No pension, small inheritance, age 53... to RE or not to RE?

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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

Jo Anne wrote: 02 Oct 2017 23:19 Sounds like you may have been looking at the building my son lives in. The units are being converted to condos and sold as tenants move out. They aren't bad as far as rentals go, but I sure wouldn't pay $400k for one.
Not sure, but these were purpose built condos built within the last 10 years. Because of my need for a quiet space, I had been thinking about older buildings that have been converted to condos and my RE guy had agreed that this would be the ideal scenario. Way better build quality. These new buildings are built of paper or something similar. I just don't get it. I think I'm too old.

Of course an older building might need more unexpected maintenance? In any case, these newly built condos in 'condo alley', wherever that might be, seem just awful. And again, I really feel like there are a lot of units in these buildings that are rentals.

Man oh man, how I wish that co-ops weren't such a bad investment. Older solid buildings, board control over who moves in, way lower fees, way lower purchase price. I saw one in Forest Hill for $369K!!
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

gsp_ wrote: 02 Oct 2017 07:40 What type of amortization are you looking at? Realistically your mortgage needs to be paid off by the time you retire. Are you saying that even after subsidizing half the property cost through a large downpayment you will be paying $200 more than by renting? Are you comparing the same buy vs rent property?
I'm assuming 25 year am. Yes, I will be paying $200 more than I do now given a 50% down payment. The mortgage broker asked me to go forward on that assumption. If it's realistic that a mortgage needs to be paid off before I retire, it's all over before it begins. The whole idea of buying a condo is that I am not going to be burning equity for the next 15 years on rent. Instead, I build equity into a RE property. It's clear to me that this assumption was simplistic, correct? Does my assumption not make sense even if the idea is to pay the property down over 15 years of working life then make a decision?

To put it into one sentence, the thinking was this - 'Buying is better than renting for the next 15 years because a) you aren't burning your equity in rent every month, and b) you may have tax free capital gains in terms of appreciation'. I'm now starting to see that because I am required to put such a huge amount down, the calculations may be vastly different. I'll say a bit more about my feelings about the potential for Toronto RE appreciation in a reply which follows this.

May I ask you - when you say 'Are you comparing the same buy vs rent scenario', do you mean am I comparing the cost of buying vs renting the same unit?
gsp_ wrote: 02 Oct 2017 07:40You need to get your CPP statement and make a reasonable projection of what your income will be in retirement. Only if you are likely to heavily rely on GIS would I consider buying in your situation but even then only if the numbers make sense.
I will have the number from Rev Can, hopefully tomorrow.
gsp_ wrote: 02 Oct 2017 07:40If possible please post all the numbers involved in the buy vs rent scenario. Of considerable importance is what the two scenarios will look like in retirement. Are there significant savings once the mortgage is paid off or are the condo fees, taxes, higher insurance and utilities(?) eating up most of the equivalent rent?
Please forgive me me, I'm having a bit of trouble following this. In the first place, the mortage won't be paid off until I'm 78 years old on a 25 year am. But let's say I am able to hammer the mortgage down by making additional payments over the years, and it's paid off in 21 years.You mean after the mortgage is paid, will I have to pay out an amount that is similar to what I might be paying in rent?
gsp_ wrote: 02 Oct 2017 07:40I would put all RE shopping on hold until this has been thoroughly analyzed. The excitement inherent in such shopping messes with our minds and is not conducive to good decision making.
This is done as of right now, as a result of this thread and your help.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

gobsmack wrote: 02 Oct 2017 09:45 OP, it seems like you are in a very low tax bracket already so any tax benefits resulting from the ownership of RE will not be worth much. The $250K invested in CAD blue-chip dividend payers, if done correctly, would provide you with a good, reliable, and nearly tax free (assuming very low tax bracket) income stream that you can use to offset your rent. I find that a much more appealing proposition. If you don't want to pick stocks, you could consider investing on dividend ETFs.
I will post my tax bracket here on Tuesday after talking to my accountant and/or Rev Can.
gobsmack wrote: 02 Oct 2017 09:45If you do want to own RE though, I would suggest:

1) This calculator does a decent job comparing rent vs buying: https://www.nytimes.com/interactive/201 ... lator.html

2) If moving out of Toronto is an option, I would consider doing so. You may find that there are other markets around Canada where ownership would be a more advantageous proposition.
Moving out of Toronto is definitely not an option, all my work is here and I can't do what I do in a smaller center.

The NYT Calculator is interesting. I notice that the estimation of asset appreciation is something that drastically changes the output number. I entered these values. Useful link, thanks.

Purchase price = $399K
Plan to stay = 13 years
Mortgage rate = 3.45%
Down Payment = 45%
Amortization = 20 years
Home price growth rate = 4.1%
Investment return rate = 5.2%
Monthly common fees (I assume this is like condo maintenance fees) = $413
Utilities = $137 (The places I saw today include heat, not hydro)

This results in a figure of $1631. So they say if I can rent a comparable place for this much, it's better to rent. In all honesty, it would take a bit more to rent a comparable place which includes parking, but this shows me that the calculations aren't that simple.

Another shock. Could this be right? It seems to indicate that a 4% annual rate of return means that a $400K home will be worth $600K in 10 years?? This is something I need to understand. It's very hard for me to believe that the trashy places I saw today are going to be worth $600K in 10 years. But then I guess people were saying the same about condos 10 years ago and look what happened.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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Spudd wrote: 02 Oct 2017 10:41 Given that interest rates are expected to rise over the next few years, it is not likely that condo prices will continue to keep increasing at the rate they have been. They may even decrease as there has been a huge condo building boom in Toronto so supply is increasing as well. So I would say counting on the condo to provide tax-free capital gains is not a sure thing.

I don't know how much you make, but in Ontario, if you make less than 66k/year, dividend payments you receive from stocks actually decrease your taxes rather than increasing them.

I would want to see all the exact numbers you have in mind (current rent, condo price, condo fees, property taxes) but my gut instinct on the matter is that it would be better for you to keep renting.
Spudd, I appreciate the response. Over the past 5 years, I watched as every day, CBC had a story on how the Toronto RE market was red hot and that it was looking like a bubble. Pundits would come on saying how the top was in, and that RE was overpriced and ready to correct.

See what happened. It just went up straight through all those predictions. People that decided to wait 5 years ago never got a chance to get in. I say this not to suggest you're wrong - I don't. I think the interest rate environment mitigates against the torrid pace of appreciation that we've seen. But at the same time, I've traveled overseas a lot through touring and I know that Canada is the Shining City On The Hill for a whole lot of people. If houses are out of reach, what will be next? I have a friend who's a real estate lawyer and he tells me all the interest now among developers is in new apartment units, not condos.

Please see the post directly above. Let's say we cut the pace of RE appreciation down from the crazy 10%/year that we've been experiencing to 4%. This still means that a condo bought for $400K today should be worth %600K in 10 years. For the life of me I can't believe that these crappy places I saw today are going to be worth $600K in 10 years. But did we think that a $250K place would be worth $375 now? No, but it is.

It's very hard for me to have any surety about where we're at.

I really need to understand what you said about the $66K threshold for income and the idea that dividend payments I get from stocks actually decrease my taxes! I will be looking into it this week.

I assure you I will post the numbers you asked for either today or tomorrow. I would greatly appreciate it if you can check back in and give me your take.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

AltaRed wrote: 02 Oct 2017 11:17 I've taken the OP at his word that Principal, Interest and Taxes (property taxes, property insurance, condo fees) will only be about $200/month more than current rent. But of course, the OP has not discussed amortization length nor has acknowledged what will change with a 1-2% increase in mortgage interest rates. His 3.4% 'quote' is not going to last long (sounds like a variable rate mortgage to me that has nowhere to go but up). Presumably he is, or should, be factoring in the rate mortgage brokers use for quaifying purposes, e.g. 5 yr fixed? 5% or? in his cash flow calculations.
AltaRed, the $200 figure is accurate for now. 25 year am. I used the RateHub calculator which says that an increase from 3.4% to 5% will result in a change in monthly cash requirement from $2247 to $2435.
AltaRed wrote: 02 Oct 2017 11:17[[Note: The OP has also not said anything around expectations around any more inheritances, not that such funds should enter into the calcuations, but anything else he might get in the distant future could be used to buy down remaining mortgage.]]
There is minimal further expectation around inheritance. It may be $100K or so but I don't think it makes sense to calculate this into the current scenario, does it? I don't know how long my parents will live. And if they live a long time which I hope they do, they will have exhausted their funds.

I will say that this whole plan included the absolute necessity of buying down as much mortgage as possible. Everyone I have talked to about this has agreed that this is a great idea if you are buying a house or other residence.
AltaRed wrote: 02 Oct 2017 11:17I agree with Spudd and Gobsmack that income taxes off a dividend stream could be zero (or negative) in Ontario at his likely income level and at least some of that is already in a TFSA. Even cap gains taxes on stock appreciation will be small.... 50% on a 25% marginal tax rate is not much.
I'll be spending the next 72 hours figuring out exactly what's meant by this bit about the dividend stream as mentioned by the others
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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m-set wrote: 03 Oct 2017 03:00
gsp_ wrote: 02 Oct 2017 07:40 What type of amortization are you looking at? Realistically your mortgage needs to be paid off by the time you retire. Are you saying that even after subsidizing half the property cost through a large downpayment you will be paying $200 more than by renting? Are you comparing the same buy vs rent property?
I'm assuming 25 year am. Yes, I will be paying $200 more than I do now given a 50% down payment. The mortgage broker asked me to go forward on that assumption. If it's realistic that a mortgage needs to be paid off before I retire, it's all over before it begins. The whole idea of buying a condo is that I am not going to be burning equity for the next 15 years on rent. Instead, I build equity into a RE property. It's clear to me that this assumption was simplistic, correct? Does my assumption not make sense even if the idea is to pay the property down over 15 years of working life then make a decision?

To put it into one sentence, the thinking was this - 'Buying is better than renting for the next 15 years because a) you aren't burning your equity in rent every month, and b) you may have tax free capital gains in terms of appreciation'. I'm now starting to see that because I am required to put such a huge amount down, the calculations may be vastly different. I'll say a bit more about my feelings about the potential for Toronto RE appreciation in a reply which follows this.
With 25 year amortization, how do you plan to pay your mortgage once you retire? Based on your other replies below(13 years), you might only be thinking of owning until retirement? That eliminates the only scenario where I could see buying making sense(GIS). Re: burning rent, how much are you "burning" in taxes, condo fees, interest payments, maintenance, extra insurance, extra utilities? Shelter costs something, not sure incendiary terms are of much help in coming to a rational decision although I understand the crowd noise your hear is persistent.
May I ask you - when you say 'Are you comparing the same buy vs rent scenario', do you mean am I comparing the cost of buying vs renting the same unit?
Yes, if not the exact same physical unit at least a comparable unit in a comparable location. I guess the idea of a 50% downpayment and 25 year amortization still somehow leading to higher total costs seems crazy to me but your rent vs buy scenario may just be heavily tilted to renting. We await the numbers. :wink:
gsp_ wrote: 02 Oct 2017 07:40If possible please post all the numbers involved in the buy vs rent scenario. Of considerable importance is what the two scenarios will look like in retirement. Are there significant savings once the mortgage is paid off or are the condo fees, taxes, higher insurance and utilities(?) eating up most of the equivalent rent?
Please forgive me me, I'm having a bit of trouble following this. In the first place, the mortage won't be paid off until I'm 78 years old on a 25 year am. But let's say I am able to hammer the mortgage down by making additional payments over the years, and it's paid off in 21 years.You mean after the mortgage is paid, will I have to pay out an amount that is similar to what I might be paying in rent?
Yes. With 50% down, 25yr AMT and assumed low borrowing costs throughout still leading to higher costs than renting one wonders how much the non mortgage costs are in comparison to rent. Let's see the detailed numbers.

Good to hear you're putting shopping on hold, it seems you now know what the market prices are.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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You can find Ontario marginal tax rates on various types of income here. As you can see the rates on eligible dividends are negative for the first two brackets.

You also seem to be asking about compound interest. 4.1% annual return after 10 years can be calculated like this:
1.041^10= 1.4945.
Assuming your projections materialize then a 400k property would be worth just shy of 598k.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by AltaRed »

I think the OP should NOT be counting on RE price appreciation going forward. Generally speaking, a principal residence is a place to live in, not to make money off of. Academically speaking, RE prices on average should never go up faster than productivity (income) increases and over a long period of time, this 'has to be true'. Productivity is a function of inflation plus true efficiencies and is somewhat related to GDP growth but not entirely. A 1.5-2% inflation rate plus a 1-2% GDP growth rate suggests RE price growth of 2.5-4% long term....and half of that is inflation. So that $600k property in 10 years is only worth half the increase from $400k in real terms. None the less, it is indeed any price appreciation that does occur can be used to backstop rent in later years.

We've seen a lot of aberrations in the loosening of mortgage policy over the past decade or two that manifested itself in accelerated pricing (longer amortizations, lower down payments, 2 salaries, etc.). That has contributed to Canada being in the midst of a stupid price bubble in overheated areas like TO and Vancouver and that has to be arrested.... and is, with recent tightening of mortgage rules and more to come (on uninsured mortgages coming soon). So that will provide headwinds on price appreciation in the future. IMO, the OP should not count on any future 'windfall' from owning. If it happens...good. It will provide funds to pay for a retirement home in later years. If it doesn't, well, then the OP will still have a place to live as long as he can before health issues prohibit it.

One thing reading the last few posts with respect to amortization. Ultimately the OP has to live somwhere. He will either be paying rent long term OR he will be paying off a mortgage, and once paid off, having 'lower' payments in the form of condo fees, maintenance and taxes. The issue is really the ability to cover principal and interest over the period of the mortgage and how long that will be relative to his ability to earn sufficient money long enough to pay it off. Lots of people work into their '70s, espcially white collar work of some sort, including the arts, especially music. If I was the OP, I'd ask the hard question of whether I am prepared to, or likely able to, work to age 73 to pay off a 25 or 20 year amortization in 20 years. Othewise, he will spend many hours being a WalMart greeter at the end of working life to pay off the last remaining principal + interest payments.

The OP must factor in higher mortgage interest than exists today. Probably by at least 2 percentage points. Should we get into higher inflation (and higher rates), that is going to be a whack-a-mole experience with housing prices stalling (if not declining) and some foreclosures. The worst case would be the OP potentially being foreclosed on, or having to sell his condo at a substantial loss, and hence loss of equity.

Bottom line as I see it: The OP should NOT assume price appreciation when making the decision. Make the decision on the basis of 'certainty' of a place to live long term and the ability to pay off the mortgage by the time he no longer can earn income to pay monthly payments.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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m-set wrote:
Of course an older building might need more unexpected maintenance? In any case, these newly built condos in 'condo alley', wherever that might be, seem just awful. And again, I really feel like there are a lot of units in these buildings that are rentals.
You're right. All the disadvantages of renting but with a down payment, mortgage and monthly condo fees that can rise at any time.
Man oh man, how I wish that co-ops weren't such a bad investment. Older solid buildings, board control over who moves in, way lower fees, way lower purchase price. I saw one in Forest Hill for $369K!!
Right again. These "almost-a-condo-if-you -don't-look-too-close" buildings can be a risky investment

So here's my advice:

1. Don't panic. You have at least a decade to plan your retirement. Don't rush to buy RE. You will drastically reduce your future options if you tie your money up now. Research and compare these options: renting, non-profit coops (both of the options require no mortgage or down payment), condos and equity coops (require large payments/mortgages to acquire)

2. Co-ownership buildings and equity coops have an uneasy place in the RE hierachy and I don't recommend them. They are harder to sell because of the difficulty in mortgaging. Here's a short, clear article on the topic by Bob Aaron: http://www.aaron.ca/columns/2001-03-10.htm

3. You should definitely consider applying to join a non-profit coop. There are lots of them in Toronto and their "rents" (occupancy cost) in most are more affordable than comparable private rental buildings. You do not pay a down payment, you just pay your monthly charge. Because the rents are low, the turnover is less than many private rental buildings.

They all have a waiting list but you are not retiring tomorrow and can continue to rent for the time being. If you apply in the next year or so to a few buildings that look reasonable to you, you could easily be in an affordable non-profit coop by the age of 60 -65. You can apply to as many buildings as you like and are not bound in any way to accept a unit offered.

Not all coops are well-run but some are amazing. Lots of artists and musicians live in coops (there is an entire coop building for artists on the downtown waterfront in Toronto). I have friends in beautiful coop units who have lived there for 20 years. A percentage of the units offer are priced geared to income. That means that, if you move in at a market "rent" (which is the fastest way to get a unit) and -- after you retire -- your income is drastically reduced, you may be eligible to have your unit costs subsidized. Here are some links to articles about coops:

https://chfcanada.coop/about-co-op-hous ... -housing/

https://chfcanada.coop/about-co-op-hous ... d-figures/

https://co-ophousingtoronto.coop/ (has links to open waiting lists and news of a new coop under construction on York Street)

https://torontoist.com/2014/03/co-op-ho ... -it-works/

4. Condos in Toronto are, in my opinion, over-priced, have a high turnover due to real estate speculation and absentee owners renting to others, shoddily built and often badly managed. When you move into a rental building, you combine the right to stay there as long as you want with the right to leave at any time (after your lease expires). It is much harder for a condo owner to pack up and go when there are problems. Condo living entails the same risks as renting an apartment, except you have a big chunk of money invested in staying. You can't count on being able to sell at a profit if things go wrong, especially if construction problems become public or an assessment has been levied on owners. Here's an example of what I mean:

http://www.cbc.ca/news/canada/toronto/f ... -1.2796979

In summary, take your time to plan your retirement and don't jump to to RE as a simple solution. Rental or non-profit coops would keep your options flexible and enable you to invest your money in a way to supplement your retirement income. My 2 cents!
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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This is for AltaRed, gsp_, gobsmack, Spudd, and anyone else who asked for some details yesterday. I hope this helps. I called Service Canada and spoke to my accountant.

My CPP will be at 239 @ age 60, 401 @ age 65 and 658 @ age 70
My OAS would be 585.49 now but she said it will likely be higher when I'm 65.

I am in a 20% marginal tax bracket. Not like most of you high rollers around here : )

My accountant had some more doom and gloom for me, unfortunately. He mentioned that there is a movement afoot to raise the taxable amount of capital gains from 50% to 75%.

I want to give the 'rent vs buy' numbers that you have been asking for. Does this help?

Buy scenario (assuming a down payment of 45% of purchase price, $375K condo):

Mortgage payment + condo fee + utilities + phone/internet + Property tax + insurance = $2200

Current rent scenario: $1900

So it's $300 more in terms of cash flow increase, not $200 as I had mentioned.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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AltaRed wrote: 03 Oct 2017 11:18 One thing reading the last few posts with respect to amortization. Ultimately the OP has to live somwhere. He will either be paying rent long term OR he will be paying off a mortgage, and once paid off, having 'lower' payments in the form of condo fees, maintenance and taxes. The issue is really the ability to cover principal and interest over the period of the mortgage and how long that will be relative to his ability to earn sufficient money long enough to pay it off. Lots of people work into their '70s, espcially white collar work of some sort, including the arts, especially music. If I was the OP, I'd ask the hard question of whether I am prepared to, or likely able to, work to age 73 to pay off a 25 or 20 year amortization in 20 years. Othewise, he will spend many hours being a WalMart greeter at the end of working life to pay off the last remaining principal + interest payments.
I need to run to work now but here's something I really need to understand. I never had the idea that I would stay in the condo until the bitter end when it is fully paid off.

Let's say I plan to live there for 15 years only. Let's just assume that in 15 years it appreciates from $400K to $470K. How does this change the way I look at things? In my simplistic mind, I think

'Well, you buy at $400K. You lose the 15 years of opportunity that investing the $175K would have brought because it's parked in a down payment. You also lose the opportunity to invest at least a portion of the difference between what you pay in rent and what you have to pay to carry the condo. However, the monthly mortgage payments do represent a sort of 'forced savings'. In 15 years, you sell for $470K. You pay all the expenses related to selling.. and what are you left with? You get your down payment back but inflation has eaten away at it, plus you get whatever appreciation you've seen, plus you get a portion of the monthly carrying costs back in equity'.

Is this about right?

Please note - the more I think about this and read the comments here, the more I realize I don't have to feel like an idiot for making the decision not to buy and just to rent for the rest of my working life here in Toronto. I just need to ask these question to get a full understanding. I know I can't expect the condo to appreciate. I just want to run this as a hypothetical.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

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Pickles wrote: 03 Oct 2017 11:44 In summary, take your time to plan your retirement and don't jump to to RE as a simple solution. Rental or non-profit coops would keep your options flexible and enable you to invest your money in a way to supplement your retirement income. My 2 cents!
Pickles, this post was very helpful. I have to run now, but I wanted you to have a response. I will respond fully late tonight. Thanks a lot for taking the time to put this together with all the links.

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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by AltaRed »

m-set wrote: 03 Oct 2017 16:01 'Well, you buy at $400K. You lose the 15 years of opportunity that investing the $175K would have brought because it's parked in a down payment. You also lose the opportunity to invest at least a portion of the difference between what you pay in rent and what you have to pay to carry the condo. However, the monthly mortgage payments do represent a sort of 'forced savings'. In 15 years, you sell for $470K. You pay all the expenses related to selling.. and what are you left with? You get your down payment back but inflation has eaten away at it, plus you get whatever appreciation you've seen, plus you get a portion of the monthly carrying costs back in equity'.
A reasonable scenario. But what would Plan B look like should the price of that condo go up and down through the years and ends up being only $400k before selling costs when you want/need to sell. What if it dropped to $350k when you wanted to sell? Granted you have no guarantee in capital markets either unless you simply put the money in a 5 year GIC ladder, or take some risk and put the money in a dividend equity ETF like XDIV* that has an eligible dividend yield in the +/-4% range.

Think about the scenarios where and how you could be exposed and how you might deal with them at the time.

* Simply an example of a dividend ETF with low MER and which 'should' increase its dividends on an absolute basis over time.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by Spudd »

m-set wrote: 03 Oct 2017 15:51 My CPP will be at 239 @ age 60, 401 @ age 65 and 658 @ age 70
My OAS would be 585.49 now but she said it will likely be higher when I'm 65.

I am in a 20% marginal tax bracket. Not like most of you high rollers around here : )

Buy scenario (assuming a down payment of 45% of purchase price, $375K condo):

Mortgage payment + condo fee + utilities + phone/internet + Property tax + insurance = $2200

Current rent scenario: $1900

So it's $300 more in terms of cash flow increase, not $200 as I had mentioned.
So let's say you retire at 65 for the sake of argument, with $1000/mo coming in from CPP/OAS.

At a 20% tax bracket I take it you make < 42k/year, which means dividends are taxed at -6.86% (i.e. they decrease your taxes by almost 7c for each dollar received).

So let's work this out:

Buying condo:
$206,250 mortgage = $1023/mo payments until age 78
Monthly other fees (condo, utilities, etc) = $1177
Total monthly payments: $2200
Total payments you have made at age 78: $660,000
Value of condo at age 78: $1,017,000 (assuming 4% growth as you assumed -- I think this is overly optimistic personally)
Left over money = 250k - $168,750 = $81,250 -> grows untouched to age 65 at 5.2% (based on the assumption you used, and this seems reasonable to me) -> $151,438

Renting:
$1900/mo payments until age 78
Total payments you have made at age 78: $570,000
Left over money: $250,000 -> grows untouched to age 65 at 5.2% -> $465,966.07

Obviously, the mortgage payment/other fees/rent will not stay unchanged over time, but since they will most likely all increase due to inflation and rising interest rates, for simplicity we shall assume they do stay unchanged over time.

At age 65, you retire and start getting CPP/OAS. You haven't saved anything extra for retirement except for the inheritance.

Income if you own the condo from age 65-78: $1000/mo from CPP/OAS + $505/mo from your investments (you can safely take out 4% of your investments a year if you want them to last 30 years)
Expenditures if you own the condo from age 65-78: $2200/mo
Shortfall: $695/mo ($108k over the 13 year period)
$650/mo on beer and groceries seems reasonable, I think (room for some luxuries there but nothing too crazy). That's $101k over the 13 year period.

Income if you rent from age 65-78: $1000/mo from CPP/OAS + $1553/mo from your investments
Expenditures if you rent from age 65-78: $1900/mo
Surplus: $653/mo to spend on beer and groceries

Then age 78 comes and your mortgage is paid off.
Income remains the same for both situations but expenditure changes:

Owning condo: $1177/mo -> surplus of $328/mo
Renting: $1900/mo -> surplus of $653/mo

So, if you keep living in the condo until you die, you end up much poorer than if you had rented.

If you sell the condo at age 78 and it really did grow 4% per year, you'd get $966k as a lump sum after realtor fees. After you pay off your 200k in debt accumulated to pay for the mortgage/condo fees/beer groceries shortfall, you're left with $756k. This gives you $2500/mo in lifetime income, which added together with your $1000 CPP/OAS is $3500/mo, giving you a surplus every month after age 78 of $1600 for beer and groceries.

HOWEVER, there are 2 big issues with this: Firstly, it counts on the condo growing 4% a year, which may not happen. Mind you, the 5.2% for the investments may not happen either. Second big issue is that from age 65-78 you are in the hole every single month and that can't be fun. If you keep living in the condo your monthly surplus even after it's paid off is less than your monthly surplus if you were renting (assuming the 5% returns really happened).

I hope this helped, I basically just vomited numbers at you. I think they made sense. My inclination would be towards renting, it seems safer.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by gsp_ »

If no other income than CPP + OAS he will be entitled to $616 per month in GIS.

That's an argument for owning but only after 65 to both reduce unregistered investment income and housing expenses.

We don't know when m-set plans to retire and if he'd be willing to move to a cheaper area once no longer working. Using the grown 250k plus ~4k a year in additional savings for 12 years could likely buy a comfortable place in many areas not named To or Van and leave a decent TFSA portfolio to supplement income without affecting GIS.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by BRIAN5000 »

These are older units and there is a lot of things to consider - would be nice to have lower rent or lower real estate price.

You could live in Vancouver if you decide to change location $368,000 http://www.surreycondos.com/mls/208-106 ... y-r2211291

We owned a unit in this complex sold for $210 in 2010, can't remember unit number but it was a 2 story end townhouse, 1000 sq ft, 1 1/2 bath, non upgraded. Lots of these are upgraded now. There should be similar options in Toronto????

http://www.surreycondos.com/lincolns-ga ... eet-surrey
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

Pickles wrote: 03 Oct 2017 11:44 So here's my advice:

1. Don't panic. You have at least a decade to plan your retirement. Don't rush to buy RE. You will drastically reduce your future options if you tie your money up now.
Yes, I actually have been panicking a bit about this. First world problems, to be sure, worrying what to do with my 1/4 million dollars. But the fact is that in the context of life here, it isn't a great fortune. I so much want to do the right thing and look back and not regret.
Pickles wrote: 03 Oct 2017 11:44 3. You should definitely consider applying to join a non-profit coop.
This is something that never occured to me. I will defiitely look into this in the coming weeks. Thanks for the links.
Pickles wrote: 03 Oct 2017 11:44 4. Condos in Toronto are, in my opinion, over-priced, have a high turnover due to real estate speculation and absentee owners renting to others, shoddily built and often badly managed.
I guess now's the time to make another admission that mitigates against condo for me. I live my life on a different schedule than most people. I'm sort of like a night shift worker in terms of when I sleep and wake. I'm also becoming sort of noise averse in my old age. When we went looking at these condos, we went in the last one and were looking around. We then opened the balcony door... and the dog next door started barking. And would not stop. We closed the door a minute later but that dog was still barking when we got in the elevator.

If I bought a condo and moved my stuff in and the next morning, a dog stated barking like that, I'd have a heart attack. Or, if I could hear the dinner table conversation of the people above me, like I experienced in one rental place I tried out. Or if the neighbours love to play their music at full blast.

I need a place that's relatively quiet in the mornings. The place I live in now is like a tomb. I never hear anything. It's ironically a condo, but it's like a retirement condo and the build quality is great. I have never heard any footsteps or voices. The owner loves me because I take care of the place and so I get this luxury condo (it's actually a luxury condo, I now realize, having seen these other dumps) with cable and internet and all heat/hydro and underground parking included and furnished for $1900/month.

Anyway, thanks a lot for the detailed response. It's very hard for me to let go of the idea that I am making a huge error in not buying RE, but this thread is helping. I never wanted to buy a condo. I just thought it would be a mistake not to.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

Spudd wrote: 03 Oct 2017 19:01
So let's say you retire at 65 for the sake of argument, with $1000/mo coming in from CPP/OAS.

At a 20% tax bracket I take it you make < 42k/year, which means dividends are taxed at -6.86% (i.e. they decrease your taxes by almost 7c for each dollar received).

I claimed 49K this year. My accountant said something like 'Well, you'e technically in the lowest bracket, but...' and then he mentioned the 20% bracket.

Your post has been so valuable. It has opened my eyes to the fact that you guys think in terms of income at retirement. I didn't get at first why you calculated the value of the investments only up to the age of 65 in the projection, but you were calculating expenses out to age 78 (end of mortgage). Then I realized it's because it's assumed that I will stop working and at that point I will need the income from the investments.

I was only thinking about this in terms of net worth. I thought 'My net worth now is $250K. How do I deploy this money in order to maximize it at i.e. age 65?'

I don't intend to be living in this country at age 78 - I intend to be somewhere warm, even if it's in a hut.

So can I ask you the same thing as I asked AltaRed?

Let's just say that the idea is to own the condo for 15 years. I'm 53 and I'll work until I'm 68. So I lose the opportunity to invest that big chunk of down payment. I build some equity into the condo. I invested the $81,250 I retained after paying the massive down payment and it grows to $151,438 at age 65 as you calculated so let's say $170,000 at age 68 (very rough). At that point let's say the condo is worth $470. So I sell, and after costs, I have the $170K from the investments (haven't paid tax on it yet have I??). I get back the down payment of $168,750 + some portion of what I paid against my mortgage all those years (much of it was paying interest) + the difference between what I bought it for and what I netted after costs, which is tax free. Is that right?

I can then compare that against what I should have from just investing the entire $250K and renting, correct? This is ignoring a big factor - the idea that if I rent and invest the whole thing, I have the opportunity to be smart and also invest the difference between what I pay for rent and what I would have been willing to pay to own.
Spudd wrote: 03 Oct 2017 19:01
Value of condo at age 78: $1,017,000 (assuming 4% growth as you assumed -- I think this is overly optimistic personally)
So here's one thing that I have a really hard time getting over. These condos I saw... the idea that a dump like that could appreciate from $400K to $1MM is just totally absurd to me. I cannot believe it. Who would ever pay $1MM for what that condo will look like in 25 years??

But then, I've travelled a lot. I've talked to people in most of Southeast Asia, many Eastern European countries, India, Western Europe, etc etc. Most of this travel was touring with one artist I played with for many years. I know this - Canada is The Shining City On The Hill for hundreds of millions of people. With all that's going on in the world, I think Canada is becoming more attractive, not less, and Toronto is the city they know. I don't believe for one second in some sort of secular top in Toronto Real Estate right now. Demand will always be there.

You know what I saw over the past 5 years? Every few months, there would be a talking head on CBC saying 'Oh boy, the real estate market is overheated'. And every time, prices just continued to rise.

I am **absolutely not saying this as a counter argument to what you said**. In fact I agree with you 1000% - I just cannot believe that condo is going to be worth $1MM, ever. But I've been badly burned betting against the Toronto RE market. This is what motivated the thread. Fear that I am going to miss out again. I could have begged and borrowed enough for a down payment 8 years ago had I had the foresight.

------------------------------------------------------

Last point. I booked an appointment with a financial advisor for tomorrow afternoon. This was obviously before I posted here. I am printing your post off and I'm going to have it with me. I am asking here the same question I asked here. I'm then going to show her your analysis.

Thanks so much for taking the time to put this together. I can't tell you how much it's helping me.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

BRIAN5000 wrote: 03 Oct 2017 20:26 You could live in Vancouver if you decide to change location $368,000 http://www.surreycondos.com/mls/208-106 ... y-r2211291
Thanks for the links. Because of what I do, it feels like I can't move. My entire professional network is here and starting from scratch in Vancouver seems unlikely. I get good gig calls here because I've had relationships with the same people for many years.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by AltaRed »

m-set wrote: 03 Oct 2017 23:29
BRIAN5000 wrote: 03 Oct 2017 20:26 You could live in Vancouver if you decide to change location $368,000 http://www.surreycondos.com/mls/208-106 ... y-r2211291
Thanks for the links. Because of what I do, it feels like I can't move. My entire professional network is here and starting from scratch in Vancouver seems unlikely. I get good gig calls here because I've had relationships with the same people for many years.
The Lower Mainland of BC is no better than where you are at. It's jumping from one fire into the other. Thousands are fleeing the lower mainland for the BC Interior to escape the RE madness. Not even sure what the point was....

Not sure of what you mean by a financial advisor, but if s/he is attached to a bank or brokerage, they are commissioned sales folk trying to sell you products. A 'fee only' financial planner may be what you need to seek out and pay them $2-5k (depends on work involved) to work out a few 'case' scenarios for you, e.g. rent vs buy with the data you have, including projected self-employment earnings going forward. It seems like you could use some objective analysis. Be wary of rosy projections on both capital market returns and property market returns, especially the latter in a screwed up market like TO.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

AltaRed wrote: 03 Oct 2017 23:39
Not sure of what you mean by a financial advisor, but if s/he is attached to a bank or brokerage, they are commissioned sales folk trying to sell you products. A 'fee only' financial planner may be what you need to seek out and pay them $2-5k (depends on work involved) to work out a few 'case' scenarios for you, e.g. rent vs buy with the data you have, including projected self-employment earnings going forward. It seems like you could use some objective analysis. Be wary of rosy projections on both capital market returns and property market returns, especially the latter in a screwed up market like TO.
This isn't a bank or brokerage type. I have a healthy disregard for commission sales and also for product peddlars in the financial services industry. I know I can replicate any strat with very low MER ETFs etc.

She's a fee-based advisor. I talked to her on the phone and she took a long time to talk to me for free - I decided to call her back. She's well reviewed and a columnist at the Globe (not that that necessarily means anything but it means she may be okay). It's amazing how many people will treat you well when they know you're a working musician. She's spending an afternoon with me for $250. She had me send over all my data. Like I said I booked with her before I posted here. However, I don't mind getting another pro's take. I highly doubt she has more to offer than the accumulated wisdom you guys have but I'm going to go see what she has to say.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by kcowan »

Just a comment about used condos. Last year we checked purchase prospects in Vancouver where we have rented for 20 years. One complex we looked at was West Royal. It seemed to be better priced than some others. Then I discovered a engineering report that was done is 2012 that forecast a major building investment in its envelope that had to be done by 2020. They projected a cost of $20 million! There was no reserve fund to cover it.

We decided that buyer beware was especially true in resale condos. We have a good friend that got caught in one of those and had the outside covered in blue tarp for two years in addition to a giant special assessment.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by AltaRed »

m-set wrote: 03 Oct 2017 23:51 She's a fee-based advisor. I talked to her on the phone and she took a long time to talk to me for free - I decided to call her back. She's well reviewed and a columnist at the Globe (not that that necessarily means anything but it means she may be okay). It's amazing how many people will treat you well when they know you're a working musician. She's spending an afternoon with me for $250. She had me send over all my data. Like I said I booked with her before I posted here. However, I don't mind getting another pro's take. I highly doubt she has more to offer than the accumulated wisdom you guys have but I'm going to go see what she has to say.
She will be better equipped looking at all your data and plugging in numbers to her planning spreadsheets than we can winging it with bits of data here and there over the length of a thread. She should also do some 'what if' bookend scenarios for you so you have an idea where you might stand at the time you wish to retire, e.g. 15 yrs from now, and where you might end up 30 years from now, should: 1) capital markets not cooperate and/or 2) you have zero (or a loss) in RE capital appreciation, and/or 3) your employment earnings end prematurely due to, for example, health reasons. It is important to have a good idea of your CPP benefits might be as well since OAS, CPP and maybe even GIS will be a significant safety net at age 65.

Added: It might have been more courteous had you indicated to us from the 'get go' that meeting with this FA was part of your plan. Some of our responses might have been more helpful.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by Spudd »

Is it Alexandra Macqueen? If so, she's amazing, she used to be a regular poster here. I'm just a schmo so I'm sure her advice will be 100x better than mine.
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Re: No pension, small inheritance, age 53... to RE or not to RE?

Post by m-set »

Spudd wrote: 04 Oct 2017 16:35 Is it Alexandra Macqueen? If so, she's amazing, she used to be a regular poster here. I'm just a schmo so I'm sure her advice will be 100x better than mine.
No, but I just Googled her and considered going to see her! Wow, pretty impressive CV and rep.
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