Dr. Garth

Of the (roughly) 24 million Canadian adults, 6.5 million lack a family doctor. Apparently $49 billion a year doesn’t buy what it used to.

Thank Dog there’s the GreaterFool Emergency Crawl-In Clinic, Relationship Counseling and Jerk Chicken Pit Stop, open 24/7, now with a convenient Drive-Thru window.

Nurse Juggles has just prepped the first victim. Here’s Russell. Poor Russell.

“Hi Garth, love your blog and your brutal, no bs approach,” says the 35-year-old in Port Coquitlam. “Thank you for your time and honesty.”

“My wife and I bought a townhome here for $845,000 in 2021 with a mortgage of about $600,000. Our gross income is about $150,000 and we have no debt other then our mortgage. We have a variable mortgage so when rates went up we were using most of our income to keep the roof over our heads.

“In January we decided to rent out our home through a company that provides temporary living for people with insurance claims, this is paying us about $4000 monthly which basically covers mortgage and strata fees. We’re living in my in-laws basement for $600 a month with my 3 year old and one more baby on the way. My in-laws what to sell so I’d like to know your opinion if we should continue with renting out our townhome when we have to vacant my in-laws and rent somewhere, or sell the townhome and rent and invest our equity. My wife would like to sell and buy a detached home which I’m not a fan of especially being a daily reader of your blog.”

As Russell can attest – never take a fat VRM when rates are 1.5%. It won’t end well. In this case they’re not even living in their own house, ending up as subterraneans in Mom’s basement with a toddler and a baby on the way, still owing six hundred thousand. Not good, and Russell’s dear squeeze is lobbying to jump into a detached home (twice the price, at least) when mortgage rates are still over 5%,with a debt climb to well over $1 million.

Of course, they can’t afford to buy. And why hang on to an asset they cannot live in and on which they still need to pay property taxes, utilities and insurance? The odds of a Poco townhouse escalating in value over the next few years are slim, and now that they moved out and converted it into a rental, there may be tax considerations. Russell has to keep sight of his primary obligation – his family. There will be two RESPs to fund and steps he must take to ensure financial stability. Get rid of debt. Reduce overhead. Diversify into flexible, liquid assets.

So, sell. Get the hell out of the basement before your kids get pasty and start blinking. Find a decent rental. And have her call me. You asked for brutal.

“I am in dreadful need of financial advice,” says Chris, who has waited patiently in queue for questionable doctoral assistance. “Your blog postings have changed my family’s life, and I find it remarkable that you post such invaluable advice for FREE. I also feel humbled that you spent time out of your day a couple years back to speak with me on the phone regarding investment advice (unlikely you remember).”

“My family and I have been in a Toronto 1-bedroom apartment for many years, which we’ve outgrown given our aging children. Saving and investing for 10 years following your advice on a single-income white-collar job has been challenging but rewarding – starting from $0, we’ve amassed about $500k in a registered account portfolio with yearly returns averaging 10%. I’ve also hustled to increase my income from $55k to $150k-$200k in order to try and maintain pace with house price growth to eventually have a sizable down-payment. We now also have $500k in cash with my wife feeling we’re in a position to buy. But plunking down $400k-$500k on a house in the GTA to still be left with a sizable mortgage & monthly household costs makes my stomach turn.

“Instead, I’m trying to convince my wife that the $500k be invested in a non-registered account with the monthly returns subsidizing or paying our rent on a house. But what’s the best approach in doing this, in terms of asset allocation? Can I just freely invest in the same diversified ETFs that my RRSP holds to get the same return, or are there tax implications when in a non-registered account? Should we decide to buy, are there any considerations of closing out the non-registered portfolio to then be used as a down-payment? Broad questions I suppose, but I’ve honestly no idea what I’m doing here; Small-town, financially-illiterate (but frugal) boy with more responsibility of managing this cash appropriately than I know how to deal with. I want to do my family right.”

Well done, Chris. Zero to a million in a decade is outstanding on that level of income. You are the poster boy for (a) frugality, (b) a saving ethic and (c) renting. There’s no way you’d have this level of liquid wealth if, a decade ago, you had bought a home. Of course ten years back you couldn’t have even considered it, with a low income and no downpayment. In short, you have a great deal to be proud of. Attaboy.

But now, the challenge. If you buy a Toronto house with a $500k downpayment chances are you’ll be shouldering a mortgage of more than $1,000,000. With property tax and insurance, the monthly will be close to $8,000 (payments on a $1.2 mortgage alone are over seven grand). This will chew through all of your disposable income and blow up that aggressive savings program. In short, your flexible wealth will drop by half, your living costs will inflate wildly, you’ll lose mobility and you’ll have more than a million in debt. How does any of that “do right” by your family?

If you invest the million it’s reasonable that 6% can be harvested as income, which is five thousand a month. Can you rent a decent house for that? Check here, and see for yourself.

As for the $500,000 now in cash, get it invested. Open TFSAs for you and your spouse and stuff them – almost $200,000 can go in there – with the rest in a non-registered account. Make it joint to split tax and offer protection in case fate takes you. Yes, invest in ETFs. And with a million overall to manage it’s probably not a good idea to ask a “small-town, financially-illiterate” boy to take on the job.

Get some professional help. The small management fee (tax-deductible on the non-reg account) is worth it. You’ll get investment help, tax advice and a monthly paycheque deposited in your bank account to cover rent. Way less stress than self-investing and far more sensible than trying to buy in this insane, valueless, messed-up real estate marketplace.

So far, you’ re golden. Don’t blow it.

About the picture: “My friend from Calgary is retired and living very comfortably in Panama,” writes David. “He is now rehabilitating birds after they are confiscated from wildlife traffickers.  A rescue veterinarian hand raises them from babies and then secures all necessary paperwork and regulatory approvals to transfer them into my friend’s custody for eventual release.  Here is a photo taken yesterday of his Macaw named Scarlet.  To add even more colour to your commentary.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.