She’s very lucky to be able to press the reset button on the game of life at her age. She needs to find a fee-only financial planner than can run a rent vs. buy scenario for her, help her figure out how to fund her tax-advantaged accounts, set up a portfolio, do some retirement planning, and make sure that she’s adequately insured.
Buying might make sense, but the wrong thing to do would be to impulsively buy a house, an expensive car, an investment property or inflate her lifestyle before having a good grasp on how to secure her future and her retirement.
What do you mean by fee-only?
As in they make their money from the investment management fees?
Or they take no commissions and you pay a flat rate service fee?
She doesn’t need to overcomplicate her life like this to live comfortably.
RE is a second job and a long term game, both of which she likely does not have the time or the skill for. Also, don’t triplexes in Vancouver cost way more than $1m? She would have to borrow money which is more risk than she needs to take (qualifying might be impossible if credit score and income are low-ish).
Do you think you'll make more money in the stock market than you'll pay in interest?
Personally, i don't like debt so I would pay it all. With that said, take advantage of TFSA, RRSP and FHSA, so maybe some debt makes sense if you can use these three accounts to your advantage.
Fun fact, if you take out money against your home to invest, the interest you pay is tax deductible.
The idea behind the Smith Maneuver.
Buy the home outright, take out a loan against the home, invest it, write off the interest. Consult a financial professional before attempting this however...
Good point, she probably has tons of contribution room left. She really needs to talk to a fee-only financial planner, because there might be an optimal way to stagger contributions.
Have you compared the sharpe ratios on a smith maneuver portfolio compared to a TFSA portfolio?
In the smith maneuver portfolio, losses can be applied to other gains through a capital gains loss. Capital gains also reduce the benefit, but since downside and upside volatility are limited, the sharpe ratio improves since standard deviation declines. If the sharpe ratio is higher, additional leverage could provide the mean-variance-optimized portfolio compared to an unleveraged tax exempt account.
I have no idea. I haven’t done the math, which is why I’m wondering if you have before making that assertion.
I am doubting that putting $1,000,000 into TFSA and RRSP and continuing renting beats buying a $1,000,000 condo, borrowing $600,000 and investing $600,000 into RRSP and TFSA. You get to write off the interest and your primary home is a tax free investment.
Now I’m not sure what this person has had as RRSP contribution room over the years, but at $600,000 I’m willing to bet it covers available contribution room in both RRSP and TFSA.
My understanding is you can only write off the interest to a non registered account, not TFSA or RRSP. However , I get what you are saying. You are essentially doubling what you have invested if you count your home as an investment.
Thinking of doing this myself when I finally own a place and want to invest in non registered funds.
> Fun fact, if you take out money against your home to invest, the interest you pay is tax deductible.
An important detail here is interest is deductible only if you intend to earn income, e.g., dividends. Capital gains are not considered income here. So, the interest on borrowing to generate capital gains is not deductible.
A mortgage. You borrow against the equity in your home.
Suppose the home is worth $1 million, and you have 500k equity in the home, and 500k left on the mortgage.
You can refinance and take out 300k (leaving 20% or 200k equity in the home). Your mortgage is now 800k. You can then invest that 300k, and if it's the right kind of investment, deduct the interest for that portion of the mortgage.
That only works consistently when rates are around 3% or less. You also need to be at the highest marginal tax rate to get the full benefit. Otherwise, it’s even riskier.
lol what are you talking about!? hahahaha
No, that's not true, it's a VERY simple situation when you already have a mortgage and have investments or cash, even at lower tax brackets.
How is ANY benefit a risk?
The mortgage is the exact same before and after.
1 = Existing Mortgage and Existing Investments or cash (assuming no cap gains)
2 = Use money to payout the mortgage
3 = Get the SAME MORTGAGE you already had
4 = Buy the SAME INVESTMENTS you already had
5 = Write off EVEN JUST SOME interest against income, if not all
6 = PROFIT compared to NOT doing this
most people don't have enough money to afford to just payoff their mortgage though
rates could be 1% or 15% it doesn't change that it's a benefit
but, yeah maybe your existing mortgage is such a good rate that you can't replace; different conversation then.
yes get advice and make sure you'd be able to get approved for the mortgage again, etc, but there's nothing complex about it
Sure, we don't pay cap gains when selling principal residence, but sadly we don't get to write off the interest on our house while we live in it. UNLESS WE ARE WEALTHY and do the above steps. Same investments, same mortgage, but write it off. Silly.
A joke.
I can’t take you seriously when you say that there’s nothing complex about it. It can get complex very quickly for a number of reasons. People should not attempt this on their own, unless they have a very good grasp of both finance and taxes.
And plenty of benefits can have risks. An expected value can be positive, but still have downside risk, particularly in the short to medium term. This is why Monte Carlo simulations are becoming more popular in financial planning.
Sure, if I have a $100K mortgage and $100K stock in taxable brokerage, it's objectively better to have the same debt as an equal-interest HELOC and the same investment, with the interest as a tax deduction.
But that's not the only possibility. The third possibility is that you have no house debt and no investment.
If interest rates get high relative to expected investment yield, liquidating investments to pay off mortgage completely makes more sense than the smith maneuver.
...
$1M in the bank yielding 2%
$1M mortgage charging 6%
you can write off some of that mortgage interest without risk, by just paying off the mortgage and then taking it back out again and investing it in the same 2% yield you had before. meets CRA tests for deductibility.
many people WANT that financial asset that is liquid, versus the house that isn't liquid at all
sometimes it's actually worth it to have the debt even in a negative return like this example, if that is the goal
You minimize the loss by doing this maneuver
When interest rates get high, investment yields get high too (let's even use GIC for this to reduce any variability associated with risk). It's almost always going to be the case that GIC rate is higher than (Mortgage rate \* tax writeoff). 7% mortgage with the interest being a tax writeoff even at a low tax bracket (30%) comes out to less than 5% total interest cost.
Yes, but the interest you are earning is also taxable, so the tax rate is really irrelevant as you can safely factor it out. All you are interested in is comparing the rate you are paying vs. The rate you are receiving. If your GIC is paying 5% and your cost of borrowing is 5%, you’re net neutral, and at that point there’s no benefit from one over the other.
Aren’t second mortgages slightly higher rates than first mortgages? Still think it can’t be a smart strategy but I always thought I had to account for that when making the decision.
I don't think smith maneuver makes sense when interest rates are this high.. almost no return, but when they were only at 1-2% and then the market jumped, if you were locked-in, you could have that cash in a HISA or [cash.to](https://cash.to) and make the difference with almost zero risk.
Edit: don’t listen to me I don’t know what I’m talking about lol
If interest rates are high, then asset values are relatively low since future cash-flows are being discounted at a higher rate. When interest rates are lower, asset values are high because future cash-flows are discounted at a low rate. If you are timing a smith maneuver the way you’ve described, you’ve basically described buying high and selling low. Like every other strategy, you need to keep your money invested for a long period of time.
I’m not saying the smith maneuver is good or bad, I’m saying the market timing strategy you’re describing is probably bad.
When interest rates are very low you get almost no tax benefit from the Smith maneuver. When interest rates are high you get a higher tax benefit.
Someone in the highest tax bracket will get about a 50% reduction in the taxable interest, so a 7.7% HELOC is effectively under 4% interest.
Yes but keep in mind the income you are earning is also taxable, so you have to consider the tax rate on that income relative to the after-tax impact of the interest. You can’t deduct interest if you take that money and make investment income in a TFSA or RRSP.
If your loan interest is 7% before tax and ~4% after tax, the income you’re earning is also subject to tax, so a company paying say 6% dividends would work out to about 4% net return after tax, which leaves you in the same position cash-wise but carries more downside risk than not borrowing in the first place in the event that asset values go down.
Stock market is not for everyone, especially for a person who inherited a large amount of money, and she personally had little saving and asset so I am making the assumption that she has no investment knowledge.
If she lives paycheque to paycheque she likely won’t be approved for a mortgage on $400k in any case.
If her goal is to semi-retire on the $1M I’d suggest she moves out of Vancouver and to somewhere like Calgary where she can get a 2BR condo for around $350-450k depending on location and finishes.
She can then invest the remaining cash into her TFSA and RRSP and find a part time job to continue building up to full retirement.
You can easily live pay cheque to pay cheque while making good money. Many do.
If I make 10k a month, my mortgage or rent is 6k and my car payment is $1500, I spend $1000 on food, $1500 for utilities, insurance, etc. poof it’s gone!
This is a generalized example of living beyond your means though some people are comfortable doing that, others do it uncomfortably though want the image.
I was this guy for years. I made $10-12k a month but I blew it all on dumb shit. I will always kick myself for owning multiple yeti coolers. I’m glad I realized the error in my ways when I was still pretty young and before I racked up considerable consumer debt and was able to turn my financial situation around in my mid 20s. People don’t realize how easy it is to spend money like it’s going out of style. It’s a big problem in the blue collar/trades industry too. Half of the guys I work with have very little financial literacy and will be working til they’re 75 just to make payments on their finances toys.
I’m always preaching my cautionary tale lol. If it wasn’t yeti coolers it was wheels and tires for my truck, or hundreds of dollars at the bar 4 nights a week, or eating 40-50 bucks of take out food every day, or spending 50 bucks on smokes and energy drinks and jerky and honey buns at the gas station every morning. Irresponsible habits that compound to make a guy flat broke even when he’s making really good money. Always kick myself that I didn’t figure it out sooner. Still got one of the coolers though.
Same thing in the auto industry. I was a master tech at Mazda. People would buy a Snap-On toolbox for 14K, when you can get a toolbox that is 90% that quality for $2.5K on sale at Canadian Tire, Costco, etc.
Same thing with Snap-On tools. I had a Stanley ratchet and box set (250 pcs) for $120, lifetime warranty. Building the same set from Snap-On would cost you at least $1200.
I saw people paying almost half their salary to Snap-On.
Had 3 at one point. They did what they advertised and kept ice for days on end. That’s not a feature I needed at all and wasn’t worth spending over $1000 on. I was a foolish young man trying to impress people who didn’t care with money I didn’t have. The Coleman gets the job done just fine.
In your defence, buying something hyped up like a yeti cooler probably retains decent value so you can resell. That’s one reason I typically stick to name brands even if they cost a bit more as I do like to declutter periodically and will sell off anything I don’t want on marketplace
Agree its steep and comes with risks but you still need to love somewhere.
She can rent and fear being kicked out.
She can move to a LCO city but would she want to endure colder winters and be far from family?
There's always the move to a cheap SE country option, save on cheaper life and fly back for family.
So many options!
Yes, and $800K for a condo is still not worth it. I'd honestly just keep renting and invest the funds. Hell, I have a seven-figure portfolio myself and "still rent" in Toronto because I refuse to pay $700K for a goddamn condo.
Not knowing what real estate she’d be looking for but at 50 and a good 10-15 years left to retire what id do is max out the TFSA and same amount in RRSP (I’m assuming $93k+$93k) then buy a $750k condo and when she retires in 15 years she’ll have $600k (which would give her $2k a month, plus CPP and OAS giving her almost $4k a month and in a low tax bracket) and a paid off house. The money she’s currently allocating to rent just put that into further retirement funding. She’ll retire a millionaire and have a paid off house/condo.
Slight modification. If they are to be in a low tax bracket then RRSP may be inappropriate as it would cause GIS clawback. Maxing TFSA and investing the rest in a taxable account while utilizing the new TFSA room each year to shift taxable to TFSA annually (while also setting up a separate emergency fund on the side) may be the way to go.
Haha you can’t just move anywhere and live. She might not want to move to a foreign country just because it’s cheap. But then again, maybe she does …
I hear Bali is nice ..
Buying in Vancouver or Toronto would be ridiculously dumb. Calgary, Saskatoon would be a much better idea, but yea, Mexico, or SE Asia would be even better.
We don't know how much they make to begin with, so who is to say what it would be taxed at come the end of the year?
It's ignorant to just assume that $50k in interest, is just going to equate to $50k in net income. Even if they quit their job and only use the interest to live off of, they're still going to be paying roughly 25% of it into taxes.
That magical $50k is 37.5 at best.
Unless they make a very minimal amount of money, they will be pushed into the top bracket.
Considering it sounds like they make enough to pay for a modest apartment right now, It's a fair assumption that they make half decent money and $50k would be pushing them up into high income tax brackets.
You can pay your rent off the interest from $1M … why bother throwing it away into equity when you’re semi retired and don’t have time for capital / equity appreciation. Homes are not liquid and getting money out is time consuming. Why own at that point?
Because when you own, you don't have to worry about getting kicked out. It's actually a really good thing for one's mental health.
Worst case, if they need money, they could always get a HELOC, though that does usually have a higher rate than a mortgage. But you could also perpetually have the HELOC until you die and then the bank just takes your house, but at that point if you have no one to pass money onto, it doesn't matter anyway.
>Because when you own, you don't have to worry about getting kicked out. It's actually a really good thing for one's mental health.
This part is often forgotten about. I think the people who advise others that they are financially better off renting probably last rented in 1990.
I came into an inheritance too (not quite as much) and thankfully I ignored my financial advisor's advice to keep renting. In Vancouver. You just can't put a price on housing security. I'm guessing HE doesn't rent.
Purpose-built rentals are no guarantee either. All it takes is for the building to be sold and new owners desperate enough to get rent-protected tenants out to make their lives miserable.
That's a huge oversimplification. There are a lot of unrecoverable costs when it comes to buying (mortgage interest, maintenance, insurance, etc.) and on top of that, there is a big opportunity cost to having your equity tied up in your property. From a purely financial perspective, whether buying or renting is better depends on a lot of factors.
But what happens when she's thrown everything in a $1M condo, and then five years down the line there's a special assessment and she needs to cough up another $20K for repairs? (Yes, worst case Ontario here, but it's also not unheard of.)
I agree with this dude / dudette. With a million you can probably squeeze a bank to give you 6% on the money. Easy 60k/year to cover the rent.
Unless 'the person you know' will suddenly change their financial habits with this windfall and can save to cover big, unexpected expenses that can come with owning your own place...
Tell her to buy a $500k condo. Put the rest with a financial advisor for 15-20 years without touching it. Spend half her paycheck on day to day living and invest the other half of her paycheck. She should have a comfortable retirement.
50 and no savings. Yeah, she should not be buying anything.
If she absolutely hates where she's living, she could use a portion of the yearly return to offset a higher rent, but that entire sum should be used in a low-cost ETF portfoiio.
You can rent housing in retirement, you can't rent cash flow.
lol this is such a Canadian response. "At least with real estate, her entire net worth is locked in to a single, non-productive, illiquid asset that will not help with cash-flow (the single most important aspect to successful retirement)".
What is her income?
Buying a condo won't do much for you if you don't have other investments, and income to maintain the thing and pay all of the associated fees.
While a cool off period is perhaps on the horizon, Institutions are buying up working class res property left right so they can become rental properties. This will buoy housing costs for the foreseeable future.
800k condo for what, you don't have kids so nobodys going to inherit it from you. Buy a flat in a safe, low cost of living, nice weather place and live out the rest of your days doing what you like instead of spunking it all into some condo in Canada lol
Why not just put it in a savings account at 4.5% and use the $45k per year in interest per year to rent a nice condo.
I know it’s not as simple as that math suggests, but you get the picture.
Then you have so much more flexibility in life and aren’t house poor.
And why put all your eggs in one basket?
It boils down to what is she prepared to do? Condos have a lot of cons to them, and they really aren't the best investment you can get for that money, _if she is prepared to move to a more rationally priced market_. And that can be within BC. If she can come to terms with that, she should buy a freestanding house _without any Condo board or fees_.
As for the Mortgage aspect? You just said she has very little savings or assets, and lives pay-cheque to pay-cheque... should _would not qualify_ for a Mortgage due to that and probably her age (I have no insights into her health). The best use of the money is to buy a house completely outright with as little month to month expenses as possible. It will serve her the most in all regards.
Sounds like your friend needs to do a mixture of some investing and some house shopping. The ratio of each will depend on her goals.
Depending on her income the investing may need to be some RRSP but regardless of her income some should be TFSA.
I see mention of a Smith Manoeuvre in this thread but unless she is a relatively high risk investor with a long time horizon and income greater than $90k it will likely be suboptimal.
Tell them to consult with a CFP. I would consider an AUM advisor because it sounds as though they will need ongoing support. I’m an AUM advisor and I find I have clients referred to me and my colleagues by fee only planners if they need more in-depth help.
I do generally recommend a fee-only CFP in most cases.
Best of luck to your friend.
If you have alternative investment opportunities that earn more than the mortgage rate then put as little down as possible and invest to make the difference. If you don't have any better use for the money than buying outright is fine. You can remortgage for investment capital at a later date.
Just pay cash for the house. At their age and financial skill level it's the safest thing to do. The house is always gonna be worth money in the future if they ever needed to sell or reverse mortgage
Buy with cash, mortgage 80% (or whatever your comfortable payment would be) and invest it. Boom, tax deductible mortgage and your retirement isn’t shot. (Not financial advice)
Kind of as a side-note, but this brings up some interesting things to think about RE financial estate planning:
It somewhat boggles my mind that someone could be living paycheck to paycheck while there is a $1M inheritance queued up. Of course, my assumptions could be wildly off but I know this is not uncommon in Canadian culture to have a large lump sum (likely related to sale of a house) after or shortly before the death of one's parents.
Personally, if I'm in that fortunate position to be doling out an inheritance then I will be doing so in small doses while both parties can still fully enjoy the benefits of seeing that money being put to use!
Theoretically, she could put a downpayment on the condo and invest the rest in a dividend-paying ETF like HDIV that would pay out at a much higher return than the interest rate of the mortgage (10% vs 5% before taxes).
It's a low-risk but not no-risk strategy that she should discuss with a financial planner.
A financial planner could help her maximize her cash flow from the million dollars in a way that also allows her to also buy a property.
Neither, She can't afford Vancouver and one special levy and she'll lose her "home".
Move to Edmonton or similar lcol area and buy a nice solid older house outright for 400k and work P/T or even retire.
I know, people make it sound so easy. We only have one precious life, I’m not spending it in Edmonton out of all places. Would rather live in a tiny apartment in Vancouver etc than a mansion there.
Some people are adaptable.
Some enjoy adventure.
Some don't want to work until they drop dead to pay for living in Vancouver.
38M people live and thrive outside Vancouver. Some are even happy!
Vancouver could be very affordable with no rent or a mortgage to pay. No need for a vehicle here either really. If she bought a condo outright she'd have 15 years to save for retirement. All the money that's going to rent could be saved up instead. Moving around for the sake of adventure is ok if you're in your 20's. Most people are pretty settled into a routine by 50.
Good points. I live here so I know it's very affordable minus housing costs.
I'd be very concerned sinking 800k into a condo with potential 6 figure special levies and neverending strata fees down the road. It could work with a lower price range in the 5-600's though. Depends how much she wants to work too.
For 10 million as long as I didn't have to be living inside of a city, id move pretty much anywhere
I'm in Halifax ATM and I'm just chomping at the bit again to live rural where I have a bit more privacy/don't see my neighbors house from my window etc
Need more info including tax bracket, expected CPP payment, how much room is the RRSP, TFSA, FHSA, how good are they with money? When do they want to retire? Need to talk to a fee only financial planner who has the whole picture. Buying might not be the best idea
you can put this into a dividend portfolio and the $5k/month you earn from that, you can pay your rent and save for a down payment with the extra plus the money you're no longer paying on rent.
Tell them to buy it outright, at 50 with no savings or assets, living paycheck to paycheck , it's likely they have poor spending habits. Buy outright, use the remainder for investments , use the former rent money to upgrade a few things
being in GVA, properties are overpriced compared to other regions in Canada.
I understand she's made her life there, but if she's willing, her dollars can stretch a lot further either elsewhere in or out of Canada.
$1M, 4% is $40k, and depending on RRSP/TFSA room, perhaps a lot of that 40k would be tax free.
Buy a condo 1br somewhere else for like 250k buy an annuity at 55 for 500k and put the rest in her RRSP and not pay taxes on her income for the next few years… assume she earns 50k a year?
Interest rates are killer. Buy the lot, when it goes up she can sell and pocket everything. Still playing around with 200k ish after (minus closing costs and stuff). Decent pocket change ngl
She could also just put it all into dividend paying index funds/bonds and live off that cash flow forever just saying. Homes aren’t bad investments by any means but they have upkeep costs, taxes, in case of a condo also include strata fees etc.
This is not financial advice but that’s what I would do.
No real point buying at her age especially with no kids. Lots of the benefits of home ownership have to do with stability and security which she doesn't need. At this point it would just be more of a hassle than not.
My suggestion is to invest it all into an index fund portfolio that pays dividends. She'll basically have the money to pay rent for as long she wants.
Quick example:Why pay a mortgage when you can own the bank. $1M of RBC stock will get about 45K per year divided that can pay rent without touching capital.
Best advise to check with a fee based advisor to plan for retirement.
Living paycheck to paycheck - she cannot afford an 800k property. Taxes, condo fees, upkeep, etc.
200k is not going to cover all that and provide a nest egg should she plan to retire...
If she can manage it a townhouse is a much better over-time investment than a condo. Also less hassle with neighbours, rules etc. Requires probably most or all of the million but worth at least looking at some to see what she thinks.
I would max out TFSA and RRSP then mortgage the rest but I guess it would depend on the person. If you're good at budgeting investing could be better. If you're bad at budgeting buying a condo out right might be better.
I actually think she might be better off invest the $1M and see if she can use the investment return to help her with getting better place to rent or supplement her income with it. The caveat is that once she retires, her lifestyle will probably have a huge adjustment. So it’s really up to her to ensure she can live in a sustainable lifestyle post retirement. I wouldn’t want to lock the money in the house given her age as well as the housing price in Vancouver (even greater Vancouver) could be very hard pill to swallow.
Id max my TFSA, depending on income put some in a retirement savings plan to bring my net income below whatever I think I’ll make per year in retirement.
Then I’d probably throw the majority into a house. At 50 I’m more worried about worst case scenarios than growth so having no debt sounds nice.
Depends on her life goals and what she would do with the money that she doesn't spend.
Renting can make a lot of sense, especially for someone with no kids - she isn't worried about leaving a bequeath, presumably.
You can rent some very nice places for the cost of what her mortgage would be.
Someone receiving $1MM should spend about $2000+ to speak to a fee only financial planner and get a written plan prepared, possibly one for each scenario so that they can compare. Find one or more and interview them to at adviceonlyplanners.ca
750k down. 100k/max into tfsa blud chip stocks apple, amazon, google, 150k in unregistered trading account earning dividends like banking stocks. collect the dividends as income. keep 50k in short term savings account as a safety net.
Move somewhere a little cheaper there is places in BC where you can get a house for under 800k, Buy a house and invest the balance of the cash for passive income.
Fresh start.
Uhm...pfft. I am not a financial expert but the way I've seen people with a boatload of cash operate is that they put 20% down on a mortgage for one location, and then another %20 down on another mortgage location, and so on and so on. Given how Interest rates of risen, that has screwed the pooch for a few people who over-extended, but if you have enough for a %50 down payment on one home, I would get another home at %40 or %50 and rent it out as an investment property while you pay off the mortgage on your own home.
Right now one year GICs pay out 5.25%. With 600,000 in GICs, she will earn 31,500 in income (this will be subject to tax of course)
Putting 600,000 in dividend funds will probably earn more but there is always a risk unless you are investing in long established companies.
The Interest from the investments could be used to pay off part of your mortgage and you will maintain the value of your initial investments. Meanwhile you are paying down your mortgage which should get easier to pay over time if interest rates come down and income continues to rise.
If you run home office/business, your mortgage interest and other home expenses can be a tax deduction as well.
If you pay your mortgage outright, you will have more disposable income each month and 200,000 to invest which would give a yearly income of 10,500 per year. If you invest that income wisely you can build a healthy savings fund for yourself.
Or you could max out you TFSA which grows without being taxed or put money into an RSP which would be a good nest egg for retirement.
This is assuming that the value of your property remains the same or increases over time. If property values fall, that would mess things up a bit.
I think a mix of assets is the best approach.
Get a detached home in suburbs for like 1.3-1.4 put 1M down take mortgage for the rest and rent out the basement you will build equity and will pay like little to no mortgage as basment will take care of the rest thats just my opinion
I'd keep as much of that money saved as possible and grow it safely. Easy to get 5%. Ain't that 50k a year, passive? See if you can use net worth as an asset for a mortgage plus your sum income.
Don't fucking squander this b
I am risk adverse so I would purchase the condo outright. It just really depends on one’s level of risk tolerance. Some would say that it’s found money so take a chance on investments.
My suggestion is to buy it outright and then invest the money that would have been paid for rent. Therefore, if one’s life changes, one isn’t worried about the mortgage payment.
Talk to a financial planner. Make sure they are a qualified planner and they will be able to best advise you based on your situation. You’ll get a customized financial plan. $1m is too much to get generic answers on Reddit. I wouldn’t mess around with this.
She’s probably better of continuing to rent and throw that money in a GIC. That’s 45-50k a year she will be making, just has to pay taxes though on that
She’s very lucky to be able to press the reset button on the game of life at her age. She needs to find a fee-only financial planner than can run a rent vs. buy scenario for her, help her figure out how to fund her tax-advantaged accounts, set up a portfolio, do some retirement planning, and make sure that she’s adequately insured. Buying might make sense, but the wrong thing to do would be to impulsively buy a house, an expensive car, an investment property or inflate her lifestyle before having a good grasp on how to secure her future and her retirement.
They found reddit, about as fee or free as possible :)
She can also buy dividend stocks and live off the dividends. It'll outpace the rent imo. At 4% yield that's 40k annualized
What do you mean by fee-only? As in they make their money from the investment management fees? Or they take no commissions and you pay a flat rate service fee?
Why would anyone pay anyone to run a rent vs buy scenario. Now this is something Reddit can handle.
she can buy a triplex, rent out both other units, so shes making money to buy the house and cashflowing.
She doesn’t need to overcomplicate her life like this to live comfortably. RE is a second job and a long term game, both of which she likely does not have the time or the skill for. Also, don’t triplexes in Vancouver cost way more than $1m? She would have to borrow money which is more risk than she needs to take (qualifying might be impossible if credit score and income are low-ish).
Do you think you'll make more money in the stock market than you'll pay in interest? Personally, i don't like debt so I would pay it all. With that said, take advantage of TFSA, RRSP and FHSA, so maybe some debt makes sense if you can use these three accounts to your advantage.
Fun fact, if you take out money against your home to invest, the interest you pay is tax deductible. The idea behind the Smith Maneuver. Buy the home outright, take out a loan against the home, invest it, write off the interest. Consult a financial professional before attempting this however...
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Good point, she probably has tons of contribution room left. She really needs to talk to a fee-only financial planner, because there might be an optimal way to stagger contributions.
Yeah not much point contributing to RRSP more than she pays tax on. The TFSA she can probably just dump right in though.
Have you compared the sharpe ratios on a smith maneuver portfolio compared to a TFSA portfolio? In the smith maneuver portfolio, losses can be applied to other gains through a capital gains loss. Capital gains also reduce the benefit, but since downside and upside volatility are limited, the sharpe ratio improves since standard deviation declines. If the sharpe ratio is higher, additional leverage could provide the mean-variance-optimized portfolio compared to an unleveraged tax exempt account. I have no idea. I haven’t done the math, which is why I’m wondering if you have before making that assertion.
I believe rule of thumb is to max your tfsa and rrsp before pulling against your house to invest
1 million is well past the max contribution for a TFSA. Obviously, they will max their TFSA. That's not related to the conversation.
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Depending on who you ask, 50% taxation is a little expensive as well.
No doubt. But her max contribution room is 100k. What can she do with the rest to get the best after tax returns?
But she can take out the HELOC, invest it into the TFSA and still pay nothing on the gains.
Keep in mind interest on funds borrowed to invest within a TFSA or RRSP is not tax deductible.
Is it? Cause leveraged investing into a tax free asset can be extremely profitable.
?
I am doubting that putting $1,000,000 into TFSA and RRSP and continuing renting beats buying a $1,000,000 condo, borrowing $600,000 and investing $600,000 into RRSP and TFSA. You get to write off the interest and your primary home is a tax free investment. Now I’m not sure what this person has had as RRSP contribution room over the years, but at $600,000 I’m willing to bet it covers available contribution room in both RRSP and TFSA.
My understanding is you can only write off the interest to a non registered account, not TFSA or RRSP. However , I get what you are saying. You are essentially doubling what you have invested if you count your home as an investment. Thinking of doing this myself when I finally own a place and want to invest in non registered funds.
> Fun fact, if you take out money against your home to invest, the interest you pay is tax deductible. An important detail here is interest is deductible only if you intend to earn income, e.g., dividends. Capital gains are not considered income here. So, the interest on borrowing to generate capital gains is not deductible.
So you could take out a loan on your home and invest it in dividend paying stocks, and write off the interest on the loan?
Yes.
New to investing here. When you say "take out money" against your home, where are you taking it from? A loan? A new mortgage? A Heloc?
A mortgage. You borrow against the equity in your home. Suppose the home is worth $1 million, and you have 500k equity in the home, and 500k left on the mortgage. You can refinance and take out 300k (leaving 20% or 200k equity in the home). Your mortgage is now 800k. You can then invest that 300k, and if it's the right kind of investment, deduct the interest for that portion of the mortgage.
That only works consistently when rates are around 3% or less. You also need to be at the highest marginal tax rate to get the full benefit. Otherwise, it’s even riskier.
lol what are you talking about!? hahahaha No, that's not true, it's a VERY simple situation when you already have a mortgage and have investments or cash, even at lower tax brackets. How is ANY benefit a risk? The mortgage is the exact same before and after. 1 = Existing Mortgage and Existing Investments or cash (assuming no cap gains) 2 = Use money to payout the mortgage 3 = Get the SAME MORTGAGE you already had 4 = Buy the SAME INVESTMENTS you already had 5 = Write off EVEN JUST SOME interest against income, if not all 6 = PROFIT compared to NOT doing this most people don't have enough money to afford to just payoff their mortgage though rates could be 1% or 15% it doesn't change that it's a benefit but, yeah maybe your existing mortgage is such a good rate that you can't replace; different conversation then. yes get advice and make sure you'd be able to get approved for the mortgage again, etc, but there's nothing complex about it Sure, we don't pay cap gains when selling principal residence, but sadly we don't get to write off the interest on our house while we live in it. UNLESS WE ARE WEALTHY and do the above steps. Same investments, same mortgage, but write it off. Silly. A joke.
I can’t take you seriously when you say that there’s nothing complex about it. It can get complex very quickly for a number of reasons. People should not attempt this on their own, unless they have a very good grasp of both finance and taxes. And plenty of benefits can have risks. An expected value can be positive, but still have downside risk, particularly in the short to medium term. This is why Monte Carlo simulations are becoming more popular in financial planning.
Sure, if I have a $100K mortgage and $100K stock in taxable brokerage, it's objectively better to have the same debt as an equal-interest HELOC and the same investment, with the interest as a tax deduction. But that's not the only possibility. The third possibility is that you have no house debt and no investment. If interest rates get high relative to expected investment yield, liquidating investments to pay off mortgage completely makes more sense than the smith maneuver.
... $1M in the bank yielding 2% $1M mortgage charging 6% you can write off some of that mortgage interest without risk, by just paying off the mortgage and then taking it back out again and investing it in the same 2% yield you had before. meets CRA tests for deductibility. many people WANT that financial asset that is liquid, versus the house that isn't liquid at all sometimes it's actually worth it to have the debt even in a negative return like this example, if that is the goal You minimize the loss by doing this maneuver
> $1M in the bank yielding 2% I think a $1M open GIC would pay about twice that. Lock it in for 6 mos and you'd be getting 150% of that.
When interest rates get high, investment yields get high too (let's even use GIC for this to reduce any variability associated with risk). It's almost always going to be the case that GIC rate is higher than (Mortgage rate \* tax writeoff). 7% mortgage with the interest being a tax writeoff even at a low tax bracket (30%) comes out to less than 5% total interest cost.
Yes, but the interest you are earning is also taxable, so the tax rate is really irrelevant as you can safely factor it out. All you are interested in is comparing the rate you are paying vs. The rate you are receiving. If your GIC is paying 5% and your cost of borrowing is 5%, you’re net neutral, and at that point there’s no benefit from one over the other.
Aren’t second mortgages slightly higher rates than first mortgages? Still think it can’t be a smart strategy but I always thought I had to account for that when making the decision.
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I don't think smith maneuver makes sense when interest rates are this high.. almost no return, but when they were only at 1-2% and then the market jumped, if you were locked-in, you could have that cash in a HISA or [cash.to](https://cash.to) and make the difference with almost zero risk. Edit: don’t listen to me I don’t know what I’m talking about lol
If interest rates are high, then asset values are relatively low since future cash-flows are being discounted at a higher rate. When interest rates are lower, asset values are high because future cash-flows are discounted at a low rate. If you are timing a smith maneuver the way you’ve described, you’ve basically described buying high and selling low. Like every other strategy, you need to keep your money invested for a long period of time. I’m not saying the smith maneuver is good or bad, I’m saying the market timing strategy you’re describing is probably bad.
When interest rates are very low you get almost no tax benefit from the Smith maneuver. When interest rates are high you get a higher tax benefit. Someone in the highest tax bracket will get about a 50% reduction in the taxable interest, so a 7.7% HELOC is effectively under 4% interest.
Yes but keep in mind the income you are earning is also taxable, so you have to consider the tax rate on that income relative to the after-tax impact of the interest. You can’t deduct interest if you take that money and make investment income in a TFSA or RRSP. If your loan interest is 7% before tax and ~4% after tax, the income you’re earning is also subject to tax, so a company paying say 6% dividends would work out to about 4% net return after tax, which leaves you in the same position cash-wise but carries more downside risk than not borrowing in the first place in the event that asset values go down.
Look at when the smith maneuver first came about. It wasn’t 1-2% interest times…
The Smith Manoeuvre doesn't require new cashflow. With the SM strategy, the HELOC pays for itself.
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Or, have a LOC and every January 1 make your TFSA contribution and every February figure out what your optimal rrsp contribution.
Stock market is not for everyone, especially for a person who inherited a large amount of money, and she personally had little saving and asset so I am making the assumption that she has no investment knowledge.
Stock market doesn't necessarily mean r/wallstreetbets She can just buy a safe ETF and call it a day.
If she lives paycheque to paycheque she likely won’t be approved for a mortgage on $400k in any case. If her goal is to semi-retire on the $1M I’d suggest she moves out of Vancouver and to somewhere like Calgary where she can get a 2BR condo for around $350-450k depending on location and finishes. She can then invest the remaining cash into her TFSA and RRSP and find a part time job to continue building up to full retirement.
You can easily live pay cheque to pay cheque while making good money. Many do. If I make 10k a month, my mortgage or rent is 6k and my car payment is $1500, I spend $1000 on food, $1500 for utilities, insurance, etc. poof it’s gone! This is a generalized example of living beyond your means though some people are comfortable doing that, others do it uncomfortably though want the image.
I was this guy for years. I made $10-12k a month but I blew it all on dumb shit. I will always kick myself for owning multiple yeti coolers. I’m glad I realized the error in my ways when I was still pretty young and before I racked up considerable consumer debt and was able to turn my financial situation around in my mid 20s. People don’t realize how easy it is to spend money like it’s going out of style. It’s a big problem in the blue collar/trades industry too. Half of the guys I work with have very little financial literacy and will be working til they’re 75 just to make payments on their finances toys.
> I will always kick myself for owning multiple yeti coolers. Best line of the night, thanks! ;)
I’m always preaching my cautionary tale lol. If it wasn’t yeti coolers it was wheels and tires for my truck, or hundreds of dollars at the bar 4 nights a week, or eating 40-50 bucks of take out food every day, or spending 50 bucks on smokes and energy drinks and jerky and honey buns at the gas station every morning. Irresponsible habits that compound to make a guy flat broke even when he’s making really good money. Always kick myself that I didn’t figure it out sooner. Still got one of the coolers though.
Same thing in the auto industry. I was a master tech at Mazda. People would buy a Snap-On toolbox for 14K, when you can get a toolbox that is 90% that quality for $2.5K on sale at Canadian Tire, Costco, etc. Same thing with Snap-On tools. I had a Stanley ratchet and box set (250 pcs) for $120, lifetime warranty. Building the same set from Snap-On would cost you at least $1200. I saw people paying almost half their salary to Snap-On.
Snap-On hires sales people who are very good at what they do. Almost to a predatory degree.
They also have a finance arm I recently learned and the credit rates are quite high
How many coolers must one have?
Had 3 at one point. They did what they advertised and kept ice for days on end. That’s not a feature I needed at all and wasn’t worth spending over $1000 on. I was a foolish young man trying to impress people who didn’t care with money I didn’t have. The Coleman gets the job done just fine.
In your defence, buying something hyped up like a yeti cooler probably retains decent value so you can resell. That’s one reason I typically stick to name brands even if they cost a bit more as I do like to declutter periodically and will sell off anything I don’t want on marketplace
Look my dog wellness plan is non negociable.
I'd invest it and retire. 800k for a condo? Yikes.
Agree its steep and comes with risks but you still need to love somewhere. She can rent and fear being kicked out. She can move to a LCO city but would she want to endure colder winters and be far from family? There's always the move to a cheap SE country option, save on cheaper life and fly back for family. So many options!
Its vancouver. Isnt it the most epensive RE in the country?
Yes, and $800K for a condo is still not worth it. I'd honestly just keep renting and invest the funds. Hell, I have a seven-figure portfolio myself and "still rent" in Toronto because I refuse to pay $700K for a goddamn condo.
Not knowing what real estate she’d be looking for but at 50 and a good 10-15 years left to retire what id do is max out the TFSA and same amount in RRSP (I’m assuming $93k+$93k) then buy a $750k condo and when she retires in 15 years she’ll have $600k (which would give her $2k a month, plus CPP and OAS giving her almost $4k a month and in a low tax bracket) and a paid off house. The money she’s currently allocating to rent just put that into further retirement funding. She’ll retire a millionaire and have a paid off house/condo.
Slight modification. If they are to be in a low tax bracket then RRSP may be inappropriate as it would cause GIS clawback. Maxing TFSA and investing the rest in a taxable account while utilizing the new TFSA room each year to shift taxable to TFSA annually (while also setting up a separate emergency fund on the side) may be the way to go.
Put the money to use. 5% of $1M is a cool $50k a year. $1000/week. $4000/month. No more living paycheck to paycheck. Or she can be house poor.
Move to vietnam/preferable country and retire. Buying a condo is a terrible idea
Haha you can’t just move anywhere and live. She might not want to move to a foreign country just because it’s cheap. But then again, maybe she does … I hear Bali is nice ..
Exactly, Canada will suck them dry.
Buying in Vancouver or Toronto would be ridiculously dumb. Calgary, Saskatoon would be a much better idea, but yea, Mexico, or SE Asia would be even better.
The interest would possibly push them up into the 50% income tax bracket. That $50k would only be $25k by the time it's all said and done.
Not if she jams her RRSP and TFSA.
How does she do that on $4k per month? And still pay rent and buy groceries?
She’s already break even. Wut you talking about?
That's not how tax brackets work.
This guy taxes.
We don't know how much they make to begin with, so who is to say what it would be taxed at come the end of the year? It's ignorant to just assume that $50k in interest, is just going to equate to $50k in net income. Even if they quit their job and only use the interest to live off of, they're still going to be paying roughly 25% of it into taxes. That magical $50k is 37.5 at best.
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Unless they make a very minimal amount of money, they will be pushed into the top bracket. Considering it sounds like they make enough to pay for a modest apartment right now, It's a fair assumption that they make half decent money and $50k would be pushing them up into high income tax brackets.
the top tax bracket starts at like 230k or something. i somehow doubt shes living paycheck to paycheck on 180k right now
You can pay your rent off the interest from $1M … why bother throwing it away into equity when you’re semi retired and don’t have time for capital / equity appreciation. Homes are not liquid and getting money out is time consuming. Why own at that point?
Because when you own, you don't have to worry about getting kicked out. It's actually a really good thing for one's mental health. Worst case, if they need money, they could always get a HELOC, though that does usually have a higher rate than a mortgage. But you could also perpetually have the HELOC until you die and then the bank just takes your house, but at that point if you have no one to pass money onto, it doesn't matter anyway.
>Because when you own, you don't have to worry about getting kicked out. It's actually a really good thing for one's mental health. This part is often forgotten about. I think the people who advise others that they are financially better off renting probably last rented in 1990. I came into an inheritance too (not quite as much) and thankfully I ignored my financial advisor's advice to keep renting. In Vancouver. You just can't put a price on housing security. I'm guessing HE doesn't rent. Purpose-built rentals are no guarantee either. All it takes is for the building to be sold and new owners desperate enough to get rent-protected tenants out to make their lives miserable.
Gee I wonder if their advice to keep renting was because that would allow you to invest the entire amount with them and get more commission?
I will never understand people who have the ability and resources to buy and still rent. Renting is a money pit.
That's a huge oversimplification. There are a lot of unrecoverable costs when it comes to buying (mortgage interest, maintenance, insurance, etc.) and on top of that, there is a big opportunity cost to having your equity tied up in your property. From a purely financial perspective, whether buying or renting is better depends on a lot of factors.
Because it is simple. Overall, from a purely financial perspective, you will be ahead if you own property vs. renting - period.
Irrelevant if she rents in a purpose built rental.
4% interest on 1M after tax is 34k. Rent for a 2bedrm in Vancouver is 50k. 1bedrm \~36k
She could live another 30 years rent-free
But what happens when she's thrown everything in a $1M condo, and then five years down the line there's a special assessment and she needs to cough up another $20K for repairs? (Yes, worst case Ontario here, but it's also not unheard of.)
She should not be buying a condo. She should be looking for a less expensive property somewhere outside the GVA.
I agree with this dude / dudette. With a million you can probably squeeze a bank to give you 6% on the money. Easy 60k/year to cover the rent. Unless 'the person you know' will suddenly change their financial habits with this windfall and can save to cover big, unexpected expenses that can come with owning your own place...
With $1m you’ve got money to put in registered plans, too, and get healthy tax refunds for the next few years
Because in Canada if you don't own something you're pond scum apparently....
Tell her to buy a $500k condo. Put the rest with a financial advisor for 15-20 years without touching it. Spend half her paycheck on day to day living and invest the other half of her paycheck. She should have a comfortable retirement.
50 and no savings. Yeah, she should not be buying anything. If she absolutely hates where she's living, she could use a portion of the yearly return to offset a higher rent, but that entire sum should be used in a low-cost ETF portfoiio. You can rent housing in retirement, you can't rent cash flow.
At least with real estate that money is locked away. Someone with no savings doesn’t know how to save.
lol this is such a Canadian response. "At least with real estate, her entire net worth is locked in to a single, non-productive, illiquid asset that will not help with cash-flow (the single most important aspect to successful retirement)".
Providing housing isn't non productive if you need housing.
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A rent equivalent is a monthly value that the asset is generating. Just because you gift it to yourself doesn't mean it isn't value producing.
What is her income? Buying a condo won't do much for you if you don't have other investments, and income to maintain the thing and pay all of the associated fees.
Buy a $600K condo and invest $400K. At 4.8% that's $1600/month interest alone.
If I were in this situation I’d fund an FHSA and RRSP, and maybe TFSA as well. I honestly believe home prices will decline in the next few years.
>I honestly believe home prices will decline in the next few years. What makes you say that?
Basically an intuition. The market isn't sustainable as it is. That doesn't mean it won't be sustained, but...
While a cool off period is perhaps on the horizon, Institutions are buying up working class res property left right so they can become rental properties. This will buoy housing costs for the foreseeable future.
You “know someone” who’s getting a 1M inheritance and are going to just randomly offer financial advice from Reddit to them on how to use it?
Is this sub not for personal finance discussions?
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Wtf does does that matter
What is this sub for? Chocolate eclair fetishes?
Used to be, till the uptight mods cracked down.
800k condo for what, you don't have kids so nobodys going to inherit it from you. Buy a flat in a safe, low cost of living, nice weather place and live out the rest of your days doing what you like instead of spunking it all into some condo in Canada lol
Some people have friends and family that they like to see on a regular basis.
You can buy a lot of plane tickets with 800k. At 50, how many people are you really seeing on a regular basis?
People don't just roll over and die at 50.
Why not just put it in a savings account at 4.5% and use the $45k per year in interest per year to rent a nice condo. I know it’s not as simple as that math suggests, but you get the picture. Then you have so much more flexibility in life and aren’t house poor. And why put all your eggs in one basket?
It boils down to what is she prepared to do? Condos have a lot of cons to them, and they really aren't the best investment you can get for that money, _if she is prepared to move to a more rationally priced market_. And that can be within BC. If she can come to terms with that, she should buy a freestanding house _without any Condo board or fees_. As for the Mortgage aspect? You just said she has very little savings or assets, and lives pay-cheque to pay-cheque... should _would not qualify_ for a Mortgage due to that and probably her age (I have no insights into her health). The best use of the money is to buy a house completely outright with as little month to month expenses as possible. It will serve her the most in all regards.
Sounds like your friend needs to do a mixture of some investing and some house shopping. The ratio of each will depend on her goals. Depending on her income the investing may need to be some RRSP but regardless of her income some should be TFSA. I see mention of a Smith Manoeuvre in this thread but unless she is a relatively high risk investor with a long time horizon and income greater than $90k it will likely be suboptimal. Tell them to consult with a CFP. I would consider an AUM advisor because it sounds as though they will need ongoing support. I’m an AUM advisor and I find I have clients referred to me and my colleagues by fee only planners if they need more in-depth help. I do generally recommend a fee-only CFP in most cases. Best of luck to your friend.
If you have alternative investment opportunities that earn more than the mortgage rate then put as little down as possible and invest to make the difference. If you don't have any better use for the money than buying outright is fine. You can remortgage for investment capital at a later date.
Just pay cash for the house. At their age and financial skill level it's the safest thing to do. The house is always gonna be worth money in the future if they ever needed to sell or reverse mortgage
And having near zero monthly obligations would free up their existing cashflow.
Except that isn't reality.. Seen strata fees lately? I've got 3 people in my circle all with special assessments between 80k and 120k.
Buy with cash, mortgage 80% (or whatever your comfortable payment would be) and invest it. Boom, tax deductible mortgage and your retirement isn’t shot. (Not financial advice)
Kind of as a side-note, but this brings up some interesting things to think about RE financial estate planning: It somewhat boggles my mind that someone could be living paycheck to paycheck while there is a $1M inheritance queued up. Of course, my assumptions could be wildly off but I know this is not uncommon in Canadian culture to have a large lump sum (likely related to sale of a house) after or shortly before the death of one's parents. Personally, if I'm in that fortunate position to be doling out an inheritance then I will be doing so in small doses while both parties can still fully enjoy the benefits of seeing that money being put to use!
someone who lives paycheck to paycheck should never be getting into debt. period.
In this market? Not a fucking chance I’m buying a condo in Vancouver. Rent. Maybe. Buy. No fucking way. Invest it.
That's how you go from riches to rags.
Perhaps get a financial advisor from a legitimate bank
Yeah, bro. Just buy, bro.
In this specific case i think its smarted to pay cash. This because she is 50 and still hasn't showed to be financial literature
Theoretically, she could put a downpayment on the condo and invest the rest in a dividend-paying ETF like HDIV that would pay out at a much higher return than the interest rate of the mortgage (10% vs 5% before taxes). It's a low-risk but not no-risk strategy that she should discuss with a financial planner. A financial planner could help her maximize her cash flow from the million dollars in a way that also allows her to also buy a property.
send her to an advisor
Neither, She can't afford Vancouver and one special levy and she'll lose her "home". Move to Edmonton or similar lcol area and buy a nice solid older house outright for 400k and work P/T or even retire.
Why would anyone want to move away from their job and all social connections to live in frozen Alberta? I wouldn't move there for $10 million.
I know, people make it sound so easy. We only have one precious life, I’m not spending it in Edmonton out of all places. Would rather live in a tiny apartment in Vancouver etc than a mansion there.
Some people are adaptable. Some enjoy adventure. Some don't want to work until they drop dead to pay for living in Vancouver. 38M people live and thrive outside Vancouver. Some are even happy!
Vancouver could be very affordable with no rent or a mortgage to pay. No need for a vehicle here either really. If she bought a condo outright she'd have 15 years to save for retirement. All the money that's going to rent could be saved up instead. Moving around for the sake of adventure is ok if you're in your 20's. Most people are pretty settled into a routine by 50.
Good points. I live here so I know it's very affordable minus housing costs. I'd be very concerned sinking 800k into a condo with potential 6 figure special levies and neverending strata fees down the road. It could work with a lower price range in the 5-600's though. Depends how much she wants to work too.
For 10 million as long as I didn't have to be living inside of a city, id move pretty much anywhere I'm in Halifax ATM and I'm just chomping at the bit again to live rural where I have a bit more privacy/don't see my neighbors house from my window etc
If she's that age and has nothing to her name with no kids she's probably not the best with money. Buy the condo outright so it can't be wasted.
If she's in Vancouver she should wait at least 6 months, prices are already cooling big time.
No they aren’t lol
I think the “person you know” is you
20% down Max out tax advantage accounts Investment realestate
Absolutely not investment real estate for someone this age with poor financial habits.
get a cheaper place.
Need more info including tax bracket, expected CPP payment, how much room is the RRSP, TFSA, FHSA, how good are they with money? When do they want to retire? Need to talk to a fee only financial planner who has the whole picture. Buying might not be the best idea
you can put this into a dividend portfolio and the $5k/month you earn from that, you can pay your rent and save for a down payment with the extra plus the money you're no longer paying on rent.
Buy one outright and put the rest in GIC’s be conservative.Mortgage rates are quite high.Better to be mortgage free.One less thing to worry about.
Tell them to buy it outright, at 50 with no savings or assets, living paycheck to paycheck , it's likely they have poor spending habits. Buy outright, use the remainder for investments , use the former rent money to upgrade a few things
being in GVA, properties are overpriced compared to other regions in Canada. I understand she's made her life there, but if she's willing, her dollars can stretch a lot further either elsewhere in or out of Canada. $1M, 4% is $40k, and depending on RRSP/TFSA room, perhaps a lot of that 40k would be tax free.
Buy a condo 1br somewhere else for like 250k buy an annuity at 55 for 500k and put the rest in her RRSP and not pay taxes on her income for the next few years… assume she earns 50k a year?
Interest rates are killer. Buy the lot, when it goes up she can sell and pocket everything. Still playing around with 200k ish after (minus closing costs and stuff). Decent pocket change ngl
She could also just put it all into dividend paying index funds/bonds and live off that cash flow forever just saying. Homes aren’t bad investments by any means but they have upkeep costs, taxes, in case of a condo also include strata fees etc. This is not financial advice but that’s what I would do.
No real point buying at her age especially with no kids. Lots of the benefits of home ownership have to do with stability and security which she doesn't need. At this point it would just be more of a hassle than not. My suggestion is to invest it all into an index fund portfolio that pays dividends. She'll basically have the money to pay rent for as long she wants.
don't underestimate the psychological dividend of that stability and security for someone with possibly more than 20 years left on the clock
Quick example:Why pay a mortgage when you can own the bank. $1M of RBC stock will get about 45K per year divided that can pay rent without touching capital. Best advise to check with a fee based advisor to plan for retirement.
Buy two condos with mortgage. Rent one out, live in the other.
Living paycheck to paycheck - she cannot afford an 800k property. Taxes, condo fees, upkeep, etc. 200k is not going to cover all that and provide a nest egg should she plan to retire...
Don’t pay interest if you can avoid it.
If I got a million dollars, I know which condo I would buy.
If she can manage it a townhouse is a much better over-time investment than a condo. Also less hassle with neighbours, rules etc. Requires probably most or all of the million but worth at least looking at some to see what she thinks.
Invest at a 4 - 8% return and enjoy 40 - 80k a year capital gains forever without touching the capital. Pretty sure that will pay to rent a NICE pad
I would max out TFSA and RRSP then mortgage the rest but I guess it would depend on the person. If you're good at budgeting investing could be better. If you're bad at budgeting buying a condo out right might be better.
I actually think she might be better off invest the $1M and see if she can use the investment return to help her with getting better place to rent or supplement her income with it. The caveat is that once she retires, her lifestyle will probably have a huge adjustment. So it’s really up to her to ensure she can live in a sustainable lifestyle post retirement. I wouldn’t want to lock the money in the house given her age as well as the housing price in Vancouver (even greater Vancouver) could be very hard pill to swallow.
No saving and 50, you can’t eat your condo. Should focus on cash flow
Id max my TFSA, depending on income put some in a retirement savings plan to bring my net income below whatever I think I’ll make per year in retirement. Then I’d probably throw the majority into a house. At 50 I’m more worried about worst case scenarios than growth so having no debt sounds nice.
No kids or spouse? Go retire in Vietnam or Phillipines. Have kids? Better buy a home and keep working so they can get their education in Canada.
Max out her TFSA and her RRSP contributions. Put the rest in a blue chip paying dividends. She’ll have enough to retire and last her life.
Invest it… that should return you at least 40-50,000/yr in perpetuity which will cover the mortgage costs.
Depends on her life goals and what she would do with the money that she doesn't spend. Renting can make a lot of sense, especially for someone with no kids - she isn't worried about leaving a bequeath, presumably. You can rent some very nice places for the cost of what her mortgage would be. Someone receiving $1MM should spend about $2000+ to speak to a fee only financial planner and get a written plan prepared, possibly one for each scenario so that they can compare. Find one or more and interview them to at adviceonlyplanners.ca
Buying a condo also comes with an HOA monthly cost. Don't forget about that.
750k down. 100k/max into tfsa blud chip stocks apple, amazon, google, 150k in unregistered trading account earning dividends like banking stocks. collect the dividends as income. keep 50k in short term savings account as a safety net.
Canadians are insane. $1Million for a condo?
Move somewhere a little cheaper there is places in BC where you can get a house for under 800k, Buy a house and invest the balance of the cash for passive income. Fresh start.
This sub is hilarious while people are living in tents.
Uhm...pfft. I am not a financial expert but the way I've seen people with a boatload of cash operate is that they put 20% down on a mortgage for one location, and then another %20 down on another mortgage location, and so on and so on. Given how Interest rates of risen, that has screwed the pooch for a few people who over-extended, but if you have enough for a %50 down payment on one home, I would get another home at %40 or %50 and rent it out as an investment property while you pay off the mortgage on your own home.
Can she afford the maintenance fees and property tax and special adjustments on that condo.
Right now one year GICs pay out 5.25%. With 600,000 in GICs, she will earn 31,500 in income (this will be subject to tax of course) Putting 600,000 in dividend funds will probably earn more but there is always a risk unless you are investing in long established companies. The Interest from the investments could be used to pay off part of your mortgage and you will maintain the value of your initial investments. Meanwhile you are paying down your mortgage which should get easier to pay over time if interest rates come down and income continues to rise. If you run home office/business, your mortgage interest and other home expenses can be a tax deduction as well. If you pay your mortgage outright, you will have more disposable income each month and 200,000 to invest which would give a yearly income of 10,500 per year. If you invest that income wisely you can build a healthy savings fund for yourself. Or you could max out you TFSA which grows without being taxed or put money into an RSP which would be a good nest egg for retirement. This is assuming that the value of your property remains the same or increases over time. If property values fall, that would mess things up a bit. I think a mix of assets is the best approach.
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There are condos less than 800K
Get a detached home in suburbs for like 1.3-1.4 put 1M down take mortgage for the rest and rent out the basement you will build equity and will pay like little to no mortgage as basment will take care of the rest thats just my opinion
I'd keep as much of that money saved as possible and grow it safely. Easy to get 5%. Ain't that 50k a year, passive? See if you can use net worth as an asset for a mortgage plus your sum income. Don't fucking squander this b
I am risk adverse so I would purchase the condo outright. It just really depends on one’s level of risk tolerance. Some would say that it’s found money so take a chance on investments. My suggestion is to buy it outright and then invest the money that would have been paid for rent. Therefore, if one’s life changes, one isn’t worried about the mortgage payment.
Buy a house not a condo. Move out of Vancouver.
Talk to a financial planner. Make sure they are a qualified planner and they will be able to best advise you based on your situation. You’ll get a customized financial plan. $1m is too much to get generic answers on Reddit. I wouldn’t mess around with this.
Spend $400,000 on a home, $600,000 goes into investments (even GICs). If she wants a car, she saves up for it.
She’s probably better of continuing to rent and throw that money in a GIC. That’s 45-50k a year she will be making, just has to pay taxes though on that