Real Estate Agent Gets Crushed by Real Estate Math

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Yikes, what a week it’s been in the news. It’s never a dull moment these days, is it? And this week is a real kicker. Just as the COVID pandemic made, and broke, the grim milestone of 100,000 deaths in the US, riots are breaking out around the world because of the long-simmering tensions between overly militarized police and Black Americans and people of colour.

So I thought I’d give everyone a break from all the divisiveness and nastiness that we’re being bombarded with in the news and allow us all to focus on something that unites us all: Laughing at dumbass real estate agents.

When the pandemic hit Ontario, Kristina Barybina’s income as a real estate agent dried up and she knew the writing was on the wall — she’d have to sell her own house.

She also knew there’d be a penalty for getting out of her five-year mortgage with TD Bank early — she just wasn’t expecting it to be almost $30,000.

I thought my eyes were going to pop out,” said Barybina. “It’s insane.”

~TD Bank charges $30,000 mortgage penalty to woman forced to sell home due to pandemic, CBC

Today’s real estate road-kill is from Canada. She bought a detached house worth about $675,000. Well, she didn’t exactly “buy” it. That would require her to have money, and none of these real estate people ever have money. The bank bought it for her, and then she proudly took possession as the “owner” because her name’s technically on the deed, but let’s get real here. The bank owns it. It’s the bank’s house.

Could she afford the monthly payments? HELL no! That’s why soon after she took possession she rented out two of her rooms to long term tenants, and then ran an AirBnb out of her guest suite to boot. Her renters and her AirBnb business paid the mortgage, and everything was swell. Easy money, right? The perfect house hack, all built on real estate.

And then COVID hit.

Her day job income dried up immediately as the economy shut down. On top of this, her tenants decided to move back home and shelter with their family. And her AirBnb income, of course, went poof as the tourist industry got slaughtered.

Overnight, she went from free house to a negative cash flow nightmare. Deferrals didn’t help, they just kicked the can down the road. So she sold in mid-March. But when the time came to close out the mortgage with the bank, her eyes popped when the bank decided to charge her penalties and fees over $30,000! She was floored, and then went to the media excoriating the bank for trying to profit from her during a pandemic.

Oh and by the way, before we continue, it’s important to note that this isn’t some poor shmuck who didn’t understand the mortgage documents she was signing. She’s a real estate agent! She’s not some innocent victim here that got tricked into signing a predatory document, she’s the person whose job it is to trick OTHER people into signing predatory documents. In short, she’s part of the problem.

So why is this significant?

It’s Going to Get Worse

Everyone’s hurting right now, but it’s pretty clear that the more debt you have, the more you’re in trouble. And don’t listen to the home boners who like to split off “good” debt (i.e. the debt they themselves have) and “bad” debt (i.e. the debt other people have). Debt is debt is debt.

If you have debt that you can no longer pay, you’re going to be forced to make painful choices that are going to haunt you financially for decades to come.

The only reason why we aren’t seeing mass panic selling in the housing market yet is because banks on both sides of the border have allowed homeowners who can’t pay to defer their mortgages. In the U.S., 7% of homeowners have taken them up on this offer, or about 3.5 million homeowners. In Canada, that percentage is even higher, at 10%, or a million homeowners.

These payments are not forgiven, they will simply get tacked onto the balance of the mortgage later. And more importantly, these deferrals won’t last forever. 6 months from the start of the pandemic, the banks are going to start asking for their money again.

That means that somewhere around September, there will be a flood of people who initially applied for deferral all of a sudden having to deal with their mortgage again, and in many cases that monthly amount will be even higher than before. If they still can’t pay, they will find themselves in the same situation as our real estate agent, which will cause a mass of distressed housing to flood the market. Housing analysts call this the coming “Deferral Cliff”.

Beware the Interest Rate Differential (IRD)

During the Great Financial Crisis of 2008/2009, a national pastime in Canada was to scoff at the Americans and feel smug about ourselves. Sub-prime lending? NINJA loans? No-recourse defaults? What a bunch of yahoos, we thought. We, as Canadians, would never be as stupid as those Americans. It’s different up here.

And to a certain extent, we were right. While our economy got dragged through the gutter along with everyone else, the wave of foreclosures that swept over the US never happened up here.

Well, guess what? It’s our turn to be on the hot seat.

In America, the most popular type of mortgage has a 30-year term, meaning the interest rate and payment stay the same throughout the entire 30 years. In Canada, while our amortization periods (meaning the amount of time it takes to pay off our mortgage) is 25 to 30 years, our terms are only 5 years. That means that every 5 years, we have to refinance or renew the loan at whatever interest rates are current at the time.

American mortgages are also, generally, portable. That means that if they buy a house, then a few years later decide to sell and move, they can just bring their existing mortgage with them to the new house. In Canada if you want this flexibility, you have to specifically ask for an “open” mortgage. Most people opt for a closed mortgage because the interest rate is a bit cheaper.

Closed mortgages are more restrictive. If you sell your house before the term is up, the bank actually gets upset and charges you penalties and fees in order to make up for the interest income they would have gotten.

This is where our real estate agent got caught with her pants down. The penalty she’s specifically referring to is called the Interest Rate Differential, or IRD. Here’s how it works.

The bank takes the Bank of Canada posted 5-year mortgage rate at the time you got the mortgage. Then they subtract the current mortgage rate. Then they take that number and multiply it by your outstanding balance, and then again by the number of years left on your term, like so:

IRD = (OldInterestRate – NewInterestRate) x Balance x YearsLeft

If the interest rate rises or stays the same, then the IRD doesn’t really amount to much. But in a falling interest rate environment, look out because the difference between OldRate and NewRate is going to be quite big.

And of course, the first thing that the US and Canadian central banks did at the beginning of this pandemic is drop interest rates to basically zero. So right now, everyone in Canada with a closed mortgage who’s forced to sell is going to be in the same boat as our real estate agent. The IRD penalty will be the highest it possibly can be.

Real Estate Math is Built on Hope

FIRECracker and I have a disdain for what we call “real estate math,” which is the wildly optimistic math many amateur real estate investors use to justify their increasingly expensive purchases. Here’s how their decision making process typically goes:

  1. Can I afford the mortgage? If yes, buy. If no, buy anyway and house hack or use AirBnb or something.
  2. Ignore all other home ownership costs
  3. Pray really hard that nothing goes wrong over the next 25 years
  4. Brag about how smart you are

The “it’s always a good time to buy” messaging of the real estate industry flies directly in the face of the cautious and measured way FIRE people spend their money. And during this pandemic, we’ve been keeping in touch with many of our blogger friends and colleagues in the FIRE space. For the most part, their lives haven’t really been that affected. Arguably, we’re the ones who’ve had our lives affected the most because the travel restrictions have locked us to one city, but financially, we’re doing just fine.

But for home boners like our real estate agent, this pandemic is the perfect storm of the worst possible things that could happen to their finances. Whether it happens now or in September’s “Deferral Cliff”, a flood of people will be rushing for the exits. And when that happens, banks will step in to make that transition as expensive as possible.

Before we end the article, I just wanted to leave you with one more thought.

On Friday, the US Bureau of Labour surprised everyone (including myself) with a report that unemployment actually went down in May. Everyone was expecting it to keep soaring higher, but instead, jobs got created rather than lost. And here in Canada, we noticed the same thing, so we know it’s not just Trump fudging the numbers.

In response, the stock market soared. The S&P 500 is within 2% of it’s value at the beginning of the year. Our portfolio is now within 1% of our January 1st value.

For the FIRE people, our downturn is effectively over.

But for the home boners? Their downturn is just beginning.

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67 thoughts on “Real Estate Agent Gets Crushed by Real Estate Math”

  1. Hey now, it’s only a “riot” when the police start lobbing tear gas canisters and blasting rubber bullets into journalists’ faces. Until then (or when they don’t) things tend to be refreshingly positive! At least that’s how it’s been in nearby DC the last few days, and at my little city’s rally on Saturday.

    I had no idea those systems were in play in Canada. So many hoops to jump through to ensure the bank gets theirs… UGH. It’s easy to look back to 2010 and feel smug about the house we bought for just over half what it’s “worth” now, that we’ll have paid off in ten years, but truth is we just got absurdly lucky.

    Anecdotally, the local RE market has been on a bit of a tear. Cooped up in their condos and townhomes, people realize that a backyard might be a nice amenity; all the SFHs in our neighborhood are getting snapped up above asking price within a few days of hitting the market. Lunacy.

  2. When you “buy” a house, the bank creates your mortgage from thin air, charges you the highest rate they can, makes pure profit because delinquencies are backed by taxpayers; the government taxes you; the agents, lawyers all walk off with their fees and commissions. GDP goes up. Who is the real loser here?

    1. Tsuda, question your post. What does it mean to “create a mortgage from thin air”?

      Delinquencies are only backed by taxpayers for certain mortgages, about 10.9% of mortgages and 10% are FHA as of around 2017. Then you have some other smaller percentages like USDA, etc. I agree is totally stupid. Just as stupid as the government backing student loans which increases the cost of tuition geometrically.

      1. When you get a mortgage, the bank enters the amount you owe into their computer and start charging you interest. They are not giving you other people’s deposits. As long as they stay within reserve requirements, they essentially create the money from thin air.

        Delinquencies are a taxpayer problem, e.g. the article below talks about how Ottawa buys 50 billion risky mortgages from the banks (a.k.a. bailout) before everyone else (note the date of the article is before CERB was announced):

        1. Hey Tsuda. Totally get what you are saying about bank reserves and lending. But wouldn’t that argument apply to the entire monetary system? Since the gold standard ended in 1933 and all ties between it’s “intrinsic” value and money severed in 1971, all money is nothing but a mutually accepted promise widely held by society.

          The government can literally print money out of thin air anytime it wants. The governance of the banking system and money supply by the Federal Reserve is just a vehicle for how they do it.

          No argument that governments should not be backing personal loans to people for housing, and no doubt that drives the price of affordable housing, for those whom home ownership makes sense, higher.

          1. Hey Ryan, yup I’m with you and the argument definitely applies to the whole system. It’s anybody’s guess where all the liquidity will end up, e.g. the market, housing, university tuition, weddings, autos, and how many of these are appropriately considered in official inflation figures, not to mention the current policy of targeted inflation is designed to devalue money systematically by 2% a year…

  3. The BLS (Bureau of Labor Statistics) is taking another look at those numbers for May. Turns out a significant category of workers was mis-categorized. The reported numbers may be off as much as 3 points. Meaning that the true unemployment numbers is more like 16% instead of the reported 13%.

    1. Exactly, author needs to read deeper on this and possibly redact/edit thoughts on this.

      The numbers were indeed fudged. Basically everyone who was ‘furloughed’ is suddenly not being counted as unemployed, they changed the definitions to make the numbers look less bad. Prior to the changed, those on government assistance and not participating in work would have been considered unemployed.

  4. It certainly seems Warren Buffett missed the boat by not being greedy when others are fearful. No?

    (He also dumped those airline stocks prematurely.)

    1. Wait and see, everyone is lulled into a frenzy with this current market binge, the large lady has not sung yet, Air Canada is desperate, and on the edge of Bankruptcy, yet stock is soaring ? We’ve only just begun, the real pain comes in Sept, when all the stymulus stops, and we have to start not only paying it back, but companies now need to turn a profit… keep some powder dry… you might need it…

      1. So much this (in the US too). We were running hot on stocks and the market is within 5% of all-time highs, so twenty minutes ago I rebalanced 15% of our invested assets from VTSAX into VBTLX. Another five or ten percent will join them if things remain high for the next month or two. Interesting times.

        1. Ditto. Back on Apr 10th I moved $100k from my TIPS bond index fund to VTSAX. Then just this past week on June 5th I moved $86K back from VTSAX to my TIPS bond index fund. It wasn’t really market timing, it was Rebalancing via Guard Rails of 5 points either way.

  5. The IRD would be ok if it was paid for time up to the next interest rate lock, i.e. up to 5 years. But charging for remaining life is predatory by the banks.

    1. I also find it appalling that banks design and fine-tune their products (particularly, a mortgage) to bite mercilessly on unsuspecting people.

  6. doom and gloom real estate?

    lol. they have been saying that for years. The Chinese are already starting on a new foriegn real estate buying spree, check it out

    cant make land folks.

    1. But China literally did make land.

      Joke aside, I understand and agree with your premise to a point. Large city and coastal real estate is ridiculously overpriced in the US. Reading this blog, it sounds like Toronto real estate pricing is ridiculously overpriced.

  7. Does it make a difference whether the mortgage is a fixed rate? or a variable rate? My understanding was that the RE agent in your story had a 5 yr fixed rate mortgage which resulted in a high penalty.

  8. I read the same “boo hoo me” CBC article and had no pity for her at all. As you said she’s a realtor, and thus she should know the rules and contract she signed, and if she didn’t, she’s a pretty crappy realtor and should consider a new career. She gambled and she lost. Time to pay up and move on. Next time she should be more careful and thoughtful.

  9. “In America, the most popular type of mortgage has a 30-year term, meaning the interest rate and payment stay the same throughout the entire 30 years.”

    This is very rare. The banks will lose their shirts at today’s rate, they did in the past.

    Since President Obama left office, US debts have been increasing. We added an additional $3 trillion recently.

    It’s not clear if leverage is good for individual nations. Guess we will find out.

    1. Hey Ron. Wanderer is right. Most loans by far are 30-year fixed.

      Wanderer, I did have a question. You mentioned mortgage mobility for the majority of US mortgages. That was a big surprise to me. I’ve never heard of that. Where did you see that? I’m not saying your wrong just asking. I will say that most all of them have no prepayment penalties anymore.

      1. never heard of a mobility mortgage-and I am a real estate agent! Think that is not correct! also, prepayment petalites, as you say, are a thing of the past (at least in US)

      2. Same question…I’d never heard of ‘mortgage mobility’ in the US. My understanding i that the mortgage is against a specific home. If you sell and move, the mortgage is paid/closed and the new house you buy gets a new mortgage with new terms.

    2. I just refinanced my mortgage into another 30 yr mortgage product. Low interest rate and fixed for term. But, realistically, most people do not stay in one home for 30 years-housing needs change-either too small, too big, etc.

  10. I don’t know…most of the people deferring mortgages right now that I know of did it as insurance and saved the $. Real Estate is a free source of cash right now.

  11. This is a dumb article! Didn’t know that Canadian mortgages are only for 5 years! Not a good way to lock in costs! My 30-yr mortgage is fixed-payment will not rise (only taxes and insurance-of course, can go up). Also, never have heard of “taking the mortgage with you”-when you sell a home you pay off that mortgage with proceeds from sale (or bring cash to closing). When you buy a new home, you get approved for a new mortgage.
    Also, I am a real estate agent and never try to take advantage of any client. I am a Realtor and we have a code of ethics and put our clients’ interests above our own!
    Insulting article and not smart!!

    1. Oh Connie. That’s naive. There are a few real estate agents that are honest. The rest are trash and shysters looking to screw uninformed buyers and sellers. Also, the CBC article is for Canada, not the U.S. Mortgage rules are different there. That inlcludes mortgage mobility (called porting) and mortgage term penalties. There’s this thing called the internets and google. It’s like a Christmas miracle as it explains everything, even what goes on outside of the U.S. of A. Lol.

    2. I agree. I agree with the idea that people need to think very carefully before buying – I am renting – but there is no need to use this tone. I have been following you guys and your journey has been inspirational. However, I don’t see the need of using expressions like “dumbass real estate agents”. I am not a real state agent but try stay humble (you normally are).

  12. Real Estate agent here. Actually it’s my side hustle (it’s taking years off my FIRE date), so maybe go easy on me.
    I also read that article and thought “What an idiot Realtor!” One of the 1st things I tell clients who have a mortgage is to check out their penalty. Lots of them don’t know it exists apparently.
    Homes can be good investments (I have one) but honestly I became a realtor as I was interested in property investments, saw what the commissions were, and realized where the money was being made. It’s not necessarily easy money, but it’s been a good side hustle for me.

    1. This is interesting.
      I’ve been debating becoming a real estate agent as a side hustle but the hours/driving/hassle didn’t necessarily seem worth it.
      Does it take much of your time?
      Is it something you’d recommend?
      My regular work is only 4d/wk (and even less now with COVID restrictions).
      I’ve been having a hard time coming up with other side hustle ideas, so maybe I could give this another chance…

      1. I’d say it depends on your local market. My day to day is 4 days/week, and I have a 4 month summer break, which aligns well with the Realtor job.
        I also live in a small town, so it wasn’t too hard to break into the market and get some sales.

        I’m normally too busy in summer with real estate and family commitments though, so I’m pretty casual about prospecting.

        Before you dive in make sure you are aware of the start up costs (not just courses, but also start up fees for insurance/memberships etc) and ongoing monthly costs (depends on the brokerage you sign up with, but can vary from ~$500 to a couple of grand) because you’ll need to cover those until you get a few sales. Lots of new realtors crash because of that. The industry is a bit of a racket at all levels really.

  13. Home boners. Lol. It never gets old.

    More dick jokes please. You guys have gotten tame lately. Is old age getting to you?

  14. This blog started fine but this kind of posts just lowers it’s credibility. The onus is with the buyer: Always! The realtor should have chosen variable rate for a risky investment and had cash reserves! The penalty is way lower in a variable mortgage! Usually three months! Don’t be a wanker! Always study your investments!

  15. Thanks for sharing a different kind of article that what the news is serving us daily. This is definitely refreshing! As for the real estate piece, I would say that people should really know what they are getting into when they act on something, otherwise, they get in deep trouble.

  16. Portable mortgages can be available in an open mortgage or closed mortgage. First time buyers often fail to understand mortgage terms, as they are most concerned with qualifying first of all then getting the lowest interest rates with the lowest monthly payments. Real estate agents and lenders should make the penalties of selling early very clear. However the old adage is true, buyer beware. The fact that the realtor couldn’t afford her home so early in the crisis shows she had no savings or no back up plan.
    NOBODY has a crystal ball, and if co vid has taught us one thing its that globally things can change very quickly. This is true with real estate and also true with the stock market. Educating yourself on the risks of both before investing is crucial.
    I am absolutely pro investing. Stock market or real estate. Real estate can be a great investment but I believe you should try to look at worst case scenarios BEFORE signing an agreement.

  17. I’m surprised at the tone of this article & toward real estate in general. I’m only a low bar investor (one SFR) & found the generalization of how people use real estate math as the exact opposite of what we learned. We learned not to over leveraged, don’t brag about our investments, and don’t ignore homeownership costs.

    What did we learn from this article? “Haha look at this dumbass” only shows a lack of compassion & inflated egos. It doesn’t unite anyone rather shrinks and divides this FIRE community. I agree this investor made some poor decisions but why someone losing $ gives you so much pleasure, tells me more about you than the investor.

    The foreboding of real estate-falling off a cliff? Who knows-maybe. But the same argument can be made about the stock market. That’s we diversified with real estate and index funds and will continue to look into multiple streams.

    I like to share your book and story with a lot of people but man this article gives me pause. I know you don’t recommend REI but I didn’t think you held such distain for other types of investments other than your own. You should be proud of your accomplishments without the need to put down other peoples strategies, (or failures).

    Thanks for the stories & advice about index investing. Happy for you and your continued success. -See how the growth mindset works? Try it out.

    1. “We learned not to over leveraged, don’t brag about our investments, and don’t ignore homeownership costs.” – that’s great! But you’re definitely not the norm where I, and Firecracker and Wanderer are from (Toronto), which is why I understand the tone of the blog post.

      Living in Toronto, I have met many homeowners who are smug about buying property, brag about how much its value has increased, and who look down at my choice to rent. They make backhanded comments like “one day I’ll be able to afford property” with a pitying look and crow about how nice it is to OWN, how a real home isn’t one unless you OWN it, etc. However, many of those people who look down at me and F&W for renting, are in the same precarious position as the real estate agent in that article.

      Also, living in Toronto, you hear constant chatter from most if not all real estate agents about how buying is the best, rent is throwing away money, real estate value will always go up and be a better investment than the uncertain stock market, etc. I’m not certain, but likely the real estate agent in that article said the same things to potential customers and believed it herself.

      The real estate agent may not be a smug snob, but certainly her actions of getting herself over leveraged and then running to the media about it (even though she still made around $400 or $500k profit from the sale of her house!) smack of entitlement and cluelessness, which is probably why F&W – and the many, many, MANY commentators on the article (click on the article and read the comments to see how a lot of Canada thinks about her situation) – feel pity, annoyance and also a measure of schadenfreude.

  18. Are these 30 year terms in the US a new thing since the 2008 housing crash? I remember hearing one of the reasons why the market crashed was because people were being given mortgages with no interest and conned into thinking they could afford it but after the term ended and the interest rate increased they couldn’t pay their mortgage anymore and had to sell.

  19. Not all real estate agents are bad. I know some who are very honest and helpful to their clients. Also, owning real estate is not always bad. If the price is not too high and you like having a home base, owning a house can be a good thing. Mr Money Moustache owns a house. So does the Root of Good family. If you want to travel all the time, then it probably does not make sense. It all depends are what your goals and priorities are.

    1. I agree. If you are halfway handy, a hard worker, willing to buy and live in a house being rehabbed in marginal areas but hopefully semi-safe, you can slowly work your way into nicer neighborhoods. Plus we live in a state with modest expenses and O.K. jobs if you have skills, are drug free, and are reliable. Real estate has helped us but we are blue collar and are able to fix things. We didn’t realize that college was an option when we were young as we didn’t know anyone who went to college. We bought our single family homes in distressed condition at a good price, fixed them up, rented them for awhile, then sold them when that became a good idea. Our family is our main recreation so we spend a lot of time with them so don’t really travel a lot except to visit family. We are currently slowly fixing up our current residence as time and money to buy supplies allows. I have no complaints about any real estate agent that we have used nor the bank loans that we have gotten. Of course I use a ruler under each line while reading contracts out loud so my eyes do not skip any lines and have asked questions about anything I did not understand.

  20. Great article. I enjoyed this one. Excellent reality check. 46 years old here. Still never bought a lick of real estate (other than rental properties to rent out). Cheers!

  21. Hi Guys – I know it may be fun to delight in the suffering of others, but these are tough times now and people are losing jobs, money, etc.

    Why do you think there’s this tendency to make fun of homeowners so much? I’ve never seen homeowners make fun of stock investors to this magnitude.

    Let’s say you guys have $1,000,000 invested in stocks in your retirement account and the stock market declines 6% as it did today. I don’t think it would be a good move to delight in a $60,000 one-day loss.

    What am I missing here? Would you suggest I write something similar to grow my site? I just feel bad doing so during this uncertain time period. All advice welcome!


    1. Amen Sam! WTF happened to this blog with this type of nonsense. Thought we were all here to learn. Challenge & build FIRE. This blog suddenly got taken over by a bunch of middle schoolers. What crap this article was.

      1. Agree, no one here appears to every bought or sold a home, real experience. In the USA you cannot take your mortgage with you(due on sale clause). Prepayment penalty’s are a thing of the past in USA.
        Looks like Canadian mortgage business is still predatory. Prepayment penalty in Canada is the norm and is no secret.

    2. Ironically, a similar story about financial recklessness could be written on the Yield Shield delusion touted here eventually too. But this article does highlight what I’ve been suspecting: the site seems less and less about helping/learning and more about simply generating traffic. Normally, I’d let it be .. but the cost to readers is a big one if they take them at their word

      1. This appalling attitude has been their hallmark since the start of this blog. The typical arrogance and entitlement Millennials are stereotyped for.

        I know this blog is free and I don’t need to read it. Frankly I only check in infrequently to see if there was a story that didn’t make the news. I skip over most of their material.

        Success according to them is following exactly in their footsteps. Everyone else is stupid. That condescending tone is my major turn of, specially when it’s completely unnecessary.

        They are childless, homeless, and in a few decades when relationships and companionship become paramount, they still be wondering why they don’t see a Uhaul following behind funeral processions. They will learn that they can’t take their portfolio with them, and their world experiences will not bring them happiness. It would be humorous then for some one to gloat at their unhappiness.

        One obvious fact they are missing about living in their glass house is that their situation only works because they are together. If this couple splits, they will be in for a rude awakening. I honestly believe they are settling and glorifying mediocrity as success.

        The realtor referenced in this article got what she deserved. We all get what we deserve. I don’t know of anyone who has not fallen prey to their own stupidity. This blog’s owners should think about taking a more tasteful and grateful tone moving forward.

        1. Hi Ardy,

          I have so many questions with your post I am unsure where to start….

          How come you use “childless and homeless” as derogatory terms, is this because you have children and a house which brings you happiness therefore this must bring happiness to everyone else. In other words people can only be happy if they follow in your foot steps?

          You attack experiences, should they be spending money on a shiny boat or car, are you suggesting that they should be more materialistic?

          You say they can’t take their portfolio with them, what should they be doing with this money? They have found a way to have their money work for them. They are not “using” their money in a conventional sense but they are very much still using it. Should they instead spend all of their money on a house, a couple of cars, maybe trailer, have a couple of kids, work from 8 to 5 at a job they hate living a life that brings them no happiness all because cultural norms tell us to?

          Also, how are they glorifying mediocrity and settling? What should they be doing instead? What gives you the authority to dictate how people live their lives and how they should measure their “success”. If someone is happy and feels successful is that not enough, why do they need to use your measuring stick?

          Then at the end, you say they should take on a more grateful tone. Why and what for and to who? They worked hard, saved their money, chose a different path (which you so obviously disagree with) THEY achieved this, who are they supposed to be grateful to?

          I do not agree with laughing at other peoples misfortunes (I do have little sympathy for realtors based on personal experiences). I also do not agree with judging people on how they choose to live their lives.

          On a final note I would like to say that not everyone derives happiness from life the same way, if we did the world would be a boring place. So as the saying goes “live and let live”.

          1. I am not going to directly address your comment and turn this into a pissing match between two trolls. Also, I suggest you put your hostility towards me aside and reread my post.

            As put together the bloggers try to portray their life, their entire situation is quite precarious. The same manner in which they portray home owners as living on the edge, under the appropriate lens, one could say the same for them.

            The childless / homeless remark, while fully intended to be a jab, was to really note measure of accomplishment, of any kind. Living below the poverty line, depicting it as paradise, to sell some ads and a book is doing a disservice and injustice to the most impressionable given the polar nature of media and the power it has to so easily sway opinion. Worse than being uninformed is misinformed, which these bloggers are doing.

            Having a child makes one no more successful than the next. Having a house doesn’t either. Material possessions don’t do that, service to your fellow human being does that. Is like to hear their contribution. They’ve effectively removed their educational talents from the economic engine, so no contribution there. I hope with the luxury of time on their hands they volunteer or provide service of some kind to the needy, an I would be pleasantly surprised if they did. I do not see these bloggers creating opportunity that benefit society but rather hurt it. It’s not perfect, but their solution to exploit it and then disconnect from it does not benefit society in the least. If every young North American were to drink this snake oil, what would society look like. What of the economy? I’m all for FIRE and that’s why I still come here from time to time. But their way of FIRE is unrealistic or sustainable.

            I leave it to the rightly informed to decide how these bloggers and this blog of late are accomplishing that. Don’t lose sight of the forest…

            1. I have no hostility towards you and I read your post many times, hence the specific questions to your comments.

              I do not see how their position is precarious, they have a net worth in the top 2% compared to other people of their age. They may be below the poverty line in a sense here in Canada (however, it doesn’t seem like they are living rough) they are relatively rich in Thailand. I also, fail to see the giant risk, worst case scenario they have to work for a year and then they are good for another 10 years… seems like a pretty minor risk to me.

              I also think we are kidding ourselves if we think contributing to the economic engine is doing a service to fellow human beings. The economic engine is designed to take advantage of the average person while lining the pockets of a select few. The whole system is flawed and based on continual growth, which is not sustainable. Of course they are taking advantage of this system, and of course it would fail if everyone did this. Hell, the economic engine would collapse if people simply saved money!! By that simple fact, there is not a single FIRE method that is “sustainable” if everyone does it. I see no issue in taking advantage of a system that is broken and tilted against you.

              We all know that not everyone in North America is going to do this, every year people become more and more in debt. They want a newer car, a shiny boat and a bigger house. People are getting worse with their money not better, just because everyone else is spending all their money and more, does not mean I am going to!

              Saving more than you make and investing your money is not snake oil, that should be common sense (sadly its not). I think they are doing something for society, by showing people a way they can save their money, strengthen their future, become less materialistic while pursuing their passions.

  22. I am not going to directly address your comment and turn this into a pissing match between two trolls. Also, I suggest you put your hostility towards me aside and reread my post.

    As put together the bloggers try to portray their life, their entire situation is quite precarious. The same manner in which they portray home owners as living on the edge, under the appropriate lens, one could say the same for them.

    The childless / homeless remark, while fully intended to be a jab, was to really note measure of accomplishment, of any kind. Living below the poverty line, depicting it as paradise, to sell some ads and a book is doing a disservice and injustice to the most impressionable given the polar nature of media and the power it has to so easily sway opinion. Worse than being uninformed is misinformed, which these bloggers are doing.

    Having a child makes one no more successful than the next. Having a house doesn’t either. Material possessions don’t do that, service to your fellow human being does that. I leave it to the rightly informed to decide how these bloggers and this blog of late are accomplishing that. Don’t lose sight of the forest…

  23. Real estate is a great way to lose your shirt. Of course, investing in equities is too.

    For a pair of authors who claim to make the decisions purely on ‘mathing shit up’ the homeownership articles really fall on their face. A conservative purchase of real estate can be an excellent boost to net worth. My house has returned 16% year over year for seven years, (not including inflation but including imputed rent).

    A wise decision making process is key when it comes to housing….and most things in life. Glossing over the subtleties does everybody a disservice.

    1. That’s awesome that your house has had a great return! Similarly, my parents’ house is worth just over 20x its purchase price (from the 1970s). Sadly, it hasn’t worked out for a lot of people who bought recently in Toronto and the surrounding area, which is where the real estate agent in the CBC article lives.

      I think Firecracker and Wanderer would definitely agree with your comments (except about the criticism about their homeownership articles)! In their past blog posts/articles, they have said they are not against owning property, but are “anti-stupid”, and explain if the math works out and if you have the inclination, go own property. They’ve interviewed people who own real estate on how to properly vet real estate to make sure it makes money and/or to make sure you can actually afford it. While Firecracker and Wanderer have said it is their personal preference to not own real estate, they don’t crap on people that do if the math works in their favour.

      I think what riled/annoyed Firecracker and Wanderer – and many people who read the article (based on the comments on the article) – is that it seems that this woman gambled by taking on way too much house (i.e. the math did not work out in her favour unless she had endless and not guaranteed supplemental income from Airbnb renters and her other renters), and when it didn’t work out, she ran to the media to complain.

      It’s terrible that the woman is a single mom with an elderly mother to care for too. On the other hand, maybe she will look back on her experience and realize she can make do with a property that costs less. And from selling her house, she still makes a decent profit…her house sold for around $1.1m, and she had bought it at around $600 or $700k from what I recall…yet another reason why many commentators on the article had little sympathy for her.

      1. If she bought it around $700K, had room mates/tenants and AirBnB making payments and sold it for $1.1m
        * I wish all my failures and disasters paid this much
        * I agree, no sympathy for a licensed realtor upset about a $30K penalty here

        My understanding from the text is that the penalty is until the next reset, not the end of the mortgage.

        I’ve never heard of “portability” in the US – the idea of a mortgage is that it is secured by the property as collateral. If you no longer have ownership of the house , you can’t keep the mortgage. I’m not sure if you’re thinking about transferring the mortgage to the new buyer (“assignment”); this is not common but it does happen.

        While I understand that the bloggers were tired of people in Toronto telling the to buy at inflated prices
        * these (other) realtors aren’t dubmbasses, they’re motivated by commissions (so they lie by omission very aggressively)
        * I’d present this as useful items to be aware of in Canada/hot markets, but not to laugh at someone who makes a mistake and saves lots on living expenses and makes “only” $300k+ (not sure of taxes).

    2. vanillagorilla, interesting post. Some may know from my linked site or FIREcracker’s interview of me that I was homeless for years battling addiction.

      As a result, owning a home gives me a lot of psychic income (return). I love my house. Proud to own it. Feel free here, especially now that I paid it off. Therefore, it isn’t an investment at all. “You have to live somewhere”. JL Collins addresses this in his book, fittingly calling them “indulgences”. We all indulge somewhere or another.

      However, I guess sometimes it is better to be lucky than good. I’ve owned this home for 6 years and it has gone from $440K to $600K and continues to rise. I live in rural Redland, FL, outside Homestead, so definitely not a coastal or highfalutin community. My next door neighbor is a horse farm. LOL. Nowhere is the statement that “they aren’t making more land, folks” truer than in South Florida, bordered on one side by Everglades National Park and the other by the Atlantic ocean. I guess they’ve run out of room near Miami so demand for these one acre homes that rarely exist and few can afford up there is rising out here where it is still attainable.

      I bought it brand new so I really don’t have any maintenance costs to speak of, and homeowner’s insurance is low because it’s built with modern building codes. Yes I do have extra expenses of taxes, insurance, lawn and pool care, etc. These costs are $800 monthly, which I cover 100% by renting out a room to a friend.

      I live on an acre so I am able to have 30+ different species of tropical fruit trees and bushes. I have rare palms and cycads. Plants are a passion. Cold coconut water right from the tree. I make homemade ice cream, banana bread, key lime pies, and all sorts of things from my crops. My 3 dogs that I love like children can run free. I have a small truck camper RV parked on the side and do frequent, economical getaways around FL’s award winning state parks where we bike, paddle, fish, boat, and cookout. I store my boats for my small guiding business here, supporting my passion and generating extra dough. This home is my sanctuary.

      So if you can do all that in a growing piggy bank who’s returns are just gravy on the potatoes of your “indulgence”, that’s pretty cool!

      I do understand FIREcraker’s point in her YouTube video on the home page. That vid resonated with me years ago even before I know who she was and read her book. That point of the income multiple cost of a home is a solid one. And that the societal norm of buying a home just because pushes many into a lifetime of debt and slavery to a job is true. However, it’s pretty obvious that FIRE, which is really just a description for a way of life, AKA “life”, is a winding, varied path. One size doesn’t fit all.

  24. I’ve noticed quite a pattern of making simplistic premature conclusions. Just from memory the past few months:

    – Coronavirus has already been cured in Thailand with HIV drugs
    – Coronavirus is already contained and Western governments just need to “catch up” in methods with Asia
    – US is not the epicentre of the pandemic (woops), thus it’s dividends won’t be cut
    – they have 100% beaten sequence of returns risk

    … and the latest from this article
    ” For the FIRE people, our downturn is effectively over” …

    Perhaps some humility in outlook and dialling back the sweeping generalisations should be in order

  25. What a deplorable entitled article full of defamatory comments and inaccuracies.

    Ironically the article starts out stating “So I thought I’d give everyone a break from all the divisiveness and nastiness that we’re being bombarded with in the news…” and then goes on to do just this – revelling in another person’s misfortune and stating that just because she’s a realtor she:

    “is the person whose job it is to trick OTHER people into signing predatory documents”

    You do realize that realtors are not mortgage brokers or lenders right? Financing is arranged by the purchaser without their realtor.

    Then goes on to state:
    “FIRECracker and I have a disdain for what we call “real estate math,”

    Which, as non-homeowners and disdainful of homeowners, they lay out as some crazy formula which does not take into account the need to qualify for the mortgage in the first place. And it is not like banks are giving mortgages to anyone folks. Maybe you should go through the prequalification process first and see before talking?

    And what about the fact that approx. 50% of Canadian homeowners have no mortgage or that the average home equity in Canada is 73% of value. There will be some first-time buyers who will have a harder time if there is job loss, but interest rates are really low and Canada has had CERB and announced it will be extended. It is likely that those with consumer debt and no home will have a much harder time and there has been much greater job loss in the lower paid sector.

    Given that the lady who is the subject of the disdain is also a single parent living with her mother it is equally possible that her difficulties are caused by a recent separation. Might have been worth a little more investigation before castigation?

    And, FWIW, I agree the IRD should not be permitted to this degree. It is a windfall for a bank beyond reasonable costs that is really not justifiable.

    I could go on, but enough said. I’m not a realtor and have nothing to promote. I retired in my early 40s and own a home and have investments – they are both good.

    1. Actually important for people to know that qualifying for a mortgage, should you want one, is in fact one of the more challenging aspects of FIRE. Banks don’t care about your portfolio as much as they care about your income.

  26. Great blog as always, I have enjoyed your book as well. I did want to point out a couple if innacuracies though. Firstly, if a mortgage is closed, that doesn’t mean that it isn’t portable. Closed and open are all about whether or not it can be paid out without penalties, it has nothing to do with portability. A lot of closed mortgages are portable, depends on the lender. Some closed mortgages are even assumable.

    Secondly, it is not a Realtors job to trick people into signing mortgage documents, lol. A Realtor doesn’t even see the clients mortgage docs, this is the banks job or a mortgage broker which is preferred because they don’t work for the banks.

    Lastly, assuming that the downturn is over for FIRE people is a little premature, there is another reckoning coming, S and P is trading at 35 times price to earnings, similar to the dot com bubble and how did that go.

  27. “American mortgages are also, generally, portable. That means that if they buy a house, then a few years later decide to sell and move, they can just bring their existing mortgage with them to the new house.”

    Ummm…. no. This is not true at all, and, frankly, it makes me doubt much of what you say about American real estate. I suggest that you edit it out.

    I do appreciate that you’re not buying into the buy-a-house-no-matter-what culture, and making people question their home purchasing decisions. It’s largely good and appreciated. People need to do the math and look at the big picture, for sure.

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