[CAN] What to do with all our money??

[kaypinkHH]

Life Situation: Married, both 29, baby on board. Moving from HCOL to lower COL city in 1 ~month.

Gross Salary/Wages: Currently - 160k, after move 75k until Mr.HH finds work, most likely landing around the 140-150k mark, but there is a possibility that it may be more (Mr. HH has an interview that would land us at 185.)

Savings: RRSP/DP (locked in)- $100k, TFSA/Stocks/Other- $150k, Cash: $15k

House: Valued at ~750k, remaining mortgage $330k - expected profit after selling house (after fees, lawyer etc): ~$350

This leaves us with ~$500 in spendable money.

Options:
1. Get a multi unit rental property, live in one unit, rent out the rests.  On my salary alone, we can qualify for a ~$475 mortgage. With the 20% downpayment, we can easily afford a $575k house, looking at one option with 4 units, that would let us live there and STILL make a $100 a month. (Aka have the other tenants paying our mortgage).

2. Get a smaller house with a single rental unit. ~400k for that kind of house.

3. Get a house with no rental unit and live the stress free life ~350k


Our spending- TBC with living in new city. Typically we are spending the following (past 3 months averages, I recently moved back from living away for work, so it was harder to determine reasonable spending):

$1766- Mortgage
$800- Food and Dining (including groceries and takeout) - already working to cut this.
$430- Auto and Transit (Gas, Parking, Insurance)- 2007 Prius- main car, 2009 Honda-barely use, paid off
$360- Bills and Utilities
$304- Misc/Uncategorized spending
$250-Shopping
$150- Health and fitness
$150- Financial
$100-Entertainment
$40- Gifts and donations
$50- Travel (this was oddly low).

Total- $4400

Yearly total: $52800- add a bit extra for travel, other unknowns and yearly expenses that didn't come up the past 3 months, ~60k per year (MAX). We know we can cut this and hope to work on it when we move to the new city! While Mr.HH is still looking for work we will be living with in-laws, so 0 mortgage costs.

Any thoughts or comments would be appreciated!

[Bracken_Joy]

First note: I recommend adding [CAN] tag to the title, to ensure you get non-US tax and investing advice =)

$300/mon when you have other spending categories broken out seems quite high. Do you know where that is going? How do you track your expenses?

General thoughts:
1- baby on the way, be sure wills, life insurance, that sort of stuff is all set up.
2- moving soon. So the big current questions seems to be, what living option do you take? To which I counter with a couple other questions: have you lived in the area before? Recently? Have you been or known landlords before? Would you manage the property yourself or would someone else do it? Two full time jobs and an infant with a rental sounds like hell to me, personally.

[kaypinkHH]

Thanks, I edited the title.

We use Mint, I agree that looks high, we probably just haven't chucked it in the right category. From the looks of it looks like some of it is cash (used mostly for entertainment/Kijiji purchases) and some of it was professional fees (which I should get refunded from work). We will definitely keep an eye on that as we move.

Yes, need to get a will! Life insurance is all set up already.

We have lived in the city before (husband's home town, and where we both went to university, approx 6 years ago). We have not been landlords before but we did run an airbnb in our basement for the past 1.5 years. Not the same obviously, but we can live with other people.  Mr.HH is vying that he just become the landlord property manager and never "work" again. With the numbers he is presenting, this plan isn't the craziest. City is a university town, it is a city that makes sense to be a landlord.

And yah, move, new job, baby, new house + becoming landlords...feels a bit too ambitious to me :P. I could see us getting a house with a rental unit- that would be manageable...and then maybe later getting a bigger rental complex?

[Bracken_Joy]

Yeah, personally with HOW MANY changes you guys already have coming down the pipeline (baby, job changes, new city) I would hold off on any landlord plans. Unless the numbers work with a property management company. I absolutely don't think having college students living with you would be a good idea! I've wanted to murder the entire US postal service when I just got a baby down and they rang the bell, so I can't imagine what roommates would be like.

[Novik]

Love the title on this thread! It's a great position to be in, eh?

From your recent spending:

• $150- Financial - what does this mean?  (bank fees, or savings?)
• $304- Misc/Uncategorized spending - that's high. Is this misc household (ie. decorating, new kitchen things) or misc personal (new clothes, haircuts etc) or something else?
• $250-Shopping - what the heck is this?

I know this is 3 months and comes at a time of upheaval between being away/baby/moving but I'd sink a couple hours into breaking down your whole budget into way more categories. You may decided it's not be worth doing now given the upcoming move, but long-term the budget should probably have a lot more categories (and eventually baby, and potentially rental expenses/income).

I'd suggest: mortgage, food, dining, insurance, gas, parking, transit, each individual bill/utility, various types of misc, various kinds of shopping, health health, personal care 'health', fitness, entertainment, gifts, charity, travel - or whatever combo works for you. 

Also, probably obvious, but shop around on car insurance when you move as once out of ON/GTA that should drop significantly.


Out of your giant pile of house cash, I would keep A LOT on hand for now as an emergency fund (given one income, pregnancy, move). Like ~50k in a decent interest earning online bank  (I use EQ Bank @ 2.3%). Probably overly conservative, but you can afford it for the next year.


For housing in New City, I vote #2. My understanding is you are familiar with the city, used to live there, and have lots of family support (edited - with your recent post I see this is true). Without any of those, I'd say probably #3, but with those I think #1 and #2 are both doable. But one house with a basement rental seems way more feasible and flexible, and you'd be able to buy in cash if you wanted (contentious point, I know).

I'm a bit biased on that point, since I'm currently a very easy-going basement suite tenant, but I think it's a great situation that can hugely benefit both sides if you find the right fit. For my landlady and us, we keep an eye on each other's places when travelling and such so added bonuses vs. SFH.

Just make sure to read SO MUCH about rental regulations in your new place.  And long-term, if you like being a landlord, you can always expand and buy the multi-unit place later.  Harder to go back, vs. a basement rental that you could forgo rent from or airbnb or otherwise change up if necessary. 

edited: of course, if Mr. HH really wants to go the full time landlord route, buying the multi-unit might make more sense. Added bonus of him having a lot more time/flexibility for the household and baby. I still vote do #2 and consider expanding if it goes well.

[kaypinkHH]

Haha thanks Novik, I wasn't sure how to phrase it and then I wanted to add a post script saying blah blah we worked hard but we are really lucky, then I remembered this is MMM forum, and I shouldn't be ashamed of buying a house in a "hot market".

Spending- We totally need to track our spending better. While living away I was making such an inflated income we were saving 75% of our income, so I wasn't too worried about spending. (Retroactive self facepunch).

Oh, after checking mint again, financial seems to be insurance (life insurance, house insurance and only 1 month of car insurance which was in the wrong spot, and auto was still high because of our yearly road trip to visit family.) that makes sense. Misc/uncategories was inflated these past three months do to professional fees and me buying a cheap new to me kijiji phone. Cash spending is $5 a week for a improv show. Not too worried about that.

Shopping...well it looks like there have been more amazon purchases than I was expecting the past few months. Need to chat to Mr.HH about that. I also was guilty and bought some clothes. I'm planning other than mat clothes (from thrift stores) to cut clothes spending this year.

Totally agree with putting a nice chunk of cash on hand until Mr. HH finds a job.

I'm also leaning towards option 2 immediately after I typed it out. I like what you said about harder to go back! That is totally true. Definitely something to discuss with Mr. HH.

[Novik]

Oh, after checking mint again, financial seems to be insurance (life insurance, house insurance and only 1 month of car insurance which was in the wrong spot, and auto was still high because of our yearly road trip to visit family.) that makes sense. Misc/uncategories was inflated these past three months do to professional fees and me buying a cheap new to me kijiji phone. Cash spending is $5 a week for a improv show. Not too worried about that.

That makes sense! And as long as you know what's up, you don't have to tell us (but it helps!).

I'm also leaning towards option 2 immediately after I typed it out. I like what you said about harder to go back! That is totally true. Definitely something to discuss with Mr. HH.

Basement landlording (or similar house +1) is something I would totally consider as well long-term, just from the experience of being the tenant. I know it could go terrible wrong, but you can mitigate most of that with the right tenant and by being so close by. In a university town, you probably still don't want most undergrads, but quiet young professionals or grad students are good options. My landlady's previous tenant was a recently divorced man with occasional kids visiting, so there's that too.

Anyways, I'll stop rambling about that now. I'm sure you know far more than I do about this from your air bnb experience!

[Goldielocks]

Baby on Board..

I recommend planning on not removing $'s from TFSA if you can, but to presave and allocate additional funds for maternity and first year child care after maternity.  This provides quite a buffer for you.   Can you split off $60k or so now from taxable accounts, to dedicate for missed salary / baby costs / childcare in the first two years?

When you get a place, look for something where a single income can cover all your annual expenses... and the lower income can cover rent + food + basic transportation.

[Laura33]

Option 4:  Rent a place near family and friends until you know what your income is going to be post-DH-job and post-baby.  Even if both of you plan to work full-time in your new place, things may not pan out that way -- maybe DH doesn't find a new job and decides he'd really rather stay home with the little one, maybe you decide work is great but not full-time, etc. etc. etc.  You do not want to lock yourself into a lifestyle that relies on two salaries until you know what those salaries are going to be and have every reason to believe they will stick around for a while.

Conveniently, that also gives you more time to adjust to life with baby + jobs and figure out what is really important after all of those changes (which may not be what you are thinking right now) and how much free time/energy* you will have to manage rentals.

FWIW, my biggest housing mistake was when I had to do an interstate move with a 6-week-old baby; I was so upset by the move and desperate to "nest" in the new place that I ended up choosing a place that it turned out I didn't really like.**  And the worst part is that I thought I was being completely rational at the time -- it wasn't until about a year later and all of the changes had settled in that I thought, damn, wtf was I thinking??


*Hahahahahahahaha.  :-)

**  It was fine.  It functioned.  Wasn't horrible.  But the builder decided that pinkish walls/floors/Formica went well with yellowish-colored cabinets, and I hate pink, and did I mention THE WHOLE HOUSE had pink floor tile/carpets, and I was working from home 24/7 and in the house all day, and there wasn't a good office space, and I spent the next couple of years slowly going batshit because we could not re-do every single square foot of the interior.

[kaypinkHH]

Thanks all!

I talked to Mr. HH and being the reasonble person he is, he agrees the option of a main house with a rental suite, or maybe a duplex would be fine (directed him away from the student living 5 unit almost 200 year old building he was looking at...he is a dreamer that one!)

Goldielocks, we are just about to max out our TFSA and RRSP contributions for this year. So all additional saving is going into the "Mat leave" bucket. Mostly this will be from house sale.

Laura, I agree with your strategy in theory...but I hate moving haha! We will be living with my in-laws for the first few months anyway until our house sells. And then we do have an option of "renting" a friend of the families furnished condo while she goes to Florida from January to April. We may consider this and keep our stuff in storage for a few months.  By then hopefully Mr. HH has a job, and it also gives us enough time to figure out where we want to live (we are torn between 3 areas of the city at the moment).

We have been living with a very tiny house the past 3 years with it's quirks. Based on this we have come up with a list of things we would like in a house. I feel much more prepared going into this house hunting exercise, but also we have WAY more options to chose from. In Toronto we were lucky to even get this house with our budget. In the new city, we can frugally afford a ton of nice houses that meet our criteria.

[Laura33]

Laura, I agree with your strategy in theory...but I hate moving haha! We will be living with my in-laws for the first few months anyway until our house sells. And then we do have an option of "renting" a friend of the families furnished condo while she goes to Florida from January to April. We may consider this and keep our stuff in storage for a few months.  By then hopefully Mr. HH has a job, and it also gives us enough time to figure out where we want to live (we are torn between 3 areas of the city at the moment).

Well, heck, free is even better!  :-)  Yeah -- as long as you have the first few months covered, that should give you the time you need to get the job and find the neighborhood and all.  I thought you were talking about loading the moving vans up in one spot and offloading them into your new "permanent" home on arrival.  Good luck!

[kaypinkHH]

Update!

A few months later but here is where we are at...

Gross Salary/Wages: Currently - 160k, after move 75k until Mr.HH finds work, most likely landing around the 140-150k mark , but there is a possibility that it may be more (Mr. HH has an interview that would land us at 185.)   Mr.HH has had 3 solid interviews that have all moved on to the next steps..offers are expected in the next few weeks.

Savings: RRSP/DP (locked in)- $100k $112.5k, TFSA/Stocks/Other- $150k $162.5k, Cash: $15k $25k

House: Valued at offer accepted at $660k , remaining mortgage $330k - expected profit after selling house (after fees, lawyer etc): ~$350 $310


This leaves us with ~$600k of Money (not quite sure how we lost 1 income, house value went down, and yet we are up $100k from my original post..I must have forgotten something before).

New plan for "extra money" from house sale.

65k downpayment to new house (no rental suite) 
100k downpayment to rental property (Duplex or triplex) - net income tbd but over $1000 a month.

Remaining?? Guess it is time to bust out non-tax advantaged investing!

With all these fun numbers I realized we basically could save 0% and let our current investments (including house sale numbers but exculding down payment) sit, and STILL retire by 55 which is considered "early" by a lot of people....

Orrrrr we could buy a lambourgini in cash (Mr.HH's suggestion...he was joking...I think.)

Spending:
Unsure of spending here, as we are still living with our inlaws (reduced grocery spend, higher take out spend). New city does involve more driving around and so far we have done a lot more weekend trips. Will have to run better numbers once we settle into a new house.

New mortgage will be at least ~$500 less per month than old house, reducing yearly spend by $6000.

[Calvawt]

Great progress. I don't think you can go wrong with the options you have been considering.  Since you don't appear to be in a rush, many mistakes resulting from moving too fast are alleviated. 

One question, is the $100k on the rental the minimum down payment or what you want to put down?  Make sure to evaluate the scenarios as keeping more in cash might let you pick up rental #2 sooner.

Also, I would personally avoid an exotic sports car until you are at least at $1m of net worth...

[kaypinkHH]

Update time!

Lots of changes since last post.

Gross Salary/Wages: 150k (Mr.HH got a job! Huzzah). No RRSP company matching for either of us until July 2018 (for me), Dec 2018 for Mr.HH

Savings:
RRSP: 121k (Still with 24 k contribution limit for 2017 for me- will be topped up this week).
TFSA: 115k (Almost maxed out for 2018, maybe have 5k contribution room left, waiting for some statements to come in)
Stocks from previous employer: 32k
Cash: 223k <- Profits from house sale (and other cash savings)

($491. We were at $499 a week ago..silly stock market :P)

New house: 20% down (down payment was made from other house sale), 279k remaining at 2.95% (Variable interest rate, 25 year, 5 year term)

Spending: yet to be determined with new house/living situation. But some big wins:
- Mortgage is $500 cheaper a month.
- We found an awesome house with a 2nd unit. Existing tenant stayed on paying $900 a month- Effective mortgage payment on our end is $378 per month (insert happy dance).
- Quick calcs (not including rental income), we are looking at a 10k reduction in spending per year just based on mortgage, insurance, tax rates, utilities etc. in new location.
- Also added bonus. We 100% can live on Mr.HH's income when I go on mat leave this year (and still save a bit of money!)

So what is next??

We obviously don't want 220k sitting around in cash. That is foolish, especially right now with the SALE PRICES!!

So plan A is to top up RRSPs and TFSAs, (24k for 2017, another 5k for TFSA, and then 2018 RRSP contributions- With our 2017 incomes we are looking at ~35k of contribution limit).

That gets our cash stash down to ~150k.

Option 1:
We are still seriously considering a rental property (multi unit). This will involve a commercial mortgage and a minimum 20% down payment.
The unit we are looking at is a 6 plex.
Details:
Listed price: 479k, mortgage payments estimated at ~2000 a month.
Rental income per month ~6k (need to confirm).
Down payment: ~100k.

We obviously need to look at management/maintenance/taxes and utilities (as well as costs associated with running a business), but assuming we can make $2000 a month, we are looking at a rate of return of 24% every year. (Not to mention property equity).

My issue is that the process of buying this 6 plex will take some time. (I'm assuming at least 3 months). And it is PAINING me to think of our money sitting in cash and not doing anything. But I don't want to invest it all, only to take it out in few months (and deal with tax implications). Is this an irrational fear?

(Option 1b, is a smaller rental, 4 plex, or triplex...slightly lower downpayment.)

Option 2:
Straight to Taxable investments, and defer the decision of becoming real estate moguls to another year.
 
Note 2018 and 2019 will be lower income years for us (due to parental leave) so if we do deal with capital gains it won't be as bad as the previous years due to high income.


Option 3: We quit our jobs, and get part time gigs forever, and travel the world. Seems reasonable :P.

[Novik]

That gets our cash stash down to ~150k.

Option 1:
We are still seriously considering a rental property (multi unit). This will involve a commercial mortgage and a minimum 20% down payment.

...

My issue is that the process of buying this 6 plex will take some time. (I'm assuming at least 3 months). And it is PAINING me to think of our money sitting in cash and not doing anything. But I don't want to invest it all, only to take it out in few months (and deal with tax implications). Is this an irrational fear?

(Option 1b, is a smaller rental, 4 plex, or triplex...slightly lower downpayment.)

Option 2:
Straight to Taxable investments, and defer the decision of becoming real estate moguls to another year.

Exciting options for sure!

I personally never think tax implications are irrational fear (but I deal with both the CRA and the IRS, so...). You would probably be fine to invest in the market from a tax POV, especially given parental leaves upcoming, except that if you need the money for a down payment soon, that's not particularly safe.

I'm assuming you've got the money in a savings account right now, but you could consider optimizing that and upgrading to the highest interest savings account you can find. I use EQ bank for 2.3% interest (max balance is 100k but you and Mr. HH could each open an account), which would throw off almost 300$ a month.

Also wondering how much, if any, of that you'd like to keep around as an emergency fund?

[kaypinkHH]

Good points as usual @Novik ...going to looking into higher interest savings at least for now. $300 a month is better than 0 (we are getting pretty much 0 right now)!

If we did use 100k for the down payment (+ closing costs), leaving us with ~40k leftover, I think we would be comfortable with 20k sitting around in a high interest savings account. 20k covers almost 6 months of living expenses. (If we cut back on unnecessary purchases). But more realistically covers the lovely unknowns- like our furnace dying.

Honestly, I would probably keep a bit more for the rental property "emergency/maintenance" fund as well. Especially until we got a good handle on monthly expenses. (Maybe another 20k?)

So that eats up most of the remaining money.

We aren't planning any big purchases in the near future..cars are doing OK, baby stuff needs to be purchased, but not talking 10k costs. No major house renos planned...there are a few pieces of furniture that we would like but can work that in with our monthly spending.