Count your blessings

Not sure if Arjun and his family celebrate Christmas, so we’ll dispense with talk of the fat old white guy in the red PJs and plastic boots, and dwell on what really matters. Financing your house. And your life

First the universal, non-denominational MSU: “A friend recommended I check out your blog a few years ago,” he writes, “and I have been a daily reader ever since. I just want to start off by saying thank you for everything that you do, your free advice is much appreciated and I look forward to reading everyday.”

Turns out A is a second-gen Canadian whose parents came here (when the locals were still toleratnt and welcoming) in the Eighties. “They did not have the know-how to teach me anything about investing or finances. Everything I know I had to learn on my own and your blog has helped a lot with that.”

He’s 36. The squeeze is 34. A pair of wrigglers under four. Both husband and wife earn a little over $150,000 a year, living in the Okanagan. By the way, in this cold country that income puts this young family in the top few percentage points of the population. There are 28 million tax filers in Canada. Just over one million of them earn $150,000 or more. We often thing we’re a richer country than reality confirms.

Anyway, A and his family are doing well by almost all measures. House purchased in 2020, when rates were low and before prices erupted. Mortgage renews in 2026, when $500,000 will be up for refinancing. Current savings total $150,000 in an RRSP and a hundred grand in TFSAs.

My question for you is about our home equity. It has ballooned post covid and our home is now appraised at 1.2 million. Our mortgage is $3000 a month, we receive $1300 in rent to subsidize this from the 1 bedroom basement suite downstairs.

Do I sell my home to a greater fool? Become a renter and Invest the 500-700K in equity? Or do I keep plugging along maxing out my tax free shelters and be mortgage free hopefully in 15 years.

Renting is quite expensive in my area, so our monthly payments would go up substantially, but obviously offset by the gains we would be making on our investment portfolio. Would love to hear your thoughts.

Sure. First, you are in the top 5% of Canadian households and the upper 2% of people in your age group for income. Ditto for net worth, but this is largely because of the swelling of the house value, which was pure luck. But an unearned gain is still a gain. So take the win.

Should you sell something that is costing you less than two grand a month, shelters your family and will likely appreciate further in order to pry out tax-free investment capital?

No. Not with two small kids and living in an area where rentals are scarce, expensive, unpredictable and often dodgy. Besides, having financed back in the days of Covid your mortgage is likely cheap, while equity growth has been historic. There’s no reason to foresee a real estate collapse now that the CB is aggressively easing, Even a Tariff Man-induced recession is unlikely to knock house prices down, since that may also bring further rate reductions.

But, second, you’re not saving or investing enough of a family income which is north of $300,000, even without the tenant. Your after-tax income is greater than $220,000, or almost $20,000 a month. Of that, the house financing costs (less rent) are only $1,700. Sure, kids are expensive, and so are cars, food and utilities. But with discipline you could still be socking away up to ten thousand a month – in RRSPs, TFSAs, RRESPs and a joint non-reg account.

Follow this blog’s boring but sexy advice of stuffing those accounts with liquid, low-cost and highly diversified ETFs. In five years your liquid net worth could grow to almost $1 million, while you continue to live in an affordable house, even with some dude in the basement. Hopefully his doesn’t own red pajamas. Just sayin’.

About the picture: “Merry Christmas Garth!” says Jeff. “Thanks for all you and your colleagues do to keep us educated on what effects  our hard earned money. Roxy thanks you as well because she gets spoiled with fruits of your labour.”

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