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Old 01-25-2016, 10:30 PM   #4601
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Not bad, but a few questions:

- What interest rate did you assume for that? Mortgages are very top heavy in interest, as you know, especially with a 10% down payment.

- There are no maintenance or repair costs factored in, either (which for me is zero, since I rent).

- If you sell the house at 1.9mm, you're taking a $133,000 hit in realtor fees. The 753 goes down to 620...

- While 10% is a reasonably conservative investment rate, 5% a year property value increases is not.

I understand your post, but I think the numbers are a lot closer than the spreadsheet shows.
10% is reasonably conservative.......?

1.9M commission will be around 50-58K
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Old 01-25-2016, 10:30 PM   #4602
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Not bad, but a few questions:

- What interest rate did you assume for that? Mortgages are very top heavy in interest, as you know, especially with a 10% down payment.

- There are no maintenance or repair costs factored in, either (which for me is zero, since I rent).

- If you sell the house at 1.9mm, you're taking a $133,000 hit in realtor fees. The 753 goes down to 620...

- While 10% is a reasonably conservative investment rate, 5% a year property value increases is not.
I understand your post, but I think the numbers are a lot closer than the spreadsheet shows.
nowhere in his analysis was he forced to sell after 5 years so your argument about real estate agent fee is invalid. also a 10% ROI on a balanced portfolio is actually very high whereas the 5% return on Vancouver property is quite conservative given the recent trend.

one important factor lowside67 did not factor into his analysis is the potential rent increases a tenant will face in the 5-year period. a landlord can keep tenant on a yearly lease without going into monthly lease, so theoretically he can bump that $3000 lease to $3500 within 1 year without violating RTA.

however, let's hypothetically go with your argument that after 5 year a renter and a homeowner comes out the same. so why should I rent then? do people actually enjoy dealing with peevish landlord every month and face the consequence of not getting their leased renewed?
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Old 01-25-2016, 10:31 PM   #4603
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I used the actual rate I qualified for and currently have, which is prime - 70 or 2.0% currently.

Maintenance is a pretty variable cost and very hard to estimate. We are looking at a 5 year window so it's pretty unlikely it's going to need a roof or something major during that time if you didn't plan for it but an adjustment would be fair.

I sure hope you didn't pay $133K in realty fees on a $1.9MM house! Pretty much the most you are ever going to spend is 7% on the first $100K and 2.5% after that, and virtually any properties over $1MM are negotiating to less than that, but I have put the whole piece in ($49,470).

I disagree highly on your investment vs property value rates. I was throwing you a bone on that one but the reality is my calculations are for 5 years from now. We are in a low interest rate environment and sustained double digit returns are pretty much a non starter without an unacceptable degree of risk to compare it to a personal residence. Commercial clients are buying GICs at 0.95% and many funds would be lucky to do 5% a year. On the other hand, actual returns for housing have been in double digits and a 5% estimate is pretty soft.

I mean you can put anything you want in the calculator and do the math. I decided to put 3.7% as the housing growth which is the average over the past 30 years and decidedly the lowest possible option.

In this scenario, renting yields a net worth of $492k in 5 years, owning $589k in 5 years.

In the (more likely in my opinion) scenario that houses will continue to do 5% and investment returns will be closer to 7% with an acceptable risk tolerance.

In this scenario, renting yields a net worth of $455k and owning yields a net worth of $701k.

As is evident, the leverage in owning a place makes it incredibly sensitive to overall performance in housing, while the fact that you don't enjoy (or suffer from) any on the renting side means you are much more insulated - you don't see as big gains or losses.

I rented for 10 years because I deemed it the right thing to do, and the evidence is clear from all my peers who bought that you didn't need to be particularly adept or smart at picking the right place or area, anybody who bought is well ahead of those who did not.

I'm not fighting you, I'm simply saying that for many years I made the black and white identical argument to you, and now with rents increasing and housing prices increasing in value, it is closing the gap rapidly. It's worth doing the analysis.

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Old 01-25-2016, 10:35 PM   #4604
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Great Analysis lowside.

Can you do one if the interest rate is 5%+?
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Old 01-25-2016, 10:38 PM   #4605
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Assuming no other changes, 5% interest rates on the mortgage lowers your expected net worth to $494K vs $455K renting.

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Old 01-25-2016, 10:39 PM   #4606
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I do agree with home ownership over renting however the average person isn't getting prime -.7 if they are only putting 10% down, and more likely to get around prime so your figures won't apply to a lot of people. Also assuming a variable rate will maintain consistent over 5 years probably isnt a good idea.
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Old 01-25-2016, 10:44 PM   #4607
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a steep yield curve won't be coming anytime soon. are the politicians still talking up the LNG boom coming to BC?
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Old 01-25-2016, 10:44 PM   #4608
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FWIW I'm not a retail banker but I believe that your interest rate will be based on your credit, not your down payment. You will pay more though because with a high ratio mortgage you'll end up having the CHMC fees tacked straight onto the mortgage principal.

My mortgage was approved in October, single income, 9 months employment, good credit, 10% down at Prime - 0.70%. I went with my bank but I know a few mortgage brokers and they all figured that they could match it quite easily but not beat it by more than perhaps 0.05% maximum.

Just a datapoint.

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Old 01-25-2016, 10:51 PM   #4609
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I'm organizing all the mortgage stuff in the next couple weeks as we are now 6 months from possession date for our place. Does anyone have any suggestions for banks to go with? My Mom works for BMO, but she says she has no pull as far as rates for me, so to just go for whoever is cheapest and easiest. Anyone have any good experiences recently? Suggest going for mortgage broker or just shopping around.
For reference sake, we have 15% down and are applying for a mortgage that is about half of what we can afford according to the affordability calculator (which is fucking retarded by the way. I'd jump off of the lions gate if I had that little money left over after mortgage each month.)
Anyone go through Vancity? They seem to have some aggressive rates.
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Old 01-25-2016, 11:03 PM   #4610
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I've been approved for P - .6 at a variable rate by a mortgage broker(best they could find at fixed was 2.59), my bank couldn't match it. Wife and I currently own another property have good credit and are putting 60%+ down
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Old 01-25-2016, 11:57 PM   #4611
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Derp, I'm fucking stupid, I was thinking 7% on the total. Forgot the sliding scale.

Fiiiiine, buy in Vancouver. I'll rent/invest/buy in other markets. It's probably gonna be a wash in 20 years anyway.
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Old 01-26-2016, 12:00 AM   #4612
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Lowside, CMHC won't insure anything over $1m. You may want to adjust your spreadsheet if I'm understanding your assumptions correctly.
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Old 01-26-2016, 01:04 AM   #4613
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4444 - if those that are not finance/investment savvy, what do you suggest they do? hire a financial planner? would you say those that fall in to that bracket and decide to buy a vancouver home are as you stated above, or are they not as bad as they are at least "not jumping in to the deep end of the pool knowing they have no idea how to swim", or are they in fact jumping in by putting all their eggs in that 1 basket (even though they are living in it? would like to know your thoughts on this.
absolutely get a fee based financial advisor. they're not expensive (approx. 1% of assets p.a.).

it's not just that the financial advisor would take care of your investments from the perspective of investing them, they would educate you about all the different tools at your disposal to maximize returns (through minimizing costs / taxes throughout the investment stage) as well as perhaps assisting in other areas of your financial life.

a good financial advisor is worth their weight in gold to a non-financially confident person.

what's the difference between buying a house and buying financial assets? a house will be a 1 time buy for a lot more money (at that time) and with the 'advice' of a realtor that has a vested interest. financial advisors and financial assets are very well regulated.
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Old 01-26-2016, 01:10 AM   #4614
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I don't know about you, but I'm happy when I see my wife comfortable in a home that we can call our own. And a happy wife is a huge determinant of my health, my emotional well-being, and ultimately, my career trajectory and future ability to create and preserve wealth.
absolutely, happy wife = happy life.

thankfully mine doesn't require us to have our names on the title of our property to be happy, but i absolutely do see where you are coming from.

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Old 01-26-2016, 02:12 AM   #4615
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use the same leverage on the investment portfolio vs the house and see where that comparison comes out to. It would probably be comparable and if you are borrowing to invest in a balanced portfolio of dividend paying stock/etf and fixed income you can deduct the interest income/dividends against the interest. Set it up with a DRIP too. A well balanced 60/40 portfolio had a downside of probably max 12-15% in a 2008 style downturn.

Although the benefit of a principal home being sold is tax free is a bonus.

There is not a "best option" really. The rich have always accumulated stocks bonds real estate and diversified between all asset classes.
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Old 01-26-2016, 07:10 AM   #4616
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I think the big problem of whenever you are doing a comparison of investment vs. home-owning is that one's assuming people who invest don't leverage while home would increase indefinitely into the future.

Based on lowside's estimate, home price would have to increase ~30% (1.05^5) in the 5yr period for his argument to hold true, which brings back the argument of what direction would RE be heading?

For the sake of not diving into that endless discussion, I will simply say that people would have to stop seeing the personal home as an investment. It's a horrible medium (low liquidity, high transaction cost) and it's really a basic human necessity (shelter) rather than anything else.

If you are buying... think it as your home and nothing else. Be happy that you have a home to call your own and stop thinking about it in $ term. Because if you do, what would happen when it starts falling? Can you stand the idea that for every month that you are staying, you are spending thousands (in lost value) to have this "home"? I have personally witnessed what happens to one couple breaking apart during downturn and it's not pretty.
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Old 01-26-2016, 09:24 AM   #4617
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Here's a good rent vs. buy analysis blog post with a link to an online calculator.

Blessed by the Potato Rent vs. Buy: The Investment Spreadsheet

Can't agree enough with the two posts above that part of the apparent "advantage" of buying vs. renting is because of the fact that buying is not only forced savings, but also forced leverage for those not paying in cash (albeit at a very favourable interest rate).
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Old 01-26-2016, 09:35 AM   #4618
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I'm organizing all the mortgage stuff in the next couple weeks as we are now 6 months from possession date for our place. Does anyone have any suggestions for banks to go with? My Mom works for BMO, but she says she has no pull as far as rates for me, so to just go for whoever is cheapest and easiest. Anyone have any good experiences recently? Suggest going for mortgage broker or just shopping around.
For reference sake, we have 15% down and are applying for a mortgage that is about half of what we can afford according to the affordability calculator (which is fucking retarded by the way. I'd jump off of the lions gate if I had that little money left over after mortgage each month.)
Anyone go through Vancity? They seem to have some aggressive rates.
The broker channel can be helpful, but I think their margins are shrinking because there are many new lenders that are not major financial institutions that are willing to give competitive rates on the spot. Have you checked RateHub to get an idea of what's out there?

Also, it's not just about the rate. If you want other options, such as skipped payments, cash accounts, or higher prepayment options, you might have to give up a few percentage points. Or, if you want something fancy, like a home equity line of credit so you can borrow on your home to invest, that will factor into your rate also.

One more thing - some credit unions and banks (like TD) only offer collateral charge mortgages.
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Old 01-26-2016, 10:03 AM   #4619
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don't forget principal residence gain is completely tax free.

kinda piss me off when you have to pay like 30%+ tax on all your hard earned income, and even your investment gain which you spent many hours doing research and analysis for is taxed at like like 15%+

Where else those lazy asses whose house went from $800K to $1.8 mil pay no tax.


Sometimes I question my self worth when the house appreciated more in value in 5 years than what I made in that same 5 years.
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Old 01-26-2016, 10:40 AM   #4620
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don't forget principal residence gain is completely tax free.

kinda piss me off when you have to pay like 30%+ tax on all your hard earned income, and even your investment gain which you spent many hours doing research and analysis for is taxed at like like 15%+

Where else those lazy asses whose house went from $800K to $1.8 mil pay no tax.


Sometimes I question my self worth when the house appreciated more in value in 5 years than what I made in that same 5 years.
try selling a business. sell it for 1m and you'll get half that after tax. something you work much harder for than flipping a house.
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Old 01-26-2016, 10:44 AM   #4621
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Double post.

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Old 01-26-2016, 10:49 AM   #4622
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absolutely get a fee based financial advisor. they're not expensive (approx. 1% of assets p.a.).

a good financial advisor is worth their weight in gold to a non-financially confident person.
if you're passive investing, I'm not sure if an advisor would be able to provide much value. However, many advisors also work as financial planners which can be helpful.

We got lucky and found a fee-based planner through my search for a life insurance broker. An independent, fee-based financial planner can be quite helpful, even for someone who understands the basics around personal finance. If anything, it helps to have a 3rd perspective who isn't a family member before making a major financial decision. Sometimes spending a few hundred dollars for someone's detached analysis is worth it.

To anyone else is wants to know what a financial planner can do, I would read the Financial Facelift column in the Globe and Mail or the Family Finance Retirement Profiles in the National Post. These appear weekly and feature families who submit their financial profiles anonymously for fee-based planners to analyze.
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Old 01-26-2016, 10:49 AM   #4623
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We got lucky and found a fee-based planner through my search for a life insurance broker. An independent, fee-based financial planner can be quite helpful, even for someone who understands the basics around personal finance. If anything, it helps to have a 3rd perspective who isn't a family member before making a major financial decision. Sometimes spending a few hundred dollars for someone's detached analysis is worth it.
Completely agree. I know someone who's family financial planner works at the bank. Have yet to see him offer them any advice to help them financially, only advice that helps himself financially. Items that he gets commission on.
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Old 01-26-2016, 10:52 AM   #4624
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Here's a good rent vs. buy analysis blog post with a link to an online calculator.

Blessed by the Potato Rent vs. Buy: The Investment Spreadsheet

Can't agree enough with the two posts above that part of the apparent "advantage" of buying vs. renting is because of the fact that buying is not only forced savings, but also forced leverage for those not paying in cash (albeit at a very favourable interest rate).
Ran the calculation in my head but came with same result! WOO!.

Renting the same unit iam in is 2400, vs buying the unit 750 000,
Renting won by a land slide?
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Old 01-26-2016, 12:04 PM   #4625
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can someone recommend a good fee based planner? my dad has been sitting on his savings for years, earning maybe 1%. i manage my own assets with a passive strategy but i dont really feel comfortable doing it with a larger amount.
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