M- at VREAA 18 Aug 2011 4:03pm writes -
“I have friends here who followed this path to riches in the Vancouver housing market…
1) Buy presale condo.
2) Eventually the builder completed the condo, and they moved in.
3) Condo went up in value!
4) 2-3 years after moving in, they got a HELOC against their condo’s rise in value, used it as a downpayment on a house, and the bank lent them the rest of the money to buy the house, as a HELOC on the house itself.
5) They took possession of the house, then did a mega-renovation (~$200-300K?), funded by more HELOC money secured against the house.
6) Relative moved into the condo (still there).
7) Couldn’t afford an amortizing mortgage, so they just made interest payments on the HELOCs. 
Couldn’t really afford the interest payments, so they committed tax fraud (deducted the HELOC interest from their income, trying to treat the house as an “investment”). Primary residences in Canada are not eligible for such tax treatment.
9) Bought a new car! (interest rates are low, it’s like free money!)
10) Realized the depth of the hole they’d dug, one parent divested most of their investment portfolio to give them their inheritance early. The path to riches!
11) They now have affordable payments on a very nice house, and have a proper, amortizing mortgage.
They bought the house at a peak in 2008– if they sold now, they’d probably recover 100% of what they put into the house, maybe even eke out a slight profit. But with the family money invested in their house, they’ve got to duke it out there for the long haul. At least their payments are reasonable…
I just wonder how many other people in the city have done the same thing, but without the benefit of an “early inheritance” to bail them out?”
How is this any different than the bailouts of AIG and Bear Stearns? Everything works out in the end, you haters.
My girlfriend was forced to go into bankruptcy earlier this year (from outstanding VISA card) she had no way of keeping up with the interest payments. One of the stipulations of the bankruptcy is that she has to go into an appointment with a “personal finance coach” to learn how to “budget”. (not that she doesn’t already know these things, circumstances beyond her control forced her there… work is drying up).
The financial coach told her that she is seeing a huge increase of many, many more young people (in their 30′s) whom are completely at the end of their rope. driving new(er) cars, huge houses with mortgages to match (HELOCS) maxed and CC’s topped out long ago. The coach said that there is a huge world of hurt and change coming to the lower mainland.
I know many people who did this but stopped at #4. they did not need to do major renovations or buy a NEW CAR and spend the increased in equity foolishly. and now they are way better off
Actually, I see this all the time. Just like I mentioned yesterday…
JRoss, this is reality.
[BTW, bullwhip, re-read yesterday's comments: I don't think JRoss was disagreeing with YOU. (Part of the problem with how this 'reply' set-up leads to ambiguity sometimes). -ed.]
I understand this isn’t what you were taught in school and it’s a bitter pill to swallow, I’m sure. The sooner you deal with the fact that you aren’t the smartest person in the world, that your $hit smells just as bad as everyone elses, the better off you’ll be. It’s time for you to get your head out of those textbooks and dip your baby toe into the real world (where the other 99% of the population resides). Yes, point made.
Class dismissed.
Bullwhip,
VREAA is correct. I was responding to Rusty’s truthiness. No shot at you whatsoever.
Whoops, I guess I am a mendacious troll after all.
I have 4 colleagues whose entire ‘plan’ to address their huge mortgage debt is to take the inhertiance they will get when their parents pass (the bulk of which is real estate ‘wealth’) and use it to pay off their own mortgage.
They could have never gotten the house to begin with without ‘assistance’ from those same parents and if the market were to crash before those same parents pass away, then they will be spending the rest of their lives paying off the debt (assuming interest rates never rise).
When you consider our Canadian Bank’s tangible equity ratio (as hilighted recently by Zero Hedge and Sprott Asset Management in 2009) and the massive bloated balance of CMHC, it is clear our nation truly has EVERYTHING wrapped up in real estate.
I love how someone destroys their parent’s financial security, sinks their entire inheritence into a purchase that they already know was foolish, and then feel like they “dodged a close one.” Even if they can now afford the payments, they didn’t dodge anything. They got hit right between the eyes.
wow, just wow….I’m speechless after reading this list. I wonder if these people have a subconscious hate for their parents? I mean seriously I would rather declare bankruptcy than take a lot of money from parents. Aside from the fact the money isn’t going to be affected by bankruptcy, the money really should be used by the parents for their care. I mean what if the parents had an accident and required 24 hour care? Or needs to live in a care home in the last few years of their life because they are too old to take care of themselves? How will these kids possibly pay for that?
Also, what the f?? Seriously, don’t these people actually do a calculation/budget before they spend so much money and leave some buffer or have a fallback plan? I mean if you can’t afford an amortizing loan on a house then alarm bells should be going off in your head.