- Let’s Go Exploring! Slovenia: Switzerland without the Lavish Price Tag - March 6, 2023
- Reader Case: Entrepeneurs Closer to Early Retirement Than They Thought - February 20, 2023
- Is ChatGPT Coming to Take Your Job? - February 6, 2023
I can’t believe I’m saying this, but as of this moment, we’re STILL in a lockdown in Toronto. While the US, countries in Europe, and the UK are gradually re-opening, we’re stuck waiting for vaccines. So much for our Canadian moral superiority over the Americans.
I guess what’s bad for us is good for you, because that means we have time for another reader case!
Hi Kristy & Bryce,
I just finished reading devouring Quit Like A Millionaire and loved it. Thank you for creating a finance book that is a legit good read.
My husband (dangerously close to 40) and I (mid-30s) are at a crossroads with what our future is going to look like and I thought some readers might be able to relate to parts of our situation.
First, the details:
> Our gross/net annual family income: $114K net
> Our monthly family spending: $3K
> Our debts:
…..Husband’s car has a balance of $7K owing; he bought it from his parents and pays zero interest
…..No other long-term debt; credit cards are paid off monthly
> Our fixed assets: two cars (the aforementioned husband’s car, plus mine that I own outright)
> Our investments/savings:
…..15K in cash
…..875K in investments (mix of low-cost index ETFs and dividend stocks); portfolio has a 3.71% yield, currently
Second, the situation:
Housing: We live in a small Canadian city. We grew up here and our families are here or near. We rent an apartment currently. Our province has been experiencing a housing crisis, and before the pandemic, our city had a 1.2% vacancy rate, the lowest in the country at the time (after having a near-0% rate in 2018). There is no sign that current infrastructure plans will meet the demands of future population growth.
We love living here from July-September, and sometimes June and October if we’re lucky. We live for summer and despise winter, despite our best efforts to try to find enjoyable winter hobbies (we’ve discovered there are none, ha!).
Career: Husband is at the top of his career ladder and LOVES his job. When we first met, he said that he would never retire, not because of money but because he genuinely enjoys what he does.
I am at the end of one career and pondering options for the next. In the meantime, I have a full-time desk job with benefits and a defined benefit pension plan. The pay is decent for where we live but it is still “meh” compared to my old job. It’s not thrilling but it’s also not stressful. My old career was both of those things. I am fortunate that I have a steady job and have turned my old career into a lucrative side hustle without the stress. I would retire tomorrow…… BUT….
Third, future plans:
Starting in 2024, we want to semi-retire, skip out on winters here, but come back in the summers. I mean, who doesn’t? Our province is the best place to be in the summer in Canada, and that’s not hyperbole.
Ideal Year #1 of semi-retirement looks like this (places are examples):
– 4 months in Panama
– 2 months in a sunny southern US state in their low season for tourism
– 6 months in our hometown, working part-time at fun jobs that we know will be available to us
With a combination of dividend income and earned income, we would have enough to cover our projected annual expenses and would still be able to contribute to our nest egg.
Caveat: If Husband is offered, say, a one-year contract somewhere, we would take it if it is something that he would enjoy. Living somewhere new is kind of like living that vacay life anyway. Staying in the game also means that, if something happens to negatively impact our finances in the future, we will have maintained a network of employment options and shouldn’t be up Schitt’s Creek paddle-less.
THE BIG QUESTION:
Our biggest impediment right now, that we can see, is housing.
Staying in our apartment means that we have rental expenses year-round here and would need to find a subletter for a specific period of time each year. Our rent for 2021 is just under $1400 per month. The annual increase is 1%, on average. We would have to okay the subletter with our landlord each year. If we can’t find a subletter for the entire timeframe, we are still on the hook for the rent.
With the ongoing housing crisis, I think we would be able to find a subletter.
We have looked at moving to a cheaper apartment to both lower our current expenses and perhaps ease the burden of having to cover a month or two without a subletter in semi-retirement. But again, the housing crisis means there are few apartments available, and it seems our apartment is actually quite well-priced; comparable places rent for $1500-$1600, so to save a little bit of money, it would be quite a step down in quality of life.
Moving out altogether and finding a temporary rental when we come home during our semi-retirement would not work, unfortunately. We would be here during the height of tourism season when places rent at a premium.
We have considered buying (yes, buying, yikes) a condo. Since we plan to spend time here regularly for years to come, a condo would provide the same stability as keeping our current apartment. We could still find a subletter for the time we are away, and if it was empty at any point, it would psychologically feel better to be paying down a mortgage instead of paying to hold our place in an empty apartment.
We would anticipate paying off the mortgage in 15 years or less, after which that rental income while we’re away would increase our cash flow. By buying in a new building, we shouldn’t have many large maintenance bills during those first 15 years anyway. Condos in our city start at $220K and go up to seemingly infinity. We would likely be looking in the $300K range.
The Conclusion:
As you can see, we are leaning toward buying a condo. This is not us jumping on the “But we’re building equity!” bandwagon. It seems to be the most secure way for us to execute our semi-retirement plan and not be homeless at any point. We are not looking to build a rental empire.
Maybe our semi-retirement plan isn’t well hashed out though and I would gladly welcome some critiquing to make sure we have a solid plan in place.
In our calculations, we have:
– Estimated an annual 6% ROI on investments.
– Used a 3.71% yield to calculate future dividend income (this is our current yield and we will continue to track so we can update our plan).
– Opted for a 15-year mortgage; we would select a 10-year mortgage if we can make it work, but also don’t want to overextend ourselves. We have also done our calculations with a downpayment of between 20-25% – enough to avoid the CMHC insurance, but nothing that will crater our portfolio.
– Not dipped below $20K in our cash flow forecast, in any year. By continuing to work part-time in jobs that we enjoy, we will be able to cover all of our expenses and still maintain contributions to our nest egg. If for some reason, we are both unable to make earned income, our projected cash flow is never less than our projected earned income, meaning that we should at least break even.
While paying the mortgage, the average projected cash flow per year is $45K. (Therefore, our projected earned income, dividend income, and rental income should exceed our projected expenses by $45K, just to be clear.)
– Not included selling investments to cover expenses. We do not want to start drawing down our assets in semi-retirement. If at any point we show a negative cash flow, we would prefer to increase our earned income.
Will you please help us to determine the best way forward so that we can look forward to year-round summer and not lose our shirts in a housing crisis?
Thank you, Kristy & Bryce!
The Sun-Chasing Semi-Retirees
Right away I can see that SCSR have a lot in common with us. They’re sun-worshipping travellers, they live in Canada, and are considering buying a condo in the $300K range . Wanderer and I’ve always said, if we were to lose our minds and *gasp* buy real-estate, it would be in a small town where housing affordability hasn’t gone the way of the dodo. But damn, Canadian winters really suck so I can see why they would want to escape and only be here in the summer. Would buying a place help or hinder that dream? Let’s find out.
Summary
| Income (net): | $114K |
| Spending: | $3K/month = 3000*12 = $36,000/year |
| Debt: | $7000 |
| Investible Assets: | $875,000 (investments) + $15,000 (cash) = $890,000 |
With a yearly spending of $36,000, your FI number is 36,000 * 25 = $900,000.
Taking your net worth of $890,000 minus the debt left on your car of $7000 gives you a total net worth of $883,000.
Option #1 Continue Renting
With a savings rate of $114,000 – $36,000 = $78,000/year or 68%, you will reach financial independence in less than 3 months!
So you’re pretty much FI. Nice work! And given that you plan to continue working part time and only semi-retire, and plan to be in Canada for 6 months of year, you can keep your sweet sweet Canadian health care! Which means you won’t have to budget for expat insurance like we do.
Overall, this is a pretty safe plan. Now, let’s see if housing will blow it up.
Option #2: Buy the Condo with Cash
If SCSR liquidates $300,000 worth of equities in their portfolio, that would bring their current net worth down to $583,000, which by the 4% rule will generate $23,320/year in passive income.
However, since they no longer need to pay $1400/month in rent, that takes their yearly expenses down from $36,000/year to $19,200/year.
With their portfolio spewing off $23,3200/year, this should give them $4120/year surplus for any unexpected home ownership expenses, right?
Well, not so fast. On the surface it might seem like this is an amazing money saving move. But keep in mind that being mortgage free doesn’t mean you’re free from paying property taxes, insurance, and maintenance, which all go until perpetuity (ahh, the joys of home ownership).
So, on a $300,000 condo, they’ll be expected to cough up another 1% ($3000/year) in property taxes, $1200/year in insurance, and on average we’ll say maintenance is only 1% or $3000/year (though depending on the condo, maintenance fees can vary wildly) So SCSR is looking at an additional $7200/year even after buying the condo outright.
In reality, their expenses would be $19,200 + $7200 = $26,400/year, so they would need a portfolio of $660,000 to afford owning the condo.
So, they would need to save at least $960,000 in order to buy a $300,000 condo, conservatively speaking, which would push out their FI date by about a year. Not too bad, as long as they stay within their $300K price range.
Just don’t get complacent thinking “buying in a new building, we shouldn’t have many large maintenance bills during those first 15 years anyway”. This assumes a naïve level of confidence for building managers and other owners.
If you don’t believe me, check this out:
Option #2: Buy the Condo with a Mortgage
But with interest rates so low, why use your own money? What if they were to get a mortgage? How would that change the math?
Right now, SCSR can get a 5-year fixed rate mortgage for 1.68%. Now, I find it weird that SCSR is considering getting a mortgage with a 15-year amortization period instead of the max of 25. Why would you do that? If you have enough cash to buy the condo, the only reason you’d get a mortgage is because you think your cash would give you a better return in the stock market. In which case, you’d pick the longest amortization period in order to reduce your monthly payment rather than trying to pay it off sooner.
So, with a 20% down payment of $60,000 and an amortization period of 25 years, put that into a mortgage calculator and you get a monthly mortgage payment of:
$980/month
Adding in the additional cost of property taxes, maintenance, and insurance that we calculated in Option #2 of $7200/year or $600/month, we get $1580/month.
That would change their expenses to $36,000 (original base cost) – $1400 x 12 (saved rent) + $1580 x 12 (cost of mortgage + other expenses) = $38,160/year. Also, they would need to liquidate $60,000 of their portfolio for the down payment.
Their portfolio would then need to be $38,160 x 25 = $954,000.
At their savings rate and subtracting $60,000 from their current net worth for the down payment, it would take:
| Year | Starting | Contributions | ROI (6%) | Total |
| 1 | $823,000 | $78,000 | $54,060 | $955060 |
Around 1 year!
Now the caveat for this is that it’s under an unbelievably low interest rate of 1.68%, but interest rates will go up, so you can’t rely on this low mortgage payment forever. After the 5-year term is over, if interest rates have spiked up so much that the math no longer makes sense, kill the rest of the mortgage with cash.
SCSR can also consider renting out their property for 6 months while they’re living abroad. For example, if they find a place in Panama for only $800/month in rent and can rent their condo for at least $1400/month, assuming their monthly maintenance/taxes/insurance cost is $600/month, they can break even.
I would be very careful about vetting the tenant though. All you need is one bad tenant to destroy your condo or stiff you on rent. If you can find a friend you trust to swap with you every 6 months (because for some crazy reason they love being in Canada in the winter?), then geo-arbitrage can save you money.
Conclusion:
The difference in time to financial independence for SCSR is 3 months if they keep their current rental, and around one year for Option #2 and #Option 3, with buying a house with mortgage inching slightly ahead because of the insanely low 1.68% interest rate.
If I were them, I would continue renting since they’re getting below market rent and rents are only going up by 1% a year in their area. I also don’t want the hassle of owning a condo (again, see TikTok video above) but given that they’re planning to only spend $300K, it’s not a huge financial gamble.
So there you have it. Even at rock bottom interest rates and a reasonably priced condo, I’d personally still rent, but if our reader buys, I guess it’s not the dumbest idea in the world.
That’s as close to an endorsement of real estate as I’m ever going to give. Take it or leave it.
What do think? Should SCSR buy a condo? Or stick with their below market rental?
Hi there. Thanks for stopping by. We use affiliate links to keep this site free, so if you believe in what we're trying to do here, consider supporting us by clicking! Thx ;)
Build a Portfolio Like Ours: Check out our FREE Investment Workshop!
Travel the World: Get covid-19 coverage for only $42 USD/month with SafetyWing Nomad Insurance
Multi-currency Travel Card: Get a multi-currency debit card when travelling to minimize forex fees! Read our review here, or Click here to get started!
Travel for Free with Home Exchange: Read Our Review or Click here to get started.
Earn 15% Cash-back: Earn an extra 15% back for a limited time with a Tangerine World Mastercard! Click here to sign up!
My wife and I just last weekend settled on our roadmap for this sort of thing but we cheated (we bought a super-modest bungalow at the bottom of the market in 2010 and it’ll be paid off within nine years). At 39 and 41 our investments are commensurately $200k below SCSR’s, albeit mostly untouchable in 401k and IRA accounts. It’s intriguing to see a Canadian analog of us who kept renting instead of buying.
Pretty fantastic position to be in! Frankly, it may come down to the convenience of where to put your stuff if you don’t plan to divest yourselves of it. If it were me, a ten- or fifteen-year mortgage on a 2br condo sounds lovely… especially if it’s walkable enough to ditch the car(s).
401ks and Roth IRAs are not untouchable to any extent. Do some research on the 5 year Roth ladder which allows you to withdraw from both penalty free after a 5-year holding period. That means you only need 5 years expenses in Roth/taxable/cash in order to start utilizing the 401k/IRA while only paying taxes, which with low spending will be quite low.
Myriad FIRE blogs have left me well familiar with the concepts of Roth ladders and 72t withdrawals, thanks! Fussing with that stuff doesn’t really do it for me; it’s easier to just leave it alone until 59.5. We may revisit down the road if tax rates and our account balances make it worthwhile.
I agree with your assessment; keep renting. At their age, they have no need for a home base if they plan to keep traveling. After some travel they may find other areas of the world that they wish to settle in, and at that point the condo becomes a problem or burden.
My wife and I are in a similar situation, but are much older – late 50s and with some health issues. (Retiring Fat Fi in ~2-4 years) At our age and in their position, it might make sense to have a home base because of medical needs. With that said however there is still risk as you pointed out and my own home owning experience has taught me that things can go sideways very quickly. If you aren’t there to deal with issues as they arise, that can be problematic!
If it was me, I would do the following:
Just rent (or Airbnb or something equivalent). Let your investment portfolio grow. Don’t sublet. The less stuff you have, the less hassles like dealing with a sublet, the less you have to worry about. If real estate tanks heavily, rethink buying then. Maybe. Not before that though. Maybe.
Tony, just above, brought up a good point. If you’re not around for 6 months and a pipe busts and no one is around to see or fix it, does it leave a huge hole in your wallet? Just kinda copying the tree falling in the woods making a sound analogy. The Tik Tok was good. That’s scary shit.
Keep it simple.
In fact, you likely need to have someone coming in to the condo to check it every few days or your insurance will be void. My brother used to spend half the year in Armenia and my dad had to check their condo 2-3 times a week or their insurance was void.
Yes, you’re right, that’s a good point. We have family members who winter in sunny places and my husband and I are the ones who do the regular checks for insurance purposes. I’m curious as to whether this is the same when you’re in a rental; does our tenant insurance have the same requirement? Something for us to check out as well, but presumably easier as our building super can check in if needed. Thanks for sharing!
Don’t forget those pesky and exorbitant condo fees. Beware.
Given the options are wash either way, I’d rent. It gives them much more flexibility to live anyway in Canada when they return for the summers. If they buy the condo they are more tied to that one location which may be ok now but in few years they may want to live elsewhere.
Great point! This is kind of what we’re leaning towards. Especially since we’re still planning to work for part of the year, if an interesting job offer came in from outside of our current city, it would give us more flexibility.
> So, on a $300,000 condo, they’ll be expected to cough up another 1% ($3000/year) in property taxes, $1200/year in insurance, and on average we’ll say maintenance is only 1% or $3000/year (though depending on the condo, maintenance fees can vary wildly) So SCSR is looking at an additional $7200/year even after buying the condo outright.
It’s always better to overestimate than underestimate, but those fees are way higher than what I’m paying.
On my 400k condo, I’m paying $1200/year property taxes (0.4% rate + flat rebate for the main residence), so less than half. Obviously check your local city rates.
For the insurance, I’m paying $400/year by shopping around, $600 if I had taken the first quote, so again less than half. The thing is, for a condo, the building insurance is covering most of the ‘big items”, so individual insurance rates are cheap. I’m in BC if that’s relevant, maybe Ontario rules are different?
The maintenance fees are in the same ballpark as mine. However, I just got slapped with a $10000 assessment to fix a construction defect (20 yo building, the thing was degrading faster than it should have, so to be replaced after 20 years instead of never). Yeah, that happens. I did know it was coming before buying as it was mentioned in the depreciation report. I just included in the buying budget.
I would also advice to buy in a 3-5 year old building, and not brand new. Why? 2 reasons:
– after 3 years, most of the construction flaws should have come to light. So you can avoid the building tangled in lengthy lawsuit with the developer (which is actually the good case scenario, when the developer didn’t go bankrupt leaving you with the repair bill)
– the initial maintenance fees are set to the developer, and are usually unrealistic (help with the pre-sales…). They’ll be more accurate after a couple years.
Good advice.
Thanks for sharing these insights. It sounds like we should consider moving to your city! The numbers MR used are eerily bang-on for our situation. I really like your point about not buying brand new. There’s a newer townhome development here that’s in exactly that situation, where homeowners are now in a lawsuit with the developer. Yikes…!
I also vote for the “keep renting option”. Perhaps my current situation makes me biased. I am playing the role of a long distance landlord for the first time during the pandemic for our retirement condo in Arizona from Canada. We usually spend half the year there, and half the year in Canada, and love that mix of sun and sun. If we did not have amazing American friends to help out in emergencies (that we will pay off in dinner, beer and wine for the next ten years), and a solid real estate agent, we would definitely be paying a property manager. This week we had a cleaner cancel last minute, leaving me with heart palpitations trying to arrange this from another country, on a weekend. Real estate agent saved me, as the renters were important clients for her in this case. Oh yes, and that Hulu subscription I guaranteed hit a snag when they would not accept a Canadian bank’s US dollar credit card or Paypal account to set up. Once I got the place cleaned, and asked a friend to use their US credit credit to set up Hulu, I went to bed so happy to solve all the problems for the renters. Sweet dreams! The call I woke up to the the next day at 6 am Arizona time, was the renters telling me the AC was not working. (yes I sleep in, I am retired). Luckily a kind, honest HVAC professional we had used for service, pitied me and repaired it that day for a good price. Whew. Wait, maybe I should be renting in Arizona….
Wow! See, yes, those are the types of issues that I’m concerned about if we end up buying a condo but not being here to take care of things. I’m sorry you’re having to deal with that! Thanks for sharing, it certainly helps us consider our options both now and in the future.
oh no more debt … buying a condo … rent is best and invest
much more freedom .. . the only downside is rent shaming .. Canada is so bad at this .. the most indebted country in the world .. . stupid obsession with real estate
i have a huge monthly income now from dividends / distributions from my investments . i can go anywhere in the world ( when it opens again ) . total freedom
It sounds like we have very similar plans. 🙂 You’re right, rent shaming is a very real thing. Virtually everyone we know harps on the importance of buying your own home. But we also don’t want to be here year-round for decades to come, so we try not to let other people’s opinions steer us off-course. We’re planning for January sunshine… without the subzero temperatures!
As the calculations reveal, there isn’t a significant delay for them to get to an FI state with or without a condo. The issue of finding a good tenant is the same with or without a condo. If they own a condo, it comes with additional ownership expenses. Why get into an avoidable mess of finding a good tenant & paying additional expenses, when a cheaper and hassle-free alternative of renting an apt with no additional ownership expenses (plus a predictable annual rental increase) exists? In the w/o condo case, is there really a need to find a tenant, if they may not be occupying it? With Geo arbitrage, they will anyway have lesser living expenses in the location of their choice while basking in the sunlight :-).
You make good points! Also, right now, we have a larger apartment than might otherwise be necessary if we were only here for 6 or 7 months of the year. We spend a lot of time outdoors in the summer and fall, so we could also consider moving into a smaller, less expensive apartment when we’re ready to jump into semi-retirement (if the right place came along).
There you go..even better will be a smaller cheaper apt….all the best !!
In the calculations above when “liquidating” assets to buy the house – wouldn’t you have to deduct capital gains taxes?
I really enjoyed this one. Thanks for posting it.
Win win either way. Renting will give you a lot more flexibility and less hassles of having to think about the Canadian condo when abroad if any issues arise. But having a “home base” to come back to each time may provide a peace a mind and you won’t need to look for new places to call home for 6 months out of the year – which I presume would be a bit more costly than your current rent/potential future mortgage given it would be during peak season.
And then of course, if you rent, you have no equity built up vs if you buy you would have an additional asset to add to the net worth category (albeit illiquid). But this home could then be sold down the road to say finance a long term care facility whereas the rent would be providing long term care for your landlord instead. That’s the one major thing I think MR seems to miss is the illiquid part of the net worth in the rent vs own breakdowns and how a paid off home vs no home equity plays into your numbers (love you MR, please don’t take offense!).
We are pondering a similar set up to your guys later on once our littles are out of the house. Currently, I’m leaning towards selling our single family home and buying a small 1-2 bedroom condo to use as a home base for 8 months out of the year and travelling for the other 4. Tilting it to more time in Canada vs your 6/6 helps to make more sense to buy the condo.
Thanks for all of your insight! Yes, having a consistent home base (whether staying in our rental long-term or buying a condo) is preferable for us. Having the home equity is a major part of the consideration for us, as that’s obviously something we don’t have right now.
We’re still working on the part of the plan around what happens when we’re in need of long-term care. Fortunately, we’ve not had much experience with the long-term care system. Do you happen to know of any resources for making those types of plans? It’s just so far away, it’s daunting to budget for those expenses when there are so many unknowns. I’d love to know how the FI community plans for that, especially ones who don’t have kids to assist down the road.
That being said, our plan, once we’re fully retired, is to live off of dividend income. This strategy has worked well for both my parents and my grandmother, and in particular, has allowed my grandmother to keep her principal intact/growing for when her circumstances may change. (I totally get the dividends debate! I know it’s not everyone’s favourite strategy.)
Endless debate on these kinds of scenarios I kinda find very useful seeing so many of us new and old are constantly needing to mull over such situations …. small towns would have some cheap small houses that may add some further possibilities ….
On a further side note it might be interesting to hear people’s thoughts on the housing frenzy going on in Canada and the States … up 30 and 15%….Toronto … Vancouver detached homes pushing 1.7 mill. ..small towns affected too etc…and nosebleed national debts worse then Venezuela?
Buy. 15yr.
Factors:
– “our families are here or near”
– “love living here [during ~5 months]”
– “jobs that we know will be available to us”/”maintained a network of employment options”
– “finding a temporary rental [not practical]”
– Medical coverage via Canada domicile.
The above are things YOU said matter to you (I agree with most, personally i put lowest weight on the “jobs available to us/employment network”). The above factors are more or less locked into your area – you can’t really take them with you. In other words, should you find heaven on earth in Panama or Arizona, you are highly unlikely to have family/connections/network move with you. Medical can go from slightly more complicated to way more complicated. If you could invert things (e.g. have the above factors in Arizona/Panama) then I’d buy there, but that seems unlikely.
The rest of your post is FOMO related. Rental/Housing prices, subletting, city housing rates, even your current portfolio (to a smaller extent). FOMO is just extension of Fear and Greed – definitely real feelings, but deceptive in their very nature.
My suggestion is dump the FOMO factors (even if they are true, and they often partially are) and just look at the factors that really matter. Through that lens it really doesn’t matter what houses prices are doing, what rental vacancy rates are – you buy when it makes sense for you. It may very well work out that this is the peak of a market or the bottom of the future markets – therefore keeping your focus away from market timing notions (FOMO) and sticking to fundamentals will allow you to make a decision that holds water today and whatever happens in the future. Past that what you’re really trying to ask is for crystal ball assurances.
Ask me about the joy of renting one’s place out! We are currently still “stuck” in New Zealand during this pandemic and I’m teaching remotely. It’s really nice here! There is no winter! I mean, what NZers call “winter” is coming, but that means that the high is about 10C and the low is about 4C. OK, that’s great…
When I left for sabbatical in January 2020 we had rented out our townhouse condo in Waterloo, which has been working fine until yesterday, when they gave notice—they’re moving to another city. Oops. Now I have to find a tenant or forego $12k of rent for the next 6 months before I get back. During a pandemic. While I’m not there. Sounds like fun, though not quite as bad as the Arizona issues Geodude pointed out above.
Probably still makes sense for us to own a place since we plan to return to it, but it is annoying and not all that profitable to rent out, really.
I think if I were in SCSR’s situation I’d rent? At least as long as the price stayed reasonable.
I can’t help thinking that while perfect sense going by the numbers, one always has to take into account one’s tolerance for stress, desire for convenience, satisfaction of ownership with its own pluses as well as minuses etc. Theres an emotional component and its not always about the math. My wife and I are semi FI and Im totally onboard with the freedom renting affords but we will weigh that against the idea of being able to do what we want with a home to call our own without someone else dictating terms and take it from there. Theres also risk tolerance when it comes to being a landlord for premature bails, damage, remote maintenance etc. Heck we experienced our last landlord defaulting on her own mortgage on the place we were renting and we were asked if we could be out in 30 days! Turns out her boyfriend at the time ran up massive amounts of debt in her name and defaulted on the mortgage four months in a row. ( Legally its 60 days but i made sure i was out of that mess in a record three weeks and haven’t looked back since.) Im an advocate for seeing THEIR credit history now before I rent. I think its only fair. You’re taking a risk as well as they are.
Personally, I would also go for the do not buy a condo and keep renting on Airbnb when in town option. FIRE, as I understand it, is about independence and freedom. Buying a condo you won’t live in is the opposite of freedom and independence in my world. What if the renters have a problem or leave and the place is damaged? Don’t get me wrong, I love rental income as a form of passive income…when you live in the same town as your rental property. Not when you’re far away. It may be a constant worry, another thing to keep in mind all the time. Something that owns you instead of you owning it. And sure, you do have the benefit of having a fixed place to come home to. But the cost of that is pretty high, especially mentally. The only way I would do it, is if there’s a management company that takes care of everything. You never have contact with the renters, don’t need to find new ones, don’t need to call plumbers and so on. That comes with an additional cost that eats away the profits. And a final, also costly option, is that you don’t rent it out and it’s just empty for a couple of months every year. But that may still give some mental stress.
This all said, I’m very inspired by this story and how quickly you got to so much money invested and saved. Just like Firecracker and Wanderer, you’re doing amazing things!
I would not have a 15-yr. mortgage for a condo. Too long. Condo needs some repair after a decade, etc. Have the mortgage but do a reverse mortgage inside your RRSP, where the interest will go into your RRSP , instead of to the bank.
I had friend, single who ran out of money when she rented. She had own a condo, but sold it in her early 70’s.
She died around 80…I guess that was fortunate if one looks at it in a cruel way. She was really scrimping towards the end.