Personal Finance

Financial Advice for our current situation

  • Last Updated:
  • Jan 6th, 2021 8:10 am
[OP]
Newbie
Jun 8, 2009
4 posts

Financial Advice for our current situation

I've been reading through these forums for many years and I think this is the right place to get some advice. I'm struggling with how to allocate current available funds in order to reach our goals. We'd like to do some renovations in our home we purchased a year ago in order to update a few things.

Here are some quick points that may help with advice for us. We have been very conservative but I'm concerned we are not saving/investing enough for retirement. We will be turning 40 next year and have 2 kids (ages 6 and 7).

1. We owe $480,000 on our primary residence and would like to be mortgage free here in about 15 years.
2. Our previous family home is currently rented. Current value looks like it could be around 450,000 and we owe 265,000 (currently decided in 2 separate mortgages). It's my understanding being mortgage free on the rental is less important.
3. We would like to do some renovations and I'd like to cap those at no more than $100,000
4. We have about $80,000 in our emergency fund and I think we'd be comfortable keeping $40,000
5. I have about $25,000 in RRSPs and my wife has about $80,000. We have not contributed to our TFSA

I'm aware our money is poorly managed and for 2021 I'd like to do better. We each are currently making around $80,000 yearly gross and don't expect any large fluctuations with either although I am paid solely by commission.

Should I refinance the rental to fund the renovations and put some money in RRSPs/TFSA? I'm not sure what the assessed value would be of the rental is but would assume around 450,000. Similar homes are currently selling over $500,000 in the area. I look forward to the advice and constructive criticism. My apologies for the long post and thanks for anyone that got to the end.
18 replies
Member
Sep 13, 2016
242 posts
258 upvotes
- either of your mortgages are up for renewal? You can add 100,000 reno cost to your mortgage refinance at very a reasonable rate of 1.60-1.90%. This only works if your mortgage is up for renewal or you have variable rate mortgage you can refinance. No point in taking hit of 20-50k penalty to refinance fixed rate mortgage.
-Transfer some or all of your emergency funds to TFSA to get some tax free return.
-If you or wife has RRSP room available use it to reduce your 2020 tax liability. You will get bigger tax refund which you can use for renovations or TFSA contributions.
- Do you have any more debts like loans, car payments, credit cards etc?
Deal Addict
Jan 15, 2017
4331 posts
3915 upvotes
Ottawa
Need more information to provide great advice.

First on the issue of retirement investing. You stated that you are commission income. I assume that this means that you don't have a pension plan. If this is correct then $25k in RRSPs for you is clearly not enough. Does your wife have a pension plan with her work? If not, again, maxing out her RRSP also has to be a priority.

You also have 2 your kids. Have you started RESPs for these kids?

On the issue of the renos. You can go ahead and refinance the rental if you like, just know that you cannot claim it on your taxes as you are using it to renovate your primary residence. As for your primary residence, you stated that you owe $480k but you didn't tell us what the approximate value of the home is. A $100k reno is a significant reno.
Deal Fanatic
Apr 5, 2016
5507 posts
3926 upvotes
Calgary/Vancouver
I suggest you think long and hard about renovating. Renos especially $100k+ rarely return back the value.
Sr. Member
Jul 24, 2019
879 posts
1385 upvotes
Canada
OP, you owe over 700000 to banks.
Sell both homes and rent.
Build up your retirement funds
. Start fresh in 2021 - debt free.
Member
Apr 16, 2015
472 posts
679 upvotes
Personally, I'd sell the rental property and use the proceeds (after paying off that mortgage) to fund your renovations. I'd put the rest into RRSPs which will offset the tax on the sale and put something aside for retirement.
Member
Dec 5, 2017
222 posts
173 upvotes
Is your rental providing a decent cash flow? How much? If not I would sell it.

What is your current savings rate? Can you cash flow the renovations? As another asked, do you have any other debt like a car loan? 3/4 of a million debt, that is a lot and you are looking to add to it. I'm not certain what you mean by conservative when reading your post.
Member
Apr 16, 2015
472 posts
679 upvotes
kimmelite wrote: OP, you owe over 700000 to banks.
Sell both homes and rent.
Build up your retirement funds
. Start fresh in 2021 - debt free.
I don't think you have to be quite that extreme, since there is value in owning your own home. But that is a staggering amount of debt on a $160,000 income and I certainly don't think you should even be thinking about borrowing more money for a renovation. Unless the rental unit is bringing in a significant amount of income (after accounting for mortgage payments, maintenance expenses, insurance, future capital gains tax, etc.). I think you need to seriously consider selling it in order to pay down debt and boost your savings.
Sr. Member
Oct 28, 2013
507 posts
440 upvotes
Not Toronto
I'd consider selling the rental unless you bring in more in rental income than the costs to own.

To pay off your principle mortgage in 15 years, you need to pay about $3k/month. If you add $100k to that mortgage then you are looking at $3600/month which seems high with a $160k gross income and two kids.
Deal Addict
User avatar
Jan 15, 2017
1322 posts
835 upvotes
integrator wrote: I'm aware our money is poorly managed and for 2021 I'd like to do better. We each are currently making around $80,000 yearly gross and don't expect any large fluctuations with either although I am paid solely by commission.
At first glance, you have a net income in the neighbourhood of $8K/month and mortgage payments of $4K/month, with property taxes probably close to another $1K/month. That leaves you with about $3K/month to live on, which is not a lot for 4 people.

I think I would be tempted to sell the rental and put an additional $280K ($200K + emergency savings) against your current home...although you probably don't have that much prepayment room available.

You're over-stretched.
Deal Addict
Jul 21, 2005
1837 posts
912 upvotes
Alberta
taxrage wrote: You're over-stretched.
This. I would be so freaking stressed in this situation. I would be selling that rental property yesterday. Use proceed to pay off the mortgage on that property, rest to pay down as much of the other mortgage as possible (without taking a penalty), and rest into TFSA. The 80K you have in emergency savings should be sitting in TFSA mostly, up to the limit, rest in normal saving account. Hell I would be dropping as much as possible of that savings into paying off any one of your mortgages, but that's just me.

Your rental property might be covering the mortgage on that property and hopefully some extra as profit, but you are looking at many many years for it to cover the mortgage, and that's assuming it's always rented. So while you wait those many years, you are gaining hardly anything from it, while you are basically treading water and stretching yourself so thin at this moment.

Anyways, some people are fine living in debt, I can't stand it, so my opinion might differ from others. I'm 36, married with no kids, house paid off and about 250k in RRSP/LIRA + Maxed out TFSA for retirement and I'm stressed out about having enough in retirement....you got kids and a ton of debt and older...with almost no retirement savings, if that doesn't stress you out, I don't know what else will.
Jr. Member
Nov 8, 2005
156 posts
316 upvotes
Halifax
I'm reading "I want to spend $100k on renovations but I don't have the money". I'm going to be the guy that says if you can't afford it, don't buy it. As Dave Ramsey says, act your wage.

If you want it, save for it and pay cash. You're already in debt up to your eyeballs. Don't dig a deeper hole. $100k in renovations is unlikely to increase your home's value by $100k, and unless you are planning on selling in the near future, that's a moot point anyway (if you sell in 10-20yrs then the renos will be worth far, far less to a future buyer).
Deal Addict
Jun 14, 2018
1084 posts
1241 upvotes
$100,000 sounds like a major renovation. Do you have to do all of your renovations at once? If you have $40,000 now (from your emergency fund), maybe just do the ones that are most important now that can be fit within this budget. Then in a couple of years or so, you can think about doing more.
Jr. Member
Nov 8, 2005
156 posts
316 upvotes
Halifax
MarinersFanatik wrote: $100,000 sounds like a major renovation. Do you have to do all of your renovations at once? If you have $40,000 now (from your emergency fund), maybe just do the ones that are most important now that can be fit within this budget. Then in a couple of years or so, you can think about doing more.
Please do not spend your emergency fund on home renovations. That is a terrible idea, and completely invalidates the purpose of such savings.
Deal Addict
Jun 14, 2018
1084 posts
1241 upvotes
Stewx wrote: Please do not spend your emergency fund on home renovations. That is a terrible idea, and completely invalidates the purpose of such savings.
OP currently has $80,000 in their emergency fund and has stated in the first post that they are comfortable keeping only $40,000 in there.
Deal Addict
Nov 23, 2003
2066 posts
537 upvotes
Lot of knee jerk reaction in this thread. I need to know the value of your principal residence and for the rental property the cash flow and the market it is in? Is it in GTA appreciating like crazy.

For example if your principal residence is 1.5 million +and you owe only 480k and your rental is cash flowing positive and is it in GTA..you are in much better position than lot of people here advocating sell everything and buy tfsa and RRSP. Real estate builds wealth in the right market.

Once again, I am not saying you are financially sound or not because a lot of incomplete info.
Deal Addict
Mar 10, 2010
1466 posts
442 upvotes
Is the gross $80 000 income each or all together? It's not clear in the OP and this would make a world of difference if it was 80K gross combined.
Deal Addict
Jun 14, 2018
1084 posts
1241 upvotes
Clacker wrote: Is the gross $80 000 income each or all together? It's not clear in the OP and this would make a world of difference if it was 80K gross combined.
$160k total
We each are currently making around $80,000 yearly gross
Deal Addict
Oct 26, 2003
1389 posts
341 upvotes
Ottawa
160k gross with 700k mortgage... how in the world are they giving out credit so easy these days. hopefully that’s not including the rental income. On top of that with two kids and $0 TFSA your definitely stretched. Unless your guaranteed for a large size inheritance down the road or secure employment (government, medical) I would definitely get rid of the rental.

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