What to do with a paid off house?

Leveraging, renting vs owning, making an investment or buying a home?
Acer79
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What to do with a paid off house?

Post by Acer79 » 10 Apr 2017 17:37

Hello,

New to this forum. I'm wondering what others on this forum would do if they have a home that is mortgage free. Considering all the media on a housing bubble;

1. Would you sell your home and re-invest into other investments? What other investments?

2. Or stay in the home and continue to save, but realizing that if there is a correction the home will also depreciate?

I'm not ready to retire as i'm in my mid 40's, in Alberta.

Thanks. :D

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Re: What to do with a paid off house?

Post by AltaRed » 10 Apr 2017 22:55

AB is not likely to see much depreciation in housing prices since they've been in a holding pattern for at least 2 years. If you sold, what would you do? Rent for the next 40 years? Now if you lived in GTA or GVA, I'd cash out, leave the region and retire a millionaire.

Look at it this way. All the money you were spending on mortgage payments can now be used to more rapidly build your retirement portfolio. A wonderful place to be and it feels good to see that sucker really tick up year after year. There is plenty of material in our very own finiki about Building a Portfolio., etc, etc.

I'd suggest you put your thread in the wrong forum. Surely you are not thinking of more AB real estate??
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Re: What to do with a paid off house?

Post by Peculiar_Investor » 10 Apr 2017 23:00

Hello and welcome to the FWF community.

Being mortgage free provides additional flexibility and opportunities to redirect the mortgage payment cash flow into other opportunities such as investments.

I would never consider selling any asset just because "all the media" says we're in a bubble. Just for fun, skim/read through all the Housing Bust 20xx topics here on FWF. “It's tough to make predictions, especially about the future.” -- Yogi Berra.

If/when there is a correction, being mortgage free should be an advantage. Also being in Alberta, hasn't the "correction" already happened? The media is focused solely on the Greater Vancouver Area (GVA) and the Greater Toronto Area (GTA) "bubbles". Just ignore the noise, that's what I'm doing.
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Re: What to do with a paid off house?

Post by Acer79 » 11 Apr 2017 12:02

Thanks for the reply guys!

If there is a correction does no one think it will affect AB as well? maybe not as much of an effect as GTA or GVA but im sure it will still take a hit. I am torn between selling the home or going out and making a purchase on a new home. The wife wants to buy as she thinks the value right now has been depressed enough and she doesn't want to miss the boat, but I on the other hand want to play it a little more safe. With all the uncertainty in AB (oil prices & politcs), housing bubble (GTA/GVA), war in Syria and US stock bubble. Its hard to find a good place to invest your money. Which is why I think the real estate market is one of the safer plays, which in turn has caused a bubble in the Canadian markets.

I guess the real question is should you sell and have liquidity or hold the asset and watch how it all unfolds?

:?:

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Re: What to do with a paid off house?

Post by Norbert Schlenker » 11 Apr 2017 12:13

There's missing information here and considerable cart before the horse as a result.

Acer needs to answer a few questions first, to himself if not publicly. The first one is whether he's tied to the current locale, say because of work or family. If so, then does the current residence work for you? There's a hint of yes, but also a hint of "keeping up with the Joneses" by trading up. That's a lifestyle decision, not a financial one, and unlikely to be answerable by strangers on the internet.
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Re: What to do with a paid off house?

Post by westcoastfella » 11 Apr 2017 12:59

Acer79 wrote:
10 Apr 2017 17:37
Hello,

New to this forum. I'm wondering what others on this forum would do if they have a home that is mortgage free. Considering all the media on a housing bubble;

1. Would you sell your home and re-invest into other investments? What other investments?

2. Or stay in the home and continue to save, but realizing that if there is a correction the home will also depreciate?

I'm not ready to retire as i'm in my mid 40's, in Alberta.

Thanks. :D
I have a home that is mortgage free. I just continue to live in it, which is was the original reason I bought it. Having no debt on a home should not change its purpose or value to you.

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Re: What to do with a paid off house?

Post by steves » 11 Apr 2017 13:12

My house went from 450K assessed value to 1.5M in 3 or 4 years. (West Van, killer view) If I had sold it then instead of holding on to it, I would not be a happy camper!
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Re: What to do with a paid off house?

Post by kcowan » 12 Apr 2017 12:58

Our home in the GTA went from $1.05 million in 1990 to $535k in 1997. I was not a happy camper.

Market timing applies to RE just like any other asset. A friend and neighbour who sold for $1.05 million rolled his equity into condos in Markham and Downtown Waterfront and a B&B in Niagara on the Lake. He rode them all down!
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Re: What to do with a paid off house?

Post by AltaRed » 12 Apr 2017 13:13

Keith, GTAers and GVAers are in denial. They either did not experience the time period you mention, or have short memories. Poloz has to get some balls and tick up interest rates. Some sense has to be driven into both the mortgage market and the drunken fiscal deficits of many of our governments.
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Re: What to do with a paid off house?

Post by deaddog » 12 Apr 2017 19:34

Acer79 wrote:
10 Apr 2017 17:37
Hello,

New to this forum. I'm wondering what others on this forum would do if they have a home that is mortgage free.
As long as you need a place to live where the home is located I'd live in it and invest what I would be making is house payments.

My own experience was to secure a line of credit with the house and leverage equities to build my nest egg. Not recommended for everybody.
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Re: What to do with a paid off house?

Post by hamor » 12 Apr 2017 20:40

AltaRed wrote:
12 Apr 2017 13:13
Keith, GTAers and GVAers are in denial. They either did not experience the time period you mention, or have short memories. Poloz has to get some balls and tick up interest rates. Some sense has to be driven into both the mortgage market and the drunken fiscal deficits of many of our governments.
Yeah! This is what I was saying until my wife made me buy a house in 2007.
When I tell people buying second or third house on HELOC from the first one, that trees don't grow to the sky, I get blank stares.
Don't we have a thread for that? :lol:

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Re: What to do with a paid off house?

Post by Shurville » 13 Apr 2017 07:03

My GTA home has reached the $1mm area. Would like to sell and rent but so would a lot of others! Not much to rent and rates are on the rise. Will stay put unless a safe rental appears.

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Re: What to do with a paid off house?

Post by SQRT » 13 Apr 2017 10:14

AltaRed wrote:
12 Apr 2017 13:13
Keith, GTAers and GVAers are in denial. They either did not experience the time period you mention, or have short memories. Poloz has to get some balls and tick up interest rates. Some sense has to be driven into both the mortgage market and the drunken fiscal deficits of many of our governments.
Agree. But it's much more expensive and disruptive to try to time the real estate market as opposed to the stock market. I would just try to live your life, consider your house as a place to live, and ignore the noise.

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Re: What to do with a paid off house?

Post by zeno » 13 Apr 2017 14:54

OP's question is interesting for the psychology involved. Why is the decision to sell or keep the house different, because it's now paid off? It shouldn't make one jot of difference. I understand, however, that it sometimes does make a difference. I paid my mortgage off very aggressively and when it was paid, I did find myself with a sort of "what now?" feeling. Paying off the mortgage is such a big financial goal, it is a little strange once it is done.
What I did was immediately take that mortgage payment amount and turn it into automatic investment deposits. I didn't want to get used to the feeling of having extra money!
Some months later I did some analysis and realized I would have been better to have taken advantage of those ridiculously low mortgage rates, stretched out my payments longer, and invested more in equities whilst paying off the mortgage, but this was one of those views that only work in hindsight. When I asked myself whether I was willing to remortgage the house to invest more now, my answer was no. Psychology at work there too.
In the end the house is the house. You just have to ask yourself if you are happy living there or whether you would be happier living somewhere else.

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Re: What to do with a paid off house?

Post by AltaRed » 13 Apr 2017 15:30

Indeed, I paid off my mortgage aggressively (different era of course) in 1989 (or 90) and then took that money to start building the investment portfolio. Was a lot more comfortable investing it all in equities (IIRC) when I knew the mortgage was paid off. I could never borrow (HELOC the house) to invest and never would recommend anyone consider it. Modern life is complicated enough with money going in different directions to comfortably manage mortgage payments while building an investment portfolio. Maybe old fashioned but a much easier way to stay out of trouble.

I also agree that if one is happy in their current house, why would it matter if the house is paid off or not? Enjoy your house (home) and participate in life in a bigger way.
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Re: What to do with a paid off house?

Post by Flaccidsteele » 13 Apr 2017 17:58

AltaRed wrote:
13 Apr 2017 15:30
I also agree that if one is happy in their current house, why would it matter if the house is paid off or not? Enjoy your house (home) and participate in life in a bigger way.
^ I also agree with this.

Just enjoy living in the house.
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Re: What to do with a paid off house?

Post by nisser » 13 Apr 2017 21:36

If you're not totally happy with the home, you could sell it tax-free invest the proceeds in a stock market and buy a new "dream house" and start paying that mortgage. Then you've gained from solidifying some gains from the RE market but continue to stay in it, essentially forcing yourself to save even more with the new mortgage.

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Re: What to do with a paid off house?

Post by Jo Anne » 13 Apr 2017 22:14

There are few things in life that feel better than living in a paid off house.

No matter what bad things may happen to you, you still have your home.

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Re: What to do with a paid off house?

Post by Acer79 » 15 Apr 2017 13:21

Thanks for the replies guys!

I have the same thought as the rest and it's nice to see what other opinions are.

The honest truth is there are not a whole lot of ppl out there with their houses paid off.

I think with the generations to come, will have some tough times as the labour force and industries in Canada start to diminish. Which is why your seeing more and more baby boomers not retiring and helping out their children.

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Re: What to do with a paid off house?

Post by twa2w » 15 Apr 2017 16:10

There are lots of people with paid off houses.

Stats from 2008.
13 million households in Canada.
65% of those own a home.
43% of those are motgage free.

Can't find more recent stats for Canada but I would suspect the mortgage free nunbers are likely somewhat lower today. ( based on growth in HELOC's and increase in home pricing)

In the USA the stats are more uptodate and depending on source, about 30% are mortgage free.


So even if our numbers are closer to the USA there are still lots of happy homeowners.

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Re: What to do with a paid off house?

Post by adrian2 » 15 Apr 2017 17:03

twa2w wrote:
15 Apr 2017 16:10
There are lots of people with paid off houses.

Stats from 2008.
13 million households in Canada.
65% of those own a home.
43% of those are motgage free.

Can't find more recent stats for Canada but I would suspect the mortgage free nunbers are likely somewhat lower today.
Homeownership and Shelter Costs in Canada (2011)
Stats Canada wrote:New data from the 2011 NHS showed that 69.0% of households in Canada, or 9.2 million of 13.3 million, owned their dwelling.
[...]
Almost three-fifths (58.6%) of owner households had a mortgage
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Re: What to do with a paid off house?

Post by Just a Guy » 15 Apr 2017 22:56

One of the OP's original comments which most people seem to have ignored...

You state that you're not ready to retire yet...do you have a lot more investments than just your house?

I remember when I paid off my first house and I lived debt free for several years. Looking back now, I see how foolish it was. After several years, we moved to a bigger house (growing family) which only had a tiny mortgage...then I got injured.

I'd just started to dabble in real estate investing around that time and, before the banks could see me as a credit risk (I had no income for several years as I tried to recover, not to mention the costs of treatment), I jumped in, bought more rentals and started buying stocks, by leveraging my house.

Had I not done it, there's a very good chance I'd have lost everything (came pretty close as it was even with the rental income I was generating). It takes a long time for most investments to pay off, investing isn't a get rich quick scheme.

Now, looking back, I don't regret my choices, but I probably could have avoided a lot of problems and stress had I started earlier in life instead of living debt free...

Of course, being broke is a good motivator, so I probably wouldn't have turned into as successful an investor as I did had I not had the adversity.

Life has a tendency to throw you curve balls every once in a while, while having a paid off house is good, I wouldn't consider myself comfortable with it...even today I'm a bit paranoid about money and financial security. I know people who've lost more than I've got from unforeseen events.

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Re: What to do with a paid off house?

Post by AltaRed » 15 Apr 2017 23:30

It has not been lost in the responses. The whole idea is to pay off one's house and take what were mortgage payments and put that money to work in the capital markets and such. No need to leverage and have sleepless nights. Alternatively, too many people think they should be continually moving up into that expensive to maintain McMansion.

The truth of the matter is it is not hard to manage one's investments from a remote location if one subscribes to the KISS principle. Capital markets can be wonderful!
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Re: What to do with a paid off house?

Post by Just a Guy » 16 Apr 2017 01:22

Still, not really retirement kind of talk in my opinion.

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Re: What to do with a paid off house?

Post by AltaRed » 16 Apr 2017 10:41

Just a Guy wrote:
16 Apr 2017 01:22
Still, not really retirement kind of talk in my opinion.
It seems to me the OP was really looking for a validation to continue investing in real property vs using newly available cash flow in the capital markets. In real property, there are two choices: either keep moving up in a tax free principle residence to McMansionhood, or become a landlord. Finally, there is the choice of allocating the funds to capital markets. Note the OP has not mentioned anything about TFSAs or RRSPs and he has put this thread in the Property forum.

The sound advice in my opinion has been to enjoy the fantastic feelings that go with a mortgage free principle residence. It does not matter whther RE prices go up, down, or nowhere...nor where mortgage rates go too. See Jo Anne's response. The OP has that luxury today. Then the question is: where to now invest free cash flow? I suggested capital markets provide one with far more freedom and options than becoming a landlord. It is up to him to make and live with his own decisions.
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