The plunge

One thing the nihilists in the steerage section don’t get it that we’re dealing here with humans.

People want stuff. Regardless of the economy, interest rates, reciprocal tariffs, the Epstein files or corruption in Ukraine. They want sex, kids and real estate – usually in that order. So the housing market woes that this pathetic blog has described in recent days cannot douse the smouldering desire to own property. Even when it’s a bizarre idea.

That, of course, brings us to Kevin.

Kevin here. I have been a silent blog dog for a few years, but today I’m here for some advice that I should probably already know the answer to…

I am 32, single, living downtown Toronto, and renting a 1 bedroom loft at a comfy covid price of $2k/month. I work north of the city, in office full-time, and finally feel like MAYBE it’s time to grow up and move closer. I have my eye on a recently renovated, 3 bedroom, $1M listing in Bolton, that backs onto a forest. It was recently reduced from $1.28M.

I have an income of $180k salary, and the potential to earn a significant bonus. I have $320K invested, for which I would consider withdrawing $250K to put down. Looking for some honest advice on what to do next, and I can’t think of anyone better to get that from than you (and maybe the comments).

Bad idea, Kev. Coming here for advice, we mean. There is only heartbreak and humiliation ahead.

First, understand there’s a reason the dude in Bolton (a Bunnypatch town an hour’s drive from the Big Smoke, up the Escarpment into the snow belt with coyotes and bears) has reduced the ask by a quarter million dollars. There are no buyers at the moment. There is little appetite for hick towns where Covid pricing wiped away the one advantage they posed – cheap living. And economic uncertainty stalks the land. In other words, buying today – even at this ‘discount’ from ridiculous valuation – might not bring any capital gain for years to come.

Second, is this really a good time to drain your precious portfolio by 80% just so you can go deeply into debt and seriously increase your living costs? As we’re about to show you, the days of saving heaps of your take-home income will be over, pronto, if you make this move.

And, third, you’d better love Bolton. Like, a lot. For a very long time. Because you might be captive there, after trading your freedom, flexibility and mobility for a mortgage and a property that cold be just as hard to sell in the future as the current dude is discovering now.

So are you the greater fool? Let’s do the math.

If you buy for a million, you must also add in land transfer tax (even after the first-time buyer discount), legals (make sure you buy title insurance) and a few bucks for closing costs. That comes to $18,000.

Deducting the hefty $250,000 deposit (and there will likely be capital gains taxes to pay as you eviscerate the investment portfolio), that leaves a mortgage of just under $770,000. Plus, you’ll need a lot more furniture than sits in your loft. Budget for that.

Ownership costs will include the mortgage payment, which is $4,343 at the current five-year fixed rate. You’ll need about $300 a month for house insurance, plus property tax in the Town of Caledon (where Bolton lives) will be $743 a month on a million-dollar assessment.

Now you’ve also got to factor in the deposit. After all, a quarter million dollars should earn at least 6% (in reality, much more lately). So by throwing it against the property, you have an opportunity cost of $1,250 a month.

Add it all up, Kevin. Yes, it’s $6,636 a month, which is more than three times what you pay now. The immense ownership premium of $4,600 a month means an annual cost exceeding $55,000 – in after-tax income.

But, Kev cries in pained rebuttal, real estate always goes up. So that extra boodle I’m paying will come back to me later in tax-free capital gains, right?

Maybe. Maybe not. All we know is that over the five-year life of your mortgage the additional amount you’d pay to own rather than rent is $276,000. That means you’d need to find another greater fool willing to pay $1.4 million for your place (after selling costs) merely to break even.

But over those years, what if you change jobs? Get replaced by AI? Or find a babe who’d rather go clubbing than chase groundhogs out of the shrubs?

Be careful, Kevin. This changes everything.

About the picture: “I’m sending you pictures from the state of Jalisco, Mexkico,” writes Dylan, “that were taken at small ranches. Maybe the Donkey reminds us of someone?”

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