Buy v.s. Rent (1) That good old debate

Buying vs renting a house is a debate topic that has been thoroughly analysed.  The decision is highly personal. Sometimes you may not even have a choice!

I have been paying rent since I left my parents home to go to University. However, I've recently purchased a house. With my experience with both, do I prefer owning or renting? Below are some common pros and cons for each side of the case.

Arguments for rent / against purchase:

• Higher mobility: Flexibility to move as your living requirements change (family grow, job change, school change). You can try to live in different area or house style with little commitment. 
• Debt free! No burden and no impact in case of interest rate rise or market crash. You may be equity poor but you are cash rich.
• Flexibility: You can choose to upgrade / downsize any time. If you earn more, you can move up within a few months.
• Tax benefit as rental expense is deductible or can be claimed as non-taxable income 
• Low upfront cost and transaction cost. You can move out from your parents before saving a substantial amount for down payment.
• Low maintenance cost: Avoid the recurring costs like property tax, insurance, maintenance.
• Hassle free: Just call the landlord when there is a problem around the house. 

When you live in the Big Apple, renting may seem to be the only option that make sense

Argument for purchase / against rent:

• A place to call home: Peace of mind for owning your home. Go home everyday knowing it is yours. Knowing you can stay there even after you retired.
• Equity building: Paying mortgage is equivalent to building your equity, which is an indirect saving in long term. You may be cash poor but you are equity rich.  While paying rent is like throwing money in ocean.
• Inflation hedge: Mortgage payment is fixed (assume stable market and interest rate) but rent inflats.
• Tax benefit: mortgage interest and property tax are tax deductible in most countries. 
• Flexibility on renovation and home improvement project to make it your dream house.
• Hassle free: You don't have to worry about being kicked out by the landlord and related moving cost.

Who doesn't want to own a detached house with double garage?

There is no right or wrong in this debate. Everyone and every city is different. I personally believe that if you have saved up the down payment, your rent payment can cover the mortgage, property purchase could be a good idea. At the same time (contradicting myself again), renting makes a lot of sense when you just start working, or when rental expense is much lower than mortgage payment on the same house.  What should you consider when deciding between renting or buying? 

Considerations in deciding between buy vs rent:

• Your income v.s. property price v.s. rent cost: If you can save significant amount even after rental payment; if it cost much less to rent than to own, than you could seriously consider renting before you make the big purchase
• Stage of life are you in: are you ready to settle? Are you ready for the commitment?
• Personal preference. For example, I liked a house close to the park and transit while Mister liked detached houses with proper garage. 
• Your age: Can you afford to wait it out?
• At this crazy roller coaster market, if you are a fresh grad, you can afford to wait it out and see if the market would cool down. 
• However, if you are in your mid-30s, almost 40, you may not have much time to wait, or else you may risk having mortgage payment outstanding way into your retirement. 
• Although! If you are young and green, you have time on your side to start growing equity as possible
• Your life style: Do you like the idea of mobility and moving to a new country or city every few years? Do you plan to take gap year off travelling every now and then? If so, renting may be your ideal. However, if you enjoy gardening, home improvement projects, and decorating your home, you should seriously consider owning!
• Can you afford the down payment? This is obvious. Especially if we might be at the brink of a market crash, interest rate hike, you need to put yourself through all sort of stress test to come up with the home purchase budget, and stick to it.
• Market value: I read about this "price-to-rent ratio" on Fidelity where if the ratio is below 20, buying is a better option. Frankly, I haven't really seen a big city home with a price-to-rent ratio below 20. But this can be a good comparison tool when deciding between a few properties and their "monetary value". 

Market condition had been a big deterrent for myself. Now that I look back, I feel pretty silly to have waited for so long before making the purchase.   Buy vs. Rent debate has many grey areas for considerations that warrant their own blog posts.  Let's go through them one by one:

• How much should I spend on my rent?
• The alternative called "rentvesting" where you  pay rent and receive rent. 
• Considerations for purchasing my first property.

Are you also debating between buying or renting? What are the questions bothering you? Or is this a no-brainer question for you?  Do share your thoughts!

Travelling with a toddler without breaking the budget

Greetings from the National Park! Happy 150th Anniversary to Canada!

I love travelling. Since Mochi was born, we have been on 7 flight trips together.  However, travelling with kids could be tiring and pricey if not done right. It may be easy to skip travelling all together or travel without kid. But time spent travelling with kids is such quality memory that would be treasured by the whole family for life. How to continue travelling frequently with kids?  

Here are some money tips on travelling with kids. They are great travel ideas, the saving part is just a "side-effect":

• AirBnb or equivalent: When we stay a city for longer than 2 days, Airbnb is usually our choice of accommodation.  In our Airbnb search, we usually pick an "entire apartment" with laundry facilities. We add parking if we rented a car. You get all sort of amenities (e.g. kitchen, laundry) that wouldn't be available in a hotel. You can cook simple meals to enjoy local produce you may otherwise miss out if living in a hotel without kitchen. You get a bedroom and separate living area, which is great for enjoying a glass of wine while the kids are sleeping. How else can you get a glimpse of local life without having a close personal friend in town?  
  

We have had great Airbnb experience so far and hoping one day I can contribute back to that community!

• Picnic: Picnic is a fabulous idea when travelling with kids. Just grab and picnic blanket, a few plates or boxes, some fresh produce, cheese, bread, wine, you name it. Kids can run freely on the grass while you enjoy in peace. 
  

Best way to enjoy a country

• Attractions for kids: There are many attractions that I would not visit if not for Mochi. Like the playgrounds and certain museums. However, not only do toddlers and kids visit for free or discount, those attractions are actually great places for me to experience a new country - like seeing how parents interact with their kids or learning about the history of the city.
  

Kid friendly attractions

• Bring your own car seat: Not all destinations is driving-friendly. We used to utilise public transportation on trips pre-Mochi. But Mochi is a napping toddler, and getting heavier by the day. To save precioua travelling time, we rented a car on some trips (like Okinawa, Banff, Naantali of Finland). Car rental companies charge you by day on items like Car seat. At US$10-50 a day, the cost adds up. We bought a light and cheap car seat just for this purpose. If you are travelling with the kid, (most) airlines check-in your car seat for free.  We easily recovered the cost of the car seat after 1 trip. 

Country specific tips

Kid friendly Helsinki, Finland

• Free lunch in Helsinki: Travelling with Mochi to Helsinki, I learn first-hand that Finland cares about children. During summer break, children get free lunches at Helsinki playgrounds! We happened to be at a playground waiting for a nearby restaurant to open. An Finnish-American mother invited Mochi to join her kids to wait for the free lunch. It is a light but healthy wholesome lunch. 
  

Free lunch for kids every summer at specific parks in Helsinki

• Free public transport in Helsinki: Public transport is free for adult travelling with a 0-6 year-old kid with a stroller/pram. 
• Free rides at amusement park: At Linnamaki in Helsinki, some rides are free of charge regardless of age (although some has height limit). Mochi was exhausted before we even finished all the free rides. We all had a blast!

Seoul, South Korea

• Seoul Children's Grand Park also has some free rides for kids under certain age / height. However, there are more restrictions. We didn't get to enjoy it as much.

Do you have some favourite kid trip destinations or saving tips for travelling with kids? 

Uhoh! I purchased at the peak of the housing market

From my "About me", you know that I recently purchased two houses. The two houses are in Canada where the housing market, volume and price, are both falling.  Did I purchased at the peak of the housing market?  A few friends also recently upgraded their houses. So what should you do if you purchased at the peak of the property market. Should I be worried? How could I calm myself and stop worrying? What should I do if I need to buy a house in this market?

What should I be worried about?

Negative equity: Meaning when you sell your house, the selling price cannot even cover outstanding mortgage. You may need to fork out the difference to close the sale. You need the consult the bank on how to settle the difference before selling. If you were hoping to cash out buy selling, it may no longer be an option. It may also be difficult to switch bank on a negative equity mortgage. So you should consider your alternatives before you sell.

Bank call loan: If the original mortgage require a minimum loan-to-value ("LTV") ratio, would the bank require you to reduce your loan to meet the LTV? That is usually not required as long as you keep up with your mortgage payment.

What you don't have to worry?

Value loss: If the house is your principle residence that you are living in, as long as you are able to afford the mortgage payment, there is little to worry. The value of living in the house and the saving in rental expense are value to you that should not be impacted by the market trend. As long as the property is a long term investment, you cannot worry too much. After all, you do not realise any gain or loss until you actually sell your property.

Sell at a loss: Some people may have purchased a beginner home hoping to upgrade in the future when they build a family or when heir income increase. With market crash and value drop, they make a smaller profit to upgrade to a new house. However, that newer bigger house is also becoming more affordable! However, if you really cannot deal with the idea of selling at a loss, then why not just keep the house? Rent it out!  Save up to snatch another beginner house when price is low!  You are still owning a house, although not the one you live in.

Wait out the market: You may be thinking that if the property market is calm and normal, you could have purchased a bigger house at the same price. Should I wait it out? Should I wait for the market to cool down? I could time it perfectly and purchase in the cheapest market condition.

Of course there are lucky investors who took the right bet at the right time and make loads. BUT, have you been waiting for the bubble to burst since 2008 or 9 years ago? It would turned out to be a wrong bet as the market had been rising for 9 years straight (2017).  You could have paid $75k on a $400k house in those 9 years.

Source: The Economist

Many people who try to identify the bottom of the market end up wishing "the lowest is yet to come". They think "I know it when I see it" when it comes to a cheap market. However, the market never seems low enough. What is the "bottom"? 10% drop? 20% drop? 30% drop? Market fell briefly in 2009, but it came back up before anyone could react. When the property market really take a plunge by 30%, would the employment market still keep up? Are banks willing to lend you money as easily? Would you be worried the market would tank so you wait further?

"Wait it out" is good for investors who already own a few properties. "Wait it out" is good for young lucky people. For me who wanted to own a home, has sufficient saving, and can afford the mortgage, "wait it out" is a costly mentality.

Riding on the market: In long run, even after a drop value go up again eventually. Even if the value does not go back to to your purchase value, you accumulate equity as you pay down your mortgage. For example, you would have paid $75k on a $400k property at 3% interest rate, 25 years term. Your alternative is to pay rental expense.  When I felt the market is prohibitively expensive, I purchased a smaller unit just to ride on the market. I hedged my risk of not owning a property.

With stock market, you are buying the performance and value of one (or many) companies. Companies may go bankrupt or go out of business. Company value depends on the market condition, consumer demand, government policy, amongst many other factors. Property is not like stock. By buying a house, you are buying into the prospect of the city and the country. You are buying into the population growth and people needing a place to stay.

Stock is risky, but still trend up eventually.

What to keep in mind when purchasing at the peak of market? 

Interest rate hike: One of the scarier part is that property price is high while interest rate is at the bottom. So let's put ourselves through stringent stress test. If the bank want you to go through a 6% interest rate stress test, you put yourself through a 10% interest rate test! If the bank want to ensure your mortgage payment is no more than 60% of your income, you put yourself through a 50% income test! Don't forget to put aside money for the rainy day. Then you are ready for any market condition.

We are in it for the long haul: If you don't want to sell your house at a loss in the future, don't even plan about selling! You can live small, you can rent it out. Just hold it out and the market will turn around.

Check your finance: Can I really afford that 2 garage detached? I want to be in the market, but I don't want to stretch myself. How about I buy a semi with front pad parking instead?

Look for undervalued house: Are there even under-valued house these days? There are!
- House hunt over a long weekend
- Get an inspection done on an "as-is" house where less buyers are interested
- Look into areas under gentrification, especially if you don't have kids yet. Like the areas right outside cabbage town.

Buy a solid house: Alternatively buy a solid good house. I know I'm contradicting myself, but these solid houses are those where value stands strong even in the toughest market. You may be paying more now, but you will also be selling for more in any market. What is a solid house?
- Good location - neighbourhood, school catchment, walk score, proximity to park
- Good bone - structure, footprint, lot size, detached/semi/row
- Good curb appeal
- Parking



What should you do if you own a house and you can afford the mortgage?   Plan it through different scenario. Then, just sit back, tune out, and enjoy your house!

Three Things I’ll Spend Money On (and Three I Won’t)

I read the captioned post by Mr. 1500 on BudgetAreSexy and feel inspired to write on the same topic. I'm going to share my 2 cents.
To most of us, money is a limited resources, so what a person is willing to spend money on tells you a lot about a person priority in life.

Three things I'll spend money on

Here are three things I would spend money on:

1. Taxi rides: It takes me over an hour to get home from work by bus or subway at less than US$1. While the taxi ride takes 15 minute max, and less than US$8.  It costs 8 times more to ride a cab but I still cab. I only do it one way. If I take the $7 difference multiply by 20 days, it costs $160 a month. It is more than worth it when the extra 45 minutes is 100% spent with Mochi. 
2. Quality shoes: I own a few pairs of Roger Vivier, Salvatore Ferragamo, Tod's and the like. They cost over $500 a pair compared to $100 or less for a pair of Nine West for other brands. However, the RV and SF are of high quality. They last 10 times longer than my other shoes. Not to say they are more elegant. I'd rather own less shoes but all quality shoes. 



To each their own


3. Ice cream maker: Ice cream is my favourite food! After contemplating the purchase for close to 10 years, I decided to splurge on a compressor ice cream maker after such a long time! When it is something you wanted even after 10 years, you have done your research and think through it, you just have to get it.

Three Things I won't spend money on:

1. Car: Public transport and taxi costs me $200- $500 a month even if I cab everywhere. I just don't see how can I justify getting a car when parking itself would set me back $500 a month.  Most cars also only depreciate in value. Of course the math would be different depends where you live. But I always choose to live downtown close to public transport. Unless my job gets moved to the suburb, I hope I would not need a car.
2. Books: My home is 5 minute walk from the flagship library in the city. Unless it is a book I loved so much or a book I cannot find in the library, I decided to stop buying books. I also donated all the books I won't reread. No point of owning another piece of dust collector.
3. Designer bags: You may want to ask, why would I purchase designer shoes but not designer bags? True that I have a few designer bags. I have had many bags from many brands Miu Miu, YSL, Marc Jacob's, Balenciaga, Tod's, Marc by MJ, Kate Spade etc. (Just typing the names make me feel excited). But I learnt from the lesson. Bag is not my passion or interest. I have had a few bags turned mouldy due to humidity and poor maintenance. I now own 3 designer bags and use them for different occasions. Some people pursue new style and sell them after a few months of use. If you love and maintain your bags well, you deserve to own them. But for me, leaving expensive bags turn mouldy... The bags deserve better owners! LOL. 

So these are my priorities and choices. To each their own. What you would and would not spend money on reflects on your passion and priorities in life. How about you? What are the things you would and would not spend money on?