# RRSP Advice (Buying a home, receiving lump sum of money)



## Kail (Feb 7, 2012)

Hi all,

I need some advice here. I'm getting married this summer, and we're planning on buying a house after (how soon after we're not sure). Personally I'm ok waiting at least another year or two but my fiance is gung-ho about buying a house. It took a lot of convincing to get her to forget about buying a house until AFTER the wedding.

Here is my situation:

Me - I currently have 25k in an rrsp invested in stocks with some cash sitting on the side. I'm unsure of where to invest it at the moment. I also have 6k sitting in my chequing account which waves my monthly account fee as well as my yearly visa fee (TD First Class). By this summer I expect to have at least another 15k saved, all of which will be placed in a TFSA until we purchase the house. I also have no debt.

Her - Currently has 8k sitting in a savings account and will be receiving 20k (12-13k after taxes?) this month. She does not have a TFSA or RRSP and has some credit card debit.

We would like to have at least 100k for a down payment on a house. We live in Toronto currently but would be looking north, around Aurora or Newmarket. Our budget is no more than 400k which leads us to townhouse / semi-detached territory which we are fine with. Our income at the moment is 100k combined which is just our base salaries. I get a yearly bonus and she gets a yearly commission which isn't factored into our income as it depends on a lot of factors. We also are quite lucky in that we only need to pay for minor things for the wedding. Her parents are footing the bill for the venue/food/drink which means that we won't be going into debt for it.

My fiance asked me what she should do with the money she is going to be receiving and I suggested opening an RRSP and contributing it to that. She could then use the tax refund to top up the RRSP to 25k and then if anything is left put it in a TFSA. That way we can make full use of the HBP for both of us. 

Now here is the thing, I'm thinking we are most likely at least a year out from purchasing a place so what would be the best investment for her cash? A 1 year GIC that will produce 1%? She is pretty risk adverse so perhaps that is the best option out there unless someone can suggest something else. Maybe a FI etf? Any suggestions for her would be welcome. I'm hesitant to talk to an FA (MF salesman) at a bank.

Thanks!


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## Guban (Jul 5, 2011)

A safe investment is likely wise if you are considering using it in the near future. This may apply to your equity investments too. If you look around, you should be able to get more than 1%. A high interest savings account (HISA) should also be something to think about, especially if she decides to buy sooner than the planned 1 year.

Get rid of the credit card debt. That's got to be priority one, no matter what financial objective you have!


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## tygrus (Mar 13, 2012)

Friend, you have to be a real risk taker to jump into housing right now. Have you heard about the 10,000 jobs a week being lost in Canada and especially Ontario. You are protecting all your cash by stuffing it in GICs and RRSPs but then want to go sink it into a house only to lose it there an go underwater. 

I 100% guarantee that the peak of the housing market is passing us as we speak and if you were a little patient, you would actually get a detached house for your budget in a few years time.


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## Four Pillars (Apr 5, 2009)

Definitely invest in guaranteed investments.

Not sure how you will have $100k in one year though, unless you have some incredible savings rate. 2-3 years is more likely.


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## Kail (Feb 7, 2012)

tygrus said:


> Friend, you have to be a real risk taker to jump into housing right now. Have you heard about the 10,000 jobs a week being lost in Canada and especially Ontario. You are protecting all your cash by stuffing it in GICs and RRSPs but then want to go sink it into a house only to lose it there an go underwater.
> 
> I 100% guarantee that the peak of the housing market is passing us as we speak and if you were a little patient, you would actually get a detached house for your budget in a few years time.


Tell that to my fiance. She's convinced that if we do not buy now we will never be able to afford anything. I believe that the prices will probably come down a bit in the next couple years and I am OK waiting it out especially considering I just switched jobs. It's a discussion I'll be having with her later. If I can I will push the house buying back as far as I can. Right now we live in a 800 sq ft highrise penthouse apartment right next to the subway with utilities & underground parking included for $1200/month. I'm alright not going anywhere, I like the view and convenience.

Four Pillars - We'll easily have 80k by this time next year and there is definitely room to improve our savings rate. I'm also expecting a low 5 figure lump sum payment this summer as part of my employment agreement. I do know that I have to talk to her about her credit card debt. She just needs to pay it off and be done with it. 

Anyway, thanks for the advice.


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## Four Pillars (Apr 5, 2009)

I realize this isn't what you were asking about, but are you guys sure about Aurura & Newmarket? That sounds like a long expensive commute which will be a big change from you have now (I'm assuming).


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## Kail (Feb 7, 2012)

I'll be going from 15 minutes door to door via subway to over an hour + 2x the cost via GO Transit. I'm not happy with it. If we could afford Toronto we would stay here but the areas that we like are ungodly expensive.


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## tygrus (Mar 13, 2012)

How long until you have kids? That is the time to bite the bullet and settle down in your preferred community. Sounds like that is a few years away at least. Until then, you have a nice sized place, you are putting good cash away and saving a bigger down payment. Whats the rush?

Here is what you tell your fiancee. Canada GDP is 7% residential and condo construction right now (more than any other industry), interest rates are the lowest in a generation and personal debt in Canada is 160%. On top of that, Canadian dollar is falling and job losses mounting. There is no way this keeps continuing. It didn't in the U.S. or Iceland, or Spain or Ireland or Japan. It didn't even continue in Toronto in 1990.


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## wendi1 (Oct 2, 2013)

HBP requires you to have the 25K in the RRSP for at least 3 months. HISA or GIC is the way to go, depending on the best and most flexible rate you can get.

The thought of that commute, though, is making me carsick.

Your fiancee might not know about the "divorce commute" - a commute of more than 45 minutes one-way substantially increases your probabilities of divorce (by 40 %!!!). http://www.theglobeandmail.com/life/the-hot-button/stuck-with-a-long-commute-your-marriage-may-be-at-risk/article614671/


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## Ponderling (Mar 1, 2013)

I know Garth is chicken little, a bunch of the time, but in the big picture the guy is no dope.

Convince dear partner to spend a few hours reading the Greater Fool blog together with you.
Each read his piece, and then spend 2 minutes or so debating the opinion of that post between yourself.

Then go back a day in the posts, and repeat. 

Repeat reviewing the issue until you agree with each other, or at least agree you see each others point of view.
This is good practice for many issues in married life for those in it for the long haul. 

That back tracking of Greater Fool posts should take the fire out of her house buying hots in a few hours of discussions. 

Oh, 
Also jointly get up real early,(or take a holiday day. I know they are precious when you are young.)

Drive to the GO Train station in the area you intend to buy in on a regular work week day . Take the train to work. Make note of the time it took you after you got to the GO lot.
Then take the train home, and note when you clear the lot on the way home. 

I suspect this will take a good few hours out of your current getting to work routine.

Ask dear wife how she will feel home with the somaday kids for a bit when you are out the door at 6:30 am to get a spot in the lot, and a seat on the train, and then get home a bit after 6:45 or so PM. 
Or how she wants to spend that time out of the house if you are the one who opts to stay home when wee ones are young.
Or if both work cost out child care with meag extended hours.

I am not making this commuting for a 9-5 job up. My sister (stays at home at present) and BIL live in Aurora. When he is in his office in the financial part of Toronto that is his day. Some days when he has to get out to see clients he will drive, and the time is no less unless he can arrange a client visit that is at the end of the day, and on the way home.


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## Kail (Feb 7, 2012)

tygrus - I don't know about kids to tell you the truth. We both want them, but this is a tricky situation where we're either going to have to adopt or find a surrogate which will cost 3 arms and a leg. All the adopted people I have met in my life turn out to be deadbeats, which tells me that I probably haven't met enough. To answer your question though, it would be definitely a few years before that happens.

wendi1 - Yikes. I don't like that article one bit. She's lucky in that she works from home and goes out and makes sales calls, so she leaves after rush hour ends and is back before it begins. I'll have to leave much earlier than I currently do. It looks like I'll have to leave the house around 6:50am vs 8:15 and then I wont get home until 6:15pm vs 5:25pm. Ugh.

Edit - Ponderling - Right, I did not factor in the time I would need to get there to get a parking spot. I'll also have to buy a vehicle. Fun. I'm in the financial district as well so it sounds like that would be my commute for sure. I'll have to work on my powers of persuasion and convince her that we can wait, especially if that means we can get something closer to downtown.

So much to consider...


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## andrewf (Mar 1, 2010)

Steve Jobs was adopted, and whatever he was, I don't think you could say he was a deadbeat. Yay anecdotes!

The only thing I can think of is that perhaps parentless children are less likely to have had good conditions for early development (proper nutrition during pregnancy, no alcohol or drug use, etc.).


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## Taraz (Nov 24, 2013)

Kail said:


> Tell that to my fiance. She's convinced that if we do not buy now we will never be able to afford anything.


TALK HER DOWN FROM THE LEDGE!!! That's what I (stupidly) thought back in 2007, at the peak of the Edmonton real estate market. My house is still worth about $100k less than what I paid for it. 

Even if the market wasn't drastically overvalued in Toronto right now, there are other things to consider:

1) Buying a house increases your living expenses (assuming you would otherwise live in an apartment).
2) This far-away house seems like it would cost even more in commuting costs. (Car, insurance, gas, parking, etc.)
3) Time maintaining your house (lawns, snow shoveling, general maintenance) is time you can't spend making money (or having fun).
4) You'll buy more stuff (to fill up your bigger place). 
5) You might get a job offer and want to move somewhere else. If the market dips and you're underwater, your options are more limited. Factor in about $20,000 in Realtor and legal fees, plus the additional expense of moving all your new stuff. 

If she really has to have "a house", have you looked to see if renting a bigger house / townhouse is an option? Perhaps in an area you like more? Renting the house is often far cheaper than renting the money from the bank. (Remember to factor in Realtor costs, 3 to 5% per year in maintenance costs, property tax, HOA/condo fees, CMHC, etc. when you run the numbers.)


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

Interesting discussion. I am in 100% agreement with taraz's comments as well as those of several others herein. And I have a feeling the OP is on board with us as well. The bigger concern I have is with the fiancee. I have a feeling this is emotional for her, which means all the wonderful logic in the world won't convince her off the ledge. Really tough position for the OP to be in. Is there any chance she would consider coming here to read and post?

We've seen a lot of posts from RE-obsessed newbies in CMF and these folks have their mind made up before even registering here. The power of established RE rhetoric over the young is not to be underestimated.


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## richard (Jun 20, 2013)

If someone is emotionally committed to buying a house it's hard to change that. Once they buy it their perspective can change quite a bit  It is an expensive move though. In addition to all the required payments, you can easily spend 1-2% of the price every year on maintenance if it's not a condo. Because of the costs of selling, I consider it a loss to own a house for less than 5 years. If you aren't very certain about the house you will want in 5 years that's a pretty big bet to make on what I'm guessing is more than your current net worth.

If you have two good incomes and house prices rise to the point where you can't afford anything decent, who will be buying houses? The market is largely decided by the competition. For you to get left behind you would have to be at a big disadvantage to everyone else who is buying. Remember that a realtor gets paid tens of thousands of dollars if they convince you to buy a house now, but no one gets paid anything for explaining the alternatives.

I would say there's only one way to settle this... figure out the actual and potential costs of owning a house, and then look at everything else you have planned. If the cost of the house doesn't interfere with those plans in any significant way (even with a few surprises along the way) then you can ignore everyone here. If it does then you can do better. In the end the real cost isn't what you pay, it's whether you like the way you have to live once you've made your choice.


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## Zeeshanbmerchant (Jan 4, 2014)

tygrus said:


> Friend, you have to be a real risk taker to jump into housing right now. Have you heard about the 10,000 jobs a week being lost in Canada and especially Ontario. You are protecting all your cash by stuffing it in GICs and RRSPs but then want to go sink it into a house only to lose it there an go underwater.
> 
> I 100% guarantee that the peak of the housing market is passing us as we speak and if you were a little patient, you would actually get a detached house for your budget in a few years time.


Are you serious? I suggest you read some books by Donald Trump, the king of real estate, Property is always the way to go. 

OP, i dont have advice for you but its risk averse not adverse,

just wanted to point that out, because a lot of people say risk adverse,


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

^ Have you met Montrealer? You remind me of him. If you truly believe property is always the way to go, why not check in with ShannonC's recent thread and see if she agrees.

Your sentence was incomplete. Let me finish it for you:

Property is always the way to go for the RE, construction, developer, legal and govt industries.


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