Housing Bust 2017

Leveraging, renting vs owning, making an investment or buying a home?
ig17
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Re: Housing Bust 2017

Post by ig17 » 27 Dec 2017 01:23

Just a Guy wrote:
27 Dec 2017 00:58
There are people in this world who only ever see the problems, and there are people in this world who look for solutions. I think, by the postings, it's easy to decern which is which.

Those who look for problems will probably find them because that is what they are looking for.

Those who look for solutions will probably find hem because that is what they are looking for.

The one type of person will never understand the other.
If you want to say something, just say it.

gobsmack
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Re: Housing Bust 2017

Post by gobsmack » 27 Dec 2017 07:34

BRIAN5000 wrote:
26 Dec 2017 21:06
I'm working on a solution for my daughter no good ideas yet.
Depending on her choice of career, she may be better off not worrying about real estate while she is young. If she is only renting, she can easily move to another city when a better opportunity shows up. This would be my advice for anyone pursuing a career in IT, for instance.

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kcowan
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Re: Housing Bust 2017

Post by kcowan » 27 Dec 2017 07:48

gobsmack wrote:
27 Dec 2017 07:34
BRIAN5000 wrote:
26 Dec 2017 21:06
I'm working on a solution for my daughter no good ideas yet.
Depending on her choice of career, she may be better off not worrying about real estate while she is young. If she is only renting, she can easily move to another city when a better opportunity shows up. This would be my advice for anyone pursuing a career in IT, for instance.
This might be a solution in isolation, but I am pretty sure Brian wants her to live close by.
For the fun of it...Keith

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Re: Housing Bust 2017

Post by longinvest » 27 Dec 2017 08:47

kcowan wrote:
27 Dec 2017 07:48
wants her to live close by.
That's a luxury. It can come with a steep price tag.
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Just a Guy
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Re: Housing Bust 2017

Post by Just a Guy » 27 Dec 2017 09:56

ig17 wrote:
27 Dec 2017 01:23
If you want to say something, just say it.
I'm pretty sure I did, and quite clearly at that. Nothing subtle or hidden was intended, I thought it was quite blunt.

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kcowan
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Re: Housing Bust 2017

Post by kcowan » 27 Dec 2017 12:20

longinvest wrote:
27 Dec 2017 08:47
kcowan wrote:
27 Dec 2017 07:48
wants her to live close by.
That's a luxury. It can come with a steep price tag.
Yea that is the real dilemma for many parents these day, especially in the GVA and GTA, but more so the GVA I think.
For the fun of it...Keith

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Re: Housing Bust 2017

Post by BRIAN5000 » 27 Dec 2017 12:33

kcowan wrote:
27 Dec 2017 12:20
longinvest wrote:
27 Dec 2017 08:47
kcowan wrote:
27 Dec 2017 07:48
wants her to live close by.
That's a luxury. It can come with a steep price tag.
Yea that is the real dilemma for many parents these day, especially in the GVA and GTA, but more so the GVA I think.
Yes I'd like her to live fairly close but understand that if she has to move for a job she should go for it. Hopefully as a stepping stone that she could use to get back closer a some point. I'm afraid she's somewhat dead ended where she is now and not in her educated field. Monies pretty good and works from home mostly.
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

ig17
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Re: Housing Bust 2017

Post by ig17 » 27 Dec 2017 13:01

The Globe and Mail, Dec 25

Worried parents buying homes for school-aged kids
Jennifer Johnson felt she didn't have time to wait. The single mom of two children, she watched as house prices in her Ajax, Ont., neighbourhood soared year after year.

"When houses were starting to go up 20 per cent each year, I was worried about my kids' futures," says Ms. Johnson, a global bid manager and proposal writer.

So, in 2014, with her own house paid off, she decided to take the real estate plunge again, buying her son, Braden, then 10, a home in Ajax for $410,000. In 2015, she purchased a $430,000 home in Brooklin, Ont., for her daughter, Sydney, then 12.

Having made 20-per-cent down payments on both mortgages, Ms. Johnson, 50, finances the properties by renting both out for a total of $4,200 a month. She says the arrangement costs her an additional $1,000 out of pocket monthly.

The decision to buy homes for her kids has meant that Ms. Johnson has had to cut back on expenses. "We never eat out," she says. "We buy a lot of our things from Value Village. My car is 14 years old and has 390,000 kilometres on it. But I'm okay with it."

She has also had to hire local contractors to maintain the properties and to search out tenants, a process she concedes can be stressful. But having found two families who plan to stay long-term, she's less concerned about tenant turnover. Plus, she's encouraged by the vacancy rate, which in Toronto was 1.1 per cent this past fall, according to Canada Mortgage and Housing Corp.

Despite the huge debt load and the uncertainty of the real estate market, Ms. Johnson feels she's made the right decision. Over the past two years, "[the properties] have doubled in price," she says. For the process of eventually transferring ownership, she says that once the homes are paid off, she will rent them to her kids to ensure the homes aren't split up in the event of divorce – and then pass them on as her inheritance.

"This is an investment I'm making in my kids' futures," Ms. Johnson says.
The houses have doubled in price, so I guess she did very well (despite negative cash flow).

What I find curious is how she has her kids' future planned in advance. Braden will stay in Ajax for the rest of his life. Sydney will stay in Brooklin. Both will rent from the mom until she is gone (never mind the wishes of their future partners). To assume ownership of their own homes, they will have to pay a capital gains tax. Shouldn't be a problem... they will also inherit her primary residence. I wonder if she has any retirement savings or pension.

There I go again, looking for problems where others are looking for solutions. :wink:

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ghariton
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Re: Housing Bust 2017

Post by ghariton » 27 Dec 2017 13:13

ig17 wrote:
26 Dec 2017 23:22
If the child can't service the loan extended by the parents and you don't demand the payments, the loan effectively turns into a gift.
A partial gift at any rate. I assume that she will be able to pay something.

However, a loan from a parent should not be as burdensome as a loan from say a bank. The bank incurs a host of transaction costs, such as credit checks, and profits to the institution, which the parent doesn't. The parent need not build in a risk premium. or at least not one as high as the bank. The rate charged can be set at the minimum rate required by CRA to distinguish a gift from a loan.

If we are talking about a married couple making the loan to a child, the loan should be made by the spouse with the lowest tax rate. That will minimize the amount of tax payable from all parties, and will probably be much lower than the tax rate which the bank (through corporate taxes) and its shareholders (through taxes on dividends) would have to pay.
Should a divorce happen, half of the loan will be lost to the other partner. It will be too late to demand the repayment at the time of divorce; the court won't honour the request.
Divorce always complicates financial planning. In this case, a loan to the daughter would be considered part of the assets to be divided, on whatever basis the couple agrees or the court decides. Presumably, if the loan hadn't been made, there would have been other assets instead, and these assets would also have been divided between the spouses. I don't see where a loan to the daughter adds to an admittedly complicated situation.
(I am starting to think about a solution for my daughter as well)
I wish you and her good luck. I know that this isn't the easiest of times for those just starting out.

George
The plural of anecdote is NOT data.

ig17
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Re: Housing Bust 2017

Post by ig17 » 27 Dec 2017 13:38

ghariton wrote:
27 Dec 2017 13:13
Should a divorce happen, half of the loan will be lost to the other partner. It will be too late to demand the repayment at the time of divorce; the court won't honour the request.
Divorce always complicates financial planning. In this case, a loan to the daughter would be considered part of the assets to be divided, on whatever basis the couple agrees or the court decides. Presumably, if the loan hadn't been made, there would have been other assets instead, and these assets would also have been divided between the spouses. I don't see where a loan to the daughter adds to an admittedly complicated situation.
I think we (FWF) had this discussion before but I can't find the thread.

My very vague recollection:

Case 1: children strictly follow the repayment schedule. The loan is treated as a loan in case of divorce. It has to be repaid. You get your money back.

Case 2: children don't follow the repayment schedule. For example, they only pay back the principal but not the interest, make irregular payments, etc. The loan is treated as a gift in case of divorce. You don't get your money back.

The details likely vary from province to province.

Just a Guy
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Re: Housing Bust 2017

Post by Just a Guy » 27 Dec 2017 13:48

ig17 wrote:
27 Dec 2017 13:01
The houses have doubled in price, so I guess she did very well (despite negative cash flow).
Gee, $800k in 3 years at a cost of $36k. Yeah pretty dumb, foolish by any measure. Better to have dual incomes, two kids and complain about not being able to afford anything.
ig17 wrote:
27 Dec 2017 13:01
What I find curious is how she has her kids' future planned in advance. Braden will stay in Ajax for the rest of his life. Sydney will stay in Brooklin. Both will rent from the mom until she is gone (never mind the wishes of their future partners).
Yep, certainly locked in...handcuffed to the bedframe I'm sure. Certainly won't be able to sell them and move.
ig17 wrote:
27 Dec 2017 13:01
To assume ownership of their own homes, they will have to pay a capital gains tax. Shouldn't be a problem... they will also inherit her primary residence. I wonder if she has any retirement savings or pension.
Gee, capital gains taxes or having to pay for an entire house at the inflated future prices...how will they manage even this partial payment?
ig17 wrote:
27 Dec 2017 13:01
There I go again, looking for problems where others are looking for solutions.
I'd say the old adage of looking a gift horse in the mouth...or that sour grapes story again. Maybe can't see the forest for the trees?

ig17
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Re: Housing Bust 2017

Post by ig17 » 27 Dec 2017 13:58

Just a Guy wrote:
27 Dec 2017 13:48
ig17 wrote:
27 Dec 2017 13:01
The houses have doubled in price, so I guess she did very well (despite negative cash flow).
Gee, $800k in 3 years at a cost of $36k. Yeah pretty dumb, foolish by any measure.
Hey, I said she did very well. She bought in 2014 and 2015... her timing was perfect.

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Re: Housing Bust 2017

Post by Just a Guy » 27 Dec 2017 15:55

Unless she holds on too long and faces a major correction...

There's always a negative way to look at it right?

Better to sit back and do nothing, the time has passed, no chance of doing something like that ever again.

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Re: Housing Bust 2017

Post by Just a Guy » 27 Dec 2017 16:18

You probably won't want to hear about this either.

There's a guy on the other forum who's son "quickly turned $2000 into $16000 flipping weed stocks", not something I would have done, not in my personality. He's talked to his son who'll probably now put the 16k into bank stocks.

Of course, he'll have to pay capital gains on that $14k, unless it was in a TFSA, so it probably wasn't worth it, and the timing to repeat such an investment has probably passed.

ig17
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Re: Housing Bust 2017

Post by ig17 » 27 Dec 2017 17:12

Just a Guy wrote:
27 Dec 2017 16:18
You probably won't want to hear about this either.

There's a guy on the other forum who's son "quickly turned $2000 into $16000 flipping weed stocks", not something I would have done, not in my personality. He's talked to his son who'll probably now put the 16k into bank stocks.

Of course, he'll have to pay capital gains on that $14k, unless it was in a TFSA, so it probably wasn't worth it, and the timing to repeat such an investment has probably passed.
Not something you would have done? Not in your personality? Then why are you talking about it?

I trust you are aware of survivorship bias. There were "sons" on the other end of those flipping transactions. They lost their gambling money. You won't hear from them or their fathers.

Is there anything else to learn here?

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Re: Housing Bust 2017

Post by Just a Guy » 27 Dec 2017 17:33

Nope, never take a chance or do anything but collect a paycheque (don’t forget to complain, and blame others of course). It’s the only way possible to live. Let’s teach everyone to be afraid of leaving the herd.

I hear you loud and clear.

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ghariton
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Re: Housing Bust 2017

Post by ghariton » 27 Dec 2017 17:39

Come on guys, knock it off. This is supposed to be a financial forum, where we learn about financial things. If you want to talk about moral character, go to Watercooler.

George
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Flaccidsteele
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Re: Housing Bust 2017

Post by Flaccidsteele » 28 Dec 2017 11:07

ghariton wrote:
27 Dec 2017 17:39
Come on guys, knock it off. This is supposed to be a financial forum, where we learn about financial things. If you want to talk about moral character, go to Watercooler.

George
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