Affordabilty of Housing as a Pilot

[complexintentions]

Only in Canada would having strangers living in your house be considered normal and a laudable economic strategy. Land of the basement suites. It's incredible how hard it is to find properties WITHOUT a damn suite. I'm all for communal (read: extended family) living but the absolute necessity for so many people to rent out some space to afford their home is tragic.

Perhaps at some point people in numbers might actually ask Why? is it considered de rigueur to have a "mortgage helper". Sad.

[Dash-Ate]

Read Garth's daily posts at www.greaterfool.ca

If you can rent a newer townhouse for 1000-1500/mo then do this for a year. If you bought it you'd be paying almost that must in interest and property taxes most places... imo.

[azimuthaviation]

Only in Canada would having strangers living in your house be considered normal and a laudable economic strategy. Land of the basement suites. It's incredible how hard it is to find properties WITHOUT a damn suite. I'm all for communal (read: extended family) living but the absolute necessity for so many people to rent out some space to afford their home is tragic.

Perhaps at some point people in numbers might actually ask Why? is it considered de rigueur to have a "mortgage helper". Sad.

Calgary is launching a pilot project to begin back alley suites.

http://www.cbc.ca/news/canada/calgary/l ... -1.2485446

[Shiny Side Up]

Only in Canada would having strangers living in your house be considered normal and a laudable economic strategy. Land of the basement suites. It's incredible how hard it is to find properties WITHOUT a damn suite. I'm all for communal (read: extended family) living but the absolute necessity for so many people to rent out some space to afford their home is tragic.

Perhaps at some point people in numbers might actually ask Why? is it considered de rigueur to have a "mortgage helper". Sad.

You must also consider though that there is also a substantial market for people looking for this sort of accommodation in Canada as well. One doesn't always need to look at it in the worst light. I mean if you have the space and want extra money, why not? Its just more doable in Canada since there's room so the houses are large enough to easily have such accommodation, and the people you might have renting are going to be, in general, fairly reasonable. Strangers in your home might be unthinkable south of the border, but that it might be a regular thing here I don't think is saying anything bad about us as Canadians.

Either way, if you can do it, and it works out, why not? One of the best bits of advice anyone could give is to if you are going to have a mortgage, pay it down as quick as possible.

[complexintentions]

It isn't saying anything bad about Canadians. In fact the probable reason it works at all is that Canadians are for the most part pretty tolerant and reasonable.

But it does speak volumes about the economics of home ownership that it is considered normal to include rental income in one's ability to afford their home. Better have a cushion if the rental market dries up or your tenant isn't quite so nicely Canadian. The banks love it as it allows people to extend themselves further than they would otherwise, helping to push prices higher. We're seeing more and more of this as people are strapped for cash, with such things as the airbnb and Uber apps, people selling a little more of their house, their car, whatever, all the time. Might as well rent out some time with your wife as well, to make those payments even faster. (No doubt there's an app for that, I haven't looked!) As you say, why not?

Incidentally it isn't always the best strategy to pay down a mortgage as quickly as possible. If you're paying 3% for money and can make 6% return on equities, it makes no sense to put extra money towards your mortgage. In fact that is the very topic today of the blog referenced a few posts back.

http://www.greaterfool.ca/2014/07/20/ve ... mortgages/

A survey published a few days ago shows lots of people get this. Done by Investor’s Group (yes, those guys with the 1.99% three-year home loan deal) it asked Canadians with at least $500,000 in investible assets (besides their house) about mortgages. The poll found almost 70% of these high net worth folks could pay off their mortgages with cash if they wanted to, but many chose not to.

Huh? Isn’t it the holy grail of people like Gail Alphabet and almost everyone with estrogen and a Bichon Frisé to get that home loan trashed, above all?

Nope. Not the wealthy ones. And there are two big reasons.

First, investors with financial assets have done extremely well over the last five years. Stock markets are up over 150% and balanced portfolios have been delivering roughly twice the annual returns seen in real estate. Even those with conservative portfolios half in fixed income have seen 10% or better gains, and sailed right through the 2008 fugliness.Why would they cash in all of it, triggering capital gains taxes, just to pay down a mortgage at less than 3%?

Remember the latest inflation number? It’s now about 2.5%. So isn’t a mortgage at anything less than prime pretty much free money?

Secondly, wealthy people know about diversification. They like to own lots of assets, instead of shouldering debt on just one. So if you have a $400,000 mortgage costing you 2.4% (TD’s new two-year rate) and your $400,000 balanced portfolio is making 13% (the YTD 2014 return, annualized on a 60-40), why pay debt off? That would simply consolidate all of your net worth into one asset – a mistake the kids make – and exacerbate risk.

Of course, lots of wealthy people also happily incur mortgage debt when the interest can be deducted from taxable income. So, the minute some folks pay off their mortgage they take a new one for up to 65% of the equity, invest the money in financial stuff, and create a fat tax break.

In short, a house and a mortgage are part of an overall financial plan. They are not a plan on their own.

Of course, if you stretched to make the minimum downpayment, and now need most of your disposable income just to pay the mortgage at 3%, then your advice makes sense. But it assumes someone has already made a terrible decision to leverage themselves to the hilt with a single asset.

[Koalemos]

Leveraging your mortgage for investments is a good idea, as long as the interest rates remain low. Since no one knows when they will go up, you're in a bit of a gamble. People with sub-prime mortgages found that out the hard way south of the border a few years ago (how quickly we forget), and lost everything.

The best piece of advice in that link was to assume a higher interest rate than you're actually paying (say, 7%), and invest surplus money every month. That way you won't get pulled under if the under-tow is stronger than you expect.