The choice

If Shane wasn’t real, we’d have to invent him. Manly. Handy. Articulate. Loyal. With dog.

“I’m 31, married to the most perfect wife for 3 years and most importantly have an 8 year old yellow Lab named Tucker who makes our small family whole,” he writes. “I have been reading your blog for almost two years now and for lack of a better word, my stubbornness has kept me from reaching out to you for advice.”

He’s a heavy equipment mechanic. She works in an office. Combined income over $200,000, two union pensions and a burning desire to sink roots. “A man isn’t fulfilled without purpose,” he says. And his purpose is simple and stark:

I have always been a modest person. I would sacrifice complete financial freedom for a roof and a lawn over my family’s head. A place close to my family where hopefully I can care for my parents in the future. Being able to keep active, work on cars and host gatherings for my friends. That to me is worth a lot more than a million dollars in a bank.

Here’s the story: Shane, perfect wife & Tucker bought a townhouse in 2017 and two years later sold, wanting to upsize to a detached home. They moved in with his mom to save some cash, and started looking. Then Covid. Then FOMO. “We were left on a whirlwind trip of broken dreams, rejected offers and a $275k chunk of cash doing nothing in the bank.”

They know the market is insane. A crapshoot. But it’s not so much about money any more as it is desire for a fabled and stable lifestyle. Some people in this life don’t want mobility, freedom, flexibility and choice. They need dirt. A driveway. Yard. Garage. With an eight-drawer rolling tool chest inside. And a suite for the old folks.

Which leads me to you. Now I’m not here to question your merits, or logic. This life is not sustainable; not sandwiched in my mom’s house, waiting for life and our money to pass us by. But I am a product of a generation of GICs and mattress accounts. While I want to invest, I would like to have that option to cash out and by a home. Where do I start? Where do I end? Is it possible? Am I brain dead?

Okay, Shane. Let’s parse this, and get past the sense of helplessness that made you reach out to a pathetic blog. A good starting point is the infamous GreaterFool Rule of 90. Take ninety, subtract your age and arrive at the amount of net worth that residential real estate should represent. The logic is that the young can support a lot more debt and survive on less equity than the oldies can (or should).

In this case current NW is $275,000. The formula (90-31) indicates that 59% of the money can be shovelled into a house in the form of a down payment, or roughly $165,000. Now, let’s say S found a property to buy for $900,000 (his location is unknown, but this is above the national average and given his job it’s a safe bet he’s not urban). The mortgage and insurance premium would take $3,200. Overhead costs (property tax, house insurance, maintenance) would add a grand, for a total monthly of about $4,200.

So the house would run just over $50,000 a year to carry (not counting the lost opportunity cost of the down payment). That amounts to 32% of after-tax household income. Yup, that’s affordable. And it leaves a hundred grand to put into TFSAs for Shane and the PW. Furthermore, they’d have thousands a month after household costs, transportation, car parts, beer and kibble, to sock into registered accounts plus a joint non-reg.

Remember the credo around here: if you want a house, need a house and can afford one without gutting personal finances, go ahead. In this case, Shane & co. meet the criteria. Decent savings. Good incomes. Defined goals.

But, Shane… there are things to remember, and live by to ensure eternal bliss.

• Stop saving and learn to invest. The bank account is there only to hold cash about to be deployed. Every day money sits, instead of being placed in some nice, liquid, low-cost and diversified ETFs, it is losing value. Get rid of this habit.
• Don’t obsess about paying off the mortgage. At just 2% it’s less than inflation, and meanwhile invested cash should grow by three times that amount. So invest steadily, then if rates rise above inflation by the time of renewal, use some portfolio growth to pay down the home loan.
• Don’t assume a union pension will finance retirement. There’s no government or deep-pocket multinational standing behind that plan, and you have no idea about its viability in 30 years. So hammer cash flow into your own RRSP, which will also reduce taxable income by about $25,000.
• And speaking of taxes, harness the big income disparity between you and the PW. Open a spousal RSP and make your allowable contributions into it. You still get the deduction but after three years the money becomes hers and can be withdrawn down the road at a lower rate. Also make her the main investor in the family, while you pay all the overhead. Her lower tax bracket will allow you to have higher after-tax investment returns.
• Kids? They’ll change everything. You can man up for more advice when that happens. But cars and Labs are cheaper.

About the picture: “All of my skills and strengths that I applied in my paid employment (teacher, public servant) I am applying with great joy in my role as Dog Support Coordinator in our Victoria ElderDog Pawd,” writes Virginia. “I am sharing a little bit about our dogs and organization here, knowing that dogs (and community) are a feature of your blog. Maybe we could do a plug as we (and likely Pawds across the country) are always looking for volunteers! I’m also attaching a photo taken Friday of some of our volunteers enjoying a evening social on the Songhees walkway in Victoria. Feel free to use it in your blog!”