# After 2 years of saving, now what? House or invest?



## youtoo (Apr 19, 2011)

Hi all,

I’ve been saving for the past two years and I got to a point where I got roughly 50k, but the money just sitting there in a sad savings account in my bank.

I feel I should stop being lazy and do something with my saved money. I also got to a point in my life where I wouldn’t mind invest in my own home and stop paying rent to someone else.

So these are what I think are my 2 best options:

*A) Invest in mutual funds: 
*
A friend recommended me a financial advisor that would invest my money in mutual funds. He got roughly 5% of profit last year. I could also go hardcore and do it myself; this would require more time, which I don’t have much unfortunately.

*B) Buy my first house:
*
JFYI, I spend 12k in rent every year. This option would include saving a bit more for a good emergency fund, and pay a full 20% of downpayment. I know for sure I want to live in my city for the next 5-6 years, but I don’t know if then I would take a break at that point (going traveling, move to another place for a couple of years to then come back.)

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I really would appreciate your opinions on my situation, past experiences, good advice... 

Thanks!!!


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## YYC (Nov 12, 2012)

Need more info to give you a useful opinion. 

- Where do you live
- What kind of work, how much do you make?
- Any debts
- Monthly obligations, car etc
- Married, single, kids

Without knowing anything else, I think $1000 a month is super cheap for rent, but that's really all I could say without knowing more about your situation. Oh, and nice work on saving up $50k! That's impressive.


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## youtoo (Apr 19, 2011)

Sorry, it's true that that info will help 

- Montreal
- 75k a year before taxes
- 0 debts, 0 monthly obligations
- In a relationship, no kids


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## Butters (Apr 20, 2012)

I hear if you buy a house, you have to plan to live in it at least 5 years to pay off the land transfer, lawyer fees, etc... so you are barely squeezing under that
Do you have family in the city that could possibly look after the house if you rented it say 6 years

20% is excellent
have you also looked into Home Buyers Plan? with your income level you get taxed high, this is a chance to get some extra cash for the house (almost like a free cash advancement) then just pay back the money the next 16 years

Option A part 2
Invest in EFT or couch potato e-series they both have less fee's than a mutual fund plus the fees of your financial advisor, and they are fairly simple


Is your savings account like 25k TFSA and then 25k regular savings rates of 1.4% ?

you could also try peoples choice savings rate of 3% if they still have it, although i hear its a pain to set up

Cash is cash though, good to have it safe... never know when the next stock market collapse will happen, but i'd assume within 2 years, where you'd lose 20% of your value



If you have someone who is handy (like your dad), and would be willing to help you manage your place when you rent it out, while you travel.
I would select that

if its too much of a pain, and your renting spot isn't too bad, stick it out, and go into TD e-series the easier option 

For safety route, stick with Savings accounts 1.4% then wait for next collapse, wait an additional 8 months until its at rock bottom, hit the bull market for 6 years  by that time you'll be back, have safe rich money, buy your dream house in cash!


just some thoughts hope it helps


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## YYC (Nov 12, 2012)

For $1000 a month in Montreal, I would probably keep renting unless it's a total dump. A house will cost you way more than that. Add in a likely correction in Canada's real estate market and it could easily be a decade before you can break even on a house. If you're still single and not 100% settled, I would think it makes more sense to keep your options open. You can pick and go where the opportunities are, do your travelling without the hassle of trying to manage a rental or pay a mortgage.If I was in your situation, I would definitely keep renting. With regards to investing, I'm still a big newbie myself so I don't have much advice to offer there, but this forum has lots of good information so keep reading and learning.


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## KrissyFair (Jul 8, 2013)

So here's my 0.02 on buying a house and forgive me because I'm going to sound like a grumpy Gus. Houses are HUGE time sucks. They also generally increase your living costs even if you do have your 20% downpayment and don't do any renos. Our base costs went up $200/month and in the 3 years we've lived here we've had to put almost $15k into it just in general repairs. 

And on top of all of that, it's important to realize that for the first 5 or so years you're building very little equity.

The bottom line is if you buy a house it should be because you think it's the best way to meet your housing needs for the foreseeable future or because the non-financial components - having a home that's all yours that you can decorate or whatever - are important to you. Don't do it just to stop paying rent. 

Now that that's all over, yay on your savings!! No matter what you choose to do, you're obviously accustomed to paying attention to your finances and that's ultimately the most important thing.


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## youtoo (Apr 19, 2011)

Thanks guys with the replies so far.

I guess _my main worry right now is that I'm 30, just lazily saving without doing any further effort, and I do not wanna wake up one day five years down the road and realize that I've been wasting my time_, and that I've lost a considerable chuck on money bc I was sitting on my ***.

The idea of buying a house is not so much about making an investment for future profit, but to get a place that I can call my own. I live in a nice place right now, but I wouldn't mind a small upgrade to a slightly bigger place that I can consider my homebase.


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## youtoo (Apr 19, 2011)

SheaButters said:


> Is your savings account like 25k TFSA and then 25k regular savings rates of 1.4% ?


I just have a regular savings account at 1.something, and both TFSA and RRSP maxed out, at similar poor interest rates.



SheaButters said:


> Cash is cash though, good to have it safe... never know when the next stock market collapse will happen, but i'd assume within 2 years


Is this idea of another market collapse within 2 years a widely accepted possibility? It does look like things are shaky now, but to the point people are waiting for another collapse to happen?


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

Shea and Krissy are right. Listen to them.

You never really own anything. Either (as someone else here said) you are renting money from the bank (mortgage) or you are renting the dwelling from LL. Either way you do not really own the place. Best not to get tied down to property at such a young and unmarried age.


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## james4beach (Nov 15, 2012)

youtoo said:


> I’ve been saving for the past two years and I got to a point where I got roughly 50k, but the money just sitting there in a sad savings account in my bank.
> ...
> 
> So these are what I think are my 2 best options:


What's sad about the bank savings account? I think it's great that you've saved up so much in savings and the savings account is a totally valid place to put it.

And I think you missed option #3, which is to keep accumulating savings in the form of high interest savings accounts and GICs. I would strongly recommend you start employing a GIC ladder strategy, which will get your money generating higher returns with no risk of loss, and still maintain lots of available cash for future large purchases.

I'm not saying stick with a savings account to wait for housing collapse... I'm just saying that you should start on a GIC ladder, since this takes a while to get up and running and I really think this is the next suitable step for you.

Ever study Maslow's Hierarchy of Needs in university? It reminds me of building investments. In my view, investments should be built up like that pyramid.

1. First you pay off all debts; the goal is to get net positive wealth & savings
2. Now you build a solid base of cash, which is what you've done - great job!
3. Then you add GICs, virtually no risk (CDIC insurance etc), higher returns, and less liquid than #1
4. Riskier things are possible now, stocks, etc

Those are the first steps, in my opinion


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## youtoo (Apr 19, 2011)

the-royal-mail said:


> Best not to get tied down to property at such a young and unmarried age.


In your opinion it's better to save for 10 more years and buy a house when I'm 40? Even if end up paying, potentially, 100.000+ in rent over those 10 extra years?

Also, you mention the fact I'm not married yet. How is that a factor? You mean if I'm married then both spouses are committed to the buy and will chip in?

.
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In general, you guys reckon that, if I still wanted to upgrade to a slightly nicer place, it's better to pay a $1200 rent over the purchase of a house?

_Thanks james4beach for pointing out GICs laddering, a concept I didn't know and that looks very very interesting._


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## Spudd (Oct 11, 2011)

One thing to keep in mind is that if your rent includes utilities, you may not be that much better off buying a house. My monthly property taxes are just under $400, and monthly utilities are around $250 - so even without considering house maintenance, I'm paying $650/mo that will never go away. Then I have the mortgage interest on top of that, which is $320 or so, since my mortgage is getting quite small now and I have a good interest rate. So I'm paying $970 that will never come back to me. On top of that of course there is the principal which I will get back when I sell the house, but takes away from my current cash flow. And maintenance, which is totally variable, some months it is $0 but then your furnace breaks and it's a lot more.

So just take a look at the total cost of ownership before you decide fully one way or the other. And like SheaButters said, if you are definitely going to sell it in 5 years, you might not even break even after all the land transfer tax, lawyer fees, etc. Not to mention that generally people think the real estate market is currently at a peak and in 5 years it seems likely it might be at least somewhat lower.


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## youtoo (Apr 19, 2011)

Spudd said:


> So just take a look at the total cost of ownership before you decide fully one way or the other. And like SheaButters said, if you are definitely going to sell it in 5 years, you might not even break even after all the land transfer tax, lawyer fees, etc. Not to mention that generally people think the real estate market is currently at a peak and in 5 years it seems likely it might be at least somewhat lower.


I see. I think property taxes in the area I'd want to live is between 1 and 2k, so not as bad, but I get your point.

In 5 years time, IF I was to move away, I would not sell, but just rent it out.


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

"just rent it out"

You make it sound so easy.

What all of us here are saying is to cool it a bit. It appears that you're a bit uppity and dissatisfied with your accomplishments to date. I disagree. I think you've accomplished a LOT and should stop and enjoy your accomplishments. The GIC ladder is an excellent suggestion that I agree with. Commiting yourself to housing is a bad idea because when you are single you have freedom and do not yet really know where you will end up in the next 10 years. Lots of potential changes, your whole life ahead of you. This isn't the time to be commiting yourself to overpriced, illiquid assets like RE. "Just rent it out" shows you lack experience in that area as well. That is a huge nuisance that we've discussed here at great length. Suggest you read the threads where people here have had problems with tenants. Someone as inexperienced as you will get eaten alive while the govt, RE and other industries profit off your "investment".

Another scenario is you could fall in love with someone tomorrow and want to buy a house together next year. You don't know that. Commiting all your hard-earned savings to RE or investments today robs you of that flexibility. You've got the bird in the hand now. Don't blow it!


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## youtoo (Apr 19, 2011)

Yes, that was a bit of an understatement, I realize it'd be that easy to rent out my place  

I'm actually in a serious relationship and if we were to buy a house it would be a shared investment. I agree though that things can change 180 degrees in under 24h.

It's funny, I wasn't expecting such an unanimous feeling against buying a house. I thought opinions would be divided 50/50 between buying or investing. It's changing my thoughts on my financial situation and what I "should" be doing at this point in life.

I will be looking more seriously at GIC laddering and also, just for fun, mutual funds.


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## james4beach (Nov 15, 2012)

youtoo said:


> Thanks james4beach for pointing out GICs laddering, a concept I didn't know and that looks very very interesting.


Sure, no problem. Don't move all your savings accounts to GICs though. The ideal mix is some of both. Myself, among fixed income, I have 20% in cash savings accounts (high interest savings) and the other 80% is locked into ladders.

Also it doesn't stop you from buying a home. Wich GIC laddering, you will have amounts maturing every year. Let's say you decide to start seriously hunting for a home. You would just stop renewing GICs and let them mature. Not perfect, but a reasonable way to get higher returns than the regular savings account and still maintain some flexibility


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## none (Jan 15, 2013)

Not that I agree with everything he says but his advice about asset risk management is pretty good. Also his take on the future doom of Canadian real-estate will ultimately be correct (5 years and counting ammiright guys??? 

www.greaterfool.ca


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## youtoo (Apr 19, 2011)

none said:


> Not that I agree with everything he says but his advice about asset risk management is pretty good. Also his take on the future doom of Canadian real-estate will ultimately be correct (5 years and counting ammiright guys???
> 
> www.greaterfool.ca


Can you point me out towards any article on that website that you consider especially interesting for ppl in my situation?


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## Feruk (Aug 15, 2012)

How cheap is real estate in Montreal? Your $50K at 20% indicates you can only buy a house worth $250. Also, you indicated your RRSP is maxed out. How can your RRSP account have a max of $25K? I'd figure at your age it'd be higher.


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## youtoo (Apr 19, 2011)

Feruk said:


> How cheap is real estate in Montreal? Your $50K at 20% indicates you can only buy a house worth $250. Also, you indicated your RRSP is maxed out. How can your RRSP account have a max of $25K? I'd figure at your age it'd be higher.


Yes, I was aiming at a house in the $200k-$250k range, which buys you a 4 and 1/2 condo in a nice, centric area. I don't exactly recall my current RRSP limit, but I will have my RRSP maxed out by the end of the year, with 25k in it.


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## youtoo (Apr 19, 2011)

none said:


> Not that I agree with everything he says but his advice about asset risk management is pretty good. Also his take on the future doom of Canadian real-estate will ultimately be correct (5 years and counting ammiright guys???
> 
> www.greaterfool.ca


Wow, I find some of these posts quite revealing. I don't necessarily run and do exactly everything he says, but some stuff is eye-oppening for a amateur like me.

http://www.greaterfool.ca/2013/10/14/what-to-really-worry-about/ "That compares with just over 8% a year if you’d simply invested instead in a mix of 60% global equity index and 40% Canadian bond index." I have to learn what some of these things mean  and how to do it myself.


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