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Real Estate

Anecdotes and Advice from a First Time Home Buyer Part 6 – Week One With An Agent

My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally. See Part 5 – The Search.

Of four houses that we were to view, two were unexpectedly taken off the market that day. In one case, a home owner’s spouse had died and she no longer wished to sell. The other house was inexplicably closed to further showings. I found out later that a buyer had offered to pay $80,000 over the asking price. Days on the market: four. The prospective buyer had submitted a “bully offer”, an offer which is submitted before the official offer day. Under this scenario, the seller had a very short time frame, perhaps only 24 hours to consider the offer. The listing agent usually informs the agents of clients who already seen the house, of their need to submit their bids immediately if they wish their offers to be considered against that of the “bully”. Because bully offers are often generous, with few if any conditions, they are often accepted by the homeowner who is happy to accept as much as s/he can for the house.

The first house that my husband and I were able to see with our agent was a three-bedroom semi. For $499,900, it was definitely a fixer-upper with dark rooms and a pervasive damp odour throughout the house. Although the wiring and roof had been recently updated, the house most certainly required an overhaul to be habitable.

House number two was one with which my husband and I fell in love. Ideally located for us location-wise, the house was immaculately renovated and even furnished in our style. Despite our attempts to overlook the current homeowners’ decorating style, we couldn’t help being influenced by the aesthetics. While it was well above our budget, the house was very reasonably priced for the neighbourhood and therein lay our dilemma. After an angst-filled day of crunching the numbers, we had to pass on the house. Our realtor had also been able to ascertain that two home inspections had already been booked, and thus there would be multiple offers on the offer date. As the house was already above our means, we would have been unable to compete. In the end, the gem of a property sold for $100,000 above the asking price and after only a week on the market.

The lesson we took from this exercise was to try to avoid emotional attachments and to judge a house more dispassionately. In the weeks ahead, hopefully something will turn up.

Read the next post in this series “A Close Call“.

Categories
Announcements

The Fourth Pillar Is On Her Way!

I thought it would be interesting to give an update on a few of my old posts as well as a bit of news.

After ranting about the fact that we still use pennies, Ram from Canadian Capitalist mentioned using a coin star machine so I took all my pennies and nickels over to a local machine and got rid of them all! They do charge 10% but who cares? I still have a lot of dimes but I’m planning to roll them if I can find some dime rollers, however they might end up in the CS machine as well.

I wrote a book review on James Grant’s “Money of the Mind” a while back. This book dealt with the problem of financial institutions becoming too lax in their lending standards when times are good and when things go south then they lose a lot of money, get too conservative and won’t lend any money for a while. Sound familiar?

And one other update – in my Chasing China post I described how I sold my China mutual fund even though it was doing very well because it didn’t fit with my style of investing. Since I sold it the fund has gone up 48% over the last ten months. But I’m not (very) bitter and it still doesn’t fit with my investing style!

And as for the title of the post…

I’d like to announce that we are expecting our second child next year. We’ve had a great time (so far) raising our son and we are really looking forward to having another kid.

Not sure how much this will impact our finances since we really didn’t have to pay for much of anything with our son. We kept all of his clothes and will undoubtedly start receiving shipments of used little “girl” clothes any time from friends and family.

The only expenses I can think of off hand are a new bed for our son since the new baby will get his old crib and eventually a second car seat once she grows out of his old newborn car seat.

Perhaps this will lead to a second baby expense theme entitled “Costs of having a second child?”?

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Real Estate

Real Estate Video Game

I’ve often thought that an interesting game would be a simulation that takes you through a few decades of a real estate investor’s career. Yes, yes I’ve heard of monopoly, you’re very funny!

What I envision would involve analyzing properties, determining the cash flow, and dealing with unexpected changes in market conditions and interest rates and whatnot. Probably it’d work better as a single player game, or if it was a multi-player game it would be fairly non-competitive.

Robert T Kiyosaki has a game, “Cash Flow” which is a step towards this idea (and he even made it with the idea of using it to help teach people about money), however its pretty lame (and I’d find it frightening if anyone actually felt better prepared to manage their finances after playing it).

Probably the game I’d imagine would in some way involve people balancing their time and money. They’d find and manage properties (with more potential problems as they got more properties), decide when to keep properties or when to sell them. Potentially it could work off of the computer as a game with cards or something (but there’d be a lot of book keeping tracking mortgages and whatnot). If it was on a computer, I’d make it as much of a simulation (instead of a game) as possible, and hopefully get it to mimic the real world as much as possible.

I’d ideally love it if it illustrated the idea of exponential gains, that things start of slow, and really pick up speed once compounding kicks in (which I don’t think is a very intuitive concept for many of us, we usually have a very linear perspective on life).

Nothing at all like what I’m describing, but I came across a silly, fun real estate game: Mansion Impossible. You should be able to figure out within 20 or 30 seconds what the strategy is then follow it until you win.

Categories
Announcements

Saturday Weight Update + BMO

Quick update on the weight situation. I weighed 188 this morning so down a pound this week.

I took Gates’ advice and weighed myself almost everyday. The numbers were so variable however that I think it confirms my belief that frequent measurement is a waste of time. Regardless I’ll try to keep weighing myself at least twice a week.

Beer – Not a great week – on Tuesday night I went out with some friends who were from out of province. Also had a few last night so didn’t exactly abstain this week.

Diet – Generally pretty good (except for Tues night). Another item I reduced is milk. I like drinking a lot of milk and since it’s skim, I had assumed it had very little calories. Last week I checked the milk bag and much to my amazement it turns out that skim (or 0%) milk has 90 calories per cup – ooops! Now I just drink a small amount.

Exercise – I only rode my bike three times to work this week because of the weather. I don’t mind riding if it’s cold or wet but not both. I’ll have to address this issue soon because I think the riding season is getting very near the end. Either I’ll have to start jogging more (but how much?) or possibly join a gym and workout at lunch.

BMO Trading Action – In other news I bought 25 shares of BMO yesterday at $58.25. I have to admit that I’m sorry I wasn’t more patient with my leveraged investing plan purchases this year. I bought 100 shares of BMO back in May for $71 and then another 200 shares at $68.60 shortly after. I’ve read so many times that these types of stocks are best bought on dips but I couldn’t seem to follow that advice.

Even yesterday I bought the 25 shares early in the afternoon thinking I was getting a great deal (and I might have) but then shortly afterwards the stock dropped down to $56.56 where it closed.

But – as Bernstein says – you have to be able to weather the ups and down when investing in equities and you also have to be focused on the long term (which I am) and to welcome poor returns (initially at least) because it provides for good buying opportunities. I do think that BMO is a good buying opportunity at the moment (although it could get better).

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RESP

RESP – Individual and Family Plans For 2020

There are two types of resp accounts that you can have: individual and family. This post will outline some of the rules and differences of these account types.

RESP Book
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Individual Plan RESP

Individual plans can only have one named beneficiary. The beneficiary can be any individual named by the subscriber including the subscriber (Individuals can open RESPs for themselves). There are no age restrictions on this type of account, however CESG and other grants can only be paid to beneficiaries under the age of 18. The beneficiary on the account can be replaced by anyone else but if the new beneficiary is not blood related to the subscriber then any CESG (grants) have to be repaid. The last contribution date is the end of the 21st year of plan’s existence. Plan has to be collapsed during it’s 36th year.

Family Plan RESP

Family plans can have one or more beneficiaries. The beneficiaries must be connected to the subscriber by blood or adoption. This includes children, grandchildren or siblings of the Subscriber, either by blood, adoption, or marriage. The beneficiaries must be under 21 years old when named.  Beneficiaries can be removed or added anytime during the life of the plan.

If there is more than one beneficiary then the contributions have to be allocated to each beneficiary. For example if you have twins you might set the allocation at 50% for each child. If you have two kids that are different ages and you don’t set up the resp until the second child is born then you might choose to allocate more of the contribution to the older child in order to catch up on their contributions.

One rule which is always in effect for both types of plans is the maximum lifetime grant amount of $7200 per child. If you have a situation where both of your children have received the maximum grant and you want to transfer some of the contributions to a different beneficiary then you will lose the corresponding grants. This also applies to transfers with individual accounts as well.

So which is better? Family or Individual?

If you only have one child then the individual account is the obvious answer. For multiple child families it may appear at first glance that family accounts are more flexible than individual accounts however in fact they are pretty much the same thing, because the rules allow transferring money between any type of accounts. In case one of your kids doesn’t go to school, it doesn’t matter whether you have your kids in a family account or individual accounts since you are allowed to transfer money to the kid(s) who are still going to go to school in either case. I would suggest that family plans are slightly better if you have more than one child mainly because it will save on account fees and it might simplify the paper work a bit. Bottom line is that it doesn’t really matter so pick the cheapest and most convenient option.

Tip – If you have one child, you can set up a family account for future expansion

Multiple RESP accounts for same beneficiary – Communicate!

When setting up a RESP for a child, it’s important to communicate with other relatives and friends who might have also set up a resp for the same beneficiary. The government will add up all the contributions attributed to each beneficiary in order to enforce the various grant limits and maximum amounts. This applies to any RESP accounts set up for a beneficiary – it doesn’t matter if they are set up in different financial institutions by different subscribers.

You might be wondering why someone would set up an RESP for a relative (ie nephew) rather than give the money to the parents to set up an RESP? For one thing, if that parent is not as financially sound as you are and perhaps you don’t trust them, you might not want to give them the money directly for fear that they won’t set up the RESP account or maybe they will withdraw the money before the child goes to school. Another scenario is if the child doesn’t go to school, the money goes back to the subscriber, so you might want to make sure you get your money back in that case.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.

Categories
Personal Finance

November Networth

I’ve moved again and am not working any more (lots of changes for me, that’s life in the cheap lane I guess). My new cost of living is:

Rent – $670
VOIP – $22.45
internet – $45
variable – ~$580
total – $1,317

My passive income is at $311.47 (there was a nice little $11 / month dividend increase from my ROC stock), which is covering just under 24% of my new cost of living. This means I’m bleeding about $1K / month while applying for grad school.

In terms of networth and cash, I actually improved my cash position by $634 this month (got my final check from where I was working right before the end of the month).

This puts my networth figures at:

Mortgage: $92,296.12
E-Trade: $24,831.02
Cash: $6,414.83
Condo: $143,500.00
Building: $12,553.50 (what I put into it, it’ll take a bit more time before I can make any sort of estimate what my position is worth)

Networth: $94,812.58

as of November 1st.

With no significant money coming in, my plans are mostly to stay the course (there isn’t a lot of costs for me to cut, unfortunately), get the ball rolling with grad school applications, then look around for something to bring in a bit of cash until I start (perhaps some contract programming, perhaps a short term business venture, perhaps something else, any suggestions?).

Categories
Real Estate

Anecdotes and Advice from a First Time Home Buyer Part 5 – The Search

My friend Christine has kindly agreed to write a series of posts on her experiences with buying a home for the first time which will be posted occasionally.
See Part 4 – What to Buy

Friends who have recently survived the house hunting experience have faced and lost bidding wars and have even come across “bully bids”. Bully bids are offers submitted early (instead of on the pre-arranged date) and way above the asking price. Thus, the search may not be an easy one and may take a while.

Part of our house search strategy involves educating ourselves about the factors which determine a house’s value. For that reason, we are also looking at properties outside our budget to look at how much more $50,000 or $100,000 buys. This exercise is also useful in considering our willingness to take on a fixer upper in a hot area. We are also considering taking on a tenant to be able to increase our budget.

So what does roughly half a million dollars buy you in Toronto? The answer is not much from what we have seen.

Open houses provide a fantastic opportunity to compare different neighbourhoods or to just scope out renovation ideas. With this in mind, we made open houses a regular part of our routine for a while. What was disconcerting is that open houses in the more popular areas tend to be very busy and attended by couples fitting our demographic. We are essentially competing with others just like us in terms of age and income – not a surprise perhaps, but a sobering realization of how many people we are up against.

Recognizing that our money would stretch farther if we left the downtown core a bit, my husband and I considered houses along Yonge Street between Eglinton and Lawrence, areas outside our dream locations but still along the subway line. In these “cheaper” areas relative to the Annex, our budget still only allows us to afford a semi-detached.

A semi at Yonge and Eglinton was well-priced at $549K, however proved tiny in its overall size and room proportions. Despite its uninteresting curb appeal, a semi at Eglinton and Mt. Pleasant listed at $619K was very intriguing with beautifully spacious rooms, 4 bathrooms and even a sauna. Its flat roof (potentially expensive and a worry with our winters) and steep staircases (rebuilding a staircase could involve costly structural alterations in the tens of thousands) ruled it out.

An elegant detached century home at Yonge and Eglinton seemed to offer good value with 3,000 square feet of living space and an asking price of $899,900. With well maintained original floors and stately wood detailing, it was still a fixer-upper with outdated kitchens and bathrooms, oil tank heating and some knob and tube wiring. It remained on the MLS for only a couple of weeks.

Some of the other listings that our agent sent were close to Avenue Road and the 401, a beautiful area, but too much of a hike from transit for non-drivers like us.

Downtown, at first glance, a detached house with its dramatically renovated interior looked promising at $649K. However, the lot size and rooms seemed small. Also, its location close to Alexandra Park, a tough public housing area was not ideal. I also couldn’t help thinking that it might be considered a better house in a less desirable area and was worried about its resale appreciation potential. Nonetheless, the house sold for $60,000 over asking after only 12 days.

An updated Annex townhouse had spacious rooms, but had only two bedrooms for a $749,000 asking price. Inexpensive tiles and finishes too traditional for our taste were also off-putting.

Thus far, I am still optimistic, but recognize that either our neighbourhoods or budget may have to change. I have been diligently checking the MLS each day, and am hoping to look at houses each weekend and during the week as they become available.

The search continues…

Read the next post in this series “Week One With an Agent” .

Categories
Real Estate

Renting vs. Buying A House – Is There Any Difference?

Millionaire Mommy Next Door recently posted a series on renting vs buying which was quite interesting. She takes the view that renting can be much more financially rewarding than home ownership and gives her own situation as the example. While I don’t disagree that she has improved her lifestyle by renting, she makes it sound like home owners can’t participate in equity markets which is a bit ridiculous. On the other hand some of the commenters take the opposite tack and say that the only way to win at real estate (or to save) is to own a house.

There is no difference between renting and buying

I would argue that theoretically there doesn’t have to be any economic difference between renting and buying. Ideally both renters and home owners should be invested in equities and real estate and will benefit if either investment class does well.

Renters could include more REITs (such as VNQ) or investment properties in their asset allocation so they have some real estate exposure to make up for the fact that they don’t own a house. Another strategy that a renter can follow if they want to keep up with their house-owning friends is to use leverage to buy equities so that they can have a large monthly payment as well. If your best friend buys a house and has a $250k mortgage then you (a renter) can go out and borrow $150k and buy equities. The renter can expect a higher rate of return from equities and therefore doesn’t need to borrow as much as the home owner. This way you can still remain best friends and commiserate together about not having enough money.

Don’t overspend on the house

The reality is that when we rent, we tend be fairly moderate in our demands since we know that all of the rent payment is a cost and nothing is going towards our equity. When buying a house, a lot of us buy as big as possible and ignore the huge interest costs, focusing instead on the small (in the beginning at least) amount of equity we are building. A comment such as “At least I’m building equity instead of throwing my money away on rent” would only be true if the amount of interest on the mortgage plus maintenance and property tax was equal to the amount of rent being paid which it usually isn’t.

What to do if you are a homeowner?

  • Only buy as much house as you can afford and still be able to save money so you can invest in equity markets.
  • Pay down your mortgage at a reasonable rate – 20 years maximum. In case your house value goes down the more equity you have (had) the better off you will be. If your house value goes up then you are still better off with less mortgage.

What to do if you are a renter?

  • Save as much as you can (more than the home owner) and increase your asset allocation in real estate investments such as REITs. You could also buy rental properties although that’s another ball game altogether.
  • If you really want to emulate the home owner experience without actually buying a home then consider using leverage to buy equities since that’s the reason home owners have done so well in the rising real estate market. Extreme caution should be used with leverage.
  • Don’t feel like you are being left behind. I honestly believe that a renter has more financial options than a home owner. The trick is to make sure you take advantage of those opportunities.