Affordabilty of Housing as a Pilot

[FOD_Vacuum]

As we all know, the pay for what we do isn't nearly as high as we would like it to be and many of us have had the financial strain of many things such as student loans, buying a first car (a beater to get to the airport and back doesn't count), paying for a full vacation with the family, paying for car fixtures, dentists and other bills. I am questioning the amount of time it took you when you bought your first house and a set mortgage in Canada. When or what do you think is the appropriate time to make such a big life decision? I'll be moving from right seat to the shiny left seat pretty soon with the pay raise, so renting a place and throwing away money for car repairs etc. seems to getting old. I would be qualified for a $160k mortgage according the the RBC calculator with 20k downpayment, which in the big cities is next to nothing. Many would argue that having a steady and secure airline gig would be a start. What have your experiences been like so far? Any 703-704 captains out there with mortgages in the big cities such as Van, Oil town or "The center of the Universe"?

[JungianJugular]

One of the key's to happiness is being content with less.

Your experience will be based on that, and will dictate when you will be able to afford a house and a mortgage. Congrats on the upgrade!

[fish4life]

Better question you should ask yourself is do you think you will still be at the same company living in the same city at least 3 but preferably 5 years from now? If not don't buy a house, rent for now and keep saving up money. It will be a lot easier to move across the country when / if AC or Westjet calls if you don't have to try sell a house. This would be even worse if as most economists are right and housing prices go down then your stuck in a job you don't like because your mortgage is more than your house is worth.

[complexintentions]

The title of the thread could just as easily be Affordability of Housing as a Canadian. Pilot or otherwise. With an average household income of around 70K and an average house price closer to 400K there has been a complete disconnect between wages and housing prices. Markets in Toronto, Vancouver, and Calgary are far, far worse.

Real Estate is kind of like a cult in Canada. More of an emotional decision than rational. There are all the mantras: "Get in before you're priced out forever", "Rent is throwing money away", "Why pay someone else's mortgage", etc etc. And then the inevitable chime in with how they bought their house in year X for Y dollars and now it's worth Z and they're like the smartest people on earth. Just like gamblers, no one ever talks about the the losses, only the gains. Possibly because a great many Gen Y'ers buying houses in the last few years didn't experience the 80's and 90's when housing prices cratered and wiped a lot of people out.

I would suggest a bit of caution before purchasing a house in the market today. In very specific circumstances it may make financial sense but remember that if you have little equity in the purchase you are very vulnerable, especially in an industry like aviation. Leverage cuts both ways - hard.

But I do realize that telling someone who's already decided they're gonna buy a house to go slow is like telling someone who wants to be a pilot what a dumb idea THAT is. A waste of breath.

[skypirate88]

Very interesting topic.

Without knowing your financial obligations and history it is tough to say if now would be the right time. If you are seriously considering a purchase I would suggest talking to a mortgage broker to get a better idea of what you can afford.

I am now on my second home questioning if I should sell again. With the job uncertainty in this industry I would wager there really isn't a right time to buy. As was mentioned before, if you see yourself happy at your current job for the next 3-5 years it may be a reasonable gamble in the correct market.

I would suggest that if you decide to make a purchase, make sure that your mortgage is portable with no penalty and that you have decent prepayment privileges. This is something a broker can help with.

Good luck

[tbaylx]

As a pilot, until you get your career job and you don't intend to move again, why would you want to buy a house?

A house ties you down to a location because it's time consuming and costly to sell, never mind that house prices are way over extended in many markets at the moment.

As a renter you can pick up and move to any city you want at little to no expense, you don't have to worry about maintenance, property tax and renewing a mortgage at higher interest rates and your costs are much less than buying, particularly if you don't have a 20% downpayment and have to get CMHC insurance.

With current house prices landlords are subsidizing renters, not the other way around. Don't buy into the real estate marketing propaganda "renting is throwing your money away" "buy now or be priced out forever" "house prices always go up" "it's a great investment with no risk" etc etc

Buying a house isn't all it's cracked up to be. Lots of people over extend to buy with 5% down and all their net worth in one asset - real estate. Going to be some hurting people if they end up with negative equity and higher mortgage rates in 5 years.

If you have a decent downpayment, and other investments besides real estate so all your net worth isn't in one asset then a house purchase can be a good move. The people selling the house dream all have a vested financial interest in you buying a house, and aren't looking out for your best interests.

[Koalemos]

I always wondered about renting vs buying I terms of financial investment, found a really useful tool.

Rent vs Buy Calculator

[ragbagflyer]

Keep in mind that if you have do move you don't necessarily have to sell. If you're buying a first property - especially a condo - look at the rentability of potential properties (rental restrictions, rental rates of similar properties etc). I bought a condo a few years ago that I ended up moving shortly after I bought it but I've been renting it since. I pay a property management company to look after it for me and the rent covers the mortgage, taxes, condo fees and management fees almost to the dollar. I get the increase in equity every month.

[Shiny Side Up]

Whether buying a house or not is a good decision for you depends a lot on your circumstance. For myself its been a good decision, but I can see where that might not always be the case. Whether you should rent or own depends on the market and what you can afford. The key thing that people get themselves into trouble with is trying to use investing in a house as a way to make money (far more people lose on that game than win despite what the shows on the W network or HGTV would show you) or they buy way more than they need, but people have that failing with cars and planes too - they buy for their once a year needs rather than their most of the time needs.

My best advice would be if you're considering buying a house is buys something that's going to improve your life and buy it as a place to live rather than a place to sell.

Keep in mind as well that I'm a DINK* and that puts me in a substantially better circumstance to do such stuff.

*Double Income No Kids.

[schnitzel2k3]

After I had purchased my house, I noticed there were a lot of articles focusing on the housing market in Canada and how renting is actually a better option nowadays.

Buying a house in this market isn't what it used to be (i.e anywhere in Canada). Unless you are buying a beater in a neighborhood where there is a lot of development and you pump in a lot of time and money, you are unlikely to make any sort of return in the next 5 years. You can still build equity as long as you don't lose on your house (get underwater with your mortgage).

We bought knowing that we would not be making the same money as our parents, but were ok with that because we wanted a home and were also tired of the old apartments in our area. Condos weren't any better with the maint. fees and inevitable condo market crash (still to come me thinks especially in Toronto as some major condo buildings hit the market all at the same time).

When the interest rates raise and this 'free' money disappears, the buyers are going to disappear along with it. Prices will drop and this insane amount of cookie cutter building will halt too, hopefully. It's amazing what they can pass of today as a house.

I think if you bought today you'd have to plan to hold onto it until the next big housing boom - probably in 10-15 years (if not longer) unless there is some crazy unforeseen economic change.

Just my 2 cents, but I'm not in the economics business anymore - just a pilot making the best of what this industry has to offer.

Good luck on your decision and hope things work out for you.

[Mr. T]

Just because your going left seat, doesn't mean you should, unless you see yourself there for an extended period of time. Someone said it, a lot of home buying is pure emotion, not factual. Even if you buy a house, stay for 5 years, and then plan on selling, you aren't making any money (unless the market explodes), as the first 5 years of any mortgage 95% pure interest payment; there will be almost no change on what you owe from when you purchased. If the market stays the same, you might get your money back from your down payment. If the market goes up, or you do major reno's, or you got a steal to begin with, you might walk away with some extra's. Nobody brags about the other end of the spectrum either. In case you haven't been watching the news, Canada is in a housing bubble, especially in the major centers, being driven by a lot of factors, mostly low interest rates.

My spouse and I make in excess of 100k a year, and there is no way were are even considering buying right now. Once interest rates go up (and they will), people will start to default, and some of the air in the bubble is going to come out. Drive around Edmonton or Calgary, see some of the cookie cutter places going for 3-4-500k, with boats, 80k trucks/cars, pools, 15k lawn tractors, etc. Either everyone makes way more than us (entirely possible) or they are in debt up to their eyeballs, I'm going to vote the latter. When the bubble pop's, there will be lots of good deals to be had, not just houses.

Be vigilant. Be smart. Be patient.

[ragbagflyer]

Even if you buy a house, stay for 5 years, and then plan on selling, you aren't making any money (unless the market explodes), as the first 5 years of any mortgage 95% pure interest payment; there will be almost no change on what you owe from when you purchased

Not true at all. With rates where they are today (2.8 -3%), on a 25 year mortgage 50 percent of your payment is going against the principal of the loan the first year, and it gets better every year.

That said, if you want to sell in five years and prices haven't gone up - and they likely won't by much, if at all - your equity will get hammered on by realty fees and depending on the province you're in, property transfer fees as well.

[skypirate88]

Making money on a property short term is all location. We bought new from the builder, sat on the lot for 9 months then lived in the house for a year and a half. We sold for 60k more then what we paid for it.

[FOD_Vacuum]

My spouse and I make in excess of 100k a year, and there is no way were are even considering buying right now. Once interest rates go up (and they will), people will start to default, and some of the air in the bubble is going to come out. Drive around Edmonton or Calgary, see some of the cookie cutter places going for 3-4-500k, with boats, 80k trucks/cars, pools, 15k lawn tractors, etc. Either everyone makes way more than us (entirely possible) or they are in debt up to their eyeballs, I'm going to vote the latter. When the bubble pop's, there will be lots of good deals to be had, not just houses.

That seems to be the case in Calgary. There are lots of people with mortgages they can't afford, as well as big trucks, new boats and lots of toys. These people either make a killing 6 figure income, or they are swimming in debt (or mummy and daddy gives them everything). A 6 figure income is the kind of income a CEO or heavy equipment company manager would make, and I don't think everyone in yyc is a CEO either, so most of them I think are in debt. I'm sure the banks love them because of the high interest rates for lines of credit they get out.. There are 25-30 year old couples with a 5 bedroom mansion and all the bells and whistles. It could also be inheritance. Not to mention, how have they paid off their huge student loan debts that paid for the schooling to get to the level where they are at? It amazes me to what distances people in those cities like to go in order to portray a rich-man image.

It sucks in a way that a house in central Calgary 30-40 years ago only cost $25,000 including the property, and pilots were easily earning 6 figures at the airlines, so just imagine what life would have been like back in the day compared to now. Those people with properties like that made one of the best financial investments one can make, with huge returns. Thanks for the reply's-I will wait till the bubble bursts and things become more affordable in the future, so that we can all build some equity and re-sell without making a huge loss. Looks like I will be renting for the next 5-10 years.

[BKerns]

Definitely a seller's market for homes in Canada right now. "73 bid's on a 1.3 million dollar fixer upper home in Toronto", "42 people showing up to a open house in Thunder Bay, and 8 buds placed on the property"

Just listen to the headlines! That mixed in with markets reaching record highs and interest rates being so low. Are the red flags going off yet?

[azimuthaviation]

CMHC went up (for what reason I have no idea), interest rates have gone up, less on the market to choose from. Not a buyers market at all. Continue renting, save or invest your 20,000, keep saving to get 20% down payment on a house to avoid CMHC and have a lower balance to pay off, then buy, ONLY IF the time is right.

Remember buying as opposed to renting is not always a better investment, although in the long term you will always come ahead.

[Glasnost]

On a low equity mortgage, most of your money is being thrown away on interest. Better to rent at a lower rate and invest the extra money you would be paying for a mortgage. Come back in a few years with a large downpayment on a foreclosure and you'll be laughing.

[Strobes]

As someone who jumped from CA 703/704 to FO 705 last year, I can tell you that doing the move going from rental to rental made it so much easier.

Many of my CA coworkers had houses, took between 2 weeks post-move to 8 months to sell their house, when they went to 705 operators. That's 8 months of double mortgage payments...


TL;DR Don't buy a house until you are in a good 705 ops. And preferably when you hold enough seniority to not have to commute on reserve. The housing market should be more reasonably priced at that time, you'll have a lot more for the downpayment, and you'll be better situated career-wise.

Www[dot]greaterfool[dot]ca

[FriendlyBear]

Good question, and good that you are starting to think about such things at this stage of your career... for myself, I always planned my career from the begining to be on international and domestic contracts where housing is paid for... I didn't have to start renting until I was 7 years into my career and already a 705 Captain... I saved every penny, paid my loans off while they were in the time period where no interest was being charged... I had a 75$ Toyota farm truck and a KLR650 bike... When I met my future wife I told her I was broke because I had just finished paying off my students loans... minus the interest... and the rest is history... when I did find that golden job, I had already rented for 8 years and bought my first place with 55% down payment... I am now debt free... getting ready to purchase another property to rent it so that if any children show up they will have a place to start with... be smart about it and invest in yourself... and if you are not yet married, find a woman who has similar financial values and views and forget the high maintenance witches... they will only bleed your wallet and cost you everything in the end if you get divorced... I have seen too many friends marry these women, get set up by her, fall in the trap and get cleaned out... this only brings you back to square one in terms of financial planning.... no matter how well you plan your first house purchase etc... be smart about everythign you decide to do financially! One golden rule is that you never fail by investing in yourself!
HTH
FB

[complexintentions]

It is actually quite heartening to hear how many opinions here are eminently sensible and not blind adherents of the "cult of real estate". It is an absolute fallacy that "in the long term you will always come ahead" by purchasing a home versus renting.

It all depends if the home was fairly priced when you bought, if you manage to time the market luckily both when you buy and sell, and if you are using whatever you save from renting versus buying, wisely. I just smile when people tell what their home is "worth", even though they have no intention of selling it. The only gains you actually have are if you sell and purchase something for less or rent. Most people have no savings to speak of but they feel "richer than they think" because their neighbourhood house prices are rocketing. Good luck when everyone is using their crappy pressed-wood box as their retirement plan.

Market timing is for fools. Yes, many have made a fortune - on paper - by simple luck of demographics. But I'd rather not gamble my entire financial future on luck.

One has to remember the massive industries that have a vested interest in your buying a house: realtors, banks, mortgage brokers, insurance companies, and the mainstream media who depend on the ad revenue from the aforementioned. Not to mention the huge swaths of the population who truly believe that "real estate only goes up", contrary to experience in every other market on earth. Of course they believe real estate can only appreciate. They have no choice - they are "all in" with no other asset to speak of. Be careful to examine the motivations of whomever's opinions you listen to.

There is nothing wrong with buying or owning real estate, per se. But the tremendous imbalance currently in Canada isn't healthy and I wouldn't touch it with the proverbial ten foot pole right now.

Good luck with your decision!

[azimuthaviation]

It is actually quite heartening to hear how many opinions here are eminently sensible and not blind adherents of the "cult of real estate". It is an absolute fallacy that "in the long term you will always come ahead" by purchasing a home versus renting.

Not true. You cant go wrong buying a house, but you can quite often do a lot better. Except for the rarest of circumstances theres hardly a place in Canada, where a house purchased 10 years ago at market value cant be sold for more than it was purchased for. If you bought a house in 2007 or 2008 and sold it in 2010, you would have lost your shirt, but if you held on to it two more years you would have turned a profit. Real estate will always be a stable long term investment.

However if you are renting you can use your money to make better investments and in five years or sooner you will come out ahead than if you bought real estate. A good hedge is to diversify, but who can afford to do that working in aviation? You need to be strategic, and conservative, and looks like most people here have figured that out already.

[TG]

Lots of good advices, another one who maybe obvious: Whenever you start buying a house instead or renting, make sure you are done with your loan when you retire.
Also, chances are that your big repairs will kicks in the day you will be done with your payments

I bought a condo a few years ago that I ended up moving shortly after I bought it but I've been renting it since. I pay a property management company to look after it for me and the rent covers the mortgage, taxes, condo fees and management fees almost to the dollar. I get the increase in equity every month.

Does a property management go after a tenant if he 'fail' to make payments?
I'm asking because I have a friend border line bankruptcy after trying the land lord route all by herself.

She found someone to rent her place since she was moving away. Did some research about the person, not enough obviously, but that included calling two recommender for what it's worth! Tenant move in in July but stop paying in November, not only that by also reverted the Hydro bill to the landlord from there! 5 months battle to put them out. Apparently (true or not I don't know) you cannot evict someone before the end of a winter.
7K+ lost of revenue and....30K worth of damage on top of that!

Turned out that this tenant had done the same trick previously.

Renting from a land lord point of view sounds like a big gamble to me.

[FriendlyBear]

Wanted to add: each promotion and advancement in rank and income never affected or altered our standard of living.... As mentioned earlier: "one of the keys to happiness is being content with less".... So very true... My family enjoys many simple yet basic pleasures, and is very content with less and also understands the value in being frugal and thrifty... So many colleagues are drowning in debt because each salary raise or promotion brings another advancement in spending habits and upgrades of luxury items.... If you can maintain a comfortable and realistic standard of living throughout your career as you advance in the ranks and income levels you will be well set up to be debt free early and the peace of mind knowing you are debt free is something that has to be experienced to be believed!! I recommend reading the book: "the wealthy barber"..... All the rules and recommendations are in there.... When we look back on our lives, some of the happiest moments were when we had less material wealth and possessions....
Not trying to lecture... But there is some very sage advice on this thread so far....
Just one last quick story: take a look around you at work and you will see all the different types: big spenders, misers and everything in between.... You need to know yourself and ask yourself if you want to be a slave to the economic system or the master of it.... Your choice! Choose wisely!!
I did and we are very happy that we had the opportunity to make informed decisions.... Looks to me that you are also on the same path by asking what you did in this thread...
Good luck
FB

[complexintentions]

It is actually quite heartening to hear how many opinions here are eminently sensible and not blind adherents of the "cult of real estate". It is an absolute fallacy that "in the long term you will always come ahead" by purchasing a home versus renting.

Not true. You cant go wrong buying a house, but you can quite often do a lot better. Except for the rarest of circumstances theres hardly a place in Canada, where a house purchased 10 years ago at market value cant be sold for more than it was purchased for. If you bought a house in 2007 or 2008 and sold it in 2010, you would have lost your shirt, but if you held on to it two more years you would have turned a profit. Real estate will always be a stable long term investment.

However if you are renting you can use your money to make better investments and in five years or sooner you will come out ahead than if you bought real estate. A good hedge is to diversify, but who can afford to do that working in aviation? You need to be strategic, and conservative, and looks like most people here have figured that out already.

Actually in the long term, equites have always proven to have given better returns than real estate. This is why I took issue with the statement that "in the long term you will always come ahead by purchasing a home". It's a misleading statement because it's simplistic. Sure, if you can live in one place for 40 years, historically your house will rise in price, as well as the price of every other commodity. But is that reality today, or in the future - less mobility as opposed to more? I don't think so. No more than employment for life. Ask those who bought homes in the 80's and 90's about their "stable long term investment" of a home, about how they "can't go wrong". Many will never fully recover financially. Your own statement about the timing of buying/selling in 2008 versus 2010 completely contradicts the idea that real estate is a stable investment.

From 2004 to 2013 the average resale value of a home in Canada rose 5.4%. The comparable average return from stocks was just under 8 per cent. Note that period spans the GFC. If we go back 20 years, we get an 8.3 per cent gain from Canadian stocks and an increase of 4.5 per cent in the average national house price. Over 30 years, stocks made 8.5 per cent and houses 5.5 per cent. (Data from CREA via the G&M and other easily-Googlable sources)

At the same time, hands up everyone who got a 5-8% increase in wages every year? Yeah, I didn't think so. Thus Canadians are paying an ever-higher percentage of their disposable income on housing. And cranking the debt-to-income ratio to 164%, highest in history, higher than the US when RE collapsed there. Hmm.

Of course we can cherry-pick a certain market and a certain timeframe, like Toronto or Vancouver over the last ten years where the price appreciation has been completely distorted. We can also do the same with equities, say tech stocks in the 90's. But then one has to decide, am I an investor or a gambler?

As I clearly stated, I am not against purchasing real estate. I own it myself, in the form of REIT's as part of my portfolio. People need to live somewhere. But as a financial investment right now, with cheap money driving the prices artificially high, buying just doesn't make sense in most situations - UNLESS owning represents a reasonable amount of your net worth. Lack of diversity and lack of liquidity + high leverage during a time of ultra-low interest rates and uncertain employment prospects? Super risky.

FriendBear nails it: the key to acquiring and retaining wealth is FRUGALITY. I recommend the book "The Millionaire Next Door" which will shatter most people's illusions about how truly wealthy (in the material sense) people behave.

[FriendlyBear]

Interesting numbers.... I helped my brother buy a single family home that was 26 years old in southern YYC close to Fish Creek Park for $180k...., we sold it in 2006 for 410k.... I remember the people who first walked in to view it with the realtor said yes in under ten minutes.... having a good idea of markets and timing, plus 'staging' the sale with the smell of fresh coffee in the kitchen, freshly baked bread and a few strategically placed house plants all helps... Not to mention having a little luck on your side.... My brother rented after the sale and invested his gains and later bought another house almost outright in a small town out on Vancouver Island.... Patience, knowledge of local housing markets and a sense of value in terms of what things are worth go a long way.... We know many people who have all the toys, the big house and own none of it.... They live off the bank and believe they deserve to have everything that everybody else has.... And immediately!!! If you can live frugally and be patient and smart about your next (first?) house purchase you will do well.... One good idea is to buy in an area zoned for rental and furnish the basement off as a separate living unit and rent it while you and the family live upstairs.... Make double mortgage payments and you're off to the races brother!!
Good luck
FB