advice on how to clean my yacht (aka housing choices in Vancouver)

[iamjdg]

Hello MMM community,

I need some advice.  I know it’s like asking for advice on how to clean my yacht, but hey, I still need advice.

Our family is currently on an expat assignment overseas and we will return home somewhat soon.

Fortunately or unfortunately our home is one of the most outrageously priced real estate places in the world, Vancouver.

We are torn on what to do.  Should we:

1)   Move back into our house? Honestly we don’t really like the schools and our lifestyles and interests over the years have diverted from the original reason we bought in the area.  But we are willing to try and make it work.

2)   We have renters in our house now.  Should we keep them there, buy a second lower cost house in the suburbs, and live in the second house?  The rental situation has been quite nice for a couple of years, no problems; rent more than covers min mortgage payment, taxes, insurance, hydro, and gas.  We use a property manager now since we are overseas, but we would take it over when we return.

3)   Sell our house and buy a lower cost house in the suburbs.  I know, the burbs suck.  My commute would go from 8 km to 35 km.  But I think the neighborhood would suit our lifestyles more and the public schools are nicer.  Also, not to sure how much longer I want to remain at my current employer, so I can always try and find something closer.

I know it is a choice between low and high risk.  I made a normalized plot of monthly housing costs vs interest rates (likely only to go up from here) so you can see the trade offs (see attachment).  Basically I can really lower my net monthly housing costs (yes, I know, I have not included the increase commuting costs) by picking up the second house but if something happens with the renters, I expose myself to some pretty high costs.  Or I can somewhat lower my monthly housing costs but have almost no mortgage and pay it down faster and be stress free.  Or we could stay and save on the real estate fees and property transfer tax. 

What would you do?

I updated the chart as there were some things wrong with the previous version (I have two renters, main part of house and basement, so included this now). 

Now the chart really shows how staying vs selling and buying is the same today (not including commuting costs), but I am less exposed to interest rates rising by selling and buying (cheaper house, lower mortgage).  It also shows keeping my house with renters and buying a second house drops my housing costs (not including commuting costs) and continues to be lower cost relative to the staying option up to a 6.5% interest rate.  It also shows my huge exposure to vacancy and interest rates.

[innerscorecard]

Is Vancouver where you want to be after FIRE?

[iamjdg]

Good question.  I would stay put until my kids are out of school, so at least another 14 years.   After that, not sure.

[iamjdg]

i have also added an additional chart to look at the up and down sizes between the 3 options (see attached).

buy buying a second house, I increase by net worth by 89%, actually reduce the % of the house value that is mortgaged, but increase my mortgage debt amount by 62%.

by selling and buying a cheaper home, my net worth is essentially the same (1% more) but I greatly reduce the % of house value mortgaged and my mortgage debt amount (53% reduction).

Again, I guess it comes down to risk vs net worth vs what I expect housing prices to do vs stock and bond index funds over the next 14 years (time I plan to stay after I make a move, linked to my youngest child finishing high school).

[iamjdg]

i think i know what MMM himself would do from an earlier article:

“Schools” are often used as an excuse as well, but until you’ve reviewed every close-to-work school personally and interviewed the principal, you might be making quite a bad trade-off for your kids. What’s better – higher standardized test scores and more rich kids, or real-world diversity and an extra two hours to spend with Mom and Dad every day reading books? And how about an extra $300 grand or so towards the college fund, that you didn’t burn up in cars and gas."

[lostamonkey]

Would selling the current house, and renting in a nice area be an option for you? Based on what I know about the Vancouver market, the market price:market rent ratio is very high (>250 I think) and really favors renting. You could use your equity in your old house to invest in the market and get a better return.

Also have you considered taxes on a sale in your calculation. If you sell your rental home you likely will have to pay capital gain taxes which could be quite significant considering the amazing increase in Vancouver prices. Also, if you move back into your rental property, it may be considered a deemed sale at the market value and you will owe capital gain taxes even though you didn't actually sell the property . These tax concequences depends on how long you have been away and how long the property has been a rental.

[iamjdg]

thanks for your comments lostamonkey.

i considered rentals, but the prices I found seem quite high compared to the mortgage payments I can get with my equity, cash down payment, and interest rates.  so i ruled it out.

i did consider the tax on the sale.  also the real estate commission fee. 

if i sell my current home, i will do so after i return and remove the tenants, and I looked into the rules, given the time we were gone it would be considered my principle residence again and there is no capital gain tax on the sale of a principle residence in Canada.  you are right though, when we left Canada for the expat assignment we "sold" our house, and when we return there may be some tax due, but my company will cover it since it is an expense incurred due to my assignment.

[TrMama]

There's no way in hell I'd sign myself up for a 35km commute in Vancouver. Especially if I had a family who I might want to spend some time with.

I am also under the impression that there's less variation between a "good" and "bad" schools in BC than there is in other parts of the world. We have our kids in public school in Victoria and frankly, I don't think I could tell you which are the good and bad schools here. The specific teacher/principal they get each year has a reasonable impact, but teachers move from school to school pretty frequently so choosing a school based on it's reputation today may not mean much 2-3 years from now.

Move back into your house and use the extra time not spent commuting to hang out with your kids while enriching their education.

[iamjdg]

Spoken like a true Mustachian TrMama, thanks for the advice.

I know, the commute is crazy, trading 8 kW for 35 km, but I also imagine looking for work closer to our newer home if we buy there.  It just may take a little time.

Victoria is great, I use to visit there lots 10 yeas ago before BC ferry prices shot up so high.  I heard they removed the fuel surcharges finally, not being able to justify it with the low oil prices.

[iamjdg]

ok, last plot, I swear.  since i expect vancouver houses prices to drop, i looked at how the net worth of each scenario would change relative to a drop in house prices (see attachment).

looks like buying a second house and renting out the first is the most robust against house price drop up to 50%, then selling the current house and buying a new one becomes the most robust.  although if the price drop is much greater than 60%, i would be in serious trouble with buying a second house and renting out the first.

[TrMama]

Facepunch time.

If you do not include the cost of commuting in your charts, I will not read them. Commuting is not free.

FTR in BC your commuting costs must include the extra insurance coverage required by ICBC for having a commute >15km. Don't forget the more frequent oil changes and not to use today's unsustainably low gas prices. In Vancouver, you may also need to include the bridge toll. This toll may be required even if it's not on your most direct route to work since you may have to detour when one of the free bridges is clogged up by an accident.

If you live in the house that's 8km from work you can easily bike or take public transit. If you decide to have a car you can insure it for recreational use only and only change the oil 1/yr.

For people not familiar with Vancouver traffic, the OP is considering a 43mi round trip commute that will be entirely stop and go, bumper to bumper, in the pouring rain. He will not see the sun for 5 months of the year.

[Heckler]

Vancouver's second to only Hong Kong in unaffordability.  A Mustachian would not live here, unless they already own a place they bought 20 years ago.

http://www.cbc.ca/news/canada/british-columbia/vancouver-has-2nd-most-unaffordable-housing-market-in-the-world-after-hong-kong-1.2919593

I have a 30 km commute from North Van to south Burnaby (carpool to drop off the wife), and then to near YVR.  Google maps says 39 minutes, and it commonly takes me at least an hour, sometimes an hour and a half or more. 

Don't commute here if you don't have to!  Definitely take any bridges out that you can.

[totoro]

I think I'd first try to get the loss of the capital gains exemption amount for the time you were away quantified and paid out.  I'm not sure it this requires you to move back in for a period of time?

I'd then remortgage the primary residence and use the money for investment purposes. Interest on remortgaged amount is tax deductible against income generated and you create a bigger and you don't pay tax on the money you pull out until the property is sold.  The risk is that if interest rates rise you will be carrying a larger mortgage.

I wouldn't do the commute myself.  I'd find another way.

[iamjdg]

in terms of commuting, based on  MMM's post (http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/)  the increased commute wold cost anywhere from $145 up to $435 a month.  So I am keeping this as a "mental correction", just did not want it in the numbers since it is so variable and if I buy in the suburbs, I will try to change jobs to drop this.

[iamjdg]

thanks Heckler. Yes I am like you, I already own there, or else I would not even think about moving there.

[iamjdg]

thanks for your input totoro, good advice.

[Goldielocks]

I have thought of this exact problem, while cursing the Vancouver commute (1 to 1.5 hrs each way to get to downtown from south of the Fraser by car or transit).

If I was not constrained by location of my extended family, knew I was keeping my current job downtown,  and wanted to balance housing costs with a less stressful commute with a lot of "walk to's" for the family (e.g., library, parks, cafe, waterfront hiking, bicycling, recreation, sailing etc.) -- I would move to Port Moody, near the West Coast Express line.   

The bus / skytrain commute is STRESSFUL standing / crush room only.   Suburbs have very poor bus connections.   The Seabus has good connections / attitude, but housing to the north is very, very expensive too.   WCE meanwhile allows you to SIT for your 40+ minute commute.  you can finish work on your laptop, read a paper or just chill out.   

Differential costs to be closer to work to forego a car just do not justify staying closer... you would really need to want to live in kerrisdale or University lands in a BIG way to be willing to pay for the extra cost versus somewhere further out on the WCE line.  Especially when some of these areas near downtown (yaletown, Cambie) are not the highest family-friendly areas (not all, but some for sure)

To make the best of this, I would rent or buy a large townhouse, in Port Moody, close to the library / WCE (long walk / short bike) distance.

To keep renters or not is up to you, based on your cashflow and business income from it.  As you are already packed and moving, you may as well land where YOU decide.

[iamjdg]

thanks goldielocks.  all this discussion is really helping me settle on a decision.  much appreciated to all!

yes, our house is in east van.  buying farther west is completely out of the question, a few years ago we could have made the numbers work, but not now.  so it is definitely buying farther east.  so it comes down to either (i) moving back into our east van home or (ii) buying farther east and if we buy farther east, (iii) do we keep our east van home as a rental or sell.

i looked at port moody, it is on our list.  but i must say the houses around there are also not that affordable anymore.  houses there are as much and more than our eat van home would sell for.

[Goldielocks]

thanks goldielocks.  all this discussion is really helping me settle on a decision.  much appreciated to all!

yes, our house is in east van.  buying farther west is completely out of the question, a few years ago we could have made the numbers work, but not now.  so it is definitely buying farther east.  so it comes down to either (i) moving back into our east van home or (ii) buying farther east and if we buy farther east, (iii) do we keep our east van home as a rental or sell.

i looked at port moody, it is on our list.  but i must say the houses around there are also not that affordable anymore.  houses there are as much and more than our eat van home would sell for.

But some of the townhouses are quite large and better situated for a walk or bike lifestyle.
Best value with a 1 hr drive is amnieville, parts of North delta and North Surrey, depending on your neighbourhood to house criteria. We landed near Alex Fraser for the big yard with a view, in great neighbourhood, where home still go for $450k bare minim to $650k fancier.

Commute is not great tho. Maple ridge or maybe Langley are next further out options.

[GetItRight]

Maybe you should consider asking for advice on how to clean your yacht... I don't know much about Vancouver other than there's lots of water and apparently houses are $500k+, so maybe a cheaper option would be to buy an old cruiser in the 32'-42' range for $20k-$50k or so and liveaboard. Dock/marina fees would probably be a few grand a year, but that may be cheaper than property taxes on a half a mil house. There are likely marinas in or near the city where public transit or walking could be an option if you work in the city proper.

If you like a minimalist lifestyle like MMM preaches then liveaboard kind of goes along with that as well as you can't acquire endless junk with limited space and you can keep expenses fairly low if you don't want all the rich/fancy/luxury stuff. Like MMM or FIRE, it's a different lifestyle so it's not for everyone. Just thought of it given your thread title and location. It's something I've considered doing in the past and would like to do once FIRE.

[CanuckExpat]

Maybe you should consider asking for advice on how to clean your yacht... I don't know much about Vancouver other than there's lots of water and apparently houses are $500k+, so maybe a cheaper option would be to buy an old cruiser in the 32'-42' range for $20k-$50k or so and liveaboard. Dock/marina fees would probably be a few grand a year, but that may be cheaper than property taxes on a half a mil house. There are likely marinas in or near the city where public transit or walking could be an option if you work in the city proper.

Vancouver already has you covered with houseboats: http://vancouverisawesome.com/2010/05/17/sea-village-houseboats/

I don't know much about the costs, perhaps someone could chime in?

[lakemom]

Lots of sound advice so far...so just some more fuel for thought.  Do not move "for the schools"  as others have said schools (individually and as a school system) are in a constant state of flux.  What may be a "good" school now may be a "mediocre" school 3 years from now when there's a new Principal and 5 new teachers and vice versa.  Even the "worst" schools have a certain percentage of successful students (and that is mostly based on parental input, how they are raised).  Also, when thinking of this in terms of dollars remember that commuting has a fixed expense cost (auto, gas, repairs, tolls, etc) and a personal cost (time spent away from spending time in enrichment activities with said kids).  Could the savings in dollars from not moving for a commute be used towards club/sport/enrichment activities that would actually be more beneficial to your individual children than just dumping them in the "good" school?  Other than schools what are the pluses and minuses of relocation?  I would assume that the closer you are into the heart of the city the closer you are to more museums, music, culture, etc. than you are out in the 'burbs.  Really, really think about it in terms of lifestyle as well as just 'where to sleep at night'.  And while theirs is a lesser vote because they are kids, ask them what they would prefer and why?  Their answers may surprise you by bringing up points you've not pondered yet.

[iamjdg]

thanks again goldielocks, all those places are on our radar.

ha!  nice one GetItRight.  yeah i was being sarcastic as I am asking for advice about a problem people would kill for (zero non-mortgage debt, huge amount of equity, hmmm should i buy a million dollar house or 3/4 million dollar house...world's smallest violin please).  i'm certainly an mmm believer, live my life according to the principles for the last 5 years or so when I discovered it.  And you make good points, since living abroad we have swung our habits to less stuff/more experience, and this will continue back home in Canada.  But living on a boat may just be a bit too extreme for us (2 young kids) at this point in our lives.  We do have a couple friends who rented boats on docks in Vancouver, it is a cost effective way to live close to downtown.

nice find CanuckExpat!  I've been in Vancouver 15 years and never knew those were on Granville Island.  Maybe they are new.  We will have to ride bikes down to check them out this summer after our return.

[iamjdg]

hey lakemom. actually i think you are dead on and are representing mmm principles as a true purist.

i probably new the answer before I asked, but it is one of those things you need to sound off like minded individuals in order to be sure of yourself.

We are "blessed" to own a single family house in Vancouver with a small commute (8 km).  You are right, I am sure we can find a public school we are somewhat happy with that is fairly close.  So staying, saving/investing, paying down the mortgage, and minimizing our consumerism/waste is the best path to financial freedom.

I can't help to be tempted by the real estate mogul lifestyle building wealth off borrowed money.  But I do expect interest rates to rise (although the Bank of Canada just cut them yesterday!) and for real estate in Vancouver to fall, so now is not the best time.  We should stay put and continue to strengthen our financial health and if interest rates rise and prices fall, then we will be in the perfect position to take advantage of Vancouver real estate bargains if we still have the desire.

[Goldielocks]

hey lakemom. actually i think you are dead on and are representing mmm principles as a true purist.

i probably new the answer before I asked, but it is one of those things you need to sound off like minded individuals in order to be sure of yourself.

We are "blessed" to own a single family house in Vancouver with a small commute (8 km).  You are right, I am sure we can find a public school we are somewhat happy with that is fairly close.  So staying, saving/investing, paying down the mortgage, and minimizing our consumerism/waste is the best path to financial freedom.

I can't help to be tempted by the real estate mogul lifestyle building wealth off borrowed money.  But I do expect interest rates to rise (although the Bank of Canada just cut them yesterday!) and for real estate in Vancouver to fall, so now is not the best time.  We should stay put and continue to strengthen our financial health and if interest rates rise and prices fall, then we will be in the perfect position to take advantage of Vancouver real estate bargains if we still have the desire.

Re schools. BC has the narrowest band of school quality we have seen across 3 provinces and California. 95% of schools are basically the same level. Low to high income is minor difference. ESL is not even a big divider as they are set up so well now with the international student population. All have IEP students in every class.

Bigger impacts are the individual teacher and strikes. Both of which you can't control well with neighbourhood choice.
Just go for walking distance, and maybe a high school you like. But many high schools connect to public busses and transferring is usually easy.

[Gerard]

Can you sell the house and move even closer to work, by either renting or buying something much smaller? You did kinda ask what *we* would do, and that's definitely what I would do in that situation!

[iamjdg]

Hello Gerard. 

Yes I guess I could. 8 km is pretty close as is.  But there are some townhouses closer to my work. 

As my work is the opposite direction of downtown, we move more away from the city center and other things we like to do in our free time. 

We do enjoy our yard space for gardening and the kids playing, so we wouldn't want to give that up. 

Given the stupid prices in Vancouver right now, we would be "over paying" for any lateral or downside move.  So maybe it is better to make such a move when prices come back down to earth. 

In terms of renting, of course the statistics say renting is better than buying in Vancouver, but that really only applies to first time buyers.  Those who have been in the market for a long time like ourselves that have substantial equity and savings, rents are quite high compared to the mortgage payments we would be at.