Debt management (article linked)

[Bloor]

I seem to have missed discussion on the Globe and Mail article linked below:

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/medical-resident-should-pay-debt/article15964775/

 

Any thoughts from guys and gals higher up on the food chain? Where does an R1 begin? I'd thought about buying a condo right now but the article makes it seem like debt reduction is the way to go.

 

I had one quip:

Brian's monthly bills seem shockingly low...a true master of financial discipline. Perhaps you're on this forum and would like to comment.

 

 

- Cheers

[BoyInTheBubble]

Interesting article but a bit deceiving. Lots of factors to consider.

 

Renting or buying is more of an emotional decision than anything. Do you want your own place? Can change it as you please, but you have to fix it. Or do you want to have a list of all the important numbers and call your landlord/plumber/whoever to fix it and not worry if you rent. Are you planning on moving in 2-3 years (eg after family med or a subspecialty match)? Toronto and Vancouver are more expensive to buy but also more likely to appreciate in value than say London or Halifax.

 

Housing may be a hassle you don't want regardless of whether you end up ahead financially.

 

You're an R1 and will one day be rich. Seriously there are no poor doctors. That article talks about "Brian's" debt. He has 5000 student debt. When you compare those amounts to future earnings, it's nothing. Even 50000 seems like a lot relative to R1 income but it will drop in a hurry. Yes, live within your means and all that. But this guy pays $400 dollars a month on rent.

 

You can't buy a house and pay that little. And most people (residents especially) rent an apartment for more than that. Sounds like he's sharing a house? That or he doesn't realize or didn't include all of his expenses properly. He spends 60 dollars a week on food and clothes combined? Cheap cellphone with no internet or tv.

 

His 3400 per month surplus will pay off his debt by the end of the year. So if he changes nothing, he'll have no debt to bank or parents. And 10000 at the end of the year to invest. And 40000 to invest next year.

 

The article is fluff. It has no details, or he leads a very plain life.

 

Going to live somewhere for 5 years? Buying can be good (but depends on what you have available for a downpayment.) If you don't spend 50000+ on a downpayment and invest all your money (minus rent), you'll accumulate a big chunk. Depending on where you put your money, it could be more than buying a condo (after you've sold it, paid lawyers/RE fees, taxes, yada yada).

[NLengr]

Interesting article but a bit deceiving. Lots of factors to consider.

 

Renting or buying is more of an emotional decision than anything. Do you want your own place? Can change it as you please, but you have to fix it. Or do you want to have a list of all the important numbers and call your landlord/plumber/whoever to fix it and not worry if you rent. Are you planning on moving in 2-3 years (eg after family med or a subspecialty match)? Toronto and Vancouver are more expensive to buy but also more likely to appreciate in value than say London or Halifax.

 

Housing may be a hassle you don't want regardless of whether you end up ahead financially.

 

You're an R1 and will one day be rich. Seriously there are no poor doctors. That article talks about "Brian's" debt. He has 5000 student debt. When you compare those amounts to future earnings, it's nothing. Even 50000 seems like a lot relative to R1 income but it will drop in a hurry. Yes, live within your means and all that. But this guy pays $400 dollars a month on rent.

 

You can't buy a house and pay that little. And most people (residents especially) rent an apartment for more than that. Sounds like he's sharing a house? That or he doesn't realize or didn't include all of his expenses properly. He spends 60 dollars a week on food and clothes combined? Cheap cellphone with no internet or tv.

 

His 3400 per month surplus will pay off his debt by the end of the year. So if he changes nothing, he'll have no debt to bank or parents. And 10000 at the end of the year to invest. And 40000 to invest next year.

 

The article is fluff. It has no details, or he leads a very plain life.

 

Going to live somewhere for 5 years? Buying can be good (but depends on what you have available for a downpayment.) If you don't spend 50000+ on a downpayment and invest all your money (minus rent), you'll accumulate a big chunk. Depending on where you put your money, it could be more than buying a condo (after you've sold it, paid lawyers/RE fees, taxes, yada yada).

 

Honestly if you can survive residency without accumulating more debt you are doing good.

 

This article was junk. Not realistic for 99% of resident and even for the 1%, I don't think the numbers are that accurate.

[elmocookie]

I personally think paying off debt in residency is flat out stupid.

 

You've just finished medical school and have a gruelling 5 years ahead of you that requires you to be healthy and happy. You can either a) live like an undergrad saving 3k/month, eating KD and sharing a room with 5 other hippies, or dip 120-180k into your LOC to invest in a property, live a normal life paying a mortgage at say 1000-1500/month (which is what rent costs anyway in cities like TO/Vancouver) and be a lot more content overall with your quality of life.

 

The debt will come off so quickly as a staff and is payment free as a resident. Ergo, it is free money. Trying to save as a resident to afford a DP or pay off debt is impractical in most large cities and I wouldn't recommend it.

 

As an example, my partner and I bought a nice house together, share a car payment on a nice car, etc. Our mtg is 2500/month and car payment 500. So split two ways, I pay 1250/month + 250 month on car. The DP for the house was from my prior investments as a grad student but alternatively could have used an LOC loan for this. I have 110k used on LOC for living expenses in med school. My alternative was to pay off the 110k, not buy a house, and live like a student for another 5 years. Wasn't gonna happen.

This way, when residency is done, I take a chunk of cash of a staff's salary, pay off the LOC in 2 years, and badda bing I have my house that's appreciated over 5 years, and a life that's set up.

 

This is as an R1 in a dual income household with no children and a partner who makes ~75k.

 

Long story short I think paying off debt is a good idea in most areas other than medicine. I think you're just in such a different place financially in 5 years that it makes no sense to strap yourself so thin that your resident life is miserable. The debt is a fraction of a staff salary but a huge proportion of a resident's. Just my thoughts.

[BoyInTheBubble]

The debt is a fraction of a staff salary but a huge proportion of a resident's. Just my thoughts.

 

This is very important.

 

I would not buy a house (or condo) for the sake of getting ahead financially at this point. Buy a house if it's appropriately priced AND the lifestyle you want. Lots of extra tasks with owning, and often costs. But people like having a home that is their own. If you don't, rent an apartment that suits your needs.

 

For the guy in article, it was 400/mth room. I would not like going back to that (even though it was great in undergrad). You (the OP), simply put, aren't at the stage of your life where real estate is an investment.

[elmocookie]

This is very important.

 

I would not buy a house (or condo) for the sake of getting ahead financially at this point. Buy a house if it's appropriately priced AND the lifestyle you want. Lots of extra tasks with owning, and often costs. But people like having a home that is their own. If you don't, rent an apartment that suits your needs.

 

For the guy in article, it was 400/mth room. I would not like going back to that (even though it was great in undergrad). You (the OP), simply put, aren't at the stage of your life where real estate is an investment.

 

I'm not sure I agree with this at all.

 

Buying real estate is always an investment, particularly in markets like Vancouver and Toronto. I have made a couple hundred grand on appreciation of real estate that I made small DPs on and carried as a mortgage simply by the appreciation of the property. The real estate market is strong (though I think the Toronto condo market is about to bust due to inventory massively outstripping demand) but the housing market is and always will be an extremely safe and sound investment pretty much guaranteed to bring you a rate of return at 4% per annum minimum (much more in sought after areas).

 

My advice is to do anything you can to get into the market so you have a tangible asset and your residency income is going towards the principal amount on the property as opposed to being flushed down the toilet as rent.

 

Edit: you do need to know how to do this properly. I bought and sold comfree, saved myself 50k in commission fees. Lawyer fees are not expensive (for a purchase transaction MAX 1500 bucks)...you're absolved of land transfer tax (lucky, I wasn't!) so there are minimal fees associated with buying. Just make sure you can carry the mortgage.

[BoyInTheBubble]

I'm not sure I agree with this at all.

 

Buying real estate is always an investment, particularly in markets like Vancouver and Toronto. I have made a couple hundred grand on appreciation of real estate that I made small DPs on and carried as a mortgage simply by the appreciation of the property. The real estate market is strong (though I think the Toronto condo market is about to bust due to inventory massively outstripping demand) but the housing market is and always will be an extremely safe and sound investment pretty much guaranteed to bring you a rate of return at 4% per annum minimum (much more in sought after areas).

 

My advice is to do anything you can to get into the market so you have a tangible asset and your residency income is going towards the principal amount on the property as opposed to being flushed down the toilet as rent.

 

Edit: you do need to know how to do this properly. I bought and sold comfree, saved myself 50k in commission fees. Lawyer fees are not expensive (for a purchase transaction MAX 1500 bucks)...you're absolved of land transfer tax (lucky, I wasn't!) so there are minimal fees associated with buying. Just make sure you can carry the mortgage.

 

If you made "a couple hundred grand" on your multiple housing properties, you likely aren't about to start residency AND ask for advice on a public forum after reading an article in the Globe and Mail. So you're in a very different situation.

 

If you leave town after two or three years of residency, buying a house usually isn't worth it. If you do residency in Hamilton, and end up moving to Alberta...you may not want to keep the property as a landlord. It's a personal decision (as in, would you want that type of hassle).

 

You saved 50k in commission fees? Did you sell a million dollar property or just get ripped off?

 

Housing should only be considered an investment if you are prepared to sell it and move. Otherwise it's not a liquid asset. Considering your primary home as part of your net worth is fooling only yourself.

 

Pretty much everyone with investments made 20+% in 2013. Houses did not! If you bought a house in 2013, you probably made less money than you would have investing the downpayment. So, its a bit more complicated than "do anything you can to get into the market"

[estairella]

I'm not sure I agree with this at all.

 

Buying real estate is always an investment, particularly in markets like Vancouver and Toronto. I have made a couple hundred grand on appreciation of real estate that I made small DPs on and carried as a mortgage simply by the appreciation of the property. The real estate market is strong (though I think the Toronto condo market is about to bust due to inventory massively outstripping demand) but the housing market is and always will be an extremely safe and sound investment pretty much guaranteed to bring you a rate of return at 4% per annum minimum (much more in sought after areas).

 

My advice is to do anything you can to get into the market so you have a tangible asset and your residency income is going towards the principal amount on the property as opposed to being flushed down the toilet as rent.

 

Edit: you do need to know how to do this properly. I bought and sold comfree, saved myself 50k in commission fees. Lawyer fees are not expensive (for a purchase transaction MAX 1500 bucks)...you're absolved of land transfer tax (lucky, I wasn't!) so there are minimal fees associated with buying. Just make sure you can carry the mortgage.

 

This is such bad investment advice. Real estate does give you about 4% on average (5-6% in hot markets like Vancouver and Toronto).. i.e. barely outstripping inflation and certainly not better than the historical stock market.

 

Furthermore, this idea that you "made" a few hundred grand only with a "small" down-payment is misleading at best. When you treat real estate as an investment, the mortgage is acting as your leverage.

 

If I had $50k - 5 years ago, I could have put 10% down on a 500k house. The house would be worth about 700k today so I "made" 200k in extra equity. On the other hand, if I had put $50k in a 1:10 leveraged ($500k) margin account and put it all in the S&P, I would have about $1 million today, making $450k in extra equity!

 

Wow! So amazing! Except in both cases, if real estate stalls (see US housing crash) or the market does (see 2008 market), you're boned.

 

I wholeheartedly agree that for most people a LOC is a great deal (prime rate which is at historic lows) and you don't necessarily want to pay it off if there are better areas to put your money (i.e. investments, high loan % debt). For many people, a mortgage does make sense (there are plenty of rent-vs-buy calculators out there). But unless you know what you're doing (which most people don't), don't treat it as an investment.

[elmocookie]

If you made "a couple hundred grand" on your multiple housing properties, you likely aren't about to start residency AND ask for advice on a public forum after reading an article in the Globe and Mail. So you're in a very different situation.

 

If you leave town after two or three years of residency, buying a house usually isn't worth it. If you do residency in Hamilton, and end up moving to Alberta...you may not want to keep the property as a landlord. It's a personal decision (as in, would you want that type of hassle).

 

You saved 50k in commission fees? Did you sell a million dollar property or just get ripped off?

 

Housing should only be considered an investment if you are prepared to sell it and move. Otherwise it's not a liquid asset. Considering your primary home as part of your net worth is fooling only yourself.

 

Pretty much everyone with investments made 20+% in 2013. Houses did not! If you bought a house in 2013, you probably made less money than you would have investing the downpayment. So, its a bit more complicated than "do anything you can to get into the market"

 

I don't know why you're being so obnoxious about this. Yes, I made "a couple hundred grand" -- I sold two properties making 100k on each. It's not rocket science dude -- You live in a place 4-5 years it appreciates. You make upgrades to the home if you're reasonable savvy - put in new fixtures, doors, etc and people pay a premium. So yes, it IS an investment. Not only is it an investment, but it's an investment that SUBSTANTIALLY improves your quality of life - I.e, you get to live in the home. Sure, are there higher yield options for investing 50-100k, obviously yes there are. But in general, they are higher risk, AND you don't see any of the immediate benefits. You're living a very modest lifestyle while your investment appreciates. Meantime, by the time it does mature, you're staff, and a few extra hundred grand is equivalent to 6 months salary. So who cares at that point?

 

Also, you obviously don't know all that much about real estate if you think saving 50k is equivalent to being "ripped off" or selling a million dollar home. I had no agent. Commission on a sellers agent is 2.5%. I sold one property paying only 2.5% to a buyers agent. Second property I sold to someone who didn't have a buyers agent. Ergo, saved 5%. Third, I bought a home with no agent, and didn't have one myself, ergo saved another 5% on purchase price of that place. Add it all up. I can PM you the actual numbers if need be. Along with photos of the house. It's 3000 sq ft in an extremely desirable neighbourhood. I guess my "bad investment advice" is what got me there...?

 

Considering your primary home as part of net worth is fooling yourself?! Are you insane? 99% of people consider this to be by far their most valuable asset. Where do you get your financial advice from? What do you have to your name that shows your credibility in making sound financial decisions, just out of curiosity?

 

Bottom line - YES. It depends what market you are in. Small market properties will not bring you guaranteed return AND if you're in a short residency program it may not bring you anything. But to argue that a property in Toronto or Vancouver is bad advice, that's just wrong.

[elmocookie]

This is such bad investment advice. Real estate does give you about 4% on average (5-6% in hot markets like Vancouver and Toronto).. i.e. barely outstripping inflation and certainly not better than the historical stock market.

 

Furthermore, this idea that you "made" a few hundred grand only with a "small" down-payment is misleading at best. When you treat real estate as an investment, the mortgage is acting as your leverage.

 

If I had $50k - 5 years ago, I could have put 10% down on a 500k house. The house would be worth about 700k today so I "made" 200k in extra equity. On the other hand, if I had put $50k in a 1:10 leveraged ($500k) margin account and put it all in the S&P, I would have about $1 million today, making $450k in extra equity!

 

Wow! So amazing! Except in both cases, if real estate stalls (see US housing crash) or the market does (see 2008 market), you're boned.

 

I wholeheartedly agree that for most people a LOC is a great deal (prime rate which is at historic lows) and you don't necessarily want to pay it off if there are better areas to put your money (i.e. investments, high loan % debt). For many people, a mortgage does make sense (there are plenty of rent-vs-buy calculators out there). But unless you know what you're doing (which most people don't), don't treat it as an investment.

 

You're not seriously suggesting that investing in the stock market is a safer investment than real estate are you? Talk about misleading.

 

Why do you two have such difficulty believing that it's possible to make 100k selling a home, and that I've done that twice in 4 years? Have either of you ever even owned a home? To the average homeowner this is a MODEST appreciation. No sensible person who has been in the market would suggest this is outrageous in any sense whatsoever.

[BoyInTheBubble]

Whatever. Houses need time to appreciate, improvements, and your own time. You are content selling your home and moving every 2 years. Then as I said initially, you can consider it an asset since you are prepared to move to have the cash. Otherwise it's not a liquid asset. A soon-to-be first year resident might not know where they are going to be in 3-5 years, let alone have an interest in replacing fixtures and floors.

 

Others might know they will be there forever, and its a good idea. It's just not all it's hyped to be.

 

Wealthy people don't include the value of their home. 99% of people are dumb (or poor) if I were to believe your stats. They are tied to their house, not wealthy because of it. Your house appreciates with the value of your neighbour's house too. If you are going to sell it in 20-30 years, you need to move somewhere cheaper. Either smaller, or less desirable (otherwise you would have likely been living there already....). Then after real estate fees (which you don't have to pay), taxes, lawyers, moving, yadda yadda, your "profit" dwindles away.

 

Maybe I'm worth 1 million? (And it's all cash!) Maybe I have a 5 million property management company? Maybe I'm a naive student that's 100 000 in the hole? It's irrelevant.

 

PS A renter with a million in the bank or a house worth a million? It's no contest!

[bloh]

I personally think paying off debt in residency is flat out stupid.

 

You've just finished medical school and have a gruelling 5 years ahead of you that requires you to be healthy and happy. You can either a) live like an undergrad saving 3k/month, eating KD and sharing a room with 5 other hippies, or dip 120-180k into your LOC to invest in a property, live a normal life paying a mortgage at say 1000-1500/month (which is what rent costs anyway in cities like TO/Vancouver) and be a lot more content overall with your quality of life.

 

The debt will come off so quickly as a staff and is payment free as a resident. Ergo, it is free money. Trying to save as a resident to afford a DP or pay off debt is impractical in most large cities and I wouldn't recommend it.

 

As an example, my partner and I bought a nice house together, share a car payment on a nice car, etc. Our mtg is 2500/month and car payment 500. So split two ways, I pay 1250/month + 250 month on car. The DP for the house was from my prior investments as a grad student but alternatively could have used an LOC loan for this. I have 110k used on LOC for living expenses in med school. My alternative was to pay off the 110k, not buy a house, and live like a student for another 5 years. Wasn't gonna happen.

This way, when residency is done, I take a chunk of cash of a staff's salary, pay off the LOC in 2 years, and badda bing I have my house that's appreciated over 5 years, and a life that's set up.

 

This is as an R1 in a dual income household with no children and a partner who makes ~75k.

 

Long story short I think paying off debt is a good idea in most areas other than medicine. I think you're just in such a different place financially in 5 years that it makes no sense to strap yourself so thin that your resident life is miserable. The debt is a fraction of a staff salary but a huge proportion of a resident's. Just my thoughts.

I do have to agree with Nlerg that this article was trash. This isn't representative of many residents. There's 2 type of students: him who clearly had everything paid for by parents and those that didn't. And doing a financial analysis on this guy is pure stupid. Anything he does is a fine choice: TFSA, RRSP, paying back parents. None of them make a difference. Pick a person with 150k in debt spread across provincial, federal loans and LOC and then redo the scenario.

 

Those that went through it alone (such as myself and many others) are out there with 100-200,000 debt.

 

Not sure why you have to live "like a student" as a resident. In Alberta, R1 pay is 55,000. This is going to be tax-free with all the tuition credits.

You have to subract about 3000 for EI and CPP leaving you about 52,000.

 

Here's my budget:

1100 mortgage, tax fees (x2 for the partner)

400 for car insurance, gas, phone, electricity, cable, internet, CMPA fees etc

400 food

300 LOC interest

700 Canada student loan

 

TOTAL = 2900 per month

This is about 35,000 total leaving me another 18,000 To live on.

Personally I plan to only use the other 8000 (~650 disposable income for things other than food) and put the other 10,000 on the LOC. This doesn't even count the fact that you'll get a bunch of money from your call stipends.

 

Ultimately goal is to reduce debt by about 40,000 through family residency.

[bloh]

You're not seriously suggesting that investing in the stock market is a safer investment than real estate are you? Talk about misleading.

 

Why do you two have such difficulty believing that it's possible to make 100k selling a home, and that I've done that twice in 4 years? Have either of you ever even owned a home? To the average homeowner this is a MODEST appreciation. No sensible person who has been in the market would suggest this is outrageous in any sense whatsoever.

 

I think they're more curious as to why you still have 110k on your LOC if you've made at least 200,000 in previous transactions. Dot dot dot

[elmocookie]

I think they're more curious as to why you still have 110k on your LOC if you've made at least 200,000 in previous transactions. Dot dot dot

 

And that is a totally fair question -- the reason being that my ability to pay off the debt as a staff will be easy, since the discrepancy between staff income and residency income is so large. Here were my two options:

 

1) Pay off the LOC with the sale of my house -- (I used previous house profits to pay my own way through med school) so effectively I would be in a situation of no debt at all, but also have depleted (most) of my downpayment for my house. So I'd be sitting around at say 50-75k in the bank, no other assets, but also no debt.

 

2) Use the full profit of the house to buy a new home, worth a lot more, take out a new mortgage, and leave the LOC to be paid off as a staff in years 1 or 2.

 

So let's fast forward five years -- Here I am now as a staff (I'm not really a staff this is a hypothetical):

 

In scenario 1: My house has appreciated at say 5%/year (In all likelihood it will actually be more because of the area it's in etc, but anyway)...(I bought the house for about 900k)....the house is now roughly worth 1.2 mil just on property appreciation alone - not including any work that is done on it as I am living there. On top of it, I am living in the house, enjoying my life as a resident etc. I take 50-80k of staff salary per year (which is probably about 20-30% max) and pay off the LOC in the first two-three years...at which point my house is now appreciated a further 100-200k to say 1.3 mil...I'm a third year staff with no debt and a 1.3 mil house...I sell the house (say 8 years total now after having lived there...walk away with 700k, and buy a new home, worth say 2.5 mil, and carry the mortgage as a third year staff...

 

In scenario 2: I have a little money accumulated from saving during residency plus the 50k I started with and I buy myself a 6-700k home...meantime I have been renting a one bedroom apartment as a resident, my 50-60k has say been in a GIC at 1% (or I put it in the market and lost it) and I am no worse for wear...would I be comfortable, probably...would I be happy? No.

 

This isn't all to sound materialistic or conceited or whatever. Label it how you want. I'm fine with it. The bottom line is I am a bit older than the average (having gone to grad school and invested wisely in real estate during it) and am only trying to demonstrate that yes, real estate is a valuable asset in a solid market, and yes, you have to be prepared to move every few years to tangibly reap the rewards.

[bloh]

So you used the 200,000 to put a downpayment on an exhorbitantly expensive property (900k) and are now carrying a 700, 000 mortgage plus 110,000 on your line of credit. I'm not going to argue with you about the merits of doing this because real estate gets people overly emotional but I'll put in my input for other people so they can learn and go other way.

 

 

1. Real estate does not make people rich over the long-term. [some] People in the last 15 years got lucky due to an overinflated bubble. But more people have gotten rich off saving and investing in the market.

 

2. Real estate will see a correction soon. The % people that own a home in canada is now at a staggering 69%. The USA is at 64%. When the bubble burst in 2006/7 in the USA, the home ownership was at 69%. Interpret that how you will.

 

3. USA and Canada home values were on similar trajectories up to 2006. Then USA crashed and since then Canada has been trending upwards and is now more costly by 66% than the states. Interpret that how you will.

 

3. Current borrowing rate is 3%. If you double that to 6%, your monthly mortgage payment goes up by 30%. Interest rates will go up (see bank of canada promise). Interpret that how you will.

 

4. I will always encourage people to purchase a home for the sake of shelter. When people start theorecrafting about yearly increases in value, I shake my head and walk away. Disclosure: I purchased a home as a resident worth ~400,000 (i.e. my mortgage is 340,000, not 700,000). My partner makes more than twice my resident salary.

 

5. You will get bred which will ruin your carefully crafted plans.

 

6. Unless your partner is a physician in a stable job, she/he may lose their job which will ruin your carefully crafted plans.

 

7. Live within your means! 700,000 mortgage on a 50,000 salary is not it.

[BoyInTheBubble]

Of course your interpretation includes that your house goes up in value by 5% (AT LEAST!) every year, while investments get 1% OR WORSE! At one point it was a house can appreciate 100k in 4-5 years, but you did it twice in 4 years!

 

Anyways, you have to move houses to see the appreciation. To get that money for other spending once you've paid off your 2.5 million home, you need to downsize... and buy cheaper. Bigger house gets bigger bills and fees and taxes and so on.

 

Anyone who had money in the markets in the 08/09 crash has more money now if they left it there and didn't touch it. Anyone who had usable cash in 08/09 and spent it will have enjoyed massive gains - significantly more than the value of any price jump for a condo in Toronto.

[elmocookie]

So you used the 200,000 to put a downpayment on an exhorbitantly expensive property (900k) and are now carrying a 700, 000 mortgage plus 110,000 on your line of credit. I'm not going to argue with you about the merits of doing this because real estate gets people overly emotional but I'll put in my input for other people so they can learn and go other way.

 

First of all, 900k is not exorbitantly expensive, and I suggest you do the math. Just because you don't have an asset of that value that will continue to appreciate, you don't need to condemn others decisions. You are talking about a mortgage shared by a couple who bring in north of 8k/month after tax...The mortgage is less than 30% of that...Do the math on what people are spending on rent my friend -- in Toronto, you are looking at 1500 or more for a decent sized place...my mortgage payments are LESS than what it was costing me to live in a condo in midtown Toronto...and it's going partially towards the principal on the property. Will I pay down the mortgage? In all likelihood I wont. It's a variable rate buddy. I sell the home after a period of time, pay off the mortgage in its entirety, pay a measly 3 months of interest penalty and go on my merry way, having doubled, tripled, or quadrupled my initial downpayment. Show me a reliable mutual fund or stock where you are guaranteed to get that kind of return.

 

1. Real estate does not make people rich over the long-term. [some] People in the last 15 years got lucky due to an overinflated bubble. But more people have gotten rich off saving and investing in the market.

 

I suggest you look at the overall picture of financial stability of putting your money in the market vs. in a home. How many people lost their savings due to poor investments, vs. purchasing a carefully selected property in a high-demand city like Toronto or Vancouver? On the whole, sure, SOME people made a killing in the market -- but that is a substantially smaller number than those people who made money on their homes. In the last 20 years, the real estate market has been a much better investment.

 

 

2. Real estate will see a correction soon. The % people that own a home in canada is now at a staggering 69%. The USA is at 64%. When the bubble burst in 2006/7 in the USA, the home ownership was at 69%. Interpret that how you will.

 

You cannot simply equate statistics in all of Canada equally. There are strong markets and there are weak markets. Would I buy a home in Moose Jaw or Cornwall? No. You have to look at individual markets in individual cities. There is ZERO evidence of the Toronto or Vancouver housing markets destabilizing in any sense whatsoever. Comparing to the US is apples and oranges.

 

3. USA and Canada home values were on similar trajectories up to 2006. Then USA crashed and since then Canada has been trending upwards and is now more costly by 66% than the states. Interpret that how you will.

 

See above.

 

3. Current borrowing rate is 3%. If you double that to 6%, your monthly mortgage payment goes up by 30%. Interest rates will go up (see bank of canada promise). Interpret that how you will.

 

Dude, what planet are you on? Do you even follow the bank of Canada? IF interest rates go up it will be by MAX a quarter of a point, not double to six percent. Were you even alive the last time interest rates were that high? Do you have any concept of what drives interest rates up? They just DROPPED and the mortgage qualifying rate is down a quarter of a point.

 

4. I will always encourage people to purchase a home for the sake of shelter. When people start theorecrafting about yearly increases in value, I shake my head and walk away. Disclosure: I purchased a home as a resident worth ~400,000 (i.e. my mortgage is 340,000, not 700,000). My partner makes more than twice my resident salary.

 

Why do you walk away shaking your head when people suggest their property in increasing in value? Do you know which homes appreciate the most in value? The ones that are the most expensive. It's not my fault you chose to buy a less than desirable property. I have no idea where you live, but for 400k, you couldn't even buy a dog house in TO or Van.

5. You will get bred which will ruin your carefully crafted plans.

 

By the time I have kids there will be more than enough money.

 

6. Unless your partner is a physician in a stable job, she/he may lose their job which will ruin your carefully crafted plans.

 

This is just laughable. How conceited are you? Only physicians have stable jobs? You're right, no one should make financial decisions at all because what if they lose their job, right? Dude, a) My partner is at the top of her field, and there is no chance she will lose her job. But simply suggesting I not purchase a home because she could lose her job is just.... ...its a damn good thing you aren't a financial planner.

 

7. Live within your means! 700,000 mortgage on a 50,000 salary is not it.

 

Again - we are talking about 650k shared between two people with an annual income north of 100k after tax...That is not only within our means, it leaves surplus...

 

My advice -- go look up a reallife ratio and punch in some numbers. The proof is in the pudding...there is no argument here. I started with an investment of 100k saved. That 100k is now 300k. And that 300k is now in a home that will continue to go up in value. I also paid for medical school myself. And I live in a beautiful home that is soon to be north of a million dollars without financial strain. What exactly are we arguing about here? Your arguments are "what if interest rates go up and your wife loses her job?" Newsflash dude, that can happen to anyone.

[GrouchoMarx]

The Vancouver and Toronto housing markets are inflating due to purchases by wealthy Oriental and Middle-Eastern nationals. The prices in the parts of those cities that have value are far above what one of middle-class means could pay or mortgage.

[elmocookie]

I also recommend people look at the following if they are truly interested in home ownership:

 

The Real Life Ratio

 

The Real Life Ratio shows home buyers how well they will be able to manage the fixed cost of owning a home, owning cars, paying daycare costs and keeping up their savings while having money left over to spend. Use this spreadsheet to look at different scenarios before you buy, or use it to look at how your finances might be affected if you had kids, bought a new car or increased your saving.

 

 

Fill in the blanks:

 

A: Income

Net monthly household income

 

 

 

B: Housing

Monthly mortgage payments

 

Monthly property tax amount

 

Monthly home insurance amount

 

Monthly utilities

 

Condo fees

 

Total housing costs

 

 

 

C: Cars and other debts

Monthly loan/lease payments

 

Monthly car insurance amount

 

Other monthly debt payments

 

Total car & other debt costs 0

 

 

 

D: Daycare

Total monthly costs

 

 

 

E: Long-term saving for retirement and children's education

10 per cent of your monthly take home pay (or more)

 

 

F: Home maintenance and upkeep

1 per cent of the value of your home per year

 

Notes

A: If you get paid biweekly, multiply your pay by 26 and divide by 12 for a monthly number

B: Condo fees include varying amounts of utility costs; mind that you don't double count

C: Other debts include line of credit payments, loans and credit cards

D: A rough average cross-Canada daycare cost for infants, toddlers and pre-schoolers is $725, with Ontario and B.C. residents paying more and Quebecers paying much less

E: The more you cut back here, the more you'll need to save later in life

F: Based on the idea that your total spending on things like new appliances, a new furnace, a new roof and other improvements will average out to 1 per cent of the value of your home over time

 

 

Your Real Life Ratio is …

This is the percentage of your take-home pay that will be used up by the expenses listed above.

 

 

What it means …

This is the percentage of your paycheque left over to pay for food, clothing, transportation, kids' activities, entertainment, travel, life and health insurance premiums etc.

 

 

Interpreting your Real Life Ratio

 

75 or less: You can do this

76 - 80 Proceed with caution

81 - 85 Go back and see where you can cut costs

86+ Financial stress overload

[elmocookie]

The Vancouver and Toronto housing markets are inflating due to purchases by wealthy Oriental and Middle-Eastern nationals. The prices in the parts of those cities that have value are far above what one of middle-class means could pay or mortgage.

 

Please do not confuse the condo market and the housing market. These are two totally different beasts.

[bloh]

Elmcookie sure got emotional when people put up some numbers, as I expected.

 

Things are only worth something if there's a buyer for it. And with rising interest rates (over the next 4-5 years - I must be explicit because you grasp at straws) and the fact that CMHC will not insure property over a million, the number of people that can even think about purchasing it will dwindle. Good luck and use condoms!

[GrouchoMarx]

Please do not confuse the condo market and the housing market. These are two totally different beasts.

 

But both are being inflated by wealthy internationals, beyond the point that even a condo in Markham is within reach for a middle-class individual.

[elmocookie]

Elmcookie sure got emotional when people put up some numbers, as I expected.

 

Things are only worth something if there's a buyer for it. And with rising interest rates (over the next 4-5 years - I must be explicit because you grasp at straws) and the fact that CMHC will not insure property over a million, the number of people that can even think about purchasing it will dwindle. Good luck and use condoms!

 

As anticipated, your retort in response to my having explained to you how feasible owning can be (and profitable) in the right situation is simply just an obnoxious jab.

 

I detect a hint of jealousy that you are obviously living in some small town in a 400k barbie playhouse. That's not my fault. But typical type A medicine attitude to be argumentative and petty rather than just acknowledge both real estate and other investments can be worthwhile and pay dividends.

[KennethToronto]

As anticipated, your retort in response to my having explained to you how feasible owning can be (and profitable) in the right situation is simply just an obnoxious jab.

 

I detect a hint of jealousy that you are obviously living in some small town in a 400k barbie playhouse. That's not my fault. But typical type A medicine attitude to be argumentative and petty rather than just acknowledge both real estate and other investments can be worthwhile and pay dividends.

 

No one is jealous about your $900k+ mortgaged home. You've clearly sipped on the real-estate home-ownership kool aid so good luck with that.

[A-Stark]

(I used previous house profits to pay my own way through med school)

 

Of course! Just like everyone else.

 

As anticipated, your retort in response to my having explained to you how feasible owning can be (and profitable) in the right situation is simply just an obnoxious jab.

 

I detect a hint of jealousy that you are obviously living in some small town in a 400k barbie playhouse. That's not my fault. But typical type A medicine attitude to be argumentative and petty rather than just acknowledge both real estate and other investments can be worthwhile and pay dividends.

 

I've pondered buying but it doesn't make a whole lot of sense when I'm going to move again for fellowship. Either way, I'm happy not to be taking on even more debt or paying property taxes or being responsible for maintenance to any significant degree. Yay for renting.

 

Otherwise, real estate is an illiquid asset unless you own other properties that you are not currently living in. It's not an "investment" for most people and the costs are not trivial (to say nothing of things like property and land transfer taxes). I could potentially buy something on my resident salary but even $400k would be pushing it. Nearly a million? Laughable. Are you suggesting that anyone else should consider this?