Dr. Garth

The doctor is in. Who’s first?

My husband and I have some big decisions to make and are hoping you might give us a little insight as a financial mentor. We are in the lucky position of selling our house in BC and moving to Manitoba with a nice profit. Now, we need to decide how much to use as a down-payment and how much to invest, and where. We will (hopefully) have approximately $300,000 to work with after paying all debts. We intend to buy a house under $380,000. We are both around 40 years old have 2 young children (with hardly any RESP savings) and some RRSP savings (not enough, around $30,000 between us). We need to buy a (used) car and keep an accessible emergency fund so we never touch the line-of-credit again. We don’t know what our income/living costs will be yet.

We are torn between low mortgage payments (with a 30-40% down-payment), versus maybe earning a higher rate through investments. We are also extremely aware that crap happens in life – we’ve been through stage 3 breast cancer (healthy 8 years) and layoffs, including my losing a municipal government job while on maternity leave – so we are grateful for this opportunity to have that usually impossible emergency fund. Where that money lives, we’re not sure.

And so, the age old question – what to put on the house and what to put in investments and which ones…. your thoughts would go a long way to helping us decide in an informed way (instead of advice from the bank or our neighbour). Thank you so much for your time, Krista.

Glad to hear life’s smiling on you a bit more, K. Controlling stress is surely good for your health. And Manitoba has less of it than crazy BC these days.

As for the house/investment question, two thoughts. First, with mortgage rates at 3% or less and balanced portfolios yielding 7% over the last eight years (looks like more to come) it makes sense to grow your liquid assets (because you don’t have enough) while you use the bank’s money to live on. So, a small down and a big mortgage, locked in for five years. When it comes due you can use some of the investment gains to pay down the principal – having your cake and munching on it, too.

Or, you can be more aggressive. Put the $300,000 against the house, virtually paying it off. Then arrange a HELOC for 65% of your equity and invest that in a prudent portfolio. All interest on the line will be tax-deducible, which is cool. Of course, this means you have demand debt at the same time as more equity – plus the HELOC  rate will be higher than the cost of a mortgage. So, some stress there.

In any case, pump up your TFSAs and the RESP. As for an emergency fund, use bank line of credit for that instead of having cash sitting idle. This will cost you nothing if you don’t use it – and 99% of people never do.  Total myth.

Good Day Garth: 27 year old male moister seeking your advice and wisdom. I’m posted to Ottawa in August with the military and I’m considering purchasing my first place instead of renting.

I’ve been a renter for 10 years so far largely due to your advice on the Canadian real estate market and the fact that prices where I currently live, in Victoria BC, are insane. I’ve been patient and have taken the facts over feelings approach, especially with the pressure from family members to purchase because I’m “pissing my money away by renting”. While waiting for the right opportunity to buy, I’ve maxed my TFSA and have it invested in diversified, low cost ETFs and I’ve also maxed my RRSP for which I plan on using the newly announced full $35K towards the HBP. I make approx $90K a year and have a net worth of $150K (not all moisters are hopeless) so getting into real estate wouldn’t be throwing all my eggs into one basket.

As part of a military move a lot of the costs are covered like reimbursement for driving across the country, moving company fees, legal fees, inspector fees and cleaning fees. As a first time buyer I will get some breaks at tax time as well. Certain risks are also factored in, such as when it’s time to move back to the coast in 2-3 years’ time I would be covered for up to a $30K loss if my house took a hit in price. They also cover the cost of breaking or moving a mortgage when it’s time to move again. Do these “military move” considerations even things out a bit and make it a decently alright idea to purchase my first home in Ottawa? Or do I continue to rent for a few years and wait out the storm on the horizon? Since it’s military posting season I’m sure a lot of other blog dogs are seeking similar advice. Thanks for your time! Alex

First, Alex, thanks for your service. Keeping Canada peaceful is an unappreciated task most of us take for granted. Well done. Now, give your head a shake.

Yes, I know all about the military’s largesse when it comes to real estate, but there is absolutely zero reason why you  should buy a house in Ottawa which you’ll own for only a couple of dozen months. The life of a soldier is one defined by mobility, and two or three years in the current economic context is way too short a period of time to go through the buying-financing-owning-selling cycle. The odds of making money are slim and you could be transferred out of town while your place is still listed. Why complicate things?

After you become a general with a fat pension and settle into a cushy job at DND HQ, then buy a house in Ottawa. So, rent. Dismissed.

And now to Cowtown. More Millennials. But with money. How refreshing.

I’ve been a regular reader of the blog for a years now. I have appreciated and benefited from your humour and logical approach to real-estate and personal investing. Although I’ve never commented or written to you before, I’m excited to finally have something to ask and maybe offer to your blog. What provoked my question was a quick comment I thought I would never see you make, at the end of your post on May 14.

“If you want cheap property with a chance of appreciation, go to Calgary. Get a hat. Big belt buckle. Learn to swagger. Eat beef. Buy downtown. Hurry.”

I wanted to follow up on that comment and understand more why you think that buying in Calgary would be a wise move and more specifically if it is for me. I have successfully fought the rent vs buy battle in the past. My Fiancée thanks me for this now, because we have seen all of our condo-owner friends either take bath when they sold or face huge maintenance assessments.

I’m happily engaged and getting married this summer. We are 28 & 27. We both grew up, went to university in Calgary and work in Oil & Gas sector related jobs. I make about 140k in a business role and she makes about 100k as an Engineer. We have combined about 600k saved. Both maxed RRSP & TFSA with some in unregistered accounts. We currently rent together in an apartment about 10 minutes’ walk from both of our workplaces. Although it’s a great location our current 1 bedroom apartment is starting to be too small for both of us. With a dog and kids as potential additions coming up, we don’t see much point moving into a bigger apartment.

Because of what we have seen happen to friends, we have no interested buying into a condo or townhouse.This leaves us with a rent vs buy decision on a house in Calgary. We’d still like to be relatively close to DT, so consider this question for premium inner-city communities of Calgary specifically where I’d think the answer might be slightly different than the ‘burbs.

Would you mind explaining your optimism for downtown Calgary? Even as a proud Calgarian and Albertan I have a hard time being too bullish for our overall O&G related economy – so how can I get optimistic Calgary real-estate? Would you say we are ready to buy a house? Keeping in mind we mostly likely won’t be moving out of Calgary anytime too soon and would be following the rule of 90. I just want to make sure our first big financial decision as a married couple is one we have fully considered. Thanks, Nate.

First, Calgary peaked about a decade ago. This has been one of the longest melts in modern Canadian real estate history. There is a bottom coming. Not far off, either. A recent survey, in fact, ranked Cowtown as the most affordable market in North America, considering average prices and income. (Vancouver was the worst.)

Second, the Barbarian Premier will be making a difference. Tax cuts, minimum wage chops, budget-balancing, industry-pumping and bare-chested showmanship will be the start of an Alberta turnaround, especially as the world discovers EVs basically suck unless you commute 2 km to Whole Foods to buy your kale. Oil prices won’t sit where they are forever.

Third, you and the betrothed earn $240k a year and are sitting on $600k, at age 28. Heroic. You can easily divert funds to a house downpayment, take on a cheap mortgage, and build equity while you continue to swell the nestegg. The only real danger is being run over by a jealous moister on a fixie. Be careful.

Finally, Marnie. Just to remind us why society’s in trouble.

I turned 40 this year and am struggling with the realization that I’m not going to have enough money to retire. I know it’s a little late in the game but I honestly just got out of debt two years ago, which was a major accomplishment. I have been saving but just into a high interest savings account. I opened a TFSA account and tried to speak to my bank about investing but they were hesitant to suggest that I use it since I wasn’t sure if I wanted to use the money for a down payment on a house. I do have a small conservative RRSP that I’m not contributing to. My bank suggested that I increase it to $25k to use for first time home buyers but I’m not convinced that buying property is the best decision. I live in downtown Vancouver so that would use up all of my savings. I am married with no kids (my husband and I keep our finances separate). Our careers allow us to work worldwide so if we did leave the country but had invested in property, we’d have to sell or rent it out.

I’m unsure what the best plan of action would be for a long term investment at this point. We clearly both have very limited knowledge on home buying, stocks, etc. I feel I’m wasting an opportunity with my money just in a savings account, especially if we won’t be able to retire on savings alone. Your thoughts?  Thank you so much!

To recap – forty years old, RRSPs under $25,000, no retirement savings or pension, in debt until recently, living in Vancouver and you’ve been mulling buying a house? Why not a yacht? Or a Bugatti?

Congrats on paying back the loans but, seriously, property in your city is an utter impossibility. Give it up. No open houses. Don’t even visit realtor.ca. Not gonna happen. The only path forward is to cut spending, save big, charge up your retirement account, invest in low-cost ETFs and stay invested. Also, combine assets with your husband for lower costs and so you can have an integrated and balanced approach to preparing for the future. Or, perhaps he doesn’t trust you with money. Wonder why.