It is possible to bring housing into the mix when accumulating wealth "Moose-style".
However, there are rules to ensure sanity!
Moose Rules for Housing
- You first must be comfortably saving enough for retirement in real investment accounts (TFSA, RRSP, and Cash/Margin accounts). Follow Moose Math to estimate your number. If you are under 30, you should be saving a minimum of $562 per month. This money should not be touched until you retire!
- Always have a 20% downpayment, plus closing costs, plus an emergency account on hand before buying a house. This significantly reduces your leverage ratios, saves you money on insurance costs, and decreases your chances of getting into a financial pinch. Your emergency account should be equal to 3 months expenses. The emergency account will protect you from unexpected expenses associated with owning a house: furnace breakdown, hot water tank replacement, flood in the basement, roofing disaster, etc. New house or older house, one episode of Holmes on Homes highlights the importance of this!
- Make sure all other consumer debt is paid off. No outstanding credit cards, lines of credit, student loans, etc. Do not ever borrow your downpayment—even from family! If you have outstanding debts, you are essentially borrowing your downpayment. Purchasing a house with outstanding consumer debt is likely to put you into a stressful and never-ending debt spiral.
- Stability... or stay-ability. Never buy a house if you are going to school, in an unstable job, in a career you can't see yourself in long-term, or planning to move somewhere else in the foreseeable future. Trading costs on housing are ridiculously expensive. Sales commissions, lawyer fees, mortgage fees, staging costs, survey costs, transfer taxes, etc. can easily run $20,000+ on a typical house in Canada. Much more in high priced markets. If you buy a house, be sure to stay in that exact house for a long time. Buying, selling, flipping, upgrading, and downsizing is for chumps. Every time you change real estate you lose 4-5% of the house value off the top. Your real estate guy and mortgage gal will rub their hands together gleefully at your expense I guarantee you! I'm all for spreading wealth, but make sure you are actually wealthy before you give away thousands!
These four rules are critical to home buying success and your general long-term prosperity. Without these prerequisites, you are gambling your long-term financial health on the continued appreciation in house values. You will survive when house prices go up, but you put your family at serious risk when prices are stagnant or fall.
Finally, before leaping blindly into homeownership based on popular opinion, do a thorough financial evaluation to check if you might be better off renting. This is the most complicated step and it's NOT simply comparing a mortgage payment to a rental fee.
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