Looking Out For Your Financial Freedom?

How soon do you plan on retiring?

I don't care if you have your investments with a bank, an insurance company or an independent financial planner. Fact is, if your financial adviser is not discussing your choices of how to sell your home they are not working in your best interest.

Think about it. If you were to live in 4 houses in your life how much money could you waste on a real estate agent. Let's do the math, shall we.

Year 1 (Age 30) First Home - Modest townhouse selling for $225,000
Agent Commission 5% - $11,250
GST on Commission - $562.50
Total amount not invested - $11,812.50

Year 5 (Age 35) Second Home - Single detached selling for $300,000
Agent Commission 5% - $15,000
HST on Commission - $1,950
Total amount not invested - $16,950

Year 20 (Age 50) Third Home - Large family home selling for $450,000
Agent Commission 5% - $22,500
HST on Commission - $2,925
Total amount not invested - $25,425

Year 30 (Age 60) Fourth Home - Bungalow selling for $300,000
Agent Commission 5% - $15,000
HST on Commission - $1,950
Total amount not invested - $16,950

At 60 I hope that we are all ready to retire (if not before). All ready to buy a cottage on a lake in Northern Ontario and a condo in Palm Springs. So let's look at our investment profile....or more importantly what didn't end up in it. The total amount of commissions (including taxes) paid to real estate agents through your life was $71,137.50. That sure is a big number! But let's add in the aspect of lost interest into that figure over the 30 years and see what it is.

Using the Bank of Canada investment calculator over the 30 years at 6% interest the $11,812.50 from our townhouse would have been $67,844.99. The $16,950 from our second home would be $72,747.21 over 25 years. The $25,425 from our 3rd home would be $45,532.30 over the 10 years. Of course our $16,950 doesn't get invested because we just sold that place. So the total money not in our financial portfolio due to needlessly spending it on real estate agents is $203,074.50.

You always have other options...


M

Why Would You Buy A Home?

The question comes up often. Most people fall into the purchase column because that is what we do, right. We go to school, get a job, rent an apartment, save up some money, buy a house, buy another one, maybe one or four more, then we rent again, move into a "home", then we die. Life in Canada.

So does it make sense to buy a home? Their are plenty of people on either side of this argument. On the purchase side their are countless realtors, mortgage brokers, bankers, etc. Against the home purchase plenty of economists and investment people. The loudest voice against purchase seems to be Garth Turner. He is far from shy about exposing people "talking out their ass" about purchasing.

Let's look at the basic math as it sits today to see if Garth is right.
Here is a rental townhouse in the north end of Cambridge that is available for $1,350 per month. Cost to rent this home for the year would be $16,200. Lets look at this over the 25 years it would take to purchase a home because we know that you pay more interest at the front and less at the end. Assuming that rent will not go up (err on the side of caution) the cost of renting this home for 25 years would be $405,000. WOW. What would it cost you to purchase?

We recently had a comparable home in the same area sell. It sold for $240,000. Again erring on the side of caution let's assume your mortgage was at 6% over the 25 years (although it is 3.79% today I would think it will go up over the next 25 years). So calculating this with 5% down ($12,000) your mortgage would be $228,000. With monthly payments of $1,458.76 your annual costs are $17,505.12 (a little more than renting) and the total paid over the 25 years is $437,627.41. $32,627.41 more than rent, right? Wrong. You still have the equity in the home. When you take away the $240,000 in equity (again not looking at inflation) total cost of the home was $197,627.41.

The only other thing to consider is the $12,000 you put out as a deposit and the $100 or so a month you saved in the rent situation. Let's assume that money was invested to see if it evens out. Investing the $12,000 deposit plus $100 a month at 6% (equal to the mortgage amount to be fair) works out to $123,225.53. Subtract that from the cost of rent and your cost to rent was $281,774.47, or $84,147.06 more than buying a home over 25 years.

So I will leave it to you whether you will buy or rent. Whatever you do don't get pushed into anything you are not ready for. Specially if it seems like Dr. Suess is the one doing the pushing...


M

The Tiger Woods Years

I swear I didn't write that on the photo.

Last week a "Real Estate Investment Specialist" by the name of Don Campbell was on The Hour (click to watch). Strombo's laid back interview style allowed for a light easy going interview that talked about all sorts of things.

Here are some of the snipits that I took from the interview.

1. The market is adjusting and people that are expecting the same outcome as the last few years are nuts. If you were a player over the last 3 years you did well, anyone could have done it. It was the "Tiger Woods Years". There was no failing. Things are down now and people are still expecting the high return. There is a home in Cambridge that I was watching. The owners bought a little over a year ago and now have it on the market for almost $100,000 more than they paid for it. They are now on their 2nd agent (over 3 months listed) and still way over priced for today's market.
2. Now is a good time to buy especially in an area that is growing. We are lucky enough to be one of the areas that he keyed in on along with Barrie/Orillia, Hamilton, Edmonton and Calgary. As an aside if you are a first time home buyer it makes even more sense with programs available for you.
3. If you are looking at investing in property you don't have to buy where you live. Look at the hot spots, where your investment will grow the most and focus there. He really thought Hamilton was an area poised for growth, looking at access to commuter transit and it's proximity to GTA and KWC.
4. If you want to live in Toronto because you like the "city life" look at renting. You will not be "house poor" and still be able to save up for a deposit when/if you are looking at investing in a property down the road.
   

What does this mean for us here in Waterloo Wellington? Well if you are looking at selling a home you can expect to be at an advantage over any of your friends in the GTA. Sure their house may be worth more than yours but you won't lose as much as they will. If you are looking at buying for a principle residence or an investment property, go for it. You will be fine as long as you are thinking 5-7 years down the road.

You may not pull off a shot like this but he is the best...


M