It's all about bringing full control and visibility in your court.

Put your seatbelt on - it's gonna get a bit bumpy.


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