30s Grind #3 – “The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale.”

“My spouse and I earn about $225K/annually. We live and work in Richmond, our house would sell for about $1.2M (it’s a nice, newer house with a good-sized yard). We are early 40s. We are paying on a $450K mortgage locked in till 2017 at a low interest rate. We contribute to our own RRSPs, but are also relying on husband’s awesome pension plan (we know he is lucky). Most of his income goes towards the mortgage and other “big” expenses (his new leased car, the insurances on house and car, and property tax). I pay for most everything else – clothing, food, household bills, personal cell phone, kid’s activities (hockey is NOT cheap!). Our second car is 7 years old and completely paid for. The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale. We do not get any money from our parents or any other family members. But, we do have grandparents who do our after-school childcare, which allows us both to hold full-time jobs without having to pay for daycare (we support them financially in other ways but we don’t actually pay for their babysitting). I shop at big-name grocery stores like Save-On and Safeway and rarely at Costco (mostly because I can’t stand shopping at Costco….). We have a pet who costs me $40/month in pet insurance, and even more in prescription dog food (sensitive stomach). We rarely travel for work, so we have to pay for our flights for when we flight for our vacation. We fly across the country every 2 years for vacation and that costs us about $7,000-$8,000 for two weeks (accomodation, flights, and car rental). Alternate years, we only spend $3,000 on vacation. We keep our credit debt (outside our mortage and leased vehicle) under $5,000 and use a line of credit instead of credit cards. Overall, I think we live modestly and we’ve never gone to Disneyland or Hawaii, much to the chagrin of our children. I guess that’s how we afford to live in the Lower Mainland.”
Anon at thethirtiesgrind.com 29 May 2012 9:04am

House value $1.2M – Mortgage $450K = Home equity $750K
50% price drop scenario:
House value $600K – Mortgage $450K = Home equity $150K
Leverage works both ways, and even those with apparently robust low-ratio mortgage set-ups are vulnerable when a bubble pops. These guys would lose 80% of their equity with a 50% collapse.

With each move up, this couple’s market exposure has increased. Many who accumulated paper equity through the bubble will give it all back in the coming collapse.
– vreaa

11 responses to “30s Grind #3 – “The only way we can afford our house is because it’s our third residence since 1997, and we’ve made good money on each sale.”

  1. SInce they haven’t put in any more than 150k, and don’t seem to be living off the HELOC ,*only a little*, that’s a reasonable outcome. And they got to live in some decent accommodation through the stretch…

    …Or they could sell now and be rich.

  2. They bought low, have a reasonably-sized mortgage and good income. They can continue with their lives as if the bubble never happened. Just because the world goes irrational doesn’t mean they are obliged to sell and “get in on the action”.

    • True.
      Provided their future plans haven’t subconsciously been influenced by the growing paper equity such that they are depending on the home to fund future expenses over and above their existing retirement provisions.

      • My guess is they are more interested in raising kids and pursuing their careers than betting on real estate speculation. These people aren’t the ones who will be setting the marginal price, and frankly benefactors of temporal serendipity. Nothing wrong with this, life ain’t fair, just ask my dead great uncle blown to bits on a French beach.

  3. 4SlicesofCheese

    This would be almost impossible to recreate with anyone starting out today, even if they had followed the exact same route of RE purchases.

  4. $40 a month in insurance? That seems excessive … do they even pay for his stomach issues? I would assume they write that off as “preexisting”, like my insurance did for my corgi’s hip dysplasia. You might want to consider getting a membership with a vet discount program, like United Pet Care, or Pet Assure. They usually have no exclusions on preexisting. Good luck!

  5. Amazing. Diligently climb the property ladder and then boom, those last five rungs can just break out from under your feet when you are near the top, leaving you one rung from the bottom.

  6. No risks here…unless either one loses their job and aren’t planning to keep the house. Why does it matter to them, what the house is worth or even if the bubble pops (…the house is only worth something if you sell it).

  7. The important thing here to me is that this household is in the top 5% of earners (if not the top 3 or 4%). Based on their income, the “prudent” new home price for them would be maybe $700k – $800k. (They have rolled over gains from previous homes.) Compare average Vancouver prices to this.

    If a detached home in some neighborhoods is beyond the means of the top 5% of households, what does this say about the market?

  8. early 40’s and the husband has an awesome pension plan?
    Seems counter-intuitive to leverage a pension plan to satisfy debt obligations, but hey, this is 2012 and we’re talking Vancouver..
    Pluto and Uranus in Virgo (1960-72)… rock on you crazy bean counters… don’t let a little bitty ol’ Pluto and Uranus s~q~u~a~r~e (2012-15) scare you outta yo delicately perfumed balance sheets.

    • CanuckDownUnder

      I would scratch a backstay if I were this person.

      The probability of getting what they expect from this pension plan in 20+ years is not 1, I don’t care who he works for.

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