All that matters

Yesterday this dodgy blog spoke darkly of the risks before us. They seem legion.

The conclusion: fuhgeddaboudit. If you’re an investor with a normal time frame (anything longer than a few years) the best course of action is no action. Go B&D and ignore Trump, Putin, the weenies in Ottawa, Netanyahu, hurricanes, mpox and Jelly Roll. Okay, maybe not him. He’s gross.

The point is, you can’t change current events. Soon they won’t be current anymore. So focus on your own life and situation, asking – ‘what actions can I take for a better personal outcome?’. Nothing else matters, for you or your family.

Conversely, it’s not climate change or cultist politics you must fear, but societal, peer and familial pressures. They’re the killers. In today’s context, that includes the relentless drum beat of residential real estate. It’s an addiction which will suck off wealth and replace it with costs and debt.

Here’s an instructive note from two people already too embarrassed to share their identity. “My name is…well, for purposes of this message, we’ll go with ‘D’. My wife’s name is ‘J’,” writes, well, D.

The story?

He’s 36. She’s three years younger. No kids, but ‘hopefully’. He makes $190,000. She brings in $120,000. Savings currently total $330,000. “I grew up with working class parents,” he says. “Bank of mom and dad is off the table. Call it the same for my wife.”

So how did a couple in their early 30s without help from parentals accrue $330,000? Even at that income level, it’s substantial.

The answer, of course, is that they rent instead of trying to own in Vancouver. They snared a two-bedder, two-bath townhouse downtown for $3k/month, “just before things went bananas.”

And here’s the inevitable refrain: “We are at long last looking to get into the housing market, and are conflicted as to what to do. We can withdraw $240,000 from our accounts for a downpayment. Here are the options we see. What’s your take?”

1. Buy a detached house right now in the Valley for $1.1M~. The house would be two separate units. Two top floors, and then a basement suite. We’d rent it out for the foreseeable future while living in our current rental unit for $3,000 per month, and see what we want to do in 3-4 years. With a 20% down payment, the rental income would roughly cover all carrying costs.
2. Buy and move into a 2 bed 2 bath condo in Vancouver for $750k~ with a 20% down payment. Carrying costs would be around $4,000 per month.
3. Do something risky and drop the down payments to 10-15% and buy both. Move into a $750k~ 2 bedroom 2 bathroom apartment in Vancouver, as well as buy the house in the Valley as an investment property / future home / future nest egg.
4. Not buy anything and continue renting. Continue putting as much money away as possible and watch it healthily grow. Perhaps buy-in at some point in the future.

Well, that’s easy. Buying a junker rental with a quarter-million in cash in the sticks while taking on $900,000 in debt is ridiculous. Overhead will be north of $6,000 a month plus the opportunity cost (downpayment). Rent may or may not cover it. Tenants may or may not trash the place. They might not pay and not leave. Nobody loves landlords anymore, so it’s all a gamble.

Besides, why buy something you’ll likely never live in?

As for a $750,000 condo with a $500,000 mortgage that costs a grand a month more for less space, what’s the point? There is zero guarantee it will appreciate as much as a portfolio, nor that strata fees and property taxes won’t rise or a special assessment come along. And Option #3 is just stupidity talking. J&D would have $1.5 million in debt, two leveraged properties and tenants too remote to keep an eye on. For what gain? What goal? How would the expense and risk be justified?

Mostly, why alter the happy, successful path they’re now on? Savings are piling up and living costs are reasonable. At this rate they’ll be millionaires in their fifties. They’ll have the option of buying without gutting their finances or stuffing the bulk of their net worth in a single asset. Less risk. More gain. More choices. If they want a kid, no issues. A townhouse is fine. Children don’t care unless you infect them with the same real estate fetish you suffer from. So, don’t.

How many people in this nation, J&D, would gladly trade places with you? Millions, likely. Young, professional, debt-free and high-income, on the way to life-long financial security and living cheap yet well in a beautiful city. What would make you screw this up?

House lust. Get over it.

About the picture: “In response to your urgent call out, here’s a photo of our best dog ever – Sydney  – a Shiloh Shepherd,” writes Gary in Bayfield, Ont. “We picked her out from the litter in New Jersey with the aid of a “puppy cam” and flew her to Toronto. This was over 20 years ago when the breed was hard to find.”

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

Source: https://www.greaterfool.ca/2024/10/08/all-that-matters/