Western Expresso

[bomberjet]

http://www.winnipegfreepress.com/loc...233864131.html

Standard & Poor's confirms city's credit rating
Credit rating agency Standard & Poor's has confirmed a stable outlook for the City of Winnipeg, maintaining its AA credit rating.

Different topic, but I found this story kind of ironic.

"In its report, Standard & Poor’s noted the positive impact of the city's sound financial management practices."

Hmm.
Fire Hall debacle (albiet relatively small potatoes when the total project is $15m.)
Police HQ "cost over-runs"
The whole Katz, Sheegl, Shindico love in that's likely been going on for years.

I guess bad ethics doesn't necessarily translate into bad financial practices?

[steveosnyder]

Originally Posted by esquire

If they didn't pay interest and had to pay rent instead, how would they have been any better off? At least the person paying interest eventually gains a significant paid-off asset to show for their troubles.

I have heard a number of people espouse the theory of "rent don't buy", but I haven't seen any real-life Winnipeg examples of someone coming out ahead that way. One of my friends is an accomplished financial professional and he rented right through the 2000s on that theory... he now openly admits it was a mistake to not buy into the market before the jump in prices.

This can be the same no matter what the time period, so I'll use todays figures:
Person 1: $300k house, 3.25% interest rate, 25 year mortgage with 20% down (60k)
Person 2: Renting for $1200 a month, $60k in cash.

Person 1 invests in the house, person 2 has an extra $60k in cash.

Both people pay for telephone/cell/tv and have to furnish their home, so we'll ignore those numbers.

Person 1 has to pay for: home insurance (for easy numbers sake, we'll say 1200 a year, 100 a month), property tax (around 250 a month), Hydro ($150 a month?), Water and waste ($150 every 3 months -- $50 a month) and a mortgage payment of $1169. Total monthly is $1719.

Person 2 only pays rent -- $1200 a month; with over $500 more per month than person 1.

So, while person 1 would have a house at the end, some people would prefer the extra $500 a month in money, others would invest part of the $500 a month extra. One last thing is the fact that to liquidate the home, as I mentioned before, the person either has to sell or has to take out a line of credit. There is costs to getting equity out of a home. Getting equity out of stocks/bonds/funds/savings is much easier and doesn't cost very much.

There is much more to this, things like I said with Riverman -- what if circumstances change and you have to liquidate or downsize? What if you find a good paying job in a different City? etc. etc. Renting can give you much more flexability.

[Riverman]

Nobody pays a mortgage for 25 years in this market, 12-18 at most. And look at the rates right now - my son just bought his house and almost his entire payment is principal.

I wonder how many of those people on Park Boulevard are renting because buying is a bad investment.

[esquire]

Originally Posted by Riverman

Nobody pays a mortgage for 25 years in this market, 12-18 at most. And look at the rates right now - my son just bought his house and almost his entire payment is principal.

I wonder how many of those people on Park Boulevard are renting because buying is a bad investment.

Good point. Renting might make good sense if you need a lot of flexibility (under 30, or in a job with a high probability of relocation) or live in some other city with a different market dynamic, but generally speaking I just can't see how renting beats buying in Winnipeg.

[drew]

Originally Posted by Riverman

Nobody pays a mortgage for 25 years in this market, 12-18 at most. And look at the rates right now - my son just bought his house and almost his entire payment is principal.

I wonder how many of those people on Park Boulevard are renting because buying is a bad investment.

Huh. Generalize much? I can guarantee you I will be taking close to my full 25 years to pay off my mortgage. And I suspect many people are just like me. I seriously doubt your son is indicative of the majority.

Also home ownership is a luxury, not an investment for a lot of people. You are honestly trying to argue that because a rich person buys a house on Park Blvd that this shows home ownership is a great investment, or that is why the purchased their house? Really? Give me a break. That price point of house is a terrible investment in WInnipeg.

[rypinion]

Originally Posted by steveosnyder

This can be the same no matter what the time period, so I'll use todays figures:
Person 1: $300k house, 3.25% interest rate, 25 year mortgage with 20% down (60k)
Person 2: Renting for $1200 a month, $60k in cash.

Person 1 invests in the house, person 2 has an extra $60k in cash.

Both people pay for telephone/cell/tv and have to furnish their home, so we'll ignore those numbers.

Person 1 has to pay for: home insurance (for easy numbers sake, we'll say 1200 a year, 100 a month), property tax (around 250 a month), Hydro ($150 a month?), Water and waste ($150 every 3 months -- $50 a month) and a mortgage payment of $1169. Total monthly is $1719.

Person 2 only pays rent -- $1200 a month; with over $500 more per month than person 1.

So, while person 1 would have a house at the end, some people would prefer the extra $500 a month in money, others would invest part of the $500 a month extra. One last thing is the fact that to liquidate the home, as I mentioned before, the person either has to sell or has to take out a line of credit. There is costs to getting equity out of a home. Getting equity out of stocks/bonds/funds/savings is much easier and doesn't cost very much.

There is much more to this, things like I said with Riverman -- what if circumstances change and you have to liquidate or downsize? What if you find a good paying job in a different City? etc. etc. Renting can give you much more flexability.

While I don't necessarily disagree with the general idea here, are there really people who rent out $300K homes with ($200 of) Hydro and Water included for $1200 per month? Based on your numbers I'd assume that person would lose hundreds of dollars a month on the deal.

Wouldn't the price the landlord be charging be higher than their costs? Those costs would presumably include mortgage, insurance, hydro, water, property taxes, etc.

[Riverman]

Originally Posted by drew

Huh. Generalize much? I can guarantee you I will be taking close to my full 25 years to pay off my mortgage. And I suspect many people are just like me.

In the early mortgage years dumping money on the principal can reduce your amortization a great deal and knock thousands off interest costs. This has always been conventional wisdom AFAIK, based on a tool called math.

[vid]

Originally Posted by rypinion

While I don't necessarily disagree with the general idea here, are there really people who rent out $300K homes with ($200 of) Hydro and Water included for $1200 per month? Based on your numbers I'd assume that person would lose hundreds of dollars a month on the deal.

Wouldn't the price the landlord be charging be higher than their costs? Those costs would presumably include mortgage, insurance, hydro, water, property taxes, etc.

If the landlord owns the house, the mortgage doesn't factor into the cost. A professional landlord would have likely been able to put a significant down payment on a house, too, so if there is a mortgage, it likely isn't very much compared to the average household.

[steveosnyder]

Originally Posted by vid

If the landlord owns the house, the mortgage doesn't factor into the cost. A professional landlord would have likely been able to put a significant down payment on a house, too, so if there is a mortgage, it likely isn't very much compared to the average household.

It depends actually -- a home owner actually gets a higher return on his original investment the more he leverages himself, but at a much greater risk (interest rate changes, market changes, etc.).

[steveosnyder]

Originally Posted by Riverman

In the early mortgage years dumping money on the principal can reduce your amortization a great deal and knock thousands off interest costs. This has always been conventional wisdom AFAIK, based on a tool called math.

If the cost of borrowing is less than the amount you can make investing an additional payment then it would make rational sense to invest more.

[drew]

Originally Posted by Riverman

In the early mortgage years dumping money on the principal can reduce your amortization a great deal and knock thousands off interest costs. This has always been conventional wisdom AFAIK, based on a tool called math.

It's no wonder you can't accept that in certain situations renting may make more sense then owning...you apparently live in some dreamworld where everyone can afford to dump extra money into their mortgage.

Keep on trucking sir.

[Riverman]

Originally Posted by drew

You are honestly trying to argue that because a rich person buys a house on Park Blvd that this shows home ownership is a great investment, or that is why the purchased their house?

Guess I'd better stop trying to be amusing.

[Riverman]

Originally Posted by drew

It's no wonder you can't accept that in certain situations renting may make more sense then owning...you apparently live in some dreamworld where everyone can afford to dump extra money into their mortgage.

Keep on trucking sir.

Un fucking believable. I don't know anybody that didn't. I did it on one income with two kids. My son is doing it now at 25.

[vid]

I wouldn't be able to afford it, but I only make $36,000 a year so home ownership is pretty unattainable for me. I'm struggling to find a way to fit car ownership into my budget by the end of next year.

It's easier to do things like that when you're not the only person in your entire family with an income, I suppose.

[h0twired]

Originally Posted by steveosnyder

Person 1: $300k house, 3.25% interest rate, 25 year mortgage with 20% down (60k)
Person 2: Renting for $1200 a month, $60k in cash.

Person 1 invests in the house, person 2 has an extra $60k in cash.

Nice theory. However my house cost me $250k in 2010 while the house across the street (with the exact same floor plan and finishings) was renting at $1350/month. It is now renting at $1500/month.

So what quality of 3 bedroom house can one rent for $1200/month these days. Looks like you can you are limited to townhouses, duplexes or homes in not the greatest areas.

http://winnipeg.kijiji.ca/f-real-est...BackendZ110000

As well you are also overlooking the fact that rents will increase while mortgages will stay the same at least for the term of your fixed mortgage. A few increases and that $60k quickly disappears. Even if interest rates were to increase dramatically it would be silly to think that rents wouldn't. I suspect that many landlords finance their rental properties and would simply pass on the costs to the tenant.

[h0twired]

Originally Posted by vid

If the landlord owns the house, the mortgage doesn't factor into the cost. A professional landlord would have likely been able to put a significant down payment on a house, too, so if there is a mortgage, it likely isn't very much compared to the average household.

A typical landlord will only put 25-30% down (minimum required by the bank for an income property). They also will refinance at the end of the term to take more money out of their investment.

The whole concept of renting a house worth $300k for $1200 is not realistic. The rent for a house like that would be at least $1500/month if not more.

[drew]

Originally Posted by Riverman

Un fucking believable. I don't know anybody that didn't. I did it on one income with two kids. My son is doing it now at 25.

So, if everyone is dumping money on their mortgage principal, why are there 25 year or even 30 mortgages? If you are only going to take 12 to 18 years to pay (as apparently everyone except me is), why not sign on for a 15 or 20 year mortgage to start? That would save you the most interest long term.

[h0twired]

Originally Posted by drew

So, if everyone is dumping money on their mortgage principal, why are there 25 year or even 30 mortgages? If you are only going to take 12 to 18 years to pay (as apparently everyone except me is), why not sign on for a 15 or 20 year mortgage to start? That would save you the most interest long term.

I know many people that get 25 or 30 year amortizations but do one or both of the following.

- Increase the monthly payment. Adds cash directly to principle but allows for flexibility should financial situations change.

- Make lump sum payments. I put my income tax return into my mortgage every year. Doing that alone drops my mortgage from 25 years to 16 years. However some would rather spend it on a new TV or a week in Mexico. To each their own.

[rypinion]

Originally Posted by h0twired

I know many people that get 25 or 30 year amortizations but do one or both of the following.

- Increase the monthly payment. Adds cash directly to principle but allows for flexibility should financial situations change.

- Make lump sum payments. I put my income tax return into my mortgage every year. Doing that alone drops my mortgage from 25 years to 16 years. However some would rather spend it on a new TV or a week in Mexico. To each their own.

I assume you're aware of this, but:

If you got your employer to properly deduct taxes so that your refund becomes negligible, you should be able to increase the monthly payment using your larger paycheques (in lieu of the lump sum payment). This should reduce the amount of interest you end up paying.

[h0twired]

Originally Posted by rypinion

I assume you're aware of this, but:

If you got your employer to properly deduct taxes so that your refund becomes negligible, you should be able to increase the monthly payment using your larger paycheques (in lieu of the lump sum payment). This should reduce the amount of interest you end up paying.

It doesn't work that way if...

- Your wife is a stay-at-home mom
- You make charitable donations
- You contribute to an RRSP
- You take advantage of any other tax deductions (transit passes, fitness/music classes for kids)