Personal Finance

Personal Finance Review with HELOC and Real Estate

  • Last Updated:
  • Oct 28th, 2018 10:12 pm
[OP]
Newbie
Oct 25, 2018
6 posts

Personal Finance Review with HELOC and Real Estate

Home Value: FMV $1.1 Million
Home - outstanding mortgage $237K @ 2.95% renewal Jan 2023
Other Debts: Credit Card $1k, Car Loan $37k, HELOC $203K
Credit Rating : 775

We are able to afford automated payments of $2600 + $700 (interest) per month on HELOC ( I hate debt )
Due to our aggressive HELOC payments, we choose to be barely cash flow positive with just around $800 per month into savings.

Notes:
> We originally took out HELOC for down payment on investment condo that will be ready in Summer 2019. So, at the time it was good debt to take on.
> We have $50k in stocks that I was willing to sell for the condo closing costs or I would dip back into the HELOC
> 1 teenager that will be entering university in 2 years and another in 4 years. Both will have a good RESP cushion of atleast $50k each. However the 2nd teen seems destined for a medical career... so we will need more funds to ensure she doesn't go into debt for school

Dilemas:
> Do I sell stocks for closing costs or use HELOC
> I am seeing Real Estate opportunities coming up in the next 6 months, do I increase my HELOC and dip into it again for a real estate investment? Maybe get a condo downtown for kids (when in university) with a roommate?
> Should I just close my eyes and be content with the single condo and keep on paying down the HELOC
> Should I even bother with the $800 savings and just put it all into HELOC since savings won't grow

And finally... i should've probably asked this before my real estate investment...
> What is payment plan for others that take a HELOC for real estate investment? How is it paid off so you can feel that you have an investment with no credit debt? Do you re-mortgage the real estate investment to wipe out the HELOC?


Thanks in advance for feedback...
12 replies
Deal Addict
Jan 15, 2017
2328 posts
1634 upvotes
What are your financial goals? What are you hoping to achieve?
[OP]
Newbie
Oct 25, 2018
6 posts
That's actually a good question... doesn't everyone have the same answer? I guess the most common answer is to have financial security for the 2 kids and myself... as a self-employed contractor, I need some type of nest egg. The wife is a teacher so she will be good in retirement.

Having said that, my goal was to always have 3 pieces of rental property. One for each kid and then one for the nest egg.... just not sure how to reach that goal.

I figure that we are in our 40's now with maximum earning power and we can take another risk but you never know.

Just wondering, are there financial advisors out there that will just give me straight talk on financial suggestions and not try to redirect into something where they are making money? Always hesistant to contact one...

thanks again... it just helps even writing this stuff down
Banned
Feb 23, 2009
1670 posts
1495 upvotes
Oshawa
Any 3% debt is OK as you can make more return with good investments.
You have some room for more HELOC if needed as you have plenty of equity.
Get rid of car loan if rate is high. Improves credit score.
Sell stocks based on capital gain situation. You may have actually lost some profits in the last couple days.
If the investment condo has a profit on closing next summer you might want to cash out as the values have spiked and are fundamentally broken.
It's definitely at the high end of the market now. Can it be cash flow positive? Probably not.
Of course depends on location and if you can use it for a kid to live in while at school.

Look at making your rental investment a student house as your kids are going to university and will pay a ton in residence or renting themselves anyway.
Of course depends on location.
I lucked out and had both of my kids at the same university and same house.
There is no shortage of students and you can always increase rent and charge market rates as they always leave.
With your own kid on site it's easier to manage if it's not local.
You are looking at 4+ years so it's best if all the big ticket items in the place you buy are newer (roof, furnace, A/C, appliances). Once your kids graduate
you can decide if you want to keep it or cash out. They might even find a job in the area and need a place to stay.
Deal Addict
Jan 15, 2017
2328 posts
1634 upvotes
stryka wrote:
Oct 27th, 2018 12:44 am
That's actually a good question... doesn't everyone have the same answer? I guess the most common answer is to have financial security for the 2 kids and myself... as a self-employed contractor, I need some type of nest egg. The wife is a teacher so she will be good in retirement.

Having said that, my goal was to always have 3 pieces of rental property. One for each kid and then one for the nest egg.... just not sure how to reach that goal.

I figure that we are in our 40's now with maximum earning power and we can take another risk but you never know.

Just wondering, are there financial advisors out there that will just give me straight talk on financial suggestions and not try to redirect into something where they are making money? Always hesistant to contact one...

thanks again... it just helps even writing this stuff down
Thanks for the response.

It's strange because in your OP you stated that you hate debt, yet you are more than willing to use leverage to invest. You also state that you need a nest egg for yourself, and the equity in your home can certainly be that nest egg yet you are now willing to risk that by borrowing against it to invest in real estate.

Your wife is a teacher and will have a good pension. Being self-employed, do you have a RRSP? Does your wife make spousal contributions to your RRSP? Is your business such that it will wind down when you retire or will you still earn income from it in retirement? When are you planning to retire? What lifestyle do you envision for yourselves in retirement? Have you calculated how much money you will need and can expect in retirement? Is there an expected gap that you will need to meet in retirement? Are you planning to stay in your current home forever or will you retire to another home?

These are some of the questions that need to be answered about why you want to invest. Starting to get a better picture now of how you see your retirement years can help you plan now for the future that you want. Having more money should really never ben the goal - having enough money should be. After all, money you put aside now could be enjoyed now instead.
Member
Feb 13, 2017
233 posts
148 upvotes
toronto, ontario
stryka wrote:
Oct 27th, 2018 12:44 am
Just wondering, are there financial advisors out there that will just give me straight talk on financial suggestions and not try to redirect into something where they are making money? Always hesistant to contact one...
You should seek a fee-based financial planner who does NOT sell any financial products.

Yes, such advisors exist. They charge a fixed price based on the complexity of your financial situation (first 1/2 hour is usually complimentary) or charge a flat hourly rate. They do not earn any commissions from product sales.
Deal Expert
Aug 22, 2011
28040 posts
13855 upvotes
Ottawa
You basically have a $440K mortgage.
Sr. Member
Nov 8, 2006
680 posts
146 upvotes
Toronto
This is way too vague to be able to give a somewhat educated comment.

Such as whats your combined income, your age, who is on the title of each property, what/where are your kids going to study, what are your cashflows, savings, RRSP, pension, TFSA, goals, etc....
[OP]
Newbie
Oct 25, 2018
6 posts
PhotoSmurf wrote:
Oct 28th, 2018 3:52 pm
You should seek a fee-based financial planner who does NOT sell any financial products.

Yes, such advisors exist. They charge a fixed price based on the complexity of your financial situation (first 1/2 hour is usually complimentary) or charge a flat hourly rate. They do not earn any commissions from product sales.
Thanks. That is helpful.
[OP]
Newbie
Oct 25, 2018
6 posts
marketb wrote:
Oct 28th, 2018 9:13 pm
This is way too vague to be able to give a somewhat educated comment.

Such as whats your combined income, your age, who is on the title of each property, what/where are your kids going to study, what are your cashflows, savings, RRSP, pension, TFSA, goals, etc....
Thanks for interest in responding

> combined Income is $230k
> I mentioned age of in mid 40s.
> I also mentioned that one of kids will most likely study medicine. Older is in Grade 11 (computers career most likely) and younger is in Grade 9 (medical career most likely)
> Title for main residence is myself and wife
> We are thinking to put Rental condo under her name alone
> I also mentioned that monthly cashflow is $800 into savings
> Actual savings is only $4000 because every couple of years the amount takes a hit when we do a actual vacay and cuz HELOC payment is priorty
> RRSP as contractor is none
> Pension is only with my wife
> Goals... going thru other post to respond to those but owning more real estate is something I would like to do
[OP]
Newbie
Oct 25, 2018
6 posts
vkizzle wrote:
Oct 28th, 2018 5:41 pm
You basically have a $440K mortgage.
That is correct and that's the way I look at it too... Original mortgage plus HELOC
[OP]
Newbie
Oct 25, 2018
6 posts
Thanks for insight in your response... all good points... I will try to answer each.

I do believe in good debt with real estate. Hence the investment on the HELOC as leverage for downpayment of condo.

In my personal opinion, I don't really consider my home of residence as a nest egg.... its not doing anything for me when I retire. That is just me though.

I do not have any RRSP at this time and the contracting is within I.T., so I will not earn income after I retire. However, I failed to mention that I own a membership website that is currently generating $1.5k per month in a niche market. The goal is to get $3k per month

Everyone downsizes, and most likely I will do the same cuz the current house has too many stairs :) ... Based our combined financial monthly spending and cutting out expenses we won't have during retirement, I can see myself just needing under $4k per month in retirement and her pension would be a bonus.

Hope the above helps you understand the picture better




skeet50 wrote:
Oct 27th, 2018 11:30 am
Thanks for the response.

It's strange because in your OP you stated that you hate debt, yet you are more than willing to use leverage to invest. You also state that you need a nest egg for yourself, and the equity in your home can certainly be that nest egg yet you are now willing to risk that by borrowing against it to invest in real estate.

Your wife is a teacher and will have a good pension. Being self-employed, do you have a RRSP? Does your wife make spousal contributions to your RRSP? Is your business such that it will wind down when you retire or will you still earn income from it in retirement? When are you planning to retire? What lifestyle do you envision for yourselves in retirement? Have you calculated how much money you will need and can expect in retirement? Is there an expected gap that you will need to meet in retirement? Are you planning to stay in your current home forever or will you retire to another home?

These are some of the questions that need to be answered about why you want to invest. Starting to get a better picture now of how you see your retirement years can help you plan now for the future that you want. Having more money should really never ben the goal - having enough money should be. After all, money you put aside now could be enjoyed now instead.
Sr. Member
Aug 15, 2013
769 posts
390 upvotes
Guelph
One basic thing that you clearly are not doing is diversify. More than 90% of your net worth is in residential real estate (assuming you have put all your assets in OP) and you are looking for more RE, and are even prepared to take further debt against your primary residence to do this. I think that is a dangerous proposition. With most properties being cash flow neutral/negative, your only hope of gain is from appreciation which may come, but at a slower pace in an increasing rate environment.

Though, stock markets too are largely overvalued. The extended period of low rates and massive QE has inflated almost every asset (including RE and stocks) worth owning, and so its a bit difficult to come up the good investment ideas at this time.

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