Not To Be Trusted With Knives

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Happy 4th condo-versary to me!

Hey remember that time I bought a condo? Would you believe that was FOUR years ago? Where does the time go?

My mortgage broker sent me an (automated, I’m sure) “happy anniversary of having bought your condo” email, which is what reminded me that tomorrow is 4 years since I took possession of my humble abode. So I looked at my trusty mortgage countdown spreadsheet (because of course I have a spreadsheet) and according to my calculations, I have paid off 53% of my mortgage principal in 4 years. Not too bad, if I do say so myself. Of course, I ridiculously lucked out when I bought this place – the price was very good1, plus I have a few different source of income in addition to my day job, so I have had the luxury of being able to make lump sum payments. Also, I’ve had very little in the way of additional expenses, as my unit has been very well taken care of and the strata does an excellent job of maintaining the building.

Given that the Greater Vancouver real estate market continued to rise at an insane rate since I bought, I’m actually in the position where I own an even bigger proportion of the place than I would otherwise. When I bought the place, I made a 25% downpayment, meaning the bank technically owned 75% of my place. If the price of the place had stayed the same over the past four years, I would now own 65% of my place and the bank would own 35%. But since the value of the place has gone up, I now own 77% of the place if we use the most recent assessed value (which is what the province assessed my place as being worth as of July 1, 2017). If we use the average amount that units in my building that are identical to mine have sold for in the past few months2 (assuming that I could sell my place for that price), I currently own a whopping 82% of my place and the bank owns a mere 18%. It’s a weird situation – I like to remind myself that the “value” of my place is really all just theoretical given that I’m not planning to sell anytime soon. But it does give me the opportunity to do some fun math! #nerdery

Anyway, my next hurdle is that I’ll have to renegotiate my mortgage next year, as my mortgage was a 5 year term. The interest rates are higher now than they were 4 years ago, so I’ll have to pay a higher interest rate. Boo-urns. I guess I have a year to figure out how all that works.

  1. In the context of the time and place in which I bought it. It was an absolutely insane price if you compare it to just about anywhere else in the world. []
  2. Which is almost double what I paid. []

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Real Estate Mogul

FOR SALEHey, remember that time I bought a condo? That was pretty awesome and also stressful but mostly awesome. I’ve never done a real estate deal before, as I spent my twenties giving all my money (and a bunch of money that wasn’t mine) to various universities in exchange for letters after my name and the first half of my thirties paying off that crushing level of student loan debt. Couple that with the fact that I live in an insanely expensive city when it comes to real estate and, well, it means that I didn’t really think I’d be buying a place anytime soon. But I’ve really taken a liking to New Westminster and to my neighbourhood in particular. And when a place – almost identical to my current place1 but on a different floor – came up for sale in my building at a price that I was comfortable with, well, the rest is history.

The whole buying process was an interesting experience. I’m sure those of you who’ve done it before think it’s NBD2, but for a newbie, it sure can be overwhelming. I used a realtor and a mortgage broker, referred to me by a friend, who walked me through the process3. Once I’d looked at the place a couple of times, talked to a friend of a friend who happens to be on the strata council in my building and had my realtor look into the building, I was reasonably convinced that the building was solid4. After that, there’s a process of making offers and counter offers and once there was an accepted offer, I had 10 days to “remove the subjects”. I’d made the contract subject to some pretty standard conditions: for example, that I’d be able to get satisfactory financing, that I’d be able to read the strata by-laws and the last two years worth of strata meeting minutes and would be satisfied with those5 and that I’d have a condo inspector check it out and I’d be satisfied with the their report.

The latter one proved extra stressful because the week that I was removing subjects just happened to be the week of the BC Home Inspectors’ conference being held inHouse/Home Inspection Kelowna, so the first few inspectors that I called were going to be out of town until the day that I needed to remove subjects! Happily, I was able to find one guy who got good reviews on the HomeStars.com (basically the Yelp of home-related things) that was not going to the conference and he was able to inspect my place. He gave the building a good review – said it was in great shape and the strata council was doing an excellent job of maintaining the building to keep it in good shape. His only suggestion was that I should replace the rubber hoses, which can breakdown, on the washing machine with braided metal
hoses6.

Money makes the world go 'round.During this time, I was also arranging for a mortgage. Obviously, I wanted the lowest interest rate that I could get and I wanted to pay accelerated biweekly (which automatically saves you money and time on your mortgage), but I knew that I also wanted to have the flexibility to make lump sum payments7. As well, I needed to work with my financial guy  to take money from my Registered Retirement Savings Plan (RRSP) under the first time home buyers plan8 and other money out of my Tax-Free Savings Account (TFSA) for my down payment. Along with other savings that I had, I was able to make a 25% downpayment, which allowed me to avoid paying Canadian Mortgage & Housing Commission (CMHC) insurance9.

So, once all the subjects were removed, I had a deal! And I have to say, I experienced a great deal of relief once it was all settled – I Sold Sign Boardfound it very stressful to be doing all this negotiating, investigating, deliberating, and deciding! After that though, I had to deal with all the usual stresses of moving – hiring movers, arranging cleaning/
steam cleaning of the carpet in my old place, changing over utilities, etc.10. Since I plan to stay in this place for a while (unlike when I was renting), I wanted to do a really good job of purging stuff that I don’t need11, so I was more deliberate in my packing – taking time to consider if I really needed this item or that item, and putting stuff in boxes for donation/recycling/garbage12. The move itself was the easiest one I’ve ever done – I just needed to move up four floors, so I booked the elevator and some movers to move my stuff – didn’t even need a truck! Since the apartment layout is identical, I told the movers to put every piece of furniture in exactly the same place in the new apartment as it had been in the old apartment!

The cats reaction to the whole moving process was exactly what I predicted – they LOVED the packing, as it meant everyday I was bringing cardboard boxes into the apartment and they had tonnes of fun climbing on packed boxes, jumping into and out of empty boxes13, looking inside of boxes that I was in the middle of packing. But the day of the move was a bit stressful for them, especially Watson. I had to lock them in the bathroom while the movers were moving stuff so that they wouldn’t get underfoot or escape into the hallway or onto the balcony and they didn’t like that at all. I went in to visit them, giving them pets and treats, throughout the duration, but Watson was unhappy – he alternated  between sulking and crying/meowing pretty much anytime I wasn’t in the middle of giving him a treat. After everything was moved to the new apartment, I brought them up to the new place and they sniffed everything and checked out the new place, but Watson remained a bit stressed for a while – I can tell because he was panting and following me around the apartment, meowing for attention. Lots of pets and playing and some treats helped to make him feel more secure and eventually he took a nap with his sister on the tallest pile of boxes. Crick remained a lot more chill throughout the whole situation.

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Now that I’m all moved in and have returned from my San Francisco trip, I have begun unpacking in earnest. I made some good headway with the unpacking this weekend and though I still have much do14, I feel like I’ve transformed the place from “giants piles of boxes everywhere” to “somewhat livable.” Perhaps I’ll post some photos once it’s all done!

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  1. The slight differences include that the new place has nicer appliances and fixtures (compared to the crappy appliances and basic faucets one puts into a rental apartment), dark wood laminate floors (instead of crappy carpet that you put in a rental suite), no cheesy wood panelling in the kitchen, a sliding glass door on the tub (compared to a shower curtain rod that often fell down in my old apartment), but no gas fireplace. []
  2. No Big Deal. []
  3. Not to mention talking to other people who’ve been through the process recently and reading tonnes of stuff about the process. []
  4. When I first approached the realtor, she was a bit hesitant about the building due to its age. But once we’d done the due diligence, she was convinced that it was a good building. []
  5. Oddly, I actually enjoyed reading the strata minutes – at least in part because my recent MBA makes me now able to understand financial statements and governance and other such things. I think I’d like to run for strata council next year. Yes, I know that this means there’s probably something wrong with me! []
  6. And since the last thing I want is a flood, I did that the day I moved in! []
  7. a.k.a. “balloon payments”, a.k.a., “prepayments”) and/or to increase the amount of my regular mortgage payments in order to pay off my mortgage faster. This is how I managed to pay off my student loans so fast – every time I got a raise, I figured out the after-tax difference and increased my student loan payment by that amount and when I did any contract work, I’d take the after-tax amount and make a lump sum. By making these types of lump sum extra payments, you pay off your principal quicker, resulting in significant savings on the amount of interest you end up paying. I have a spreadsheet to track all this ((Of course I do. []
  8. For the uninitiated, in Canada one can take up to $25K out of one’s RRSP for the purposes of buying your first home without having to pay tax on it, so long as you pay that money back into your RRSP within 15 years. []
  9. Don’t get me started on CMHC insurance. Basically, if you don’t make at least a 20% downpayment on your property, you are considered a risk to not be able to pay off your mortgage. Thus, in order to be allowed to have a mortgage, you have to pay the CMHC to insure the bank (or mortgage company – basically, whoever lent you the money) in case you default. Let me repeat that – the CMHC insurance protects the *bank* – it doesn’t protect you. And *you* are paying the cost of the insurance. I’ve talked to many people who don’t realize this – they think they are paying for insurance that protects them in some way, but it doesn’t. The thought of paying money for insurance that doesn’t benefit me in any way really irks me, though one of my friends pointed out that it’s basically like a tax for living in the Greater Vancouver area, where costs are so high that few people can save enough for 20%. At any rate, I’m very glad that I got a good deal on my place and have been good enough with my money to have saved enough to have a 25% downpayment. []
  10. Most annoyingly, I paid Canada Post to forward my mail – even though it’s going to the same building! But there’s no other way to get the mail from the old apartment to the new apartment – even if I knew who was moving into my old apartment, I couldn’t ask them to slide my mail under my door, as my building has a security system where your fob only gets you onto your own floor of the building, so they would have no way to get on my floor! []
  11. As stuff I don’t purge now is much less likely to get purged at any other time than during a move. []
  12. Of course, the level of deliberateness with which I packed decreased the closer I got to moving date. I started labeling everything by the room in which the contents belong, along with a description of content (e.g., “Kitchen – Wineglasses” or “Office – Textbooks”), but by the time I was a couple of days ’til the move, every box’s contents was described as “Misc.” []
  13. I swear Watson is spring-loaded – the height he gets when jumping out of a box is incredible! []
  14. Yes, I realize that I could have been unpacking more instead of blogging, but (a) I wrote most of this posting on the plane to/from San Francisco and just hadn’t gotten around to posting it. []

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Real Estate – Ugh

So lately I’ve been reading a fair bit about the real estate market. As a kid, I was brought up to believe that when you grow up, you buy a house – after all, it makes more sense for the money you spend on housing to go into an asset you will own, as opposed to going into someone else’s pocket, right? I was also brought up to believe that education was very important and so I spent the first eleven years of my adult life pursuing that1. And the idea of buying real estate never even entered into the realm of possibility in those years, as I barely had enough combining jobs, scholarships, bursaries, and student loans to get by, let alone even think about investing in anything. And since I graduated, my financial focus has mainly been on repaying my crushing student loan debt and trying to build some semblance of an RRSP/pension – and, in the last two years, putting money into my Tax-Free Savings Account.  And though I’ve been pretty good at finding cheap rent, it’s always in the back of my mind that “you are putting money in someone else’s pocket!”  Hence, the thinking about, and reading about, the real estate market.

I mean, I knew that the prices of homes in Vancouver are absolutely nuts, but when I started to read more about it, I was surprised to learn how truly, ridiculously, extremely nuts they are.  A general rule for “affordable housing” is that your housing costs (including taxes and insurance) shouldn’t be more than 30% of your gross income. For example, if you make $50,000 per year, you shouldn’t spent more than $15,000 on your mortgage, property taxes, and insurance. Another way of looking at it is that, to be affordable, houses shouldn’t cost more than three times your annual salary2. Again, if you made $50K per year, your house shouldn’t cost more than $150K. And the thought of a $150K home anywhere near the Vancouver Lower Mainland is laughable. Even our shoebox-sized condos cost double that! Personally, I make more than $50K, especially when I have teaching gigs and contract work on top of my annual salary, and there’s no way I could find a home in this area that costs less than three times my annual income (and that’s not even counting my $1000/month student loans payments thrown into the mix).

And it’s not just me. Over on the Vancouver Real Estate Anecdote Archive blog (which I’ve been following for a little while), they posted a couple of graphs that illustrate the insanity of the market. This one illustrates exactly what I’m talking about:

Dashed lines = salaries (in % increase) and solid lines = home prices (also in % increase).  It doesn’t take a statistician to see that home prices have shot up dramatically compared to income. According to Stats Canada, the median family income in Vancouver in 20073 was $66,330.  That’s *family* income, not individual salaries.  And according to the Real Estate Board of Greater Vancouver, the “benchmark” price for a property4 in Greater Vancouver is ~$577,000. The benchmark price for a detached home is just less than $800,000, and the benchmark price for an apartment is ~$386,000.  So we are talking about nearly 9 times the median annual salary to buy a “typical” home, and 12 times to buy a typical detached house. Even to buy just an apartment, it’s almost 6 times the annual median salary – twice as much as an “affordable” home should cost.  Ouch.

And it’s this crazy house price-to-salary ratio that have people talking about a housing bubble, poised to burst. The Canadian Centre for Policy Alternatives recently issued a report that Canada is in the middle of a housing bubble. Then the C.D. Howe Institute issued a report that says the opposite5.  Though I’m not an economist by any stretch, I just look at these numbers and wonder how on earth people are buying houses?  Of course, low interest rates on mortgages (using very low down payments) have allowed people to do it, and lots of people are saying that it is rich foreign investors and/or drug dealers6 who are buying up the over-priced real estate.  But seriously, why would rich foreign investors continue to buy – and drive up the price of – Vancouver real estate when real estate in the US is so cheap?  And once mortgage rates go up, won’t those people who could only afford their mortgages because the interest rates were rock bottom be in trouble?  And if those same people put down only 5-10% as a down payment, and then prices drop by more than that (as is being predicted by some), won’t they owe more on the house than they could get even if they sold it?

As I have no interest in buying something that I can’t afford, especially given that the value of the “asset” in question could drop considerably (after all, it’s not putting money in your own pocket if the price of your house drops well below how much you owe on the mortgage), my plan is to continue to wait this thing out. I still have a fair way to go until my stupid student loans are paid off anyway, so I’ll just continue on my path of paying those down, balanced with putting some money aside in savings7 and emergency savings8.  Of course, if my dad would just win the lottery like he keeps telling me he is going to, all of this wouldn’t matter!

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Footnotes:

  1. perhaps I took my mom’s saying of “more education is never a bad thing” a little too literally? []
  2. I know I’ve heard this somewhere, but can’t seem to find a reliable source to link to on it. If someone out there has a good link – or if you think I’m totally mis-remembering it, hit me in the comments section! []
  3. the most recent number I came across []
  4. where “benchmark” = a typical property in the region []
  5. I would have linked to the C.D. Howe report directly, but their website is down right now, so I’ve not been able to read the report myself, only the news reports about the report []
  6. the latter who, presumably, aren’t reporting their actual incomes, thus making the estimates of income lower than they should be []
  7. granted, it’s not like I’m making scads of money in my RRSPs and TFSAs, given how much the market sucks, but I’m doing OK, considering []
  8. ‘cuz you never know when you might need it! []