[CB1021]

Hi all,

Long story short, I'm going to travel for the next 2-5 years full-time.

The only thing I have going on for money is a house (the only property I own) that's in pre-con status that will be complete in about 6 months with about 700k in equity in the property (asset value approx 1.4M). I recently stopped my small businesses so I no longer have any income.

I'm single and require approx 30k after tax for living expenses. I don't know how to generate this income. For sure, I know I do not want to be a landlord.

If there was a fixed income investment that yielded 5% annually, I'd be golden. But I don't think there's anything close to that.

The other option is to buy a 700k house and just leave it empty and reap the cap gains.

Honestly not sure what to do. I want to take at least 2 years off work but at the same time, I don't want to burn through my nest egg or have my cash deflate (relatively to real estate).

It's hard not holding real estate, especially in Toronto. I won't be living in Toronto in the future but owning RE here is definitely a money maker.

 

[Thal81]

If I was in your situation I'd be comfortable with putting the 700K in a balanced fund (e.g. VBAL, XBAL) and living off the total return. You should get the 5% return on average but with periods of up and down. Even if you don't, it's just 2 to 5 years, so it's not like you're gonna chew through your nest egg. I don't know your experience with investing in stocks/bonds, so it could be that you would not be okay with seeing your money go down like has been happening in the last few months.

Technically you just need 60-150K of after-tax money to cover your living expenses for these 2-5 years. That's a small fraction of your 700K, you could keep that much in safe investments (GIC ladder) and do whatever you're comfortable with the rest.

Whatever you do, I would not leave an empty house for a long period of time, that's asking for trouble. Rent it or sell it.

 

[m3s]

If there was a fixed income investment that yielded 5% annually, I'd be golden. But I don't think there's anything close to that.

The other option is to buy a 700k house and just leave it empty and reap the cap gains.

You should look into Celsius. I made a thread about it here but the boomer discussion was pretty low quality

There's many other options and I wouldn't mind helping you navigate them. You don't have to put everything into 1 asset or location. Be aware you could easily trigger T1135 detailed reporting requirements for taxes

I'm also planning to go full time travel in the upcoming years

 

[Beaver101]

Simple math and basic thoughts (questions) here:

1. $1M x 3% (realistic these days) = $30K per year. This is before tax.
2. Where's the sold business monies? No savings over the years? TFSA?
3. The house in TO(?) - keeping it empty. Don't forget city council is proposing a 5% surcharge (tax) on empty houses in the upcoming years. Also, there're upkeep costs with maintaining the house. Can't get away with property tax and insurance for one. Tenants may be able to pay for the other costs such as utilities, etc.
4. Travel cost money too. So don't forget to account for that. No side-gig there?

 

[Spudd]

How would buying a 700k house and leaving it empty give you any income?

You could buy something like VRIF that generates a 4% return, but you expose yourself to risk of capital loss.

 

[Thal81]

It's a good point that houses cost a lot of money beyond the mortgage. A lot of new homeowners are taken by surprise with this. I hope OP is aware of that!

 

[TomB16]

There are a number of well run companies that pay 5+% dividends. Notably, REITs tend to pay this and well beyond.

One of my companies distributes 8.2% of current market price. Our top REIT distributes at 8.5% of current market price. In both cases, we purchsed them well below current market value so you can either choose to look at them as gaining equity or having higher yield. In all cases, these companies can comfortably sustain payouts at this level (this has to be considered).

What's more, these yields are far more likely to go up than down in the next 2 years. They can do either, though.

This is why REITs, utilities, and financials are a favourite of retired people.

You may wish to include a GIC or two to bump some capital secure cash into each of the next 2 or 3 years and you could be in good shape.

The above is a common (but not most common) approach to managing a retirement portfolio. If this interests you, there is a world of reading available on this site and others.

As for leaving a $700K house empty for 2-5 years, it might not be as empty as you think. It's an expensive and risky idea, IMO.

 

[Money172375]

Make sure you let your insurance company know that the house is vacant. They won’t cover losses if something happens and you didn’t inform them. Be prepared to pay more on the policy on a vacant home. Higher risk of damage and higher damage costs in a vacant home.

 

[james4beach]

The only thing I have going on for money is a house (the only property I own) that's in pre-con status that will be complete in about 6 months with about 700k in equity in the property (asset value approx 1.4M).

Maybe I'm misinterpreting this but others are replying as if you already have a house that exist.

But to me it sounds like you have a pre-construction home... it's still under construction, right? They are giving you an estimate that the home will be complete in 6 months but it's not yet complete.

Do you have a house yet, or have you just paid deposits to this home builder/developer? Have you looked into what protections you have in case they go bankrupt?

Apologies if I've totally misunderstood but you said "pre-con".

If you don't yet have the house anyway, have you considered selling it? 5 years is a long time to be away from a brand new house. Maybe you could sell this pre-construction home and then revisit the whole thing in 5 years.

 

[londoncalling]

I think the OP views this preconstruction home as a RE investment that will provide similar returns to the recent RE market.

 

[james4beach]

I think the OP views this preconstruction home as a RE investment that will provide similar returns to the recent RE market.

Ah, I see. I really would look into the protections the buyer has, considering the home does not exist yet.

Builders and property developers go broke all the time. The risk goes up with tightening credit.

 

[sags]

Home prices in Toronto have lost $400,000 so if the OP bought a home for capital gains........it didn't turn out well.

Real estate lawyers are besieged by buyers trying to get out of deals or home sellers trying to enforce deals.

And so it begins...........

 

[kit_inc]

I am just trying to make sure that I understand your situation. Your house will be closed in 6 months. Do you now have 700K in your pocket ready for investment ? or you expect that you probably can get 700K or more after all expenses on closing the house and sell it ? Using an ROI calculator, a 700K investment with a 5% return will get you the 30K you need. But 30K a year is not a lot of money. You only have $2500 a month for everything. It is very tight unless you do not have to pay rent and utilities. Do not forget inflation which is definitely on its way up in most place in the world.

 

[marina628]

You cannot leave a home empty the insurance would require somebody like a property manager to be checking it out on a regular basis and you will have to maintain the grass ,snow removal etc .If you bought it in 2020 even with the price drop you will still be ok for now. Maybe hire a property manager and airbnb it enough to cover expenses .

 

[james4beach]

The other option is to buy a 700k house and just leave it empty and reap the cap gains.

I don't know if you're still reading the forum as you haven't posted anything new.

Personally I think you're playing a dangerous game. This kind of thinking is very popular in Canada, but it's because we've been in a real estate bubble where people have done things like this and it worked out OK so far.

I just want to point out the dangers of what you're doing. This is exactly why I've been posting warnings like this one.

You've got a property estimated at 1400K (not constructed yet) and a 700K mortgage. You are highly leveraged.

This house doesn't exist yet. It may or may not be fully completed soon, but with interest rates going sharply higher and the real estate sector cooling off, there are increased risks of the construction not going the way you are hoping.

An empty house is a pretty inefficient asset. It's going to eat up money (insurance, maintenance, property manager) and even if it's used as an AirBnB the net income isn't going to be very high. The people who successfully do these rentals are usually managing their own properties, doing their own repairs or have connections to handy people. And even then, net incomes from rentals are usually pretty thin... it's NOT a very profitable activity, truth be told.

People usually hope that the property gains value... which is exactly what you are saying as well.

But what if the housing market cools off? This is very possible right now, since all asset classes appear to be cooling off (stocks, bonds, private equity). You didn't say anything about the kind of mortgage you have, but mortgage rates are also going up.

I won't be living in Toronto in the future but owning RE here is definitely a money maker.

Not always a money maker.

 

[londoncalling]

The OP has ghosted the forum since June 1st. My guess is they have made their decision one way or another and we may never hear from them again. This would be especially true if they are underwater on a house that hasn't been built. Or even worse has been abandoned by the developer due to waning interest. I had a coworker who was involved in a preconstruction for retirement. The costs escalated for one reason or another before completion and he was not happy. He could easily afford the changes but it was still a shock for him as well as the numerous meetings with the developer and condo board.