055 – What’s going on with housing?


Housing, we all need it, but what the heck is going on in the Canadian markets!? We drink some Flagship IPA as this episode is generously sponsored by Steamworks Brewing. We discuss the current state of the housing market and if you can retire with a mortgage. Here in the FI Garage, we’re all on the path to FI, however, we consider the RE part optional. #FIRE

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Beers – [1:48]

Housing [4:00]

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19 Comments

  1. Hey guys, thanks for the interesting podcast! I was wondering how do each of you decide how much real estate leverage is reasonable and how do you factor in the potential for rising interest rates?

    1. Hi Mich,
      For me personally the use of leverage is all based on what we could cover if we had too. So if for any reason the investments ceased to pay us monthly income, we would be able to service the debt with our income and not become an issue. As far as rising rates go, there is an arbitrage there anyway so it just cuts into the returns. I wouldn’t enter into a leveraged position without at least a 1-2% margin for increased rates, and still be able to be profitable. Another important part of any RE deal and the use of leverage is properly estimating you tax obligations so you can figure out your net ROI.
      Cheers, and we’ve put your name in for the Steamworks Prize pack!!

      1. Thanks for your answers Money Mechanic. I’m in the same boat with my rental property. Rental covers the property costs, but if there was an issue my income could easily take the load. I haven’t used my RE equity to build more assets (yet). I’d like to try the Smith Manoeuvre if I can convince my wife that its worth the risk.

        Cheers!

        1. Mich,
          Well the nice thing about the SM is that you aren’t increasing your leverage, you’re just converting the existing debt. If you’re buying well diversified ETFs that you plan to hold ‘forever’ the risk is pretty low. But I totally get it, it’s super important that both partners are on board. Maybe help her understand how it works and what the long term benefits are.

          Cheers,
          MM

  2. Wow! What an episode. I got laughs out of it and that is not nothing! This comment is for entertainment purposes only and not to be considered advice. Keep them coming.

  3. I’m just here for the give away.

    But seriously, super informative episode. Velocity banking is a very interesting concept that I was not familiar with.

    Cheers

  4. Another great episode guys!

    I had just read about the Martin Mortgage Manuever recently!
    Do you guys have a mortgage broker on the island you’d recommend to help with this?

    Cheers!

    1. Thanks for commenting Rebeka, you’re in the draw!!

      As for your question, I’ve only used one broker on the island (Laurel Loxam [email protected] ) Maybe The Accountant can comment if he has any suggestions. I would think any broker would be familiar with the strategy, but they probably don’t call it the Martin manoeuvre!! LOL Probably best to poll your network and see if anyone has any good recommendations.

      Cheers,
      MM

    2. Hey Rebeka,

      I’d recommend talking to Scott Travelbea at Travelbea and associates (mortgagevictoria.com), if you tell him you are looking to do a blend and extend in order to get yourself into a lower rate he should be able to help.

      Cheers,
      The Accountant

  5. Great episode guys! MM this was your best episode yet! 🙂 always informative and always entertaining! Fingers crossed for the prize pack!

  6. Great episode guys and the beers sound delicious.

    Appreciate the topic, as we all can’t live without housing.
    Personally I’m a big fan of house hacks to help get ahead over time.
    Currently updating our basement for a potential short-term rental suite, and that other Driveway FI deal outside…

    Cheers

    1. He Joel,

      We love the driveway deal!! I think house hacks are definitely an area where I could have improved. We chose not to suite our basement for various reasons, but it comes with a financial cost. For those just starting out in the current markets, it’s almost a necessity.

      Cheers,
      MM

  7. Thanks for the info about the Martin Manoeuvre. I hadn’t heard of this before. But I learned BMO does a very strange process for “blend and extend”. They take the penalty for breaking the mortgage (e.g. $10,000), and convert it into an equivalent interest rate such as +0.9%. Then add this to the new 5-year mortgage rate, and subtract your personal discount rate, to get the new rate for a 5-year fixed mortgage. Thus the new blended interest rate could be HIGHER than the existing rate, even though mortgage rates have fallen. Crazy! I suppose you could still insist on doing the blend and extend, and then break the new mortgage as per Martin Manoeuvre.

    1. Interesting. Sounds like someone at the bank has caught on to the Martin Manoeuvre and has massaged the numbers to work in their favour. Good to know for people shopping around for mortgages. I still prefer just going with a variable right from the beginning.

      Cheers,
      MM

      1. We’ve been variable all along, until end of 2019, when at well under 3% we thought it couldn’t go any lower. Ha! The fixed rate was lower than our variable rate at that time.

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