# Much needed advice required, please.



## Siwash (Sep 1, 2013)

Hello folks, 

This is my first post. A little about my financials:

-married and both my spouse and I have decent paying ($150k+ household), _very_ secure employment (we are planning a family and hope to have a child within the next year or so..)
-we are renting at the moment after selling a condominium last spring. We sold b/c we saw a condo correction looming in the GTA and I think this is actually unfolding as we expected
-we have about $100,000 in the bank in a "high interest" 1% savings account - pretty pathetic return, I know!
-we are trying to figure out what to do with our cash.. here are two scenarios that we could choose:

Scenario 1:
-continue to rent for at least two more years (another home b/c we will not be renewing at this place for various reasons) and hope the housing market corrects or at least cools and stabilizes then buy after two years (and save more cash!)
-invest that $100K over the two year period then use a good portion of that to buy something later (and hopefully made some money on potential investments)

Scenario 2:
-Buy something in the next 6 months, which would basically scuttle our plans to wait for a market correction and save even more money renting
-in this case we would probably have to just keep that money in the bank at 1% since we'd need it for a downpayment 

If we continue to rent for 2 years, where should we park our cash? I have no idea other than a GIC which isn't much better than the 1% savings account. Should we put some of the money in a TFSA? An RSP? I have never invested in any of these vehicles and to be honest, we are newbies at investing. It's embarrassing to admit, but I have not taken the time to do so. I just read Millionaire Teacher and Elements of Investing and I've learned a lot over the past few weeks... mostly how much i wish I would have started investing many years ago. 

Would you buy instead and just take the plunge, and perhaps set some cash aside to invest in index funds or ETFs or stay the course and rent while investing all the cash? 

Help would be much appreciated! Thanks in advance.


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## AltaRed (Jun 8, 2009)

To rent or buy is generally a lifestyle choice. If it was strictly economics, renting works out better provided the funds that would have otherwise gone to mortgage payaments, taxes, utilities and house maintenance in an ownership scenario are set aside for rent AND investment. The 2 main reasons people own rather than rent are: 1) security of nesting, and 2) ownership is a forced savings plan (mortgage, taxes, utilities, etc.). Speculating on an RE market correction is just that, albeit the odds should be in favour or a market correction or at least a soft landing. You will only know in hindsight which is the right choice.

As to investments, you can get considerably better than 1% in HISA cash. Outfits like Peoples Trust and Canadian Direct Financial currently provide 1.8-1.9% interest bearing savings accounts and both are CDIC insured. For short term investments, e.g. less than 2-3 years, it is hard to beat those rates. Any other investment (than cash and GICs) you make will have capital risk, whether bonds or equities in individual, index fund, or ETF form. 

You might consider those same firms or similar for TFSAs for both of you. The TFSA season is about to ramp up in the next 30 days and there may be some better teaser rates coming. Regardless, each of you will be limited to $25.5k in each of your TFSAs. Come January, there will be another $5500 of room for a total of $31k each. Beware of the rules regarding TFSAs as it pertains to withdrawals and re-contributions. There are penalties for breaking the rules. I would not use an RSP for short term deposit of funds because of: 1) the tax consequences, and 2) RSP room, once used, is forever lost. RSPs are meant for long term retirement planning (decades of contributions and investment).


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## Butters (Apr 20, 2012)

you have to declare the interest you make, with your income its close to 40% so for every 100 dollars you make in interests, you pay an extra 40 bucks at income tax time
...put as much as you can in a TFSA at least 1.4% (see above post)
I would safe guard the rest of the money in a HISA 1.4% or higher...

with less than 2 years to invest, you could/will see the markets take a turn. you wouldnt want to delay your house purchase by losing 30% in 1 day, and then wait 4 more years to earn it back...


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## Oldroe (Sep 18, 2009)

Think I would work on where to buy. What is your ideal spot. 

Then I would buy if the right property came up. Correction no correction it won't matter in 25 years.


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## kcowan (Jul 1, 2010)

Continuing the lifestyle choice theme. What is the problem with the current rental? Can you find a rental that meets all your needs?

If the answer is YES, then you can proceed with the rent versus buy decision. At your level of income, either choice could make sense. Is there any chance you will take another job in the next five years? As mentioned previously, it is a lifestyle choice. It is also a great leveraged investment during good times.


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## Siwash (Sep 1, 2013)

Kay, thank you folks... I will review this info and re-post if I have further questions, which I am sure I will...

As for the above poster's suggestion to buy now if we do find an area/house we like now, I agree to an extent with that philosophy. We have located a house that, while not perfect, is something we both really like. Some work is needed but we can live with it... The price is still high in my opinion, but compared to what's out there, it isn't too bad. It's been sitting since July and we put in an offer in the summer only to have it declined.. quite an emotional roller-coaster.. So we backed off without putting in another offer. Now it's priced slightly below what we offered then!! Seller and agent must be kicking themselves still.. agent contacted me via email but we decided to play hardball and also decided we didn't have to buy anything now since we're still in a lease. But mostly b/c we don't want to buy something at what _*seems*_ the peak of the market (or close to a peak). I know that it might not matter in 25 year or more years (we are looking at it long term), but if prices do correct, we might be able to get something for less.. We don't quite have 20%.. on the above-mentioned home, it'd be more like 15 to 16% +/- so we'd have to pay the CMHC insurance. We'd have nothing left in savings or to invest for our retirement (mind you we have great pensions lined up at work). I just feel like 2 more years would put us in a stronger position, whether there's a correction or not.. even if prices increase further, we are saving and being quite disciplined in general with our money. Land transfer, CMHC, property taxes and a mortgage that would be higher than rent adds up to a lot of savings... 

thanks for the input, I will repost with an update and/or further questions!


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## Siwash (Sep 1, 2013)

kcowan said:


> Continuing the lifestyle choice theme. What is the problem with the current rental? Can you find a rental that meets all your needs?
> 
> If the answer is YES, then you can proceed with the rent versus buy decision. At your level of income, either choice could make sense. Is there any chance you will take another job in the next five years? As mentioned previously, it is a lifestyle choice. It is also a great leveraged investment during good times.



There is almost no chance we will be changing jobs! Extremely unlikely... The one thing that concerns me (at least somewhat) is that we are planning a family as mentioned.. I realize you can rent and have kids but I suppose that some of the uncertainty a rental situation creates a little bit of anxiety. What if the owner wants us to exit because he wants to move in himself? With small children that becomes a big hassle and stress point versus owning something.. even if we decide to move down the road, we can do it on our terms/time. 

Now back to what to do with that cash! I will be back soon to ask further questions... 

thanks


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## Guban (Jul 5, 2011)

Open the TFSAs! In either scenario, you are better off by not paying taxes on the small amount of interest received.

Unlike Oldroe, I think that a correction could make a big difference in 25 years. Paying 20-30% less will matter. Predicting when it will happen, however is not that easy. They have been calling for one in the GTA for a long time.


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## KrissyFair (Jul 8, 2013)

On a completely pragmatic note, as someone who bought her first house 6 months after her first baby was born... either buy now or find a rental comfortable enough that you can be there until you're done producing babies. Moving in the midst of babies is a gong show. Purchasing a home even more so because you inevitably want to do things to the home you own, but there's never time!! :eek2:


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## humble_pie (Jun 7, 2009)

krissy this reminds me of a friend on a farm in the Okanagan who gave birth both times in late winter because, she advised me, Never have babies during canning season.


(to siwash) you have some first-rate suggestions from altaRed.

i sense from these paragraphs that you are in that large crowd that is dismayed by present low bank interest rates & therefore keeps saying to itself there-has-to-be-some-kind-of-more-profitable-investment-maybe-some-anonymous-internet-guru-can-pop-a-genie-answer-like-Aladdin's-lamp.

but the sad truth is that there's no lamp & no genie & no free lunch. Even if you were not planning to purchase another home in the next few years, a good thing to do with your savings right now would be to place the funds as safely as possible for a while, meanwhile commencing a study period to learn more about the world of investments, with all its pitfalls & hazards.

as many mention, you could shelter $25,500 each right now in TFSAs, then add another 5,500 each next january if the minister of finance comes through with the expected renewal of contribution limit.

as for learning, there's a sticky with a reading list for new investors at the top of the Investing section. Please do hang in the forum & ask questions if it would be a helpful pursuit.

lastly, when you mention that you wish you had begun learning earlier, may i say that i believe you are the perfect youthful age to begin right now!


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## Retired Peasant (Apr 22, 2013)

humble_pie said:


> ...you could shelter $25,500 each right now in TFSAs, then add another 5,500 each next january if the minister of finance comes through with the expected renewal of contribution limit.


Actually 51000 right now since there's two of 'em.


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## humble_pie (Jun 7, 2009)

Retired Peasant said:


> Actually ...


yes, that's what i said ($25,500 each)


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## AltaRed (Jun 8, 2009)

I would suggest the OP take a look at this website for ideas on where to optimize interest. That said: 1) Beware the promotional rates that incent people to move for 60-120 days because unless you want to move money around all the time, I wouldn't 'chase' the promotions, and 2) not all institutions, especially the smaller ones with weak technology solutions, have easy, timely and cost free transfers to/from other institutions. 

http://www.highinterestsavings.ca/


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## KrissyFair (Jul 8, 2013)

humble_pie said:


> krissy this reminds me of a friend on a farm in the Okanagan who gave birth both times in late winter because, she advised me, Never have babies during canning season.


She is clearly a smarter woman than I am. My beautiful wallpaper has been sitting in the closet for 2 years. :hopelessness:


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## Oldroe (Sep 18, 2009)

I agree you might be a few dollars ahead after 25 years if you get that correction. If you got the right house right neighborhood I still would buy now. 

We bought this house in 1993 when half the house on the market were rebo's and got into a bidding war. Still feel we payed 10k more than value and the best 10k spent.


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## Retired Peasant (Apr 22, 2013)

humble_pie said:


> yes, that's what i said ($25,500 each)


Wow, I read that three times and my brain never registered the 'each'.


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## Siwash (Sep 1, 2013)

AltaRed said:


> To rent or buy is generally a lifestyle choice. If it was strictly economics, renting works out better provided the funds that would have otherwise gone to mortgage payaments, taxes, utilities and house maintenance in an ownership scenario are set aside for rent AND investment. The 2 main reasons people own rather than rent are: 1) security of nesting, and 2) ownership is a forced savings plan (mortgage, taxes, utilities, etc.). Speculating on an RE market correction is just that, albeit the odds should be in favour or a market correction or at least a soft landing. You will only know in hindsight which is the right choice.
> 
> As to investments, you can get considerably better than 1% in HISA cash. Outfits like Peoples Trust and Canadian Direct Financial currently provide 1.8-1.9% interest bearing savings accounts and both are CDIC insured. For short term investments, e.g. less than 2-3 years, it is hard to beat those rates. Any other investment (than cash and GICs) you make will have capital risk, whether bonds or equities in individual, index fund, or ETF form.
> 
> You might consider those same firms or similar for TFSAs for both of you. The TFSA season is about to ramp up in the next 30 days and there may be some better teaser rates coming. Regardless, each of you will be limited to $25.5k in each of your TFSAs. Come January, there will be another $5500 of room for a total of $31k each. Beware of the rules regarding TFSAs as it pertains to withdrawals and re-contributions. There are penalties for breaking the rules. I would not use an RSP for short term deposit of funds because of: 1) the tax consequences, and 2) RSP room, once used, is forever lost. RSPs are meant for long term retirement planning (decades of contributions and investment).


Okay, I'm back! So I checked out Canadian Direct Financial and Peoples Trust.

CDF is offering 1.9% for the HISA and 2.25% on their TFSA.

Peoples is offering 1.8% for the HISA and 3% for the TFSA.

So can someone please explain how this works. Do we transfer our cash to one of these HISA accounts from our bank (TD) then from there put up to $25,000 for each of us in the TFSA? If this is the case, does that 25K (x2) earn 2.25% or 3% in those to accounts (as advertised by the above-mentioned banks)? 

Does the interest earned on the balance ($50,000+) of what was not put into the TFSA then become taxable??

It's a little confusing for an investment idiot like me! :frown:

Thanks again!


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## Spudd (Oct 11, 2011)

Yes, the money you put in the TFSA accounts will earn 2.25% or 3%, if you go with CDF or People's and the interest will not be taxed. 

The interest you are earning on the full amount is currently being taxed (your bank should be sending you a T5 slip stating the interest earned every year, that you need to declare on your taxes). If you put half of the money into TFSA, then your tax will be half what it used to be. Although, if you move to a higher interest HISA then you will make more money hence pay more tax - but it will still be a net win.


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## Siwash (Sep 1, 2013)

Spudd said:


> Yes, the money you put in the TFSA accounts will earn 2.25% or 3%, if you go with CDF or People's and the interest will not be taxed.
> 
> The interest you are earning on the full amount is currently being taxed (your bank should be sending you a T5 slip stating the interest earned every year, that you need to declare on your taxes). If you put half of the money into TFSA, then your tax will be half what it used to be. Although, if you move to a higher interest HISA then you will make more money hence pay more tax - but it will still be a net win.


Okay I didn't know that.. I figured I'd earn 1.9% in the HISA and that's it. I didn't know you can earn up to 3% putting that cash in the TFSA.

So I put 50,000 (between the two of us) into the TFSA and that's sheltered and earning 2.25 or 3% then the balance ($50,000) is placed into the HISA (at 1.9%) and interest earned is taxed. 

Seems like People's is the better deal...

Do I got that right?


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## Spudd (Oct 11, 2011)

Yes, except you can put 51k between the two of you, because the limit per person is currently 25.5k (assuming you don't have any TFSA's yet).


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## Pluto (Sep 12, 2013)

Siwash said:


> Hello folks,
> 
> 
> -we are trying to figure out what to do with our cash.. here are two scenarios that we could choose:
> ...


It seems to me you are comfortable with the home ownership lifestyle vs the renting one. but you are wisely cautious, and willing to rent in the meantime. I'd like to suggest you look at a chart of historical house prices. There is one for Toronto at this link. Vancouver historical chart looks similar. 

http://www.torontorealestateboard.c...storic_stats/pdf/TREB_historic_statistics.pdf

That chart shows a peak at 1989, and then a very lengthy consolidation period through the 1990's and it took approximately *15 years* for prices to get above the 1989 high. Then there was about 10 years of consistent price gains. My opinion is there well be about 5 years of no significant price gains and maybe 10 or more years before there are any gains above the recent high in average house prices. The housing market is exhausted, and is consolidating, catching its breath before the next leg up. I don't think you have to worry about prices taking off and leaving you behind just yet, so keep renting and saving for a while, but keep a close eye on the house market in the meantime. 

Too, if you are at all inclined to be landlords, buy a place with a rental suit, and rent out less than half the property for tax reasons. If you do this route, do it anytime now because the rental income will likely cover your mortgage interest, and you can start building home equity during this consolidation period.


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## Siwash (Sep 1, 2013)

Pluto said:


> It seems to me you are comfortable with the home ownership lifestyle vs the renting one. but you are wisely cautious, and willing to rent in the meantime. I'd like to suggest you look at a chart of historical house prices. There is one for Toronto at this link. Vancouver historical chart looks similar.
> 
> http://www.torontorealestateboard.c...storic_stats/pdf/TREB_historic_statistics.pdf
> 
> ...


Thanks for the chart! That's very interesting info… are the sales numbers adjusted for inflation or not? Wow, took 13 years to recover… 

What's also notable is the time it took to come down. It started to decline in early 1990 but took 6 years to bottom out. I suppose every "correction" behaves differently… 

We are okay with renting.. There is a part of me that would like to "settle" in something "permanent" but we are certainly comfortable with the rental scenario 

The house I mentioned in my OP has since sold - sometime last week. Would love to know what they got…Was on the market for over 100 days and price dropped after 50 days quite significantly… 


Thanks folks…


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## Four Pillars (Apr 5, 2009)

Siwash said:


> TThe house I mentioned in my OP has since sold - sometime last week. Would love to know what they got…


Call the selling agent. I used to do this all the time always got either the exact price or a very small range.


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## Siwash (Sep 1, 2013)

Well, the insanity continues! 

http://business.financialpost.com/2...ket-firing-up-again-as-toronto-sales-leap-19/


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