# Looking for Opinions



## A Voice of Reason (Feb 23, 2011)

Hi

Since everyone's situation is different, I will give a brief synopsis of mine. I would like to hear others opinions on what they would do.

30, engaged, soon to be married. Between my fiance and I our gross income is ~150K, with both of us contributing to DB pension plans. We also have around 110K in cash/liquid assets saved + no debt. Like many other couples at our life stage we have a few decisions to make, the biggest one being whether or not to buy a house. I am well aware of the downside risk of what buying right now could mean... once interest rates rise the equity you do have can be wiped out very quickly. There is also a strong case to be made that CDN real estate valuations are a little crazy right now. 

Not that I am thinking about renting for the rest of my life but thinking I should be waiting it out on the side, rent something comfortable but not extravagant, and build up our downpayment. Some of the cash should that is sitting around should be invested, Im going to seek the help of a fee only financial advisor. They said they would charge roughly 1%/annum of the amount managed.

So I guess this amounts to a few questions

1) For our age/life profile, does this seem a reasonable/good financial situation till this point?

2) Would you wait or make the plunge when it comes to housing?

3) Is 1%/Annum a reasonable amount for financial planner

Thanks for your time and input.


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## I'm Howard (Oct 13, 2010)

1% is what most charge, but with your Time Horizon i would think a two or three GIC may be in order.?

Are you located in TO, which may suffer some fall out, or a small community, that may not??

Net Worth, you two appear to be well ahead of most 30 year olds I now.


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## NotMe (Jan 10, 2011)

+1 for Howard - you're doing really well. and +1 for not risking the nest egg if you plan on buying even in 2-3 years.

Question: How have you spent your 20s until now? If it's living at home, I'd say do not buy a house until you have some real life experience together. (Paying rent, bills, etc) That's my standard boilerplate advice. If you've been renting, then proceed carefully but do what you feel is right.

In the end, those professing that real estate prices will fall dramatically are making what they think is an educated guess, same as those professing the opposite. If anyone knew exactly what to do, they'd be doing it and not talking about it. Also I don't think that a rise in interest rates will have an immediate impact on home equity values. Only a shift in demand/supply can; in other words, in my neighbourhood in Toronto most of my neighbours have been there 30+ years and the last house listed for sale on our street was in 2007 (when we bought it). So a +2% shift in interest rates won't affect us much, I think. On the other hand, massive unemployment will result in massive selling, which might. But if I knew for sure what to do , I'd be rich...


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## A Voice of Reason (Feb 23, 2011)

Sorry, yes, I forgot to mention, located in the GTA, would prefer the west end (Mississauga/Etobicoke)


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## Dana (Nov 17, 2009)

A Voice of Reason said:


> So I guess this amounts to a few questions
> 
> 1) For our age/life profile, does this seem a reasonable/good financial situation till this point?
> 
> ...


1) You seem to be doing very well for your age. Good for you!

2) Purchasing a home is more than just an investment, it is also a question of personal values. Personally, I value home ownership and it is very important to me. I will not be moving anytime soon and will wait out any real estate fluctuations (short or long term) without having to sell. Bottom line, this question requires some soul searching by you and your intended. 

3) I am curious why you would not implement an investment plan yourself? Is it possible to pay an hourly rate and consult with the planner and then manage your own money?


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## A Voice of Reason (Feb 23, 2011)

I am thinking about that option (managing money by myself). I am by no means an expert in investments but do consider myself fairly knowledgable about investment and the market. I do a lot of reading on the subject and have taken away the lesson that I have a lot more to learn. 

I think an important thing for me is that for your first home purchase timing is essential. If I end up buying at a peak valuation and the market corrects by even a small amount (5-10 percent) it translates into a good chunk of the down payment we have worked to save. I dont see some massive correction in the market happening but if interest rates return to historical norms I dont see how people will be able to finance such large purchase prices. As the famous economist from Meryll Lynch points out, there is never a new normal... things always revert to the mean. But, then again, the market can stay irrational longer than I can stay liquid. =)


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## I'm Howard (Oct 13, 2010)

Market Price is only a concern if you plan to sell, quit looking at the House as an Asset but rather a neighbourhood to raise your family.

Owning a home is a long term committment, unless you want to be a flipper, and rarely do they make money.

Location, location, location.


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

You seem rather confident and adept in the world of finances. So I'm not sure you need to pay an advisor. Why not spend some time in CMF, ask questions, read/search existing threads? I bet you would learn a lot just from that.

With regards to your home, I wholeheartedly agree with your approach of renting while you save for your downpayment. I wish more people would do this. This way you can really take your time, scope out the areas you want to live in, get pre-approved for a mortgage, do your finances etc. One goal you might want to consider is 20% down payment.

Also, please do not think you need to spend $500K on a mortgage. You have an excellent gross income it is true, but it's better to buy something cheaper and give yourself breathing room. If one of you should be without work for more than a couple of months, those high mortgage/interest payments will burn through your emergency savings like nothing.


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## kcowan (Jul 1, 2010)

I echo previous congratulation. If you continue on this track, you will be wealthy.

I would put your money in ETFs and GICs and avoid the 1% drag.

The timing of buying a house is always tricky. How do you and your fiance feel about renting? If you are both OK with renting, then save up 20% and avoid the CMHC insurance charges. Once you reach that goal, then shop around for a deal.

One place to find a deal is to look for owners that are undergoing a change like death of a spouse, or divorce, or a company-paid move. These usually impose a sense of urgency on the seller that can work in your favour. I tried to buy 2 homes that were scooped up by the listing agent (one in the GTA and another in Muskoka). You know when the agent buys it that the price was right. Don't be shy about asking your realtor to investigate such situations. They will not volunteer to do it.


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## dogcom (May 23, 2009)

I completely agree with kcowan on this. Get your situation in place so you have a strong hand and then look for a weak hand or desperate situation in an area you want to live and put out stinker bids. Do not get emotional and make the best deal you can where you can easily afford the mortgage payments.

Do not look for cheap properties in areas you don't want to live or are undesirable because it could be hard to sell if you had to and your life would suck. So let the proper situation dictate your move not some hope of a price crash although that would also be good for you if it happened.


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## hboy43 (May 10, 2009)

Hi:

I think home ownership is way oversold as a financial good move. A disciplined individual is likely to do as well if not better in the long run being a renter, and investing their funds in equities.

The problem is that few amongst us are disciplined, so the forced savings aspect of having a house and a mortgage is found to be helpful to many.

My personal experience over owning for a quarter centruy was return of 2.9% PA, plus having a place to live, and rental income when I had roomers, and rented outright for the last 6 years. This sounds not to bad, excecpt all the serious gains were in the last 7-10 years. I was just lucky that I did OK. It would have been a much different story if I had sold at any time during the first 20 years or so.

Then a huge issue is lifestyle. Is a house an extension of you, or is it just a utilitarian thing? If the latter, save yourself the grief of upkeep and be a renter. 

As others have said, you are doing well to have $100K, no debt at 30. keep up the good work.

hboy43


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## A Voice of Reason (Feb 23, 2011)

Thanks everyone for the kind words and the wisdom. 

I do look at historical pricing as a canary in the coal mine sometimes. At these prices I could rent for the next 30 years and and take my excess capital and invest. My fiance is on board with the plan for renting (at least for the short term.) My parents and family however think Im insane. They belong to the "you must own real estate" mindset coupled with the "you are just paying someone else's mortagage addage. It can be frustrating at times.


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

A Voice of Reason said:


> ... "you must own real estate" mindset coupled with the "you are just paying someone else's mortagage addage. It can be frustrating at times.


Glad you are ignoring the advice. I've lived enough to know that the general mindset is complete, general nonsense. It does not apply to many people in many situations. Glad to see someone resisting this blanket "advice" and thinking for themselves. I could provide you with all sorts of detailed supporting advice from my life both on the rental and on the purchase side and the rental won EVERY time.

These people conveniently leave out the part about paying for property taxes, condo fees and other maintenance and repair costs that apartment tenants never have to worry about.

Remember it doesn't have to be all or nothing. Good luck.


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

And also the real estate, down payment, time and increased monthly expenses and $ responsibilities incurred by having property in your name.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Glad you are ignoring the advice. I've lived enough to know that the general mindset is complete, general nonsense. It does not apply to many people in many situations. Glad to see someone resisting this blanket "advice" and thinking for themselves. I could provide you with all sorts of detailed supporting advice from my life both on the rental and on the purchase side and the rental won EVERY time.
> 
> These people conveniently leave out the part about paying for property taxes, condo fees and other maintenance and repair costs that apartment tenants never have to worry about.
> 
> Remember it doesn't have to be all or nothing. Good luck.


I can agree one side or the other doesn't apply to everyone. It's odd that only rental works for you.

And yes, people do leave out a lot of "expenses" if they are treating their house like investment.


At the same time, as a renter, in theory I didn't have to worry about maintenance. I'd have preferred the roof was inspected enough to avoid the bathroom ceiling collapsing. The flood from the laundry room was worse as I had document the damage, replace my stuff, submit a claim etc. Sure - the landlord eventually fixed it and the insurance company paid the claim but it certainly wasn't hassle free. 


Cheers


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## Berubeland (Sep 6, 2009)

Uhmm owning has been very good to me. If you buy a cheap house and pay it off fast you'll never have to pay rent or mortgage again.

Therefore my housing expenses are close to nil...compared to the rent I'd have to pay

Also I don't have a landlord to deal with, I hate to say it but some landlords are bat **** crazy, not to mention the other tenants.


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## dogcom (May 23, 2009)

If I tried to invest my money hoping the market would do well and then buy a home it would have been a big failure if I tried that in Richmond BC. I don't think anyone could have matched the returns in Vancouver real estate in the last 20 years in the stock market unless they were a real pro. 

My home will cost me about $600.00 a month I would guess for Taxes and repairs undertaken today. I think rent would run me $2000.00 a month or so as an alternative. For me owning real estate has put me over $1,000,000 in net worth something I don't think I would have come close to achieving if I invested in stocks.


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## kcowan (Jul 1, 2010)

dogcom said:


> For me owning real estate has put me over $1,000,000 in net worth something I don't think I would have come close to achieving if I invested in stocks.


Congratulations. However, it is a totally illiquid investment. You will need to move in order to free up. This could involve a geographic move. My wife's cousin moved from the west end to Chilliwack, for example. Or you could sell and rent.

If you are young and your job situation is stable, then it is not a problem. But as long as you are employed in the lower mainland, high prices just mean more mortgage interest and higher taxes. Also any kids will be forced to relocate.


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## Larry6417 (Jan 27, 2010)

There's a warning attached to prospectuses: "Past returns are not indicative of future results." That warning ought to be applied to RE as well. No one knows for sure what real estate will do over the next few years, but RE moving higher after years of strong gains is less likely than RE levelling off or even declining. We're at a historic low for interest rates. As they increase, RE is likely to drop. Investments, including RE, revert to mean.

I've done well in RE, but that wasn't an "investment." It was a lifestyle decision.


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## I'm Howard (Oct 13, 2010)

Least costly home in best neighbourhood.


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## sprocket1200 (Aug 21, 2009)

A Voice of Reason said:


> I am thinking about that option (managing money by myself). I am by no means an expert in investments but do consider myself fairly knowledgable about investment and the market. I do a lot of reading on the subject and have taken away the lesson that I have a lot more to learn.
> 
> I think an important thing for me is that for your first home purchase timing is essential. If I end up buying at a peak valuation and the market corrects by even a small amount (5-10 percent) it translates into a good chunk of the down payment we have worked to save. I dont see some massive correction in the market happening but if interest rates return to historical norms I dont see how people will be able to finance such large purchase prices. As the famous economist from Meryll Lynch points out, there is never a new normal... things always revert to the mean. But, then again, the market can stay irrational longer than I can stay liquid. =)


i agree with this. no massive correction, just a long slow period without growth. rent, save, and invest. it will be obvious when buying that first home makes sense...


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