Buying real estate is exciting – super terrifying at times – but really exciting. And it can be easy to get caught up in falling in love with a house and making an offer you can’t necessarily afford or using every penny that the bank is willing to offer you. Trust me, been there 🙅
In this podcast, I’m going over things to consider when you’re thinking about how much to spend on your next purchase. Things like inflation, retirement saving and setting money aside so you still get to have a life and aren’t pumping every dime into your mortgage.
This is an important topic that sometimes people don’t think about, so give it a listen. Make sure your mortgage fits into your financial plan.
Hey there and welcome back to another round of “Our Heart of Money Talks”. This is episode 34. Today I want to talk about real estate a little bit. What is with housing right now? Some of the interest rates last year and now into 2021 are really low. I think I heard I think we had a client that maybe got a 1.8 or 1.7% interest rate on refinancing their mortgage.
These are some of the lowest rates that I’ve seen. And I was around in 2008 and 2009 sitting in meetings during the financial crisis at that time. We thought that rates were pretty low and I didn’t think we’d ever see them again. So now combine low-interest rates with people trapped in their houses during COVID, working from home and being the lucky ones that employment was secure, incomes were stable.
I have a feeling some people realized they wanted to upgrade, get bigger houses because if they were going to work from home for a while or the newbies were deciding to get in the market with the low-interest rates. So this has been quite an interesting real estate ride. I have a couple of good friends that are real estate agents, and it is busy.
That’s one profession where to me, it felt glamorous. The reality shows about these Beverly Hills real estate agents, but looking at the people that I know, she’s on call almost twenty-four-seven, and I’m one of those bad people. I’m texting her at eight or nine o’clock at night, it’s on a Sunday and I’m like, “Hey, can we go look at this house?”
So she hasn’t had any summer holidays. And here in my city, I know that I’ve been looking for a new house and it just coincided with the timing. It had nothing to do with the pandemic. It was just time to upgrade and find something else. And I cannot believe the stress of houses, selling in hours, above asking price, no conditions, bidding wars. It says right there on the listing taking bids until Saturday at 9:00 AM. And it’s so stressful. I got turned off and frustrated by the pressure of having to decide, on the spot and add to the numerous other bids, no conditions.
It was too much for me so I paused. I still look, but I can’t jump into that right now. So I think maybe people realized if their incomes are stable and they were able to work from home, they realized they wanted to upgrade. And maybe realize the priority of home and if they don’t have to go back to an office. I know a lot of the crown corporations here are heading back, but there are a lot of companies that sent out a survey and asked people, what would you like to do?
A lot of people that I’m talking to like two or three days in the office and then the rest of the days working from home. And so we’ve realized how much our home space means. Today I spoke to a person in Toronto. They’re having the exact same experiences. I am here in Regina, which blew my mind
Toronto and Vancouver right now are both having a real estate boom that we heard of. During COVID. And they’re having the same experience, but maybe a little more stressed because the bids are like 1 million more than mine, you can imagine one of the brownstones in Toronto and they’re small, but they’re like $1.5 million, $1.6 million.
My financial planning brain just exploded at that thought. I’m talking to clients that have children in downtown Vancouver, really great jobs and amazing families. This couple, they’re renting a small one-bedroom condo downtown. Of course, it’s small, but it’s exactly where they want it to be because they both worked downtown and they didn’t want to do the commute.
I’ve been downtown. Vancouver, love it. You’ve got the food. You’ve got the life. When COVID hit, they had no plans to leave because of their area, but then with the pandemic and jobs moving to be working from home. His job has now turned permanently from home. He’s in the tech business and his business is moving to a communal shared office space that they only have to visit maybe once a week, once every couple of weeks they can check-in.
They’ve got a place there that if they do want to host some company meetings, they can do it from there. And so these businesses are not renewing their real estate leases and they’re saving money that way. And because of no commute, you can imagine what this couple is doing now and what they’re thinking about.
They’re buying a house in the suburbs. So part of the financial planning and part of the conversation is that there is finally an opportunity for them to be able to afford a home in suburban Vancouver. So it’s stories like this one that is probably helping fuel that real estate boom that we heard of. If you no longer have to think about commuting and it becomes a lot less stressful, so they can purchase a home.
That’s a good news story. It makes me feel warm and fuzzy for them. I love them. Quality of life has become a big priority for people. Home now might have a new meaning for some. Home is no longer the place that you just roll into at 6:00 or 6:30 at night, you have your supper, you sleep and you leave and you redo every day.
Our cities are already catering to staying in the suburbs. The big-box schools are there, facilities, fitness facilities- they’re all there in the suburbs, meaning that we don’t have to go far anymore leaving us more time to spend at home.
I love gardening. I used to garden all the time. I used to can and harvest and do all those things, but then busy life took over and being that person by choice and being happy with what I do and having social ties grays into work time and not coming home until, 6:30 or 7:00 because you have supper drinks after work with friends and clients, but during COVID things slowed down.
We weren’t seeing people outside their bubble. So I started to remember it because it was finding time on my own again, without all the socializing that I love outside space. I love a garden. Before that, I became so close to finding a condo. I definitely will not go to a condo.
Re-energized with knowing that there are things that I want to enjoy, so I get it. I get this housing awareness and awakening that we’ve had with our home in space. This might be a reason why condos are still not selling in my city. I know that in Vancouver and Toronto, condos are selling and they have increased over the last couple of years. They’ve been having sales, but here in Regina, Saskatchewan, but don’t quote me.
I’m not a real estate expert. Someone might be able to look up the stats. I don’t have any stats in front of me, just from my perusing and it looks like condos are still slow. I think the lull has to do with us realizing how important home is and we’re starting to prioritize those things.
I do remember hearing that in the past swimming pools used to be a deterrent for homeowners because of the cost. It didn’t add any value to the home. Now through COVID and realizing that we’re spending more time at home, it’s those little luxuries, right? We heard that hot tubs and spas like that were sold out during COVID.
Swimming pools now actually look really attractive. So that’s the real estate boom that has happened, but now there’s another word happening. If you go on the Internet, the hot buzzword right now also is the real estate bubble.
Again, I am not a real estate expert, but here are my 2 cents. Bubble or no bubble, your decision to buy a house, shouldn’t depend on the latest trends or these buzzwords. It seriously comes down to your cash flow, your income, if you plan on living in that house for some time. You plan on living there and it fits your budget, then these buzzwords and the noise out there mean absolutely nothing.
The question is what can you afford? Not what the bank is willing to give you, but what can your cash flow afford so that you’re still saving for retirement? You’ve got those buckets. I always talk about the retirement bucket, filling your emergency cash flow planning for fun activities and knowing that you’re probably going to need a vehicle down the road.
Just on a side note. That vehicle-saving bucket might have to be a little bigger knowing that we’re probably moving to electric. This is about your financial plan. Does the house purchase fit your financial plan? We know that things are going to cost more every year.
That’s called inflation and that’s another buzzword we hear is that things are going to get more and more expensive. So have you tested out your cash flow to allow for inflation? Utilities are going to increase. I know that here in the Prairie province power is just going to go up in cost.
Our infrastructure needs work to handle all the upgrades. I know that our crown corporation is going to have to increase our costs. Groceries are going to cost more. Sometimes being the nerd that I am, I look up inflation and man, food is one of those things that just keeps increasing.
I talked about vehicles – if we’re going to be moving to electric, that’s going to cost a lot more. Is there a buffer that if you buy that house, Can you afford it and the rising costs? In retirement planning, we do the same stress test and add inflation. And so you need to think about that when you’re also looking at the mortgage payments.
I know in looking at places for myself, even though the bank is willing to give me this amount and they’ve increased their stress tests, but even then it was some insane amount I’m like, “That’s a little too much, even though that’s what you’re willing to lend me.”
I have all these other buckets and I enjoy my travels. I don’t want to worry and be house-poor. So that’s super important to look at. Think about that. Tune out all the noise. It doesn’t matter what buzzwords there are – bubble, boom, whatever it is, it doesn’t matter. It has to match your financial plan. You have to sit down and have a purpose.
Okay. One of the other questions I get asked all the time is, “Should I help out our adult children buying their first house and helping them get their foot in the door and get into the real estate market?”
That answer depends on whether you, as a parent, can afford to help with the down payment without hindering your retirement plans and your cash flow.
It also depends on whether or not your child can afford the mortgage payments. So there’s the coming up with the down payment and helping them out. And then there’s the actual sitting down with them and going through the monthly costs and talking about what I just talked about, that inflationary cost of things going up.
We do have to have that conversation of when they go to renew, whether it’s three years or five years. Can you handle the interest rate being more? So the best advice I can give through this real estate market is to not focus on the noise right now and not get sucked into the rush and panic and fear buying that might be happening.
I felt it. I was there. I hated that feeling. The best thing you can do is take the time to review your finances, know your cash flow limits and your financial plan. Then map out what you can afford and what price you’re willing to spend. Put it on paper and stick to it to avoid the bidding excitement.
So if you are a parent of an adult child, this is the exact same advice for your child, and hopefully, you can guide them through them to give them some great advice. I’m going to leave you with an embarrassing, but a funny family story that I have yet to live down. It’s not that funny, but being a financial expert and telling you all these things like map out what you can afford and to put it on paper.
This is coming from personal experience. So let me share with you years ago, I was looking at a house for sale by the owner. Ian and I had a price in mind that we were not willing to go over because we knew it needed renovations. We had discussed beforehand what our top price would be.
We then reiterated it minutes before walking into the house to look at it with the owner, because it was for sale by the owner. She was amazing. I loved her. I loved the whole vibe. As soon as I walked in, I was in love. Literally, two minutes out and I blurted out an offer $30,000 more than we had discussed.
And you should have seen Ian’s eyeballs and his head just turned purple. His eyes were huge. He looks at me and we walk behind a pillar and he says, “What are you doing?”
I loved it. And even though we had talked about it, I was so hyped up in the moment we actually put the offer in. Luckily we had conditions.
We went through with all the paperwork, but with the conditions, it was part of when rental quotes and the rental quotes came in way more expensive than we thought. So we actually got out of the deal, but man, I have not lived that one down. Still teased to this day about it.
You can see right now that I have “great negotiating skills”. So this is why I say put it on paper, stick to it, avoid the bidding excitement. I have been there. It doesn’t usually end up well. On the odd chance it will, but it just, it doesn’t feel good. So lessons learned, keep your head on straight during this weird housing market, prepare and plan with your finances, iron-clad and think it through.
That’s it for this week until next time. Take care.