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Mercedes GLK250
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When we started out, only the down payment represented an asset, and our annual cash flow requirements made that asset insignificant. It was the forced saving from mortgage pay down and property maintenance that made that asset grow. It was not until the mortgage was paid down that our non-home assets started to grow. That began ten years after I started working. Those are now the "good old days". Now the decision revolves around how house poor do you want to be? For how long?
 

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Discussion Starter · #64 ·
I see this thread has recently been bumped. I just did an update in Quicken and my house now comprises 14% of my net worth. It's gone down considerably since I started this thread. That shows that my "all stock" portfolio has grown much faster than my house valuation since 2013. I'm basing the house value on my property assessment which is probably not very accurate. As I have said before, I've never considered my house to be an investment, and that's a good thing, since it hasn't kept pace with my investment accounts.
 

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This is one of the metrics I track, along with Debt/Equity, Debt/Asset, and other ratios similar to what businesses use.

Ours is currently 33%. The high was 64%, 7yrs ago. I have under 30% being a goal for this metric, though I'm not sure how I came up with that percentage.
 

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Another factor the experts fail to allow for is leverage. It is possible for a young couple to buy their first house with 10% down. If the house goes up 10% they doubled their money. The equity can build quickly in a rising market, even if it is only 5% a year.

If they are like most people they will "trade up" 2 or 3 times in their lifetime using equity for a down payment and end up with quite a substantial sum of money when the last house is paid for. All from a small down payment, and regular monthly payments that are no more than they would have paid in rent.

There are thousands of examples of ordinary Canadians who put a few thousand down on their first house 20, 30 or 40 years ago who now own a house worth $250,000 or more. In many cases this the bulk of their fortune. We are talking about people who are not sophisticated financially (they don't follow Canadian Money Forum lol).

I know the accountants out there can prove that it is cheaper to live in an apartment than own a house, and if you put your savings into stocks you will end up richer. But I can point to 100 home owners who have made money on their home, for every accountant or mathematician who has made more money in stocks.

There is also the lifestyle factor. Some people get more pleasure out of their own home and garden than they would looking at a broker's statement, no matter how many figures there are in the bottom line.

I know this is not a popular opinion on this forum. I like to point out that your home owning friends are not necessarily irresponsible idiots no matter what the financial press says.
And there are a lot of people that can't save a dime but would never miss a mortgage payment. Those are the people that benefit from owning a home...it's forced savings they never would have had otherwise.

A lot of my friends have paid off house and are retired. Many of them plan to sell their house sooner or later (netting $300k or more), and move to an apartment freeing up a nice lump sum that can be used for travel and other things.
 

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Many of them plan to sell their house sooner or later (netting $300k or more), and move to an apartment freeing up a nice lump sum that can be used for travel and other things.
I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?
 

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I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?
I'm talking about my retired friends (I'm 59), they'll have a different perspective than someone younger. Some of them are tired of maintenance and yard work after decades of doing it. Plus they want to travel and it's a lot easier to leave an apartment for a month or two than a house where you need to find someone to check on it, shovel the driveway and sidewalk every time it snows, etc.

Some of them also have no dependents to leave an estate to. Those with kids might look at it differently.
 

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Don't borrow money to fund retirement cash flow spending. It is a very slippery slope. The debt cannot be paid off and interest charges keep accumulating.

P.S. Some retirees use reverse mortgages for this purpose but I consider them shark infested territory.
 

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The debt cannot be paid off and interest charges keep accumulating.
I was thinking that instead of selling the house for $500k and then rent at $1500/month, maybe use the $400k HELOC and pay $1000/month to cover 3% interest and once you're tired of the house sell it to pay back the HELOC.

Some of them are tired of maintenance and yard work after decades of doing it.
Yes, definitely, I can relate.
 

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I was thinking that instead of selling the house for $500k and then rent at $1500/month, maybe use the $400k HELOC and pay $1000/month to cover 3% interest and once you're tired of the house sell it to pay back the HELOC.
The math will depend on where one lives (regional cap rates) and the risk of substantial increases in interest rates. What happens when that 3% HELOC hits 4-5% in the next year or two (along with declining or stagnant house values as a result of mortgage rate increases)? It would be a terrible situation for seniors to find themselves.
 

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Mercedes GLK250
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Our house equity is about 25% of our net worth for both houses. We could easily reduce that because together, they account for 4500 sq.ft of living space for the two of us.
 

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I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?
Some people over the years, trade up to bigger and better houses then when their children grow up and leave the nest, find the big house too much for 2 people. Too much work to keep it nice, too much expense for taxes, insurance, maintenance. It makes sense to cash out, invest the money, and move to an apartment or condo.
 

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Wow, 45%! What area do you live in???
Canada?

Our assessment hasn't been done in a long time, but at 20-30% growth per year over the last few years it's going to be a doozy.

Real estate prices have gone nuts, and the only thing that's going to really bring them down is to build enough housing for everyone. Until they build houses, the prices will keep going up.

As far as what portion real estate should be, I don't think there is a right answer there. I'd think 20% would be nice, but that's just not realistic. For me the excess allocation is simply a luxury spend/cost avoidance.

I don't really see home ownership as an investment, I think it's basically reflected family wage growth, until very recently where it's been monetary policy and continuing bad housing policy that's messed up the market. (bad policy has been the norm for decades)
If they didn't restrict the housing supply, and there wasn't all this free money, I don't think home prices would have increased by as much.

I love having a nice home and not dealing with rent, threat of eviction etc, I love being "settled" despite the cost.

Plot Slope Rectangle Line Font

Rectangle Slope Line Plot Font

Notice in the early80's and 1990 the interest rates spiked and pull prices down?

The prices seem to get quite a bit crazier at the end when rates drop really low.
 

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My empty lot in rural Metchosin went up 40% this year vs. average for the area of 33%. And since 2020 there is no exemption on the foreign ownership tax for empty lots. I am starting to wonder what to do. As an investment, virtually all of the selling price would be taxable CGs -- I would have taxable income in the 350K range and taxes of 180K. Yowch.
 
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