Relationships

Well, after that moany, depressing epistle on Friday from blog dog Ken, a.k.a. Lonely in Lethbridge, another pack member wants to lighten the mood, plus gloat. And, yes, there’s a lesson in here. Maybe a few.

Iain says he started reading this blog in 2009, when the lights were going out, “in a classic case of confirmation bias.”

“I was convinced the classic rent/buy and income/buy ratios were forecasting a major collapse in housing well beyond the hiccup of 2008. Few would have forecast we’d have even lower rates today AND a further inflated bubble, but all the same when my girlfriend and I moved from Victoria to Halifax with secure government jobs we didn’t even consider a purchase, opting instead to rent a nice place in a great neighbourhood for less than what it cost just to service the debt on other similar houses trading hands in the neighbourhood. I kept a dorky spreadsheet on hand at all times, comparing the TOTAL costs (including opportunity cost of money trapped in a house) of owning vs renting with three projected appreciation rates for housing in our neighbourhood vs a 5% growth on a balanced portfolio, which reassured her she was being smart about renting when one of her simplistic friends would corner her about ‘throwing away’ money on rent. Instead of paying absurd property taxes and spending our weekends bickering over laminate vs hardwood like many of our condescending friends who were ‘building equity’, we locked the door and traveled lots, let the cranky landlord deal with repairs, I started working on a PhD in my spare time and we both invested the leftovers, which as young professionals in an affordable city like Halifax, piled up quickly. The result for me has been a dull, slightly underperforming portfolio of highly-liquid assets with little volatility that are tax optimized, maxing out RRSP and TFSA caps and building net worth a touch under $1M as I approach my 35th birthday.

“The girl and I split recently after 5 years and it was the easiest, most civil breakup I know of. Neither felt the other owed them anything and we remain close friends. There were no assets to split up and I don’t think we’d be in this position if we’d needed to sell or split a house. I’m questioning my desire to stay in the rat race and am considering blowing my life up, taking my million bucks and living off the investment income for a while, anywhere I please, while I finish off my degree remotely, surf and ski, and figure out what I want in life for love, ambition and happiness. I have this freedom because I’m not a debt slave needing to unlock my equity from a depreciating asset in a slowing market. Ain’t liquidity grand?”

You betcha, YHZ guy. That was a genius move.

The average detached Halifax house sold for $254,729 in July of 2012. Today the average is $301,982. That’s a gain of $47,253 in five years, or about $25,000 after buying and selling fees. The five year rate of return = around 1.9%. The five-year return on a balanced portfolio, meanwhile, has been close to 7% (depending on the mix). And with liquid investments there’s no property tax. No realtors, No condo fees, big insurance, maintenance or hardwood. Plus, if your ‘girl’ doesn’t work out, you can just change her. What’s not to love?

So, lesson one: all markets are local. In a majority of them across the nation people use houses as homes, not speculative assets. Real estate ownership in most places is, at best, a way to preserve wealth not to create it. We should all think that way.

Second, liquidity’s irreplaceable. With interest rates on a steady escalator, new mortgage restrictions about to be introduced, tighter credit and a population of debt-maxed financial illiterates, it’s risk-on with real estate. More than ever, it’s unwise to have the bulk of your net worth stuffed into a single asset, on one street, in one town. When markets turn (and they are), houses get illiquid and wealth becomes trapped. Trust me, you will never forget that experience.

Lastly, relationship advice (this is a full-service blog). Most break-ups are the direct result of money problems, and the bulk of those centre around the biggest asset couples ever own. Ironically, they think real estate and nesting will bring them together. But the cost is immense. Besides, mortgage payments and the endlessness of Groundhog Day in the same four walls are great tonics for the spontaneity of love.

Now, Iain, let’s conclude with your dorkiness, vanity and nauseating egocentricity.

Yes, I know you and the girl were unmarried. And, yup, in the event of a common-law relationship breaking down there’s no mandatory division of property (as with marriage). But there’s something called ‘constructed trust’ which recognizes that in a non-matrimonial but long-term relationship each party contributes to the economic well-being (or otherwise) of the union. If both you and she were making money and financing living costs, she has a claim against your liquid wealth. After all, her income helped facilitate it. That allowed you to save and invest.

Ending a common-law relationship is like winding up a business. Legally, you look at who brought what into the household, who contributed to enhance or maintain those assets, and how each person’s actions may have benefitted the other. Yes, it’s fuzzy when no cohabitation agreement exists, but you can be sure if the girl lawyers up, you’re screwed.

So, Iain, don’t be a deplorable. Be a man. Do the right thing.