[milhouse]

So instead of spending a whole bunch of money buying a bigger house, we're considering finishing our basement really nice for $40k or so, using a HELOC. Thoughts?

Are you just going to accept the location concerns or do you have a plan to address them? It seemed like that was one of your key motivations for considering a move.

 

[Fisherman30]

Are you just going to accept the location concerns or do you have a plan to address them? It seemed like that was one of your key motivations for considering a move.

I might just accept them for the next year or two. In the meantime, I'm thinking we could add about another 1000 sqft of living space by finishing the basement, and even if I put $40k on a HELOC to finish the basement, it seems in my area that having a nicely finished basement would add at least $40-50k to the value of the house, so I would get a good chunk of that money back eventually when I do sell.

 

[scorpion_ca]

I think that's a good idea. This is the worst time to buy a house in Canada.

 

[Fisherman30]

I think that's a good idea. This is the worst time to buy a house in Canada.

Yeah, last thing I need is to end up underwater on a mortgage if I buy at the absolute peak of the market. I figure for about $50k (hopefully less), I can have a beautifully finished basement, as well as getting some nice landscaping done on my property. When they finish my basement, I'll get the electrician to upgrade my panel to 200A, and run a circuit for a hot tub at the back of my house. I've already spent $5500 on a higher end new furnace, $3500 on flooring, $6200 on top of the line shingles on the house and garage, and about $2500 on a nice fence. I also put a nice stone fire pit in my backyard. It would be a shame to only have got a few years of use out of those improvements I spent all that money on. So if I do a $50k renovation, I'll have about $334 000 sunk into my house. Without this renovation, my house seems to be worth about $340k. After the renovation, I think it would be up closer to $380-$400k. Even if the market cools off after spending that money on the renovation, at least I'm not $500k+ in debt with a house that's worth less than what I owe on the mortgage. $50k is what I'm thinking would be on the absolute high end for my renovation. My basement is already spray-foam insulated, with the exterior walls already framed by the previous owners. That on its own should save a lot of money on my renovation. I've got a guy coming this week to consult on everything I'd like to have done.

 

[Fisherman30]

Also, when I sell my condo in June, hopefully the market is still red hot for selling, and I can get a pretty penny for it. I'm planning to use all of that money to pay off my debt, as well as a chunk of the HELOC I will use for this renovation.

 

[Fisherman30]

March Update:

Getting some quotes this week to have our basement finished with at least one or two more bedrooms down there, a nice bathroom, rec room, and office. I expect the renovation to cost around $50 000, and I am currently working on getting rate for HELOCs. Prime + 0.5% seems to be the going rate, but we will see if I can get better. Either way, it is a heck of a lot less money than realtor commission, land transfer tax and CMHC insurance compared to the value I will be getting. If I can get Prime + 0.5%, I think I will get an extra $20k or so added on to the HELOC in order to consolidate my higher interest debt as well.

Assets:
House - $270k
Condo - $155k
LRRSP - $20 698
RRSP - $13 830
Non-Registered - $135
FRESP - $4320
Wife RRSP - $7150
Chequing - $2007
Savings - $1800
Work Savings Plan - $10 366

Total Assets: $485 306

Liabilities:
House Mortgage - $208 133
Condo Mortgage - $118 833
Student LOC - $4083
SUV Loan - $8778
BMO LOC - $7700
Credit Card - $4613

Total Liabilities: $352 140

Net Worth: $133 166

 

[fireseeker]

If I can get Prime + 0.5%, I think I will get an extra $20k or so added on to the HELOC in order to consolidate my higher interest debt as well.

Suggestion: Get the biggest HELOC you can qualify for (assuming you won't be tempted to use it like it's free money).

It costs the same to set up a $50K HELOC as it does to set up a $150K HELOC. But the latter gives you more flexibility: Should you unexpectedly have to replace your roof or your car, the money is available immediately.
So long as you are disciplined, you get a rainy day fund.

 

[Fisherman30]

Suggestion: Get the biggest HELOC you can qualify for (assuming you won't be tempted to use it like it's free money).

It costs the same to set up a $50K HELOC as it does to set up a $150K HELOC. But the latter gives you more flexibility: Should you unexpectedly have to replace your roof or your car, the money is available immediately.
So long as you are disciplined, you get a rainy day fund.

Thanks for the good advice! Actually, I'm with TD, and it looks like I can convert my mortgage to a readvanceable mortgage. That way, for every mortgage payment I make, the line of credit automatically increases by the amount of the mortgage principle I paid down. I could also use that money for a downpayment of rental property, and then claim the interest as an investment expense.

 

[Fisherman30]

Another idea I have is to get rid of my lousy condo rental property, and use the money from that sale to buy a better rental property that has good cashflow. I would use a property management company this time around. And also stay in my cheaper house I'm in now, and just build wealth through real estate over time. Going forward, I think I would use a property management company to manage my rentals.

 

[Fisherman30]

Another idea I have is to get rid of my lousy condo rental property, and use the money from that sale to buy a better rental property that has good cashflow. I would use a property management company this time around. And also stay in my cheaper house I'm in now, and just build wealth through real estate over time. Going forward, I think I would use a property management company to manage my rentals.

Having a property manager and paying them 10% of my gross rent would free up time for me to be able to just go flat out working overtime at my job, and the overtime would make up the property management costs by far. I could use the Smith Manouevre, turning my primary residence's mortgage into a re-advanceable HELOC mortgage, use that money from the HELOC to invest in rental property, and then I can claim the interest from the HELOC on my taxes.

 

[Fisherman30]

Instead of buying a rental property with the HELOC, I could also just invest it in a couch potato portfolio.

 

[Fisherman30]

I could then take any dividend payments, put them towards the mortgage principal, and use the newly unlocked HELOC room to invest further. It seems like focusing on dividend paying ETF's and REIT's would be particularly advantageous if doing the Smith manouevre.

 

[Johnny199r]

Instead of buying a rental property with the HELOC, I could also just invest it in a couch potato portfolio.

Do this. I can't imagine ever having a rental and the headache and uncertainty that can go along with it.

 

[Forebiz]

Instead of buying a rental property with the HELOC, I could also just invest it in a couch potato portfolio.

I agree to do this instead of having a rental. I had a rental for 7 years, made money but not enough that it was worth the hassle.

 

[peterk]

I doubt a rental with fully exported management (is it really ever though?) would work out better than stocks + overtime.

I suppose if it's your business, or you're a retiree with part time rental income, then maybe it's good for some. Though obviously lots have gotten rich on RE capital gains in the last 30 years, and especially the last 10...

Overtime is often not just overtime, either, if you're in a good career at a good company. Overtime means more promotions and bigger bonuses later, not just the one time OT cash.

Splitting attention away from your career for side-hustle schemes is a pitfall to be weary of, and often rationalized in many ways as a better outcome than just focusing on a career and making sure you work for a good company and are compensated for your extra efforts. But I think it's probably not true in most cases.

 

[Fisherman30]

I doubt a rental with fully exported management (is it really ever though?) would work out better than stocks + overtime.

I suppose if it's your business, or you're a retiree with part time rental income, then maybe it's good for some. Though obviously lots have gotten rich on RE capital gains in the last 30 years, and especially the last 10...

Overtime is often not just overtime, either, if you're in a good career at a good company. Overtime means more promotions and bigger bonuses later, not just the one time OT cash.

Splitting attention away from your career for side-hustle schemes is a pitfall to be weary of, and often rationalized in many ways as a better outcome than just focusing on a career and making sure you work for a good company and are compensated for your extra efforts. But I think it's probably not true in most cases.

That's a good point, Peter. Now that I've been less concerned with the condo, I applied and had an interview for another promotion at work. The interview went well, and I should know within the next week. If I get it, it will be about a $25k raise. That alone is a bigger increase than the entire gross annual revenue from my rental property.

On the rental property note - My tenants are officially moving out at the end of May. I will install new flooring, paint the place, and put in new trim, doorknobs and paint the doors to Spruce the place up a bit. Given the insane housing market, hopefully when I sell it in June, I can get a decent amount of money for it.

 

[Fisherman30]

Well, I got this promotion at work, so I'm excited for that new challenge, and also, the extra money that it will bring. Once the renovations are done on the condo in June, and I sell it, I will put the proceeds of the sale towards paying off the SUV loan, my student LOC, and personal LOC. With all of that debt gone, I will double my mortgage payments on the house, begin performing the Smith Manouevre, while putting money aside to renovate our current house to make the living space more enjoyable that so we can hold off on paying an arm and a leg for a bigger house. With the Smith Manouevre, in order to mitigate some of the risk associated with leverage investing, instead of investing the entire $70k that will be available immediately on the HELOC, I will deploy the funds into my investment account at a rate of $1000 every 2 weeks. This way, if the market tanks, I won't have put all the money into the market all at once at the market peak, and also, if the market tanks, I will have funds available that I can deploy all at once to scoop up some deals should the opportunity present itself.

 

[Fisherman30]

April Update:

Assets:
House - $270k
Condo - $155k
LRRSP - $21 320
RRSP - $14 250
FRESP - $4780
Non-Registered - $528
Wife RRSP - $7500
Chequing - $2714
Savings - $2267
Work savings plan - $11 500

Total Assets: $489 859

Liabilities:
House Mortgage - $207 348
Condo Mortgage - $118 306
Student LOC - $3957
SUV Loan - $8088
BMO LOC - $7600
Credit Card - $3868

Total Liabilities: $349 167

Net Worth: $140 692

 

[Fisherman30]

May Update:

Really excited at the moment. I found a buyer to privately buy my condo for $177 500, which is $22k more than I thought it was worth. Best part is that I don't have to pay any realtor fees. They are also looking for a near immediate possession, and will officially file all the paper work as soon as my tenants move out May 31st. Once I have the money from the sale of the condo, I will pay off my SUV loan, student LOC, and LOC, and I will then have no debt other than the mortgage/HELOC (for the Smith manouevre). I will then have about $40 000 leftover. I will invest that money in my non-registered account that's not associated with the SM. I will gradually deploy that money every couple of weeks in order to take advantage of dollar cost averaging in the market, instead of investing it all at once.

Assets:
House - $270k
Condo - $170k
LRRSP - $19 950
RRSP - $13 450
FRESP - $4745
Non-Registered - $625
Wife RRSP - $7800
Smith Manouevre Investment Account - $1910
Chequing - $3468
Savings - $767
Work Savings Plan - 13 500

Total Assets - $506 215

Liabilities:
House Mortgage (Term Portion) - $207 349
HELOC (for Smith Manouevre) - $2000
Condo Mortgage - $117 804
Student LOC - $2770
SUV Loan - $7858
BMO LOC - $7500
Credit Card - $4739

Total Liabilities - $350 020

Net Worth - $156 195

 

[scorpion_ca]

I see you don't have any TFSA account. Why do want to invest $40k in non-registered account and pay taxes on your gain?