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This is good advice. Also: 1. Eliminate any outstanding debt. Mortgage, credit cards, car loans etc 2. Consider buying a place to live outright. Saving rent o

by tjmc 18y ago

This is good advice. Also: 1. Eliminate any outstanding debt. Mortgage, credit cards, car loans etc 2. Consider buying a place to live outright. Saving rent or mortgage interest is better than earning the equivalent in interest because it's tax free. It's a very good time to have spare cash as there are a lot of bargains around. Take plenty of time and do your research.

moe 18y ago
In addition to 2: You may even want to consider buying an apartment building where other people live. At least over here in europe that's a very lucrative option as long as you choose (i.e. can afford) an area that's likely to grow in popularity over the foreseeable future.
- jacquesm 18y ago
  right now is just about the worst time in the last 3 decades to invest in real estate, everybody that I know (including people in Canada) that are heavily into real estate are trying to unload. Wait until the market bottoms out, then maybe if a deal is just too good to pass up invest in some real estate. And only then if you have good indications that the market not only bottomed out but will rise in the foreseeable future.
  - moe 18y ago
    right now is just about the worst time in the last 3 decades to invest in real estate Why, prices are down after all? Ofcourse one could wait for bottom out but if you judge your object by market value instead of by common sense then you can pretty much wait and gamble on lower prices for ever. An interesting object may just not be available anymore when the market shows indication for recovery...
    - jacquesm 18y ago
      It's amusing to see how you think that the bottom has already been reached. From what I can see the stream of bad news is far from ending, there will be a lot more unemployment before this is over and that means that real estate prices - including those in Canada, which were, especially around the bigger cities somewhat inflated - are going to fall further. The American auto industry is far from 'rescued', it remains to be seen if all of the big three are going to come through at all. This will have a tremendous impact in all the supplying industries, and quite a bit of that mess will trickle down to Canada. Another potential problem is that the US, Canada's biggest partner in trade has a tendency of using NAFTA to protect American interests in times of trouble, one more reason to be very careful where and when you invest your money. If you are putting your own money where your advice is, in other words you are right now borrowing every penny you can get to sink it in the Canadian real estate market then I still have two properties there that are pretty much unsellable that might interest you. Seriously, imho it's harsh and the bottom has not been reached by a long shot.
      - noonespecial 18y ago
        "everybody that I know (including people in Canada) that are heavily into real estate are trying to unload." That would seem to me to be the textbook definition of "the right time to buy". I still have two properties there that are pretty much unsellable By unsellable you mean "priced too high"? Just remember that somewhere down there is the perfect time to do the opposite of everyone else and make a killing. I wouldn't run out and invest 100% of your assets in real estate because you think you've found the magic moment, but in a diversified investment strategy, don't ignore it altogether.
        jacquesm 18y ago
        A falling market is not the textbook definition of the right time to buy, it is the right time to hold off on buying. No, I literally mean unsellable because the market in that area has dried up. I know the difference between 'priced too high' and 'unsellable'. It doesn't bother me much because I'm well-off enough that I don't actually need to sell, if the right buyer comes along it will move, until then it is no skin of my back. Keep in mind that you are giving somebody else advice on what to do with their money here, if you want to spend your own cash on real estate then of course you are free to do so. Real estate agents are going out of business for the first time in years, these are not normal market conditions. GM, Ford and Chrysler stock is down too, that does not mean you have to go out and rush to buy in because it is sure to rise again. This recession thingy could be long, it could be short. Right now most of the smart money says it's going to be fairly long, and that we probably have not reached the bottom yet. Anybody that claims otherwise is probably trying to sell you some stock they bought or a property they need to get rid of. When there has been a good solid month or two without any mass lay-offs, talk of rescue packages and major businesses folding that would be a good time to start thinking about this, right now it is much too early. Those who try to get in at the bottom invariably find that it wasn't the bottom yet. You could easily lose your shirt with an investment strategy like that.
        noonespecial 18y ago
        I am taking my own advice as to real estate with my own money. Buying land right now seems a good thing to do. GM stock not so much. GM could disappear tomorrow. The land will still be there even if it reduces in value even further. I am not advocating any type of loan or leverage to "get into real estate". I just think that if you're looking to park any large amount of money, you shouldn't ignore outright owned real estate (especially the income generating variety) as part of the diversification strategy just because of the recent panic surrounding this one area. Around here "unsellable" real estate actually means "real estate that can't be sold for enough to pay off the mortgage debt from the previously inflated prices." I've made several rational offers that were turned down for this reason. I've even heard that term tossed around by the very agent that refused my offer. "We just can't seem to sell anything these days, no one is buying! This stuff is just unsellable." The people who lose the most shirts buy at the top when everything seems roses and sell at the bottom because "its not a good time to be in the market right now".
  - ryanwaggoner 18y ago
    right now is just about the worst time in the last 3 decades to invest in real estate Correction: right now is just about the worst time in the last 3 decades to already have invested in real estate. Most of the smaller investors I know who have cash to spend instead of struggling for survival are snapping up some incredible bargains. Even though values are way down, the rental market is relatively strong, at least in the areas I've looked at. I have friends buying large fully-occupied cash-flowing apartment complexes in metro areas for forty cents on the dollar. The difficulty is mainly in financing the deals, not finding them.
    - jacquesm 18y ago
      > The difficulty is mainly in financing the deals, not finding them. I suspect the reasoning for that is because the long term prospects of owning property for rent are not as rosy as they seems, once your renters start defaulting you have a real problem. A slump in the housing market usually also depresses the rental market, but that lags behind quite a bit. On a positive note, it may be preferable to own any kind of object with intrinsic value over cash.
  - racy_rick 18y ago
    Well, then lowball. Why not use the downturn to your advantage. Make incredibly low offers for anything you want. Make 100 offers and entertain those that seem okay or are willing to get out of it. You have the time, the money and the inclination. Of 100 homes that are 800K, one of them might go for 400K cash money right? Well, if they don't you still have the money. They've got a property they want to offload. LOWBALLING, it's the new commando.
Sam_Odio 18y ago
> 2. Consider buying a place to live outright. Saving rent or mortgage interest is better than earning the equivalent in interest because it's tax free. In the US at least this isn't always the case. Most joint filers can deduct interest expense on mortgages up to $1MM in value.
- spkthed 18y ago
  If you look at the amount of interest you pay vs. the amount you can actually deduct and the total taxes you pay, it's far, far more expensive to have the mortgage with the tax credit than to simply own outright. If you get $2,500 in reduced taxes and pay $10,000 in interest... :)
  - drsnyder 18y ago
    Right! It's like paying a dollar to save 25 cents.
    - spkthed 18y ago
      That's exactly what interest-only loans are, heh.
  - Retric 18y ago
    Your forgetting about the return you could be getting. If your mortgage is 6% and your making 7% then keeping a mortgage is a good idea. The other option is to get a 7 year interest only loan with zero or 3% down and walk away if you get under water. With 1+ million in the bank you can trash your credit ratting with little issue so let your bank take the risks. PS: One great option is to get US gov bonds that get ~2% over inflation for 10+ years which makes them really safe. (https://www.bernstein.com/public/story.aspx?cid=466&nid=184 https://www.bernstein.com/public/story.aspx?cid=466&nid=...) Ok, you are still taking a currency risk if your living outside the US but that's fairly safe. Edit: Think of the first 1 million as 40k inflation adjusted every year for the rest of your life and only take risks when you need to until you have more money to live off of than you need. Risk is something you don't want and buying a house is risk.
listic 18y ago
I strongly object to 2: If I was in OP's position, the last thing I wanted would be carve up a hole in any part of the world and settle there for the rest of my life. Real estate is big investment; while investing in it may be an ok choice for a wage slave, it is not so for those who are eraching financial independence.
- jrockway 18y ago
  Most people want to have some sort of permanent address. If you can afford to buy a home outright, it's cheaper than paying the bank interest, or paying someone else to live in their property. So I'm not sure why you'd object to this. Everyone needs shelter, and if you can afford to buy it, you save money.
  - kingkongrevenge 18y ago
    Housing will not bottom until around 2012. Buying now is stupid any way you slice it. You are buying a depreciating asset for no good reason. Furthermore, municipalities all around the country are set to jack property taxes through the roof. The owner of the representative property on the market for rent right now is losing money every month if they had a mortgage written in then last few years. Rents are cheap. Renters are still subsidized by bozos who think houses will appreciate, or are desperately trying to make their payments. I'm not sure how applicable all this is to Canada, however, as their property market never went quite so insane. It will probably bottom sooner and after a shorter correction.
    - jrockway 18y ago
      This is probably true overall, but not true for every location you could possibly want to live. I doubt Manhattan is going to get cheaper.
      - kingkongrevenge 18y ago
        Manhattan is one of the biggest bubbles of all. I actually have some short positions betting on that. NYC real estate is going to crash over the next two years.
spkthed 18y ago
This is outstanding advice. Interest you gain is taxed while interest you owe is not. There's also risk involved. Debt at 8% costs you far more than investments at 15%. Debt first, a nicely funded Roth IRA, 401k, 6 months or so of living expenses in a money-market account then park the rest in a mix of stock market funds with a nice 10+ year track history. This is THE time to buy stocks and real-estate. This guy does it right: http://www.daveramsey.com/etc/cms/baby_steps_2867.htmlc http://www.daveramsey.com/etc/cms/baby_steps_2867.htmlc
tjic 18y ago
If you're looking at $2k/month for a mortgage vs. $2k/month for an apartment, then the tax savings (at a hypothetical 33% tax rate) are MAYBE $8k per year. This is one half of a percent of his net worth. ...which is to say, absolutely trivial. Right now, the housing market is declining, and this individual may decide that he wants to relocate to a new area. I am a homeowner. I am HAPPY to be a home owner. However, I don't think the "buy instead of renting" advice makes a ton of sense for all people.
- time_management 18y ago
  In the long-term, you can expect the tax advantages of ownership to be priced into the housing market. This is one of the reasons (rampant speculation is another) price/rent ratios are so absurdly high. Fair value, without the tax benefits, would be a ratio of 9-12, given the costs of ownership and the illiquid nature of an owner's position. With the tax breaks, the fair value's higher, but it still doesn't make sense to buy at a P/R ratio of 20+, especially since rents are also likely to drop across much of the country. In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. It only makes sense to buy at such a P/R ratio if you expect rents to skyrocket in the near future, and Manhattan rents are already starting to turn back.
  - andreyf 18y ago
    How do you calculate rent, there? $2500 * 40 = $100,000 ...
    - papercrane 18y ago
      $2500 * 12 * 40 = $1,200,000
      - andreyf 18y ago
        But grandparent said: In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. And $1,200,000 > $1,000,000! The first sentence implies the second, but not vice versa... am I the only one to stumble on this? To me, it sounds like saying "I have over 20 cats. I have more than a dozen cats!".
JabavuAdams 18y ago
The problem with 2) is that it's really easy to get up-sold. It may be better to just take a year cooling-off period. In general, if you are not in a rush to buy, you have a tremendous advantage over sellers. With $2M in the bank, the OP should feel no rush to buy a place. The other thing is that if, for instance, you buy a house and haven't owned a house before, it's a significant lifestyle change. That can be great -- it was for me, but there will be a lot of maintenance. I've been lucky enough to have parents in-law who have helped with (um ... done) all of my renovations. I do sometimes pine for the apartment / condo + mattress + kickass computer lifestyle, but less and less now that my house is set up.
huhtenberg 18y ago
#2 might make sense for if you are in States, but it doesn't yet make sense in Canada. The real estate is going kaput and pretty rapidly, but the prices are nowhere near their low point .. they are more like only half way down. Just to give you an idea why this matters. First, a decent house in Vancouver area would cost you from 800k and up. Something for 400k is going to be in the area that few people would like to live. Second, spending cash on a real-estate during recession periods is the biggest no-no. These are the money that are hard to get out, leave alone getting them out without substantial losses.
andrewljohnson 18y ago
It's not necessarily true that you want to pay of your mortgage. Mortgage's have tax benefits, and if you have a mortgage at the prime rate, then your money is likely more valuable invested elsewhere, while you pay the mortgage. High interest credit cards are another story.

by tjmc 18y ago

moe 18y ago

In addition to 2: You may even want to consider buying an apartment building where other people live. At least over here in europe that's a very lucrative option as long as you choose (i.e. can afford) an area that's likely to grow in popularity over the foreseeable future.

jacquesm 18y ago
right now is just about the worst time in the last 3 decades to invest in real estate, everybody that I know (including people in Canada) that are heavily into real estate are trying to unload. Wait until the market bottoms out, then maybe if a deal is just too good to pass up invest in some real estate. And only then if you have good indications that the market not only bottomed out but will rise in the foreseeable future.
- moe 18y ago
  right now is just about the worst time in the last 3 decades to invest in real estate Why, prices are down after all? Ofcourse one could wait for bottom out but if you judge your object by market value instead of by common sense then you can pretty much wait and gamble on lower prices for ever. An interesting object may just not be available anymore when the market shows indication for recovery...
  - jacquesm 18y ago
    It's amusing to see how you think that the bottom has already been reached. From what I can see the stream of bad news is far from ending, there will be a lot more unemployment before this is over and that means that real estate prices - including those in Canada, which were, especially around the bigger cities somewhat inflated - are going to fall further. The American auto industry is far from 'rescued', it remains to be seen if all of the big three are going to come through at all. This will have a tremendous impact in all the supplying industries, and quite a bit of that mess will trickle down to Canada. Another potential problem is that the US, Canada's biggest partner in trade has a tendency of using NAFTA to protect American interests in times of trouble, one more reason to be very careful where and when you invest your money. If you are putting your own money where your advice is, in other words you are right now borrowing every penny you can get to sink it in the Canadian real estate market then I still have two properties there that are pretty much unsellable that might interest you. Seriously, imho it's harsh and the bottom has not been reached by a long shot.
    - noonespecial 18y ago
      "everybody that I know (including people in Canada) that are heavily into real estate are trying to unload." That would seem to me to be the textbook definition of "the right time to buy". I still have two properties there that are pretty much unsellable By unsellable you mean "priced too high"? Just remember that somewhere down there is the perfect time to do the opposite of everyone else and make a killing. I wouldn't run out and invest 100% of your assets in real estate because you think you've found the magic moment, but in a diversified investment strategy, don't ignore it altogether.
      - jacquesm 18y ago
        A falling market is not the textbook definition of the right time to buy, it is the right time to hold off on buying. No, I literally mean unsellable because the market in that area has dried up. I know the difference between 'priced too high' and 'unsellable'. It doesn't bother me much because I'm well-off enough that I don't actually need to sell, if the right buyer comes along it will move, until then it is no skin of my back. Keep in mind that you are giving somebody else advice on what to do with their money here, if you want to spend your own cash on real estate then of course you are free to do so. Real estate agents are going out of business for the first time in years, these are not normal market conditions. GM, Ford and Chrysler stock is down too, that does not mean you have to go out and rush to buy in because it is sure to rise again. This recession thingy could be long, it could be short. Right now most of the smart money says it's going to be fairly long, and that we probably have not reached the bottom yet. Anybody that claims otherwise is probably trying to sell you some stock they bought or a property they need to get rid of. When there has been a good solid month or two without any mass lay-offs, talk of rescue packages and major businesses folding that would be a good time to start thinking about this, right now it is much too early. Those who try to get in at the bottom invariably find that it wasn't the bottom yet. You could easily lose your shirt with an investment strategy like that.
        noonespecial 18y ago
        I am taking my own advice as to real estate with my own money. Buying land right now seems a good thing to do. GM stock not so much. GM could disappear tomorrow. The land will still be there even if it reduces in value even further. I am not advocating any type of loan or leverage to "get into real estate". I just think that if you're looking to park any large amount of money, you shouldn't ignore outright owned real estate (especially the income generating variety) as part of the diversification strategy just because of the recent panic surrounding this one area. Around here "unsellable" real estate actually means "real estate that can't be sold for enough to pay off the mortgage debt from the previously inflated prices." I've made several rational offers that were turned down for this reason. I've even heard that term tossed around by the very agent that refused my offer. "We just can't seem to sell anything these days, no one is buying! This stuff is just unsellable." The people who lose the most shirts buy at the top when everything seems roses and sell at the bottom because "its not a good time to be in the market right now".
- ryanwaggoner 18y ago
  right now is just about the worst time in the last 3 decades to invest in real estate Correction: right now is just about the worst time in the last 3 decades to already have invested in real estate. Most of the smaller investors I know who have cash to spend instead of struggling for survival are snapping up some incredible bargains. Even though values are way down, the rental market is relatively strong, at least in the areas I've looked at. I have friends buying large fully-occupied cash-flowing apartment complexes in metro areas for forty cents on the dollar. The difficulty is mainly in financing the deals, not finding them.
  - jacquesm 18y ago
    > The difficulty is mainly in financing the deals, not finding them. I suspect the reasoning for that is because the long term prospects of owning property for rent are not as rosy as they seems, once your renters start defaulting you have a real problem. A slump in the housing market usually also depresses the rental market, but that lags behind quite a bit. On a positive note, it may be preferable to own any kind of object with intrinsic value over cash.
- racy_rick 18y ago
  Well, then lowball. Why not use the downturn to your advantage. Make incredibly low offers for anything you want. Make 100 offers and entertain those that seem okay or are willing to get out of it. You have the time, the money and the inclination. Of 100 homes that are 800K, one of them might go for 400K cash money right? Well, if they don't you still have the money. They've got a property they want to offload. LOWBALLING, it's the new commando.

Sam_Odio 18y ago

> 2. Consider buying a place to live outright. Saving rent or mortgage interest is better than earning the equivalent in interest because it's tax free. In the US at least this isn't always the case. Most joint filers can deduct interest expense on mortgages up to $1MM in value.

spkthed 18y ago
If you look at the amount of interest you pay vs. the amount you can actually deduct and the total taxes you pay, it's far, far more expensive to have the mortgage with the tax credit than to simply own outright. If you get $2,500 in reduced taxes and pay $10,000 in interest... :)
- drsnyder 18y ago
  Right! It's like paying a dollar to save 25 cents.
  - spkthed 18y ago
    That's exactly what interest-only loans are, heh.
- Retric 18y ago
  Your forgetting about the return you could be getting. If your mortgage is 6% and your making 7% then keeping a mortgage is a good idea. The other option is to get a 7 year interest only loan with zero or 3% down and walk away if you get under water. With 1+ million in the bank you can trash your credit ratting with little issue so let your bank take the risks. PS: One great option is to get US gov bonds that get ~2% over inflation for 10+ years which makes them really safe. (https://www.bernstein.com/public/story.aspx?cid=466&nid=184 https://www.bernstein.com/public/story.aspx?cid=466&nid=...) Ok, you are still taking a currency risk if your living outside the US but that's fairly safe. Edit: Think of the first 1 million as 40k inflation adjusted every year for the rest of your life and only take risks when you need to until you have more money to live off of than you need. Risk is something you don't want and buying a house is risk.

listic 18y ago

I strongly object to 2: If I was in OP's position, the last thing I wanted would be carve up a hole in any part of the world and settle there for the rest of my life. Real estate is big investment; while investing in it may be an ok choice for a wage slave, it is not so for those who are eraching financial independence.

jrockway 18y ago
Most people want to have some sort of permanent address. If you can afford to buy a home outright, it's cheaper than paying the bank interest, or paying someone else to live in their property. So I'm not sure why you'd object to this. Everyone needs shelter, and if you can afford to buy it, you save money.
- kingkongrevenge 18y ago
  Housing will not bottom until around 2012. Buying now is stupid any way you slice it. You are buying a depreciating asset for no good reason. Furthermore, municipalities all around the country are set to jack property taxes through the roof. The owner of the representative property on the market for rent right now is losing money every month if they had a mortgage written in then last few years. Rents are cheap. Renters are still subsidized by bozos who think houses will appreciate, or are desperately trying to make their payments. I'm not sure how applicable all this is to Canada, however, as their property market never went quite so insane. It will probably bottom sooner and after a shorter correction.
  - jrockway 18y ago
    This is probably true overall, but not true for every location you could possibly want to live. I doubt Manhattan is going to get cheaper.
    - kingkongrevenge 18y ago
      Manhattan is one of the biggest bubbles of all. I actually have some short positions betting on that. NYC real estate is going to crash over the next two years.

spkthed 18y ago

This is outstanding advice. Interest you gain is taxed while interest you owe is not. There's also risk involved. Debt at 8% costs you far more than investments at 15%. Debt first, a nicely funded Roth IRA, 401k, 6 months or so of living expenses in a money-market account then park the rest in a mix of stock market funds with a nice 10+ year track history. This is THE time to buy stocks and real-estate. This guy does it right: http://www.daveramsey.com/etc/cms/baby_steps_2867.htmlc http://www.daveramsey.com/etc/cms/baby_steps_2867.htmlc

tjic 18y ago

If you're looking at $2k/month for a mortgage vs. $2k/month for an apartment, then the tax savings (at a hypothetical 33% tax rate) are MAYBE $8k per year. This is one half of a percent of his net worth. ...which is to say, absolutely trivial. Right now, the housing market is declining, and this individual may decide that he wants to relocate to a new area. I am a homeowner. I am HAPPY to be a home owner. However, I don't think the "buy instead of renting" advice makes a ton of sense for all people.

time_management 18y ago
In the long-term, you can expect the tax advantages of ownership to be priced into the housing market. This is one of the reasons (rampant speculation is another) price/rent ratios are so absurdly high. Fair value, without the tax benefits, would be a ratio of 9-12, given the costs of ownership and the illiquid nature of an owner's position. With the tax breaks, the fair value's higher, but it still doesn't make sense to buy at a P/R ratio of 20+, especially since rents are also likely to drop across much of the country. In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. It only makes sense to buy at such a P/R ratio if you expect rents to skyrocket in the near future, and Manhattan rents are already starting to turn back.
- andreyf 18y ago
  How do you calculate rent, there? $2500 * 40 = $100,000 ...
  - papercrane 18y ago
    $2500 * 12 * 40 = $1,200,000
    - andreyf 18y ago
      But grandparent said: In New York, price/rent ratios are above 40. A $2500/month apartment will sell for over a million. And $1,200,000 > $1,000,000! The first sentence implies the second, but not vice versa... am I the only one to stumble on this? To me, it sounds like saying "I have over 20 cats. I have more than a dozen cats!".

JabavuAdams 18y ago

The problem with 2) is that it's really easy to get up-sold. It may be better to just take a year cooling-off period. In general, if you are not in a rush to buy, you have a tremendous advantage over sellers. With $2M in the bank, the OP should feel no rush to buy a place. The other thing is that if, for instance, you buy a house and haven't owned a house before, it's a significant lifestyle change. That can be great -- it was for me, but there will be a lot of maintenance. I've been lucky enough to have parents in-law who have helped with (um ... done) all of my renovations. I do sometimes pine for the apartment / condo + mattress + kickass computer lifestyle, but less and less now that my house is set up.

huhtenberg 18y ago

#2 might make sense for if you are in States, but it doesn't yet make sense in Canada. The real estate is going kaput and pretty rapidly, but the prices are nowhere near their low point .. they are more like only half way down. Just to give you an idea why this matters. First, a decent house in Vancouver area would cost you from 800k and up. Something for 400k is going to be in the area that few people would like to live. Second, spending cash on a real-estate during recession periods is the biggest no-no. These are the money that are hard to get out, leave alone getting them out without substantial losses.

andrewljohnson 18y ago

It's not necessarily true that you want to pay of your mortgage. Mortgage's have tax benefits, and if you have a mortgage at the prime rate, then your money is likely more valuable invested elsewhere, while you pay the mortgage. High interest credit cards are another story.