From the Financial Post 9 Feb 2011 -
“A couple we’ll call Alex, 45, and Susan, 43, make their home in British Columbia with their son, age 16, who is in Grade 11. They want to plan retirement, but with a debt load equal to four years of income and few financial assets, their choice of when to quit work is limited. They have chosen educating our child in private school over other options and we have lived fairly simply as a result. Now, however, they need to know if they should sell their one big investment, a rental condo, or keep it? And are we headed to disaster or are we on a good track for the future?
They have good jobs — Alex in a building trade, Susan in the provincial government — and have gross incomes that total $163,000 a year. Through decades of hard work, they have built up $668,900 of assets, including their $350,000 home, a $300,000 rental condo and financial assets that total $8,000, as well as their son’s RESP with a $8,900 balance. They also have two dilapidated cars worth, they say, a total of $2,000. Their liabilities are two mortgages that add up to $570,000 and a $33,000 line of credit. That leaves them with net worth of $65,900, which is not a lot for folks in middle age contemplating retirement.”
“Through decades of hard work” they have a net-worth of $66K, a debt load of $603K, and are carrying RE with a current market value of $650K. These guys are gambling heavily on future RE prices, and they barely act as if they know it. A ten percent RE pullback will put their net-worth at zero. Thirty percent off will put them $130K underwater, and their retirement prospects will be profoundly altered. – vreaa
Absolutely insane!
To quote this article:
“Year 4 (2014) Evaluate the condo as an investment. It has been a money loser that generates a small tax break. Their two-year-old mortgage contains little payment toward principal. If they cannot raise rent by 25% this year or next, they should consider sale. Using 2011 property and loan values, they could harvest $36,000 less selling costs and net perhaps $17,000 for their troubles. The $264,000 rental condo debt would be eliminated. If rent can be raised enough, the condo can finance itself and could produce a capital gain when sold.”
Seriously??? They are already losing money every month on the “investment” condo, and they are going to ignore this until 2014? Rates are rising, and prices are about to dip… but hey – I’m sure it’ll all work out in 3-4 years!
The saddest part (as a Canadian Taxpayer) is that the article is basically saying “they’ll be ok, because they have a great government pension”… why am I paying for some schmuck’s pension when they are out there losing money every month on some “investment condo”? I hate that I’m bailing out this mid-40′s couple who haven’t even begun to think about retirement, and are instead gambling on property and taking out giant mortgages (that I’m positive are CMHC-insured, given the large debt)!
Net worth of $66K? Ok, that’s just a bit scary….but not unusual. I know several people like this, unfortunately, that I’ve come across in my line of work. I think we all know by now how this will end.
A mid-forties couple and a net worth less than 100K… What a bunch of losers… They better hope real estate doubles in the next 10 years or else they are royally screwed… You’d figure with their income they’d be way further ahead than this. Just goes to show how much of the wealth plans of BC residents is reliant on debt and real estate…
the blogger forgot to post the entire article. look at their spending habit, it’s a no brainer that they are in this situation.
You really have to wonder where the $ is going. Their son in private school can eat up a lot, way more than tuition. I don’t think all is being revealed in the article.
I wonder if part of their speculating is on their son’s education. Maybe they are counting on him bailing them out down the road if/when everything falls apart.
This “let’s wait until 2014 yada yada” is just obsfucation. There is a really simple test for this: Can they make their payments if one of them loses a job?
I bet the answer is no.
I’m noticing a pattern in these articles. These families have enough money to get them into trouble, but not enough to get them out again. At 163k they ought to be really damn comfortable, not writing in for advice.
“These families have enough money to get them into trouble, but not enough to get them out again.”
—
Nicely put.
Nice, after “decades” of “hard work” they have a net worth of $65,900. An assumption here but … most likely all through appreciation of their real estate holdings (meaning unrealized gains). Looking at it another way, this couple that now earns 163K have saved nothing in their entire lives and now they are starting to think about retirement. Lucky for them our government pays out (wastes?) great pensions and other perks (PhD education) that those who pay for these things through our tax dollars have no hope of getting in the private work force.
Maybe they should buy up some other money losing “investments”.
this couple has $650 for clothing and personal grooming a month? duh!
Yeah.
The advisor in the article did see this as a place they could tighten their (presumably Gucci) belts.
Just a point here…everyone is always so down on the “over payed”, “benefit rich” government worker…I am one of them…and have written about the fact, several times that private sector pays better in my line of work. If I was to jump the fence to the private sector up here in Fort Nelson, my base pay would jump 40k/year…that doesn’t include the overtime benefit. So yeah, I better be getting a good pension, cause otherwise I would be getting royally hosed.
T, not trying to bash government workers. Just from a taxpayers point of view, I’m not sure if offering all of the perks for a potentially lower salary is worth it. Increased salaries right now are a known expense where long term pensions introduce many unknowns. I haven’t crunched any numbers but if that structure was more cost efficient, I’d expect to see it more in the private sector. This is a topic for another venue though.
I just thought it was amusing how the article stated it took the couple decades of hard work to attain highly leveraged assets. If I go to the bank tomorrow and get a 500k loan for a condo, is that years of hard work as well? A polite way of saying this couple has basically just blown all the cash they’ve ever made I guess.
lol, I too was trying to figure out how to recast it as the euphemism it is.
“My years of hard work racking up this credit card debt.”
or
“My years of hard work eating my way up to a size 20.”
Seattle RE tanking recently: http://www.nytimes.com/2011/02/14/business/economy/14dip.html?src=me&ref=business
Downtown and by the water are pricey in Seattle (still cheap in comparison to Vancouver); the rest are dirt cheap (when compared with Vancouver).
Just another typical middle class family with delusions of grandeur. I hope these folks are aware of the fact that their net worth is effectively negative already (like most people I know) and will remain so for longer than they realize. After taxes, fees etc, the gain on that investment property (if any) amounts to pocket change. Is that principal residence valued at $350k something they will outgrow? I am presuming that the son will be going to university in 2 years given that they’ve gone to the trouble of investing (?) in a private school education up until now. If so, that few grand they have in the bank + the RESP isn’t even close to cutting it. Hopefully, there’s still some room on that HELOC to tap because it looks very much like they’ll need to. As for Alex and Susan, let’s keep our fingers crossed that the housing market stays afloat for at least a few more years, that the upcoming slash and burn at Govt & Belleville will be minor in nature and that their investment property is located as far away from Bear Mtn as possible.
“financial assets that total $8,000″ in their mid-40′s. Good god.
His job is in the building industry and he will likely be falling on hard times at the same time prices drop. Sell that condo as soon as you can, and start stuffing savings into the bank every month with both fists. As a family that makes a bit more than half what they make, their inability to build assets is a bit mind boggling to me.