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RetirementPlanning #RealEstateInvesting #FinancialAdvice
Hey friends! I have a male friend who is going through a divorce at 59 and he’s facing a big decision – to rent or to buy? ๐ ๐ธ Here are some key details:
- $250,000 net after selling the home
- $30,000 in lawyer fees
- $90,000 gross salary per year
Some say he should rent, others say he should buy a condo and invest the rest. What do you think would be the best option for him? Here’s my take:
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Consider Renting:
- Lower upfront costs
- Flexibility to move if needed
- Avoid additional expenses like property taxes and maintenance
- Consider Buying:
- Investment potential
- Building equity over time
- Potential for rental income if he decides to move in the future
I would suggest looking at his long-term financial goals, considering the current real estate market, and consulting with a financial advisor before making a decision. What advice would you give him? Let’s discuss! ๐ค๐ก
What does your friend want to do? Ask him?
If he buys, does he plan on staying in that location long term or does he want to be flexible?
What are property pricing in the area he is looking at? Can he afford those prices plus the rest of his expenses?
He should rent a condo for 1 year, let the divorce settle, the final bills get paid, etc. Go live on his own and figure out what he actually wants. Then go buy if that’s what he wants.
Did your friend ask for advice or are you inserting yourself as his unprompted financial advisor?
There are lifestyle and geographic questions to be answered before one can make suggestions here.
Wishing your friend the best of the future.
I’ve been looking at this decision also, with retirement a few years away.
In the 1980s, you could buy a rental property for roughly 10x gross rent. For example, a townhouse that rented for $500 (remember those days???) could be purchased for $60,000. Back then, a mortgage payment was not much higher than rent.
In 2024, a similar townhouse might rent for $2000 ($24K annual), but you can’t buy it for $240,000. Similary, a 4-bdrm home might rent for $3000 ($36K annual), but you can’t buy it for $360,000.
So, this means that rents are a much better bargain, compared to PP (purchase price). If your friend is almost 60, I think his only option right now is to invest that $220K @ 5% or more, and rent somewhere.
Rent, he won’t even qualify for a mortgage unless cosigner.
Best option for YOU may be to stay quiet
As a theoretical question and for the sake of discussion:
1) He has 0$, but does he have a pension? How much will he get from the CPP?
2) Depending on above, he may be in a sticky situation. If he can buy a condo for 250k in your area and is unlikely to want to move elsewhere โฆ Iโd strongly consider that. If he cannot buy for 250k. I would rent, possibly in a lower CoL to test it out.
3) In his shoes I would focus on reducing the probability to be homeless at 70 / unable to retire. I would be less concerned in optimizing every penny or waiting for a deal to show up. He is unfortunately a little late to the party to have a prosperous retirement – not much time to let anything compound id go in damage control mode.
4) If he loves his job, this may change the strategy a little, but still you never know how long you can keep working, one day or another your body will slow down
He should rent. Donโt know where he is located but after going through divorce, adding the stress of buying a home isnโt a good idea. He can put the money in a GIC and max out his TFSA while he rents and settles into his new life. Do not ask him to go see a financial advisor, they will either sell him mutual funds or ask him to be invested in some ETFs with high MER.
Invest the 200k into a GIC or some other high interest savings at 4-5% is $11,000. A 90k salary is about 4K a month in rent after taxes. Go rent somewhere for 2500 and continue investing the dividends
if i were your friend i’d buy a detached property somewhere that is not overpriced and just go live in it.
this country is 100000% committed to continuing its trajectory on RE and immigration. the current and next PM’s have outright committed to increasing both of the above, so you’d be crazy IMO to bet against this. RE is going up or at worst, staying flat. i would not make this my whole financial strategy, but given that you get to live in your investment vehicle, it’s a very, very low risk option if you spend at a wise price point.
buy a reasonably priced house in a reasonably desirable area and sell it for a reasonable sum or with some appreciation in a decade or two at end of life, or transfer it to kids for a tax free gift.
if he has children the only thing i would change about the above is to advise that he buy a more desirable place, *with as much land as he is willing to afford*. he should transfer this as a tax free gift to his kids at end of life. the dirt factory’s shut down, buy some while you can.
Renting and investing has to be the way.
For basically anyone, if your living situation might change in the next 5 years then you should not buy because you lose out with lawyers, closing, and moving costs. Considering how volatile and uncertain the next year of your friend’s life will be, I would recommend renting for at least a year.
Edit: Spelling
**Rent, because:**
* He has a great income and could afford it easily, even in a HCOL area.
* He has no savings outside of equity in his previous home, which would have be OK if he were 29 or 39 or even 49.
* Assume in a HCOL, 100K is 20% on a 500K condo. He can’t afford a 25-30 year mortgage because of age. Pouring all 200K in a condo is simply ill-advised.
* Irrespective of everything, at 59, he likely doesn’t have very many years left of great income.
* Rent is NOT throwing money away. It is an alternative way of living. Renting gives him flexibility; he can end the lease with no consequences, move to another city or move in with a partner, etc.
* Lastly, why would you want the burden of debt going in to your retiring years. It is mentally exhausting owning money.
If I were him, I would find a rent-controlled 0-1 bedroom condo. Ideally not from a private landlord as there is the chance they might sell the place in the long run.
Take the $220K, keep some liquidity and invest the rest in relatively safe GICs and/or ETFs. More importantly, use the funds on rediscovering himself (pursue hobbies, travel, whatever) and maybe finding new love (if that’s important to him).
Rent until the divorce is completely settled, get him to get in touch with a financial advisor and start saving money. If he can go remote, leave Canada and buy a place for cheap somewhere else.
Really not a fan of posts like this. Your friend should be doing his own due diligence and breaking down costs for himself.
You also don’t 100% know his finances. He could be making less than what he leads on – or alternatively he could be making more. You also have no idea what the breakdown of everything is. This frankly, isn’t your business to go as far as telling him how to spend his finances and how to live his life is a bit much. Its his business and he should be planning accordingly. If he needs advise, tell him to do a full breakdown and go to a financial advisor to weigh his options.
Just leave it alone, hes a grown ass man and can figure this out for himself, hes gotten this far in life.
Sit tight for 2 years! Rent. Wait for the dust to settle after the divorce. You need to adjust your lifestyle to What ever you want it to be!
Since he is closer to retirement, Iโd factor in where he wants to live when heโs retired.
My Two cents:
Buy a small house. He is getting older and in this day and having a home to live in as you age is critical. Also, a proper house can be used to generate income if one takes in renters/boarders. A condo could be used for the same but condo regulation and fees, not to mention the increased potential of big repairs for common areas makes it a less desirable choice in my opinion.
A house is still a great investment.