# Advice on which is my best scenario



## indexxx (Oct 31, 2011)

If you were about to put a down payment on your first condo at this time, would you put less down now, hoping that your current portfolio performance would outstrip the 2.99% mortgage rate, or would you pay a larger chunk down, knowing that you will lose those potential capital gains but definitely saving mortgage interest?

FYI I am taking 25K out under the HBP, and the rest from TFSA accounts to a total of 50-65K down payment. I do have more in the RRSP that I can tap if I wish but likely would not as I don't want to pay the tax on the amount above 25k.

Thanks!


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## crazyjackcsa (Aug 8, 2010)

If you're willing to risk it, I'd put down the 20% required to avoid the cmhc fees and nothing more.


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## My Own Advisor (Sep 24, 2012)

If it was me, I'd put as much as I could down without touching any RRSP assets.

Depending on what you're investing in, equities?, those RRSP returns should outpace any 3% mortgage rate over a 5- and most certainly 10-year period.

Liquidating your TFSA on the other hand is a personal choice. If you need the money, raid it, but I would avoid raiding registered accounts too much. Just my $0.02.


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## Emjay85 (Nov 9, 2014)

Keep it to 20% to avoid cmhc and sit on the rest, leaving it where it presently is, wherever that may be. You can put it towards your mortgage whenever up to the amount agreed upon in your terms.


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## indexxx (Oct 31, 2011)

Thank you for the input. Almost everything I have is in registered accounts, so I definitely need to tap both TFSA and RRSP for the down payment anyway. My thought was to use a slightly larger downpayment and also get a slightly bigger mortgage than I need, that I would use to pay off a higher-iterest debt. Essentially consolidate everything into my mortgage payment at 2.99%, still leaving myself a little bit in my registered accounts. I know I'd be losing out on potential capital gains, but my thought was that it's been a long bull run and I'd rather lock my gains into my home equity in case we hit another crash in the next coupe of years. Does this make sense?


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## Mortgage u/w (Feb 6, 2014)

Locking in your investment gains in real estate.......ever thought real estate is also an investment which can crash? 
My advice is to put the max down. Depending your tax bracket, figure out how much gross profit you'll need to generate in order to outweigh the 2.99% mortgage rate you'd pay....and there is your answer.


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## indexxx (Oct 31, 2011)

Thanks Mort-

Yes, I considered that. The thing is that I'm buying a reasonably new condo in a great location of a fast-growing suburb of Vancouver, near a new Skytrain station, at a foreclosure price. My thought is that this property in this market will be very unlikely to experience a significant crash, and if it did, likely the markets would be affected by the same factors also meaning I'd lose equity either way. This is the only point in my life that I will likely be able to take this step, and I'm buying not as an investment but as a place to live long-term, maybe past retirement. I managed a 100% increase in my portfolio over the past three years, so I feel I want to take advantage of that by getting out of paying rent.

I'm in a fairly low tax bracket, and my investments are all in registered accounts so the tax on my gains is not an issue at this time. 

By 'max' do you mean the 20% others are recommending and leave the most possible in my accounts, or put down the maximum I am able to raise (which would be about 35%)?


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## My Own Advisor (Sep 24, 2012)

It seems you have a plan indexxx, as long as you are comfortable with it.

Your comment about "losing out on potential capital gains" is what, as you know, I was referring to in my response.  

I think diversification is always a good thing, so locking up most of your assets in RE is not ideal IMO, but that's just me, I'm more risk averse than many I suspect when it comes to investing!


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## Mortgage u/w (Feb 6, 2014)

indexxx said:


> Thanks Mort-
> 
> Yes, I considered that. The thing is that I'm buying a reasonably new condo in a great location of a fast-growing suburb of Vancouver, near a new Skytrain station, at a foreclosure price. My thought is that this property in this market will be very unlikely to experience a significant crash, and if it did, likely the markets would be affected by the same factors also meaning I'd lose equity either way. This is the only point in my life that I will likely be able to take this step, and I'm buying not as an investment but as a place to live long-term, maybe past retirement. I managed a 100% increase in my portfolio over the past three years, so I feel I want to take advantage of that by getting out of paying rent.
> 
> ...


If your investments are doing well, I'd put at least 20% down in order to save insurer premium and keep the rest invested. I contemplated the same thing when I bought my home so what I did was started off with a 20% downpayment (financed the max without insurer premium) and put monthly payments on a 30 year amort. Reason for this was to keep most of my investment portfolio untouched and have the lowest payment possible especially for the first several months in order to get all other expenses out of the way as well as settle my finances and get comfortable with the new payments. Then, when the dust settled, I put more money down and increased my monthly payments....my amort decreased to under 18 years. As time goes on, I intend on increasing the payment again and pay down further depending on how well my investment portfolio does. This strategy works well for me.....hope it can help you too.


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## banjopete (Feb 4, 2014)

Speaking from experience I'd carefully account for the costs involved in owning a condo vs renting. There are strata fees that will go up indefinitely until your retire, walkup condo's are made of wood... big tall ones are made of stronger things. Leaky condo's still happen, and by looking around the city still somewhat frequently. Special assessments and should be called regular additional owner costs so you aren't tricked into thinking they're only special sometimes. There are also property taxes which move around at somewhat arbitrary increments. The other thought is if you're a young pup life happens and maybe life in a box isn't what a future life will require/want. Rent is just rent, it comes with landlords and being kicked out and all that fun but you can also walk away from it without paying commissions in a few years also.

I know this isn't exactly what you asked but it seems unless you're really buying cheap I'd crunch the rent/buy comparison carefully. There's a sweet spot for owning vs renting a condo where I live and it's well under what I suspect you'd be paying in Vancouver and I bet the rents are about the same. My five cents.

I do however realize that boat might have left the harbour. Good luck with your decision and to your question, I'd put 20% down, then keep doing what you're doing with your investments.


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## indexxx (Oct 31, 2011)

Thanks Pete and Mort.

I decided to go with 20% down and keep the rest invested. If rates were higher I'd make a larger down payment.

The thing about buying vs renting is something I've struggled with for many, many years, and up until now I was a dedicated renter, figuring I'd always outpace real estate growth with my investments. (and I have). However, I was also extremely transient for most of my life, and was a bartender for almost 30 years, so getting a mortgage would have been difficult anyway. I've done more travelling and moving than anyone I know, have done the ex-pat thing and lived abroad, and now I'm in management at an extremely stable place and still have enough time to pay a place off before I retire. Looking at the numbers, even with Vancouver's INSANELY overpriced real estate, it still makes sense to me to buy. I currently pay a little over $1000/month for rent (and will definitely go up every year), which is about the same as my mortgage and condo fees combined. So I figure that for the 15 years it will take me to pay it off, I will not be throwing away over $12,000 a year in rent. And if I want to retire somewhere warm like Portugal, I can sell my BC condo and live on the proceeds. 

I had been looking at my portfolio as a base for opening a business, but now I'm very satisfied with my employment, so I can either watch the numbers in my accounts go up, or I can live in the results of my hard work, if that makes sense. Will still have a decent chunk in my portfolio though, after the purchase.

Really though, it's so that I will always have a place when I retire, without worrying about coming up with rent at that point. Also I can then travel and have a place to leave my stuff... never said I'm done with being transient, but I am going to forestall it for a while.


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## My Own Advisor (Sep 24, 2012)

@indexxx,

I like that call:
"I decided to go with 20% down and keep the rest invested. If rates were higher I'd make a larger down payment."

Even with your stability, things change. Best to keep diversified and not put too many eggs into the RE basket. Over 15 years, that's $180,000 paid to rent, assuming rent prices never change (rise, and they will go up).

"Also I can then travel and have a place to leave my stuff..."

I think it's a smart call really. Congrats on your decision.


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## banjopete (Feb 4, 2014)

Good stuff. It sure sounds as though you made the right decision and carefully considered it which is all I was really suggesting.


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## indexxx (Oct 31, 2011)

Thank you all again. As I say I feel I really can't lose- even if the condo lost half its value for some reason, (which I doubt would happen in the Vancouver region) I'd still have that equity, which otherwise would have just evaporated paying rent, helping someone else's mortgage!

If my payments had been significantly higher than renting, it would have been a more difficult choice.


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## james4beach (Nov 15, 2012)

Best wishes, indexxx. By doing some good planning and considering the risk scenarios, you'll be OK.



banjopete said:


> Rent is just rent, it comes with landlords and being kicked out and all that fun but you can also walk away from it without paying commissions in a few years also.


Renting gets a bad rap in today's perpetual-real-estate-bubble, but there are sweet things about renting: no capital risk. No pain of unloading an illiquid asset. No insanely high leverage against a single, non-diversified asset.


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## lostamonkey (Dec 2, 2014)

Did you consider property taxes, insurance, and repairs & maintenance in your calculation?


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## indexxx (Oct 31, 2011)

lostamonkey said:


> Did you consider property taxes, insurance, and repairs & maintenance in your calculation?


Yes- it still makes sense to me. As I say, I don't want to be retired and worried about coming up with $1500 for rent every month. To my mind, nothing can outweigh the fact that in 15 years, I'd have thrown away another $180K on rent at $1,000/month, which is a low figure as my rent would keep increasing. The only thing I'll really lose is the potential gains on my downpayment for a few years until I repay it. 'Potential' being the operative word- we could have another 2008 scenario and I'd have lost all my gains of the past few years.


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## amitdi (May 31, 2012)

Guess you got all the answers. Just FYI, I am in same boat. I will be buying this summer and putting only 20% down. although I can go to 30% for a stretch.

I still didnt understand "My Own Advisor" advice though. Why not tap RRSP $25000? even all my money is in registered accounts.


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## indexxx (Oct 31, 2011)

amitdi said:


> Guess you got all the answers. Just FYI, I am in same boat. I will be buying this summer and putting only 20% down. although I can go to 30% for a stretch.
> 
> I still didnt understand "My Own Advisor" advice though. Why not tap RRSP $25000? even all my money is in registered accounts.


'Advisor' was simply saying that if you do not need to tap your RRSP, and can make the downpayment without doing so, that it is preferable because you won't lose the tax-deferred growth. 

I was also going to put down more, up to 35%, but then realized two things- first, mortgage rates are ridiculously low right now, so I will likely be able to outpace them with what I'll leave in my investment portfolio. Second, I can always pay extra down on my mortgage over time without penalty if I so choose, so it's really better to only do 20% upfront. My initial thought was "put down as much as possible, shorten the time and amount of payments". After thinking it over, and from advice on this thread, I realized that it's better this way. Say I manage a 10% return the next two years (not saying I will, but if the markets behave I could...)- I will have that much extra to put down on my mortgage. So say I leave an extra 20K invested, that I would have pulled out of my TFSA. I'd pay $600 a year at 3% on that additional mortgage, but at 10% return, that's $2,000/ year, meaning that after two years I'd have an additional $2,800. Actually, it's a bit more, because I'd get 10% compounded on the first year's gains- total of $24,200. So an extra $3,000 that I could then pull out for a lump-sum payment if I wanted to. (yes, I know the extra loan interest would also compound- so it would really be a little less than $3,000. Close enough for rock and roll...)


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## My Own Advisor (Sep 24, 2012)

Correcto!

Time for some World Junior hockey!


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## CharlesF.Donahue (Jan 7, 2015)

My Own Advisor said:


> If it was me, I'd put as much as I could down without touching any RRSP assets.
> 
> Depending on what you're investing in, equities?, those RRSP returns should outpace any 3% mortgage rate over a 5- and most certainly 10-year period.
> 
> Liquidating your TFSA on the other hand is a personal choice. If you need the money, raid it, but I would avoid raiding registered accounts too much. Just my $0.02.


I think it is the right way to saving interest if you want to risk.


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