“I know a young couple who bought a 400K condo assignment in Vancouver. In discussion they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things…”

“I know a young couple who bought a condo assignment (for a 400k condo in Vancouver). The condo will be finished sometime next year. They are both moving to rural Alberta for a year or two to earn a lot more money to pay off the wife’s student loans for dentist school and the mortgage. They leased another car (SUV) recently so they can drive there. They are not going to rent out the condo when it’s finished because they wanted a new place. They have also extracted all their RRSPs (with maybe help from parents) for a down payment.

In the discussion with the husband and family that followed, (as expected) they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things.

1) They have no idea how the market works.

When I told them that house prices may be down, and listings were up, the responses were:

“I don’t care about house prices, of course those are going down, but condos are still going up or holding their value.” Huh??

“The reason there are so many listings are that people are just seeing what they can get for their houses, they’re not trying to sell.” Uhh? Apparently it’s free to list. (Both in time and money.)

2) They have no clear idea how debt works.

The counter to “when prices correct to 50%..”, was that at that point, it would just be cheaper to “upgrade”. I was shocked. In a debt-equity relationship, when “equity” goes down, you first lose value in your equity, not in your debt. In fact, you never “lose” your debt. I used 5% down as an example, and he didn’t realize that at the end of 5 years, unless everything they both earn are paying for the mortgage, that a 50% drop would mean that they’re probably 30% underwater. They will have NO equity to “upgrade” if they can even renew their mortgage. At this point, he disregarded that and went back to his example of how if his condo was worth 200k, he could still…

3) They use select anecdotal evidence only, with no statistics or any other information to back their opinions.

Sometimes these pieces contradict themselves — I don’t see how they could not see it.

“My friend works at the RBC and approves of mortgages. There’s a lot of cash only buyers from China.” … I thought cash-only meant they didn’t need a mortgage…

And of course the standard “housing prices always go up”. Anything that shocks them, just gets deflected and any statistics are ignored and rationalized by some made-up opinion.

4) They don’t understand the relationship between “home” and “equity”.

“We don’t see this as an investment. We plan to stay there long term, at least 5 years. If you want to start a family, you will have to buy a place, you won’t be able to time it.”

Yup, the standard arguments. It’s almost like they all have the same script. Anyhow, I wasn’t cruel enough to break it to them, but they ARE using it and treating it as an investment. If not, they would not talk about using the “equity” in the condo to upgrade. At the end of the day, they do plan for their place to have “value” in it. Otherwise, what’s wrong with renting? (See next observation…)

5) Any alternative is seen as impossible.

No no no… no talking about renting. “Well, if I were to rent, I’ll have to deal w/ having to find a new place when the landlord kicks me out. That’s a hassle and represents time. And time is money.”

I really wish no one coined the “time is money” bit, it’s always misused. Time represents sweat equity (maybe) which maybe translates into money.

I was also not cruel enough to point out that the inconvenience of renting is probably a lot lower than the inconvenience of being homeless, but I kept it zipped.

I’ve shown them graphs and blog entries and videos already. I’ve done my good turn already. I don’t expect them to change their minds on the spot, I am just hoping it’ll give them something to reflect on — that doesn’t fit in their current world view. Perhaps that difference might mean being poor compared being homeless.

As has been said here before, speculative mania can turn regular people into crazies…”

RE Lurker at VREAA 11 Jun 2012 3:35pm

37 responses to ““I know a young couple who bought a 400K condo assignment in Vancouver. In discussion they generally deflected, avoided or otherwise tried to bury their heads in the sand. If it wasn’t so sad, it would have been amusing. However, I came to observe a few things…”

  1. Carioca Canuck

    Sounds like you were at the same dinner with my wife and I a few weeks ago………heh.

    • Either that or they all come from the same mold… Is there a factory that produces thinking like this? Or was that in the Adult handbook that I forgot to pick up when I became one?

  2. I rarely talk about experiences from the front lines in the blogosphere; it’s an unwritten code.

  3. That really is so sad. Technically these people are intellectually a lot smarter than me. Eg being a dentist.

    But worldly they are way below and have no ideas.

    I once heard that the two easiest groups of “professionals” to defraud are teachers and doctors.

    Doctors obviously are very intelligent, but not worldly, while teachers think they know it all, but unless they have experienced the world outside the class room they don’t.

    It almost brings me to tears – so many naive young lives are about to be smashed, and scared for decades.

    • Many of us are worldly.

    • There are scams know as “Dumb Doctor Deals”. Dentists are the most prone to them. Dentists tend to have an inferiority complex since many of them wanted to become MD’s and didn’t make the cut and dentists don’t tend to get the same respect from society as MD’s. Doctors have money and tend to be quite arrogant. Frequently, suggesting that something is the best and only for very exclusive people will get them to buy. Dentists are the same but the hint that they can’t afford something, or are not good enough for it, will drive them to buy to prove you wrong. Both groups are so easy to manipulate.

      As for teachers many (not all) are used to talking to people who are not nearly as intelligent as them (six year-olds for example). The number of times I’ve had a teacher talk to me like I am an idiot is astounding. Once in the process of putting a deal together I converted the CDN price into $US for a US teacher and her husband. We then moved on to financing. When we got to the interest rate the teacher wanted me to convert that to US. I tried to explain that the interest rate remained the same so she repeated her point more slowly so that I could understand. If the CDN$ is worth 80c US, then if the interest rate is 10%, US people should only be charged 8%. She was very patient and kind as explained this to me, a bit like she was speaking to someone mildly retarded. It took me several minutes to convince her she was wrong. Unfortunately in the process, there was no way of avoiding letting her know that I also thought she was a moron. No deal for me!

      • Wow, haven’t read anything this stupid in quite a while. I am only qualified to respond to your first paragraph, and doubt it’s even worth my effort, but here goes; on second thought, I might as well go argue with a brick. I will only hope that your physician or dentist treats you with more respect.

      • Hi Allen,

        It is often the case that doctors are not good at managing their money. There are many discussions of this in, for example, the classic “The Millionaire Next Door”.
        http://www.amazon.com/The-Millionaire-Next-Door-Surprising/dp/1589795474/

      • bailinginbc

        Wow Allen, thanks for your reply. Many great points in there It’s really given me food for thought. I can only assume that you are not a teacher. Interestingly enough I was first introduced to the term “Dumb Doctor Deal” by a neuro opthamologist.

      • Ok fine, which one of your silly generalizations will we start with?
        1. Dentists are most prone to ‘Dumb Doctor Deals’.
        2. Dentists tend to have an inferiority complex since many of them wanted to become MD’s and didn’t make the cut.
        3. Dentists don’t tend to get the same respect from society as MD’s.
        4. Doctors have money and tend to be quite arrogant.
        5. Frequently, suggesting that something is the best, and only for very exclusive people will get them [Doctors] to buy. Dentists are the same, but the hint that they can’t afford something, or are not good enough for it, will drive them to buy to prove you wrong.
        6. Both groups are so easy to manipulate.
        Sigh, where to begin…nope, again can’t be bothered.

      • Really Jeff, doctors are OFTEN not good at managing their money?

      • Some doctors are good at managing their money, e.g., Mike Burry. But, according to the research in The Millionaire Next Door, many are not.

      • allen … will not tolerate anyone posting dumber sh*t than me on this blog … need a professional opinion on this http://tinyurl.com/bu6m28v

      • Sorry chubster…just too awesome to be considered dumb s**t, haha! Keep up the good work.

      • bailinginbc

        Hello Allen, thanks for reformatting my post in point form. It is another illuminating comment. It makes me realize that I use the word “tend” too frequently. I concede defeat. I have failed to prove beyond a reasonable doubt that all doctors are arrogant. I do however believe that you have succeeded in proving that you are an arrogant arse. I’ve obviously hit a nerve. Got ripped off lately? 😉

        PS. If you can’t be bothered to reply, feel free not to.

      • Hilarious, Bailing. I have had the same experience with a few grade school teachers. I don’t think they are even aware of how condescending they come across. The first one who did it to me really had me upset. That was years ago. Talking to me like a five year old and really talking down. It was only months later I learned she was a primary school teacher. Then it all made sense. Anyway, her husband….ha ha ha ha ha ha!!! But he HAS to sleep with that idiot!

      • Hello bailinginbc, thank you for an equally illuminating response. You are correct, you did hit a nerve, but so obviously not the one you imagined. People generally do not like to be lumped into groups that diminish our individual uniqueness to simple caricatures. This is especially true if that attempt is made to perpetuate or reinforce real or imagined negative stereotypes. Normally I would not feel the need to respond to a post like yours but I think you and your BS needs to be called out for what it is.

        Definition of BIGOT
        : A person who is obstinately or intolerantly devoted to his or her own opinions and prejudices; especially: one who regards or treats the members of a group (as a racial or ethnic group) with hatred and intolerance. Bigotry is the state of mind of a “bigot”, a person obstinately or intolerantly devoted to his or her own opinions and prejudices, especially one who exhibits intolerance or animosity toward members of a group. Bigotry may be based on real or perceived characteristics, including sex, sexual orientation, gender identity, race, ethnicity, nationality, region, language, religious or spiritual belief, personal habits, political alignment, age, economic status or disability. Bigotry is sometimes developed into an ideology or worldview.

      • bailinginbc

        Seriously Alan, that’s the best you’ve got?

        1.) People don’t like to be stereotyped
        2.) You’re normally above all this but you’ll make an exception for me
        3.) I’m a bigot.

        None of these points address the crux of my original post.

        Dumb doctor deals exist and do so for a reason.

        Lets say someone is putting together a dubious deal and are looking for an investor (mark) who are they going to target?

        There is no such thing as a dumb Wal-Mart greeter deal. Why? Because the stereotypical Wal-Mart greeter doesn’t have any money.

        So, if our deal maker is looking for someone with a couple of hundred k to play with, who will they be looking at? Professionals, lawyers, doctors, dentists, entrepreneurs, CEO’s, Engineers, Stock brokers, professional sportspeople, rock/movie stars etc.

        This is where stereotyping comes in. There’s a chance that you could be sitting across the table from the rare lawyer that’s not looking for the catch in the fine print – but chances are you’re not.

        Maybe you’re dealing with the engineer who’s not interested in the details. Perhaps the stock broker’s not following the money and the entrepreneur has never been burned and learnt to spot it coming. If you’re lucky the CEO isn’t used to brokering deals but you never know, maybe the Wal-Mart greeter is a millionaire.

        What about sports/rock/movie stars? They get targeted too but most of them know that their strengths are not in business and they hire “people’ to do that stuff for them. Of course the best mark is the Wal-Mart greeter who just won the lottery but it’s really hard to buy contact lists for thousands of them.

        So tell me Mr. Worldly if you were putting together a dubious deal who would you target?

        If you were putting together any business deal wouldn’t you come up with a stereotypical customer? Or would you try marketing nipple piercing to the elderly so that no arrogant idiots called you a bigot?

    • “Technically these people are intellectually a lot smarter than me. Eg being a dentist.”

      Dentistry is essentially a plastic/mechanical art form, Taipan… I don’t think they self-select on the basis of CognitiveClockCycles. Curiously (or not), they are more prone to suicide than MDs… Who are, in turn, more likely to ‘top themselves’ than any of the other professions… Strangely, given their easy access to prescription drugs, DespondentDocteurs frequently resort to messy/publically inconvenient exit plans. GoFigure, eh…

  4. Financial illiteracy in the general public is even more harmful than “regular” illiteracy. If people were adequately educated in basic financial planning from a very you g age (I’m talking how debt works, balancing a budget, etc.), a lot of this bubble might never have happened.

  5. This is more than financial illiteracy, this is active denial. I have had these same conversations dozens of times with some of the smartest people I know. It’s like trying to nail jello to the wall. When you talk about how it’s cheaper to rent then buy, they tell you it’s about the equity. When you point out prices could drop and put them underwater, suddenly it’s about a home for their family. Back and forth many times, it’s what makes a perfect ponzi scheme. When it’s time to buy, they are investing, when it should be time to cash in that investment, it’s a home. We’re all screwed.

    • Active denial? Maybe.

      They are denying it, but I think it’s mostly because they don’t have a framework for finances. They understand just enough to get into debt, but not enough to do anything w/ their savings. Both of them — as far as I know them — are not regarded strongly as “savers”. Throughout University, the husband tends to be the type that finds a job when he needs money (but basically spends it all). When he bought his car, his dad paid for it (in full). I think there was some talk about paying his dad back, but I have no idea how far that went (or whether it’s been paid off yet).

      I’ve heard someone coin a framework as a place to hang your ideas when you don’t know where they should go. So basically, in my view anyways, their financial illiteracy has led them to the point where they never developed a context for finance at all (aside from how to spend money). Given that most of these ideas are rooted in the understanding of money and debt, it’s not unreasonable to see how giving them ideas that don’t “jive” with their world view would just “not fit in”. There’s no where to put those ideas. So what do you do when you’re extremely uncomfortable with an idea?

      Having said that, I’m not excusing them. They should know better, but they don’t. Nonetheless, I also realize that the first step in helping people change is to understand where they are.

      • What does the husband do? Are they both high income earners?

        I think it’s really difficult to change anyone’s personal thinking and attitude towards personal finance. The best you can hope to do is help facilitate their own realization of good personal finance. Like you said, it’s active denial. I usually try to recommend books, and just hope at least one book strikes a chord. I’ve personally seen this happen a couple times with “Your Money or Your Life” and “The Wealthy Barber”.

        But then again, by attempting to recommend books, I’ve also been shocked to discover how many (smart, university educated) people don’t actively read.

  6. the anecdote is fabricated.
    this one is too easy

  7. this young couple, what age? mid-to’late 20’s? Early 30’s?

    Figuring out the position of this couple’s outer planets will explain much of their behavior. For instance, Pluto was in Libra 1972-1984. Much different energy than when Pluto was in Virgo 1960-1972. (‘Just’ ask Trudeau when he was alive)

    This couple’s explosive re-balancing techniques to justify RE would be typical of a financially afflicted Pluto by house, aspect or sign.

    You want to cross swords with someone outside your generation, better study the planets hosers

  8. I wouldnt worry too much about a dentist getting underwater on a $400k mortgage.

    • no kidding. As soon as I saw “dentist school” I stopped worrying about this couple – real or not.

      • Actually, that’s something I was wondering about.

        I know it “varies”, but maybe someone has a better clue. How much does an associate dentist earn in Rural Alberta (e.g. does not own her own practice)?

        I mean, if take home pay is $400k (hey, I don’t know anything about dentist salaries), then you’re absolutely right that it’s not a problem what-so-ever.

  9. Personally I don’t get involved once someone has already bought but I try my best to warn them if they haven’t pulled the trigger yet especially if they are a first time buyer. Even then I just try to provide some info – buying a home is a huge decision and nobody wants to be told that they are dumb for considering it even if at this point and time it is clear in probably 90% of cases that a first time buyer shouldn’t buy.

    Once they have bought you are going to come off really bad to them in the short term and the long term regardless of what happens…

    I know, for those of us that see the plainly obvious it is tempting to jump in and warn everybody.

    • I struggled with that one as well. At the time that they paid for their assignment (and deposit), I was only beginning to construct my own framework for all this stuff. I didn’t understand things well enough for it to undergo any kind of scrutiny.

      The main reason I brought it up is because they have a chance (maybe) to walk on the assignment after the place is completed. Of course when people did that in 2008, the developers sued them — but at least this means they’re thinking about it and maybe giving a lawyer a few hundred dollars to see if it’s worth it.

      But you’re right. I should have probably stayed out of this one.

  10. Thanks for the post. Coincidentally, your dentist and rural Alberta description closely matches a couple I know too. Denial is often a precursor to pain and suffering..

  11. I was told once that even cash-only deals require a mortgage for legal reasons – does anybody know if there’s any truth to that?

  12. No I don’t believe you require a mortgage for legality in a cash purchase. I do think regardless of career/job, people do seem to be financially illiterate. But more of a factor is the constant hype in the media, by developers, real estate agents, peer pressure etc of buying a home. Seems people have to keep up with the Jones’. Also people seem to be impatient and expect to own a place a year or two out of university.

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