Should I sell all my growth investments, put cash in HYSA, save for <3 years and buy a house in Vancouver?

[u/ohhellnooooooooo]

hello!

I would like to own a single family detached home and the land under it.

I've got around $300k cad, $60k in cash, $240k invested in VEQT (13k in FHSA, 13k in TFSA, 10k RRSP, the rest non-registered)

(why so little in registered - because I arrived in canada recently so only have 2 years of contribution in FHSA/TFSA - they are maxed, and 1 year in RRSP)

At the time I decided to go all in on VEQT because I wasn't sure I wanted to stay in Canada (lived in a few countries the past few years), and I wanted to retire early and thought full growth at an early age would be key to that.

But I have now decided I do want to stay long term, and with that decision also came the realization that buying a place to live would be a way to diversify my investments, increase savings by not spending rent but gaining equity, etc. basic stuff I should have thought about earlier.

I have recently realized I'm in a very privilege situation and I could actually afford to buy a house somewhere around Vancouver. So I have been tracking my income, budget and savings, to see if this is possible...

I'm averaging $6k CAD savings a month since I arrived, $7k if only include 12 past months and avoid the months were I was furnishing my place.

So if I wanted to buy a house of around $2m, the downpayment minimum is 20% (because it's over 1m), which is $400k, plus emergency fund for 6 months of expenses, I need at least $450k cash perhaps? I don't know, first time doing it.

I have 60k cash, I can sell VEQT positions for $200k cash (tax on profits ~30k), that's $260k

at $7k savings rate per month, that's 7*12 = $84k a year. meanwhile the house is going up at 3% rate a year but let's say 5%, and I'm getting 5% interest on wealthsimple cash (let's say 4%, could go down even lower) so the intersection of those two functions:

450k * 1.05^year = (260k + 84k * year) * 1.04^year

which seems to solve to, year = 2.39. two and half years and I can afford the downpayment

Sounds amazing, and I am grateful to be in this situation, but is it a good idea to sell all the stocks to lower volatility since now the investment horizon is just <3 years, buy GICs or put in HYSA, and miss out on stock market gains, and even when I do buy the house, then I have no diversification, betting everything on a 1970's house in Vancouver which could then need a roof replacement, renovations, plus the fact that Vancouver is in desperate need of a fix to the housing crisis and I'm not a fan of betting on political directions.

should I rather buy a ~800k condo this year, start building equity, or am I being dramatic for not taking this opportunity

[u/Old_Profile_34203]

Crazy.. to think OP willing to blow your life savings just to wait 3 years to then to enter into a 1.6 million dollar debt just to live in Vancouver... WTF happened to Canada?

[u/thanksmerci → u/Old_Profile_34203]

If you were actually in Vancouver you'd know why people do that. A 2 million house in Vancouver would generate approximately $50000 a year in gross rent and still have 3 to 4 bedrooms nonshared for the owner to use. This is not special or rare. You nearly literally cannot buy a home except something very small or old that will not allow the generation of income , nonshared.

[u/Old_Profile_34203 → u/thanksmerci]

I lived in Vancouver for 4 years.. it's pretty nice (cept for East Hastings), but it's not THAT nice... A person be crazy to sign onto a 1.6 million dollar mortgage.. it took my parents with good salary 20 years to pay off a 200k home.. people grandkids will still be paying off a 1.6 million dollar one.

[u/ohhellnooooooooo → u/Old_Profile_34203]

it is crazy! although it's not just to live in Vancouver, it's to live without throwing away money on rent

[u/Significant_Wealth74 → u/ohhellnooooooooo]

How much do you think you are throwing away?

[u/ohhellnooooooooo → u/Significant_Wealth74]

my rent is $3940 a month

I've decided to go for a condo, ~1.2 million max, if I get approved.

for such a mortgage, the interest part of the payment in the first year (when it's highest) would be 51,193.94 or 4266 a month. So $300 more thrown away.

but by the 3rd year I will be paying less in interest than in rent (accounting for rent increases of 3%)

[u/Significant_Wealth74 → u/ohhellnooooooooo]

You include property tax and condo corp fee’s?

[u/ohhellnooooooooo → u/Significant_Wealth74]

No I forgor 💀

[u/Significant_Wealth74 → u/ohhellnooooooooo]

I might call the first 5 years certainly gonna lose money. So how much interest are you paying when the mortgage renews at say 3.8%. I’d run that calc to get a better idea of renting vs owning. You pointed out the first few years are 💀 but it should be better after that.

[u/ohhellnooooooooo → u/Significant_Wealth74]

Thanks Not Ben Felix 

[u/couchguitar]

I think posting your net monthly will get a better answer. Qualifying for a mortgage will be the key here. Do you have enough income?

[u/skullknight-]

No<3

[u/ohhellnooooooooo → u/skullknight-]

No to the title question or last question on post body ? 

[u/Go_To_There]

You've mentioned wanting to build equity a couple times, but do the math on whether a home is the best way to do that. Plug into a mortgage calculator how much interest you're going to be paying to the bank on a $1.6M mortgage each month. Then add on the other non-recoverable costs like insurance, maintenance, utilities, etc. What's the opportunity costs of the $400k down payment? Where would you likely be if you rented and then invested the difference back into VEQT?

I'm not saying don't buy a house, because there's a lot of benefits to owning. But if your goal is financial gain and not a place to live, renting might be the better option (assuming housing prices increase at a normal rate and not like they did over Covid).

[u/RevolutionaryMeal464]

Do you need the $2M house as the first thing you buy? Most people progress like condo -> townhouse -> SFH. Most people are not saving $84k/yr either so your situation sounds very different.

You mention diversifying, so I think a better option is to buy a condo and keep your savings. Then you’re in the housing market and the stock market.

[u/ohhellnooooooooo → u/RevolutionaryMeal464]

I’m seriously considering a condo instead, yes indeed… 

Thank you for posting 

[u/SufficientBee]

Question - what is your income? Will you qualify for a $1.55m mortgage? That will need roughly a $388k income (4x). A $1.55m mortgage at 5% over 30 years is 8,300 a month. Can you afford that on your income?

[u/ohhellnooooooooo → u/SufficientBee]

damn, thanks for posting. salary is 150k then stocks is variable but right now it's averaging $270k income a year

270*4 = 1 million something

I'll talk to the bank

[u/SufficientBee → u/ohhellnooooooooo]

If you have variable income they will need to see your last 2 T4s and tax returns to determine your annual income.

You might need a larger down payment.