Greetings all,
I'm currently on a house-hunting trip for an upcoming move this summer. We're looking at a slew of houses with pretty broad criteria. We have three kids, and I expect this to be a 2-3 year position before being moved again. Additional time here would be a bonus from our perspective.
On the lower range, we're looking at houses in the $150k range. On the upper end (single family homes) we're looking at $225k. I'm willing to entertain a duplex, and we have a ceiling of about $350k, assuming we get rental income of at least $800. Our family consists of me, my wife, and our three kids (twins at 3, baby at 11 months).
Initially I was looking at getting our debt-load to $0, but realized it might be better to focus on net worth. I did a really rough preliminary analysis out to 2 years, I realize I need to extend this. My target will be 10 years, when an annual pension of somewhere around $50k (pre-tax) kicks in and I should be able to FIRE at 43. While the (federal) pension will cover most living expenses, we're locked in for 10 years, so I want to optimize as much as possible in the meantime.
We should (conservatively) net about $63k after selling our current home. My employer pays relocation benefits (house-hunting trip, closing costs, etc). The main summary of our debt load is approx:
- Line of Credit = $31000 at 5.64%, interest-only payment of about $160/mth currently
- Vehicle Loan = $10500 at 4.84%, payment of about $350/mth
- Federal Student Loan = $27000 at 5.25%, payment of about $475/mth
- Provincial Student Loan = $3900 at 0%, payment of about $80/mth
We're planning on 20% down. (I might explore 10% if a duplex to have access to a down payment for the next place.) If the house is inexpensive enough, we would plan to pay off/down the federal student loan, then vehicle. With 20% down, we should be able to change the line of credit to a secured line of credit which would reduce the interest to 3-3.5%.
Our long-term plan has my pension which consists of a main amount, bridge benefit (until I'm 65), and 50% survivor benefit. Canada Pension Plan and Old Age Security kick in around 65 (haven't looked at too extensively yet). At 65, the bridge benefit of about $10k (of the $50k) kicks out, and in theory about $16k CPP/OAS kicks in (current estimates). We plan to move surplus cash flow into my wife's RRSP, which guards her against the pension reduction if I kick the bucket first.
My concern if we go for a duplex is that most of our available down payment would be locked into the rental.
Since I'm short on time this week, I'm hoping to hear your thoughts/guidance on:- Have are your general thoughts on adding a rental combined with pension? I could do most of the work myself as long I'm here, but would need a property manager if I have to be away for a long term or I have to move.
- What are the main readings I should look at if I consider becoming a landlord?
- My really quick analysis saw the $150k option as leaving us with 0 debt and about $93k net worth (existing RRSPs, which are approx $35k current) after the 2 years. The $225k option leaves us with about $16.4k debt, but a net worth of about $110k (the delta is the equity in the house, assuming constant growth). Does this make sense? With the cheap house, the non-mortgage debt is gone in 22 months. Our cashflow in that scenario would allow debt payments around $1000/month (beyond minimums).
- What are reasonable planning estimates? I'm using 6% on stocks after fees (a bit less than 1%), before inflation, 1.5% growth on house, house maintenance of about 1% annual.
Thanks for looking!