Western Expresso

[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)

[drew]

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.

Obviously I am aware of why people do this, I am just having a bit of fun with Riverman who likes to talk in absolutes, when obviously absolutes in this case do not apply.

Well that, and he had the gall to question the math skills of an Engineer.

[rypinion]

Originally Posted by h0twired

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)

Fair enough. Some deductions you can fill out a CRA form and send into your employer to get your deductions changed. However, last I checked it didn't apply to charitable donations (that's the one that effects me).

Edit: Here's the forms if anyone is interested. Might help out with 'stay at home mom': http://www.cra-arc.gc.ca/E/pbg/tf/td1/README.html
This form lets you reduce your taxes further - this appears to work for the things listed above: http://www.cra-arc.gc.ca/E/pbg/tf/t1213/

[steveosnyder]

Originally Posted by drew

Obviously I am aware of why people do this, I am just having a bit of fun with Riverman who likes to talk in absolutes, when obviously absolutes in this case do not apply.

Well that, and he had the gall to question the math skills of an Engineer.

I may question an engineer's intelligence, but I would never question their math skills

[steveosnyder]

Originally Posted by h0twired

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.

While I don't disagree with your numbers, I can show you markets where it is much different; the reality in Winnipeg might be different.

What I was trying to point out is that real estate ownership is a lifestyle choice, not an investment. Renters can end up with just as much equity (with lower risk and more flexability) if they are intelligent with their choices, just like a home owner can end up with a lot of equity.

The key concept is "smart with their choices". If I am living pay cheque to pay cheque I am not making smart choices, so perhaps home ownership is the better idea because it's forced savings. But if you're not smart with your money it's hard to get the down payment saved up.

EDIT: Here is a link to my general views on home ownership vs. rental. I really am not a wordsmith, so they make a much better case than I.

[Cyro]

Would you be better off financially renting or buying a home?
The Globe and Mail

Every year, Frank Tristani assigns his McMaster University finance students the task of showing whether renting or buying a home makes you wealthier.

As Mr. Tristani scores the results, owning never wins. “Over six years, no one has been able to substantiate buying as creating more wealth over the long term,” he told me in an e-mail.

There will never be a definitive answer to the question of how owning a home compares to lifelong renting, but we can at least dismiss the old “renting is financial idiocy” view as Flat Earth thinking. An analysis supplied by Mr. Tristani suggests a renter with steely savings discipline could actually end up wealthier than a homeowner.

_______________________

Backgound on Mr. Tristani
The 60-year-old spent more than 34 years in the banking sector, managing branches and working in the wealth management and commercial credit areas.

He teaches courses at McMaster on corporate finance for business and accounting students. This is a man who knows his way around a balance sheet and, yes, he owns a home himself.
_____________

Good read: His Analysis: Continued: >>
http://www.theglobeandmail.com/globe...ticle11952313/
_____________

Renting /Buyin personal Simple Choice:
Buy a Duplex if you can or 3 suites, rent it. Who cares where you live, in one of the suites or not. Let the renters pay your way. Invest the rest. Bank your job earnings invest them.Buy 2nd property/reno or 2nd multi unit rental property...(repeat)

Seems simple but it is, (work involved). Thiers not one person in a close circle of friends using this methology that is not well of today or debt free. It's just a sample of what's possible. Renting buying, your choice, making money your choice as well.

[drew]

^ stop with these well thoughtout and researched responses!

Don't you know that renting is throwing your money away and everyone tops up their principal payments! I know cuz my dad said so!

[steveosnyder]

Originally Posted by Cyro

Tristani suggests a renter with steely savings discipline could actually end up wealthier than a homeowner.

I think this is the key to the argument. If you are not a good saver then buying a home could be a better choice because it is a forced savings plan. If you are a good saver it is possible to be better off renting.

[h0twired]

Originally Posted by steveosnyder

I think this is the key to the argument. If you are not a good saver then buying a home could be a better choice because it is a forced savings plan. If you are a good saver it is possible to be better off renting.

To be a successful renter, you almost have to go one step further and calculate the costs of homeowner every year and then implement a fixed monthly savings plan.

I would bet that only a tiny percentage (less than 1%) of renters save the difference and do better than homeowners in the long run. Like with many things, it might be better on paper but hard to execute.

[Cyro]

Smiley Post Response:

Drew -

Steveo -

H0twired - 1% of renters would be a hard number to determine. Anyway that's why I have my accountant, financial adviser and broker, (adviser 2nd) on speed dial. You do need determination, expert advice and sound financial planning to accumulate wealth. whether you decide to rent or own, while striving to accumulate wealth,(if that's your goal)

Unrelated: I like the BMW M5 and Audi S8

[Riverman]

Originally Posted by drew

Don't you know that renting is throwing your money away and everyone tops up their principal payments! I know cuz my dad said so!

Hey it worked for me. I haven't made a mortgage payment in almost 7 years. And my first term was at 13.75%.

[wacko]

On a similarly unrelated topic, Cyro: aren't you the poster formerly known as Cyrodill? I always wondered if you'd derived that name from Cyrodiil (the Imperial Province in the Elder Scrolls games).

[h0twired]

Originally Posted by Riverman

Hey it worked for me. I haven't made a mortgage payment in almost 7 years. And my first term was at 13.75%.

This is the thing that I strive for. Being mortgage free in my 40s.

What happens to all of the renters that live to well into their 90s and stop contributing income to their savings after 65?

I would rather have a place to live debt free than a bigger portfolio that is tossed around by shaky financial markets.

[drew]

Originally Posted by Riverman

Hey it worked for me. I haven't made a mortgage payment in almost 7 years. And my first term was at 13.75%.

Exactly. It worked for YOU. I will take that as admitting you misrepresented facts when stating you know how everyone pays off their mortgage.

[wacko]

I don't have a mortgage. As a matter of fact, I'm still living in my parents' home (and paying them rent). But I'm saving lots of money and investing it elsewhere.