# Best Scenerio?



## marina628 (Dec 14, 2010)

My friend lives in a $200,000 townhouse and owes $72,000 but condo fees are $340 a month.She earns $30,000 a year ,has no money in RRSP ,TFSA and only $15,000 in cash as emergency fund at age 48.She has asked me to advise her what she should do and I told her I am not in best position to do that but probably could get some knowledgeable people to give feedback.
Here are her options
1.Sell house and buy similar home that has no condo fees.
2.Sell house and buy a house with basement apartment a month so carry costs are same as she is paying now.
3.Sell house max her TFSA and invest other money and rent a place for $800 or so a month.
She has owned this home for 19 years and seems against going back to renting after all these years.My gut feeling is sell ,invest money and rent ,Mortgage comes up April 1 ,2013.


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## NotMe (Jan 10, 2011)

Wow that's a truly scary scenario but I'm sure she's had her challenges. I find most people get fixated on 'condo fees' and don't realize that they cover a lot of the expenses a stand-alone house also incurs (for instance, part of her fees goes to a maintenance fund, which she should also have for her house). Does she have a pressing need to have cash on hand, or is she just worried about a substantial decrease in house values? Assuming she doesn't have a need for cash on hand, she may just want to stay the course and pay off her townhouse and try to build up some rrsp savings. Assuming her mortgage + fees is around $1500 a month total, she's unlikely to find a cheaper place to live that is equal to her current standard of living (at 48, I wouldn't want to move into a basement apartment). Nor do I think she wants to be a landlord, which you know to be a lot of work and hardly passive income. Personally if I were her, I'd stay put and just know that at some point, likely when I stop working, that I may have to sell my house to access my equity, and she should never consider a reverse mortgage ever btw.


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## rikk (May 28, 2012)

I have a friend in a similar situation ... her daughter has recently moved out so she has a spare room which she may rent out in order to cover expenses else come May 2013 she will have no choice but to sell the condo and rent. She owns the condo outright but with condo fees, taxes, expenses the cost is about $1500/month which due to circumstances she can no longer afford, as mentioned, come May. 

Suggestion ... your friend might find someone to share expenses else I think sell and rent is the way to go.


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## NotMe (Jan 10, 2011)

@ rikk - how big is your friends condo? $1500 a month for condo fees/taxes and utilities seems brutally excessive.


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## marina628 (Dec 14, 2010)

My friend's house carries for $1100 a month ,she is divorced and her kids have moved on now.She really can't save much on her income living alone ,she saves maybe $200 a month.The condo fees are going up to $400 in 2013 and it only includes her water and she gets cheaper insurance than having freehold.She ran the numbers and she can carry a $135,000 mortgage for same as she pays out now.If you notice every scenario I listed involves selling the house and reason for this is it has aluminum wiring which she will have to address soon if she keeps it ,the house needs a/c and probably new furnace soon.


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## NotMe (Jan 10, 2011)

I guess my caution is that the new house will have its own warts and issues too. If it's truly carrying costs that she's worried about, she's best to sell and rent as then at least there won't be any unpleasant costly discoveries. She will have to wrap her head around moving back to renting though (often unjustly seen as a step backward).


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## marina628 (Dec 14, 2010)

She wants to make best financial decision but at same time wont be willing to live just anywhere.She has a boyfriend who has similar situation but he earns about $50,000 a year but for whatever reason they like having their own homes even after 5+ years together.I suggested she become his tenant lol


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## Cal (Jun 17, 2009)

If she really needs $ perhaps a part time job would help her out financially. It would suck to sell and lose a portion of its value to RE agent fees.

However if she is at bf's house half of the time, perhaps selling and simply renting a room somewhere would be the most economical. After RE agent fees and mortgage owing is paid she would have about $110,000. Invested at 5% would provide her w another $5,500 a year. Which would offset paying another $260 a month to rent a room (on top of the $340 a month she is currently paying out of pocket for the condo fees)

Utilizing her tfsa would decrease payable taxes.


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## Rusty O'Toole (Feb 1, 2012)

Aluminum wiring is perfectly safe if inspected periodically by an electrician. Connections can loosen over time, and need to have a special paste applied to prevent corrosion. If this is done, aluminum wiring is as safe as copper.

She would probably be better off keeping the condo. It is a valuable asset, her mortgage is small and should be paid off in a few years. I doubt she would save anything by moving to an apartment.

How is the $15000 invested? If it is in fixed income and the interest rate is lower than her mortgage rate it may be best to use it to pay down the mortgage then pay off the rest of the mortgage as quickly as possible.

On the other hand if she has a good stock investment plan going it may be best to stick with that and pay the mortgage down slower.

What I am driving at is the condo townhouse is not the problem. It is a good solution to her housing needs and a good investment.

If the mortgage comes up for renewal she should be able to get a really good interest rate, under 3%. Avoid the temptation to stretch out the amortization period. Keep it as short as possible and pay it off.

There is nothing like owning your home free an clear. She should then look into applying the payment money to some investment plan possibly involving ETFs invested in dividend paying stocks, that allow monthly contributions without commission or fees.


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## marina628 (Dec 14, 2010)

Rusty thanks for your input on the wiring she had new outlets put into the house and the electrician did what you indicated and he told her she must consider complete rewiring job within next 3-5 years so this has practically scared her into selling the house.


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## rikk (May 28, 2012)

marina628 said:


> Rusty thanks for your input on the wiring she had new outlets put into the house and the electrician did what you indicated and he told her she must consider complete rewiring job within next 3-5 years so this has practically scared her into selling the house.


An ex-work buddy has aluminum wiring ... Ottawa ... don't recall the details but was a simple one time fix, definitely not a complete rewiring ... suggest a second opinion on that wiring :encouragement: if only for peace of mind.


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## kcowan (Jul 1, 2010)

I think the rewiring is just replacing or fixing all the points of failure due to aluminum oxide buildup. Surely the HOA can give her some advice on this. Since it is a systemic problem, they should seek a common solution beyond getting house insurance.

Depending on her relationship with her boyfriend, maybe she should seek to share with another person. In an earlier life, I investigated sharing a place with a nurse because she was always at work when I was using the place. (Instead I found an inlaw suite that was unused except in May and October by the inlaws: snowbirds with a summer place.)


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## OptsyEagle (Nov 29, 2009)

marina628 said:


> 1.Sell house and buy similar home that has no condo fees.


That will not save her much money. 

A big misconception, usually from homeowners, is that condo fees are costs, above and beyond what a regular home owner would pay. What you will find is that a similarly priced condo will have slightly lower property taxes and significantly lower home insurance. The home insurance is lower, since the condo owner only needs to insure the inside and the condo corporation, using the condo fees, insures the outside. I would suspect, that the $340 of condo fees would save almost $100 per month in insurance costs and $40 to $50 per month in property taxes, when compared to the expenses of a regular home onwer. The net cost, here would maybe be $200 per month, and that buys a lot of maintenance that the homeowner would be responsible for, like paving driveways and new windows, etc. The fact that the condo owner usually never shovels snow or mows grass is just gravy.


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## marina628 (Dec 14, 2010)

Thanks everyone for feedback , my friend is going to get a second opinion on the wiring situation and some realistic quotes on other mechanical things she will need moving forward.She shared with me that the reason she may have to sell is that when she got her mortgage the condo fees use to be $175 a month and to refinance in March to get a bit of extra cash to pay for the renovation she may not qualify so the bank encouraged her to consider buying a freehold so then she qualifies for more money.So it seems she can renew mortgage as it is and then have to struggle to get funds to do the work or sell it and rent or buy a newer house.


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## Rusty O'Toole (Feb 1, 2012)

Has she priced new wiring? It should be possible to rewire her condo including new electrical panel for $5000 or less. She may also need minor patching of walls and ceiling. It is not necessary to tear up the whole house but it may be necessary to cut 5 to 10 holes less than 1 foot across to get access to hidden areas.

I have been involved in many renovations, including complete rewiring of Victorian mansions. A typical condo townhouse is not that big a deal.

If she has to refinance the house, add the $5000 onto the $72000 for a total mortgage of $77000. That is, if she chooses not to touch the $15000 she has socked away. If she gets an interest only mortgage at 3% interest, the payments will be under $200 a month.

Under the circumstances, if she likes her home and plans to stay there, the money would be well spent. If she sells she must disclose the aluminum wiring which will depreciate the value. So it will cost her, whether she has the work done or not.

She might want to talk to the condo management about this. No doubt other owners have had their units rewired. If she talks to them, she can find out what is involved, what to expect to pay, and may get the name of a good electrician who can do the work reasonable.

I can't believe she doesn't qualify for a $77000 mortgage on a $200,000 property with a $200 payment. She should talk to a good mortgage broker, she will have no trouble qualifying to the right lender.

She should also consider a home equity line of credit .


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## marina628 (Dec 14, 2010)

Rusty she is not going to take a interest only payment , she wants to have the house paid off before she is 60.Besides does the bank even do that?lol She is selling the house and planning to list it for end of January(Please note keeping house was never a option in original post) .Even though her income is low she does live comfortable and does save $200 -$300 a month now.She has a car that is only about 18 months old that she bought for cash in September so that not a issue for her in coming years.If she had to refinance she would be doing it for $20,000 as she would have to do wiring,furnace ,A/C and keep her savings where she is comfortable.But as I said she is not considering that option.The difference in insurance is about $50 a month but probably her gas /hydro bill would be cheaper in new house as the house is old and so are windows ,insulation ,roof etc ,The house is actually 52 years old now .


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## Rusty O'Toole (Feb 1, 2012)

marina628 said:


> Rusty she is not going to take a interest only payment , she wants to have the house paid off before she is 60.Besides does the bank even do that?lol She is selling the house and planning to list it for end of January(Please note keeping house was never a option in original post) .Even though her income is low she does live comfortable and does save $200 -$300 a month now.She has a car that is only about 18 months old that she bought for cash in September so that not a issue for her in coming years.If she had to refinance she would be doing it for $20,000 as she would have to do wiring,furnace ,A/C and keep her savings where she is comfortable.But as I said she is not considering that option.The difference in insurance is about $50 a month but probably her gas /hydro bill would be cheaper in new house as the house is old and so are windows ,insulation ,roof etc ,The house is actually 52 years old now .


So why did you bother asking? If you already knew she was going to sell regardless and was against renting then what was the question? Whether she should buy a house with a basement flat?

The answer to that is, don't bother. Yes it will contribute to your monthly cash flow but it will be some work to manage and if you have never had an inclination to get into rentals before, you shouldn't at your time of life if you don't have to.

To answer your other question there are financial institutions that will do interest only for up to 5 years then change to a conventional amortized mortgage.

Good luck finding a house as good as the one she has, that does not need anything done, that she can afford to buy without going deeper in debt, after paying real estate commission, lawyer's fees, and moving expenses. I suppose it is possible if she finds a terrific buy from a distressed seller and gets top dollar for her place. But I suspect she would be better off financially staying where she is.

But then you did not tell us the house needed a new furnace and ac as well as wiring . If her unit, and the complex are deteriorating it may be best to get out now.


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## marina628 (Dec 14, 2010)

Rusty here was the original post in regard to options :
Here are her options
1.Sell house and buy similar home that has no condo fees.
2.Sell house and buy a house with basement apartment a month so carry costs are same as she is paying now.
3.Sell house max her TFSA and invest other money and rent a place for $800 or so a month.
I gave her link to this thread for her to read everything ,neither decision is going to be easy for her.Probably 60-70% of units have been upgraded ,unfortunately about 4 years ago she went with her want list on this house ,she use to owe $50,000 but refinanced to $90,000 did a new kitchen ,bathroom ,new floors etc but should have addressed mechanical stuff first.Probably another $15,000 -$20,000 and the house will be good as new.I suggested she shop around for new mortgage then she will be able to put exact cost to all these scenarios.


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## carverman (Nov 8, 2010)

marina628 said:


> If you notice every scenario I listed involves selling the house and reason for this is it has aluminum wiring which she will have to address soon if she keeps it ,the house needs a/c and probably new furnace soon.


Paying condo fees on top of mortgage and property taxes can be quite a drain on low income individuals if they are trying to carry all that on their own, OTOH..paying rent at $800 to a $1000 a month for the rest of their lives is money down the drain as well...she will have NO equity in the future. 

There is no reason to sell a house because of aluminum wiring..although you have to disclose that now if you are selling.

That will make it hard to sell without an "upgrade" because lots of fire insurance companies (on a new policy) may not insure a house once it is known that there is aluminum wiring installed, without some modification called "pigtailing". 

However, Aluminum wiring is perfectly safe if the proper outlets are used. 

My house was built in the early 70s when aluminum wiring was all the rage then. The heavy appliances are on copper wire (stove and dryer) and any other electrical modification since then is with copper wire. 

About 4 years ago, I decided to pigtail all the outlets and switches with copper wire stubs and aluminum-copper compatible Marrette connectors to satisfy the fire insurance company. I did the work myself, but had the wiring inspected by the Electrical Safety Authority. Never had an issue with the aluminum wiring before the "upgrade" nor any since then.
However if your friend is still bent on selling because she can't afford it..a freehold townhouse is always a better deal for equity than throwing away $800 -$1000 on monthly rent...that $12,000 rent a year can add up in 10 years.


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## carverman (Nov 8, 2010)

marina628 said:


> Rusty thanks for your input on the wiring she had new outlets put into the house and the electrician did what you indicated and *he told her she must consider complete rewiring job within next 3-5 years so this has practically scared her into selling the house.*


That is nonsense. He's obviously looking for some lucrative work. 
All she has to do is call an electrician to pigtail all the switches and outlets. I did this myself, but I did get a price from an electrician to do this. Replacing all the aluminum wiring in the house will set her back $5K or more! 

My next door neighbour did this (replaced all the aluminum with copper) and this is what it cost her
over $5,000 with the taxes She is a 85 year old recluse. 

I live in Ottawa and my house was installed with a breaker panel and aluminum wiring..no problems and perfectly safe for over 40 years now. The heavy appliances (stove and dryer) were always on copper,
and the same with the A/C unit.

Note: if your friends house has a fuse panel and aluminum wiring, that is now illegal even though it may
be grandfathered. Maybe that was what the electrician was talking about replacing?


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## marina628 (Dec 14, 2010)

Carverman , that pigtail thing has been done when she got her new kitchen done the guy had to upgrade the outlets.She does need a new panel and i believe it is the old panel when house was built 52 years ago .In any case she has decided to do a 1 year mortgage and stay where she is right now and get the house ready to sell next year.The bank is giving her fixed 3.2% and new mortgage expires Feb 1 ,2014.She is saving a bit on the mortgage interest and Also the bank has excess in the Tax account so they are going to drop her tax portion down $100 a month which will give her a little bit more in her pocket to budget for the repairs.


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## carverman (Nov 8, 2010)

marina628 said:


> Carverman , that pigtail thing has been done when she got her new kitchen done the guy had to upgrade the outlets.She does need a new panel and i believe it is the old panel when house was built 52 years ago .


Oh ok. The pigtails is all that need to be done to the outlets AND switches to upgrade it for fire insurance purposes, PROVIDED that the main panel is a 100amp breaker panel. Mine was a 100 amp breaker panel,
and I did the work myself to save money, since I am an retired electrical engineer and it is legal in
Ontario for the HOMEOWNER to do minor wiring changes if the current electrical code is followed and
an inspection is ordered. I called the ESA for a special inspection, They came and did a random check
of 3 outlets and the electrical panel and sent me a letter when it was inspected and complied with the
current requirements. I have a copy of this letter on the electrical panel and the original in my documents
to show the real estate agent if I ever go to sell. 

http://www.acbelectrical.com/faq.html

If it's still the old 60 amp fuse panel, then that could require upgrading to a breaker 100amp.
I don't know if this would be a show stopper for resale, but it could without being upgraded.
The panel can be upgraded in about a day..I would figure about $1000 to $1500, but when she is
ready, she can get 2 or 3 estimates from qualified electricians in her area. The panel HAS to be
changed by a licenced electrician since the 230 volts going into it is lethal.


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## marina628 (Dec 14, 2010)

Thanks Carver and yes it is going to be $5000+ as she has the 60 amp server still.Thanks everyone for the advise ,will update you all later in the year if any new developments.
Marina


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## Berubeland (Sep 6, 2009)

$5000 seems really high, I had my service changed from 60 amps and got a new break panel as well and it cost me under $2K. It was a few years ago but I'd do some more quoting on this


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## carverman (Nov 8, 2010)

Berubeland said:


> $5000 seems really high, I had my service changed from 60 amps and got a new break panel as well and it cost me under $2K. It was a few years ago but I'd do some more quoting on this


If it's just the breaker panel, then that can be done relatively cheaply ($1000 -2000+)..however...the main problem upgrading from 60amp service to 100 amp is the wire capacity from hydro transformer (outside) through the meter to the main disconnect 100amp breaker inside, which is separate from the electrical panel.

If the current 60amp mains wiring is insufficient wire guage to carry the full 100amps, then that has
to be changed in order for the panel to be upgraded. That could also add to the cost of the upgrade and may require the local utility to run larger capacity wires to the pole hydro transformer. 

I don't think that any upgrade to the hydro meter is billed to the owner, but certainly anything from the meter to the hydro panel inside would be, and that would be done by the electrician.

My next door neighbour( who also had aluminum wiring and 100 amp service), had all her wiring torn out and last year and replaced with copper..cost her $4500.


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## marina628 (Dec 14, 2010)

Yes and there will be drywall to fix as well with complete rewiring but at least she has a clear plan of action now and who knows maybe she will decide to stay once that part of the updating is behind her.


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## Berubeland (Sep 6, 2009)

I had to wait for Hydro to come and they upgraded my service and then the electrician changed my breaker panel.


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## carverman (Nov 8, 2010)

marina628 said:


> Yes and *there will be drywall to fix as well with complete rewiring *but at least she has a clear plan of action now and who knows maybe she will decide to stay once that part of the updating is behind her.


Depending on the wire runs to replace aluminum with copper., some aluminum wiring may have to be left inside the walls, as the wires are generally stapled to the studs. 

To remove the aluminum wires completely per plug and switch is a BIG job. The drywall has to be removed
and then replaced, because the routing of the wire is not always apparent, especially in the attic where insulation needs to be moved aside to get at ceiling fixtures etc. 

Running copper wires to replace the aluminum and having the wires loose in the wall is not a good idea either,
so the expense of rewiring with a "clean" wiring job is a lot of labour intensive work. This will cost thousands, not to mention the upgrade of the electrical panel from 60 amps to 100 amps. 

It's not as simple as just pulling new wires in and routing them over to the new electrical panel. The walls have to be opened up at some places where the wires gather together in a run to the electrical panel. 

Your friend needs to get two separate estimates:

1. To upgrade the electrical panel from 60 amps to 100 amps
2. Cost of replacing all aluminum wiring with copper wiring.

In (2), the existing aluminum wiring can also be pigtailed by a qualfied electrician and connected to the new 100amp electrical panel.
It is not mandatory to replace all the aluminum wiring with copper, just pigtail all the duplex receptacles and switches with copper pigtails and compatible marrettes. I also used anti-oxide paste on the bare ends and then installed the marrettes.

Your friend can have her wiring upgraded and brought up to current standards without spending thousands and thousands on a complete rewire from floor to ceiling. In my area, all the houses were built with aluminum wiring in the early 70s.

However, the houses in my project all have 100 amp service at the beginning, which is a requirement today.
Many houses have been sold on the market since then, the only thing that the owners had to do in order to satisfy the new fire insurance rules for any new potential owner, was to pigtail all the outlets/switches.


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## carverman (Nov 8, 2010)

Berubeland said:


> I had to wait for Hydro to come and they upgraded my service and then the electrician changed my breaker panel.


Yes that is usually the way it has to be done. The electrician cannot connect a 100 amp mains breaker to a panel with 100 amp service if the wires to the hydro meter and main breakers are not sufficient wire guage to carry any additional load... beyond the original 60 amp rating. 


Years ago, homeowners didn't use as much electricity as they do today. I guess their requirements were simpler then.
Now, it is conceivable that the oven/stove top, washing machine, dryer and A/C can be on at the same time, along with hairdryers, frying pans, microwaves etc where the 60 amp service is fully utilized and there is no room for further wiring additions.


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## 44545 (Feb 14, 2012)

I rented a bachelor pad in Montreal for $425. (+$20/mo for electricity - I love Hydro Quebec)
A friend of mind rented a whole house near the core for $375. Though the latter example is the exception rather than the rule, there are great deals to be had on rentals in Montreal and all would result in lower monthly out of pocket then your friend is currently paying.

It seems clear that renting is a more financially sound option than ownership, in your friend's situation. Unfortunately, based on what you've written, it also seems the decision is less about finances and more about the emotions tied to ownership.

Hopefully she'll have a change of heart.


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## marina628 (Dec 14, 2010)

In the GTA area she is lucky if she can rent for $800 a month.


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## sharbit (Apr 26, 2012)

Why not get a second job? That seems to be the root of the problem IMO.


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## marina628 (Dec 14, 2010)

My friend works two part time jobs to make $30,000 , no problem here now.MODS can close thread down if they want.


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