Weekend Reading: House Building Edition

Weekend Reading: House Building Edition

I got a three-month head start on working from home after I quit my full-time job in December 2019. At first, I worked from a laptop at the dining room table. It wasn’t ideal, especially when our kids were sent home for online school.

We later carved out a section of the kids’ playroom and turned that into an office with two small desks, and then eventually upgraded our desks, chairs, and computers. It’s still not ideal, but it works.

We also turned a spare room in our basement into a home gym after our regular gym shut down. We have a bike, a treadmill, a bench, adjustable dumbbells, and TRX straps. We even installed some mirrors and put up a “Come With Me If You Want To Lift” decal on the wall to complete the vibe.

But, the gym is located right below our sunken living room and so I can’t lift my arms over my head without hitting the seven foot ceiling. Again, not ideal.

Like many people who’ve spent more time at home over the past two years, we have an ever increasing list of annoyances about our current living arrangements. That, plus our kids graduating out of their current schools next year, got us thinking about making a change.

We started talking to a local home builder that builds in a nearby community that we like. They have a beautiful floor plan with a custom office and gym that really suits our style and taste. After some back-and-forth we signed a purchase agreement last month. Looks like we’ll be moving in about 10 months.

Now, I know what you’re thinking. Why would you want to make a big move in this economy? 

Buying a home is as much a lifestyle decision as it is a financial decision. Our current house served its purpose for the last 12 years while we raised a young family. Now we’re in a much different place with different needs. From a lifestyle perspective, we need to make a change.

Financially, we need to start with a reasonable budget for the house and determine how we’re going to fund it. How much are we going to put down, and what will our new mortgage payment be? Can we handle the payments if interest rates rise above 5% or 6%? 

We had our financing approved specifically so we don’t have to sell our current house before we move into the new one. But what if we can’t sell our house, or the real estate market drops by 10-20% (or more)? Do we take the price hit and sell, or do we rent out the house for 1-2 years and wait for prices to recover.

The new house comes with a draw schedule for deposits. We’re using a portion of our own funds, a portion of existing home equity, and a portion from a new draw mortgage.

We decided to use the funds in our TFSAs rather than withdrawing more from our business. Mercifully, we transferred our TFSAs from an all-equity portfolio into an EQ Bank high interest TFSA in January. We’ll tap into those funds first for the initial draws before we dip into the line of credit and new mortgage.

We still have more than $650,000 in retirement savings invested across our RRSPs, a LIRA, and our corporate investing account (that number was much higher six months ago), so we’re not at all jeopardizing our retirement plans.

Our new mortgage payment won’t cut into our travel budget or stop us from saving more for retirement (you better believe we’ll fill up our TFSAs again).

While we’re excited about this new transition, we’re also nervous about interest rates and inflation, stock markets, and real estate prices. But I also remind myself that we have a financial plan, and this transition fits within our plan and still allows us to live the life we want to live (including raising my arms over my head in the gym). 

Besides, buying a home is a transaction typically measured over 10-25 years. It’s not reasonable to expect the economy to be perfectly sound throughout that time. Interest rates will move up and down. We will experience a recession or two. House prices will rise and fall.

We can’t time that with any precision, so we make the best decision we can (both lifestyle and financial) and move forward.

I’ll be sure to share more about our home building experience and my thoughts on down payments and mortgage terms and everything else housing related as we get further into the process.

This Week’s Recap:

Last week I told you to stop checking your portfolio and I think that’s good advice to follow for the foreseeable future.

My commentary is featured in this article on why young investors shouldn’t focus solely on dividend stocks.

From the archives: Addressing major gaps in your retirement plan.

Promo of the Week:

I used to meticulously study the rewards credit card market looking for the best card to use for groceries, gas, dining, travel, etc.

The golden age of credit card rewards are long behind us, I think, and so now I focus on having one core Visa and MasterCard, which are widely accepted everywhere, and then I also hold a suite of American Express cards for their much richer rewards.

The Amex Cobalt card is my favourite. My wife and I each hold one and aim to spend $500 each on groceries with the Cobalt card every month. The Cobalt card pays 5x points on groceries. Those points can be converted to Aeroplan miles, which I value at 2 cents per mile when redeemed for flight rewards.

$12,000 spent on groceries each year gives us 60,000 Membership Rewards points. We transfer those to Aeroplan (1:1, so 60,000 Aeroplan miles). 60,000 Aeroplan miles are worth $1,200 in flight rewards. So we’re technically getting a 10% return on our grocery spending. No brainer.

In the first year that you hold the Cobalt card, you’ll get 2,500 bonus points for every month you spend $500 (up to 30,000 points in a year). So, if you follow our spending pattern, you’d earn 30,000 points for your regular spending, plus 30,000 bonus points in the first year. Not bad!

Sign up for the Amex Cobalt here.

Weekend Reading:

A couple of good reads from Dimensional. First, is there a light at the end of the inflation tunnel?

Next, a look at market returns through a century of recessions.

Ben Felix explains why dividends are irrelevant as a predictor of differences in expected returns:

A nice piece by Michael James On Money who explains what you need to know before investing in all-in-one ETFs.

A question I get from time-to-time: Should you borrow to invest with the Smith Manoeuvre? I suggest doing a risk assessment that includes the possibility of interest rates rising, stock markets falling, you losing your job, and changes to rules and regulations.

I loved this article by Adam Collins on why perfectionism ruins portfolios.

Justin Bender reviews the pros and cons of two of the most boring portfolio assets – Bond ETFs and GIC Ladders:

A shocking CBC Go Public report showed that Canada’s big banks are more likely to upsell racialized, Indigenous customers.

Finally, a look at why more retirees are choosing to go back to work.

Have a great weekend, everyone!

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  1. JOE WILLIS on June 18, 2022 at 6:48 pm

    Exciting Robb! I ended up selling my bungalow and made a lifestyle change …. north of the city, less traffic, more nature. This was my first experience with a new build. Fortunate to have a great, local builder. Delays of course yet expected. I know you’ll keep an eye on the fine print. Specifically those “Closing” costs. That was an ah, ah moment 🙂 More like – really?

    • Robb Engen on June 19, 2022 at 10:19 am

      Hi Joe, nice to hear from you. Sounds like a nice change for you. Yes, we’ll definitely keep an eye on the fine print and extra costs. For us, I suspect there will be a lot of “oh, you want that in black, that’s an extra $3,000” type of costs…

  2. AnotherLoonie on June 18, 2022 at 9:18 pm

    Very cool. I hope you do a whole series on this build. Recommend you check out Matt Risinger on Youtube. He’s a home builder and really up-to-date on some of the best practices.

    • Robb Engen on June 19, 2022 at 10:22 am

      Thanks, AnotherLoonie. As Canada’s worst handyman, I wouldn’t even know what to watch for or what questions to ask so I’m putting a lot of faith in our home builder. That said, we’ve been through the process before and have a good idea of what to expect and what pitfalls to avoid.

      I’ll definitely share what I can throughout the process. They haven’t even dug the basement yet, so we’re still in the early days.

  3. Kathryn on June 18, 2022 at 10:15 pm

    Very exciting Robb! Looking forward to progress reports!
    Just bought a new (to us) house in our retirement destination, and thankfully just sold our current house in time to avoid the perfect storm of a mortgage going into retirement with rising interest rates and tanking investments.
    Now that the house sold, no need for the mortgage, and we have a nice cash wedge to get us through the bear market before touching the RRSPs. Different life stage than yours, but similar spreadsheet tweaking, I’m sure.

    • Robb Engen on June 19, 2022 at 10:23 am

      Thanks, Kathryn! That sounds like a nice transition you’ve made and good timing to avoid some stress.

  4. rikk on June 19, 2022 at 5:51 am

    Unlike the portfolio, check the build as it progresses. I had an exceptional contractor/project manager … each subcontractor came in like clockwork, the finished work was perfect. But … I noticed the ledgers for the front and back decks were being installed down a step … the decks were to be level with the inside floors. That was easily corrected no problem. I noticed the furnace was positioned incorrectly … the fan motor access panel was against the wall making future motor replacement (not likely, but still) problematic … and that was corrected. Such things happen.

    • Robb Engen on June 19, 2022 at 10:27 am

      Hi rikk, very good point! It sounds like this builder has a very nice system in place. We can log-in to some kind of shared system online where we can keep tabs on progress, approve any change orders, check on timelines, etc. And, the lot itself is not too far away (it’s on our morning running route, in fact) so we’ll keep a good eye on things.

  5. Paul N on June 20, 2022 at 3:55 pm

    I always like when an investment company that removes 1 to 3% of your total AUM every year in various fees in good markets or bad, (potentially reducing your lifetime returns by 33%) creates a video about what they perceive is a poor way to invest. (Dividend investing) Sorry i can’t take Ben seriously at all in his constant negative framing of income investors. It’s indirect self promotion, and its simply not factually correct.

    • Robb Engen on June 20, 2022 at 4:45 pm

      Paul, you can’t be serious. PWL is an industry leader in providing fiduciary advice in Canada. Ben & Cameron, and Justin & Dan have given back so much to DIY investors over the years (for free!) through their blog posts, white papers, podcasts, and videos.

      Just because you don’t agree with the conclusion doesn’t invalidate his point. Dividends are not a relevant factor in expected returns. It’s not an opinion, it’s a fact that was proven 60 years ago. Dividend paying companies do tend to have other characteristics that explain expected returns, like profitability and value. But so do other non-dividend paying companies, so excluding the ones that don’t pay a dividend doesn’t make sense.

      PWL invests their clients’ money in either very low cost broadly diversified ETFs, or a single, low cost, ‘factor-based’ fund offered by Dimensional (that retail investors can’t access). Clients pay well under 1%, depending on their assets. And, as they’ve explained many times, investing has been solved with low cost index fund, so the advisors must provide value for that less than 1% fee in other areas like goal prioritization, cash flow management, risk management, retirement planning, etc.

      I know some dividend investors may have their feelings hurt over videos like this. I felt the same way when Dan Bortolotti wrote a 6-part series on dividend myths over 10 years ago. Their intention is not self-promotion, it’s to get investors to understand the evidence and know the reason why they invest a certain way.

      If a dividend investor takes comfort in seeing the quarterly dividends come into their account, and that will keep them in their seat when markets are down, that’s great. But if they’re investing in dividend stocks thinking they’ll outperform the broader market, or they think dividends are magic and don’t reduce the value of the dividend paying company, that’s where there’s a misunderstanding.

      • Luke Ehgoetz on June 20, 2022 at 7:06 pm

        That’s an excellent response Robb. I was thinking the exact same thing when I read Paul’s comment. Absolutely zero self promotion by Ben in that video.

      • Paul N on June 21, 2022 at 5:38 am

        Sorry I will continue to disagree. As I did directly on his video where he specifically stated “dividend investing is a joke”. I can’t take someone seriously after a financially educated person makes a comment like that. There is no one perfect way to invest. Some people feel they have to maximize total returns. I get that. I’m satisfied with a dividend focused portfolio. I never claimed I would beat someone else’s total return. However if I can pump out $4000 a month in dividends and distributions to add to my cpp and oas and never have to sell “units” in long term 2008, 2017, 2020, 2022+ style down markets then I don’t feel someone should mock a dividend focused investors style for making that choice in the direction they are comfortable with.

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