Rewriting Real Estate Rules with Asif Kasim and Steve Saretsky

The Next Generation of Homebuying - Part 1

For many, buying a home is a big landmark in their adult life. Your parents and grandparents have built and bought their own houses to settle in and start their families. It's a goal the youth pursue whether they can afford it. Unfortunately, today is vastly different from the experiences of older generations. Buying a home in the Canada housing market[1]  today isn't the same as when your parents did.

In this three-part series, Half-Banked focuses on what buying a house is like. For this episode, we examine the rules and advice older generations followed to buy a home and test them against today's market environment. Joining us are Asif Kasim and Steve Saretsky to share their insights on the financial and real estate side of buying a home. They pinpoint which rules still work and which ones ultimately need an update.

Join us in this episode as we change the rules of the Canada housing market and rewrite them to fit today’s generation of homebuyers.

Here are three reasons why you should listen to this episode:

1. Find out the best downpayment percentages, rates, and budget you should consider when buying a home.
2. Discover whether or not your home should be your biggest investment.
3. Learn updated Canada housing market rules for today's real estate environment.

Resources

●      Asif A. Kasim: LinkedIn | Integrity Tree Financial

●      Steve Saretsky: LinkedIn |Saretsky Group

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Transcript

Asif: The challenge is the old school thinking was taking into account the pricing of yesterday, when all these rules and regulations were made, they were made in an era of time where it was applicable then. They weren't accounting for and nobody 20 years ago would tell you that a house in Scarborough, Etobicoke, or in Toronto would cost a million dollars or more. You'd be lucky if they said it was over 250.

Bethan: Welcome back to Half Banked. I'm Bethan Moorcraft.

Cadeem Lalor: And I'm Cadeem Lalor.

Bethan: When it comes to achieving your financial goals, buying a home is basically the final boss for young people. Maybe you've got a great job, you're paying off his student debt, you just don't know if you're ever going to have enough money to actually buy something.

The typical age of first time buyers in Canada ranges from 25 to 34 according to Canadian Mortgage and Housing Corporation. That gives me just five years to get my act together, which frankly, is really scary.

Cadeem: Young people are always getting the same questions. When are you going to buy a house? When are you going to settle down, but our parents and grandparents had a totally different start to their young adult lives than we do today. And that's especially true when it comes to buying a home.

Bethan: To explore this issue further, we are doing a three part series on home buying. Today we look at some of the rules our parents' generation relied on when finding a place — rules that are so often repeated to people like us even though life has changed drastically.

Cadeem: We brought in a couple of guests to help us update these rules of thumb for 2023 and today's generation of first time buyers. First we have Asif Kasim, President and CEO of Integrity Tree Financial based here in the Greater Toronto Area. He has been a mortgage broker and financial advisor for 20 years and has seen how things have changed. Welcome, Asif.

Asif Kasim: Thanks for having me.

Bethan: We also have Steve Saretsky, a prolific retail estate agent and founder  Vancouver-based Saretsky Group. Steve, welcome.

Steve Saretsky: Thanks for having me. I'm looking forward to it.

Bethan:  So we've collected five rules of thumb that some would argue become myths over time. And we want to rewrite those for first time homebuyers today with the help of our special guests.

Cadeem: So let's start with one of the biggest struggles for young Canadians today: saving up enough cash to even think about looking at a home. So Asif, I just want to ask you about the common advice of having that 20% for the down payment.

Asif: With regards to getting into a home, putting down the 5-20%, the old school mentality is definitely avoid the insurance premiums, your school mentality is always about put down as much as you can.

The challenge with today's market and the way housing prices continuously appreciate and rise is that you'll be chasing that 20% for quite some time. And incomes haven't risen to the same degree. However, appreciation has risen.

So as opposed to struggling to always do that, I advise my clients put as as much as you can down initially, but you don't have to max out at 20%. Get into the market while you can. Because if you're chasing that percentage down payment, you're going to be doing it for a long time. And it's very difficult to do.

Bethan: Steve. According to ratehub.ca, the average price of a home in Vancouver dropped from 1.26 million in March to 1.14 million last month in April. Getting together a 20% down payment would mean that you'd need to find $228,000, which would seem like a very impossible task for many first time homebuyers, let alone, you know, second or third time.

Are you hearing this concern from your clients? And how are they kind of addressing some of these challenges?

Steve: Yeah, I think so. I think we're seeing clients having to push further out from where they want to be, maybe they grew up in a particular city. And in order to access housing, they're either having to move further out, or sometimes we'll see as well, the property that I want to buy in to live in might be a million dollars, like that's what I'm comfortable living in. But I don't have that $200,000 And I can't wait, you know, another five, six years to save up.

So what we are starting to see more and more of is saying okay, well, how about this, I'll continue to rent, but I will go out and buy a one bedroom condo somewhere in the suburbs, and put my down payment that I've been saving to work. And then when I'm ready to go buy my primary principal residence, I might look at selling that investment five years later, hopefully there's a bit of appreciation there, some principal pay down from the debt, and then I can roll that into the primary residence that I want to live in.

So people are looking and saying, Well, again, if I can't access the housing that I really want to in order for me to live in, then I have to get access to the real estate market in some way or another and so they're doing that through investment properties as a step onto the housing ladder.

Cadeem: So if I were to ask you, what would you view as a possibly updated rule in terms of the downpayment? I'll start with Asif first.

Asif: I would say my opinion is you don't have to put 20%. My revised perspective would be put what you can down, put what you can afford down even if it's as minimum as 5%. Just get into the market while you can. That's more my perspective, I don't pressure clients into getting 20% down.

Steve: Yeah, I think that, you know, the notion of saving for the downpayment and getting to that 20%, I think was a time when you know, your incomes went a lot further. And it was easier to sort of save that downpayment. House prices were obviously lower. Today, given the trajectory of house prices and given where mortgage rates are at these days, yes, they're a little bit more elevated today.

But in general, they're still low from a historical context. So, you know, especially during the pandemic, I think we had mortgage rates at, you know, like one and a half percent give or take, and like, from day one, roughly 60% of your payment from day one is going towards a principal pay down.

So the idea of waiting to sort of save 20%, I don't think makes a whole ton of sense. So I think it's just getting in when you can actually afford to get in, and not necessarily having to wait for that 20% down payment.

Bethan: Our second rule that we want to pick apart is that you should never spend more than 33% of your income on housing — essentially don't buy too much home. And the idea behind the rule is that your total monthly housing costs, including your mortgage payments, property taxes, and insurance should not exceed 33% of your gross monthly income.

So let's say you earn $5,000 a month after tax using the 33% rule, your total housing costs would be no more or should be no more than $1,650, which doesn't seem like it would go particularly far when the average Canadian house price in 2022 stood at approximately $704,000. Just pretty steep.

So, Steve, with that in mind, and the 33% rule, what kind of home does that look like for the average owner today? What can people get?

Steve: Yeah, I think it's obviously incredibly challenging. I think that that's why we're seeing obviously larger gifts, gift money from parents and stuff like that either as equity passed down, we call the the front on the inheritance.

And so because yeah, I think if you look at these sort of traditional old school metrics, the numbers are just really, really hard to pencil. Obviously, I still encourage people, I think it's still a wise thing to do is to keep it as close to that ratio as possible. But basically, what people are doing is they're coming up with larger down payments, so they're not, you know, hemorrhaging cash every month, trying to sort of stay afloat and pay a lot of their income towards housing.

But no question. I think you see it not only in the resale market, but in the rental market. People are getting extremely close to these critical thresholds.

Bethan:  I'm particularly interested, you know, we've got Asif here with us in Toronto. And Steve, you're in Vancouver to very expensive housing markets in Canada. Steve, have you seen kind of people moving away from Vancouver or even kind of the the Greater Vancouver Area BC because they just can't get on the ladder there?

Steve: We are, to some extent, I mean, to be honest, I'm a bit surprised how resilient it's been, I thought, you know, there would have been maybe a larger exodus years ago. But I guess people, I think I always come back to this and frame it up for you know, we get a lot of US observers about the craziness of the Canadian housing market, but I always say the reality is, is like most people in Canada tend to funnel into the two major metropolitan cities, which is Vancouver and Toronto.

So you'd get these, you know, egregious the high house prices, because I think that's ultimately where the economic opportunities are. And so, you know, you talk about new immigration coming into this country, which is, you know, a million people in 2022. Like, where are they going? Well, they're going where they can get jobs. And that tends to sort of ultimately end up in Vancouver and Toronto. This is an issue for policymakers.

But what we're seeing, I guess, on the west coast is yes, and people are obviously moving further away from the city core. We saw, particularly during the pandemic, as it became easier to work from home, the suburbs are obviously much more affordable. And so people started pushing further and further out.

We're seeing lots of demand in these sort of tertiary markets, which would be like in Vancouver. And so in BC, we'd be looking at like the Okanagan, we'd be looking at Vancouver Island. So people looking to sort of more smaller, smaller cities, smaller towns, if you will, to sort of basically get close to affordability.

Cadeem:  And Asif, it'd be interesting to hear your thoughts on that as well. If you have seen similar things yourself with being in Toronto?

Asif: Oh, for sure. I agree 100% with Steve. What we're finding here is and I look at Vancouver, the Vancouver market and the Toronto market as junior versions to Los Angeles and New York, right. With population growth, the centers of those cities used to be the most expensive and then you start moving further and further out to the burbs, where, once upon a time Manhattan was New York, like considered the main part of New York. Now you're going out to Long Island, you're going out to Queens, you're going further and further away.

Well, in Toronto, you're moving out to Durham Region, Peel Region, which is Mississauga, Brampton, you're going up beyond Markham. We only have a few ways to grow, because there's a lake right underneath us. So, and similar to Vancouver, you only have so many places to go because you have mountains on one side and ocean on the other side. So inevitably, you're going to have to go further and further away.

With pandemic happening, 100% what Steve said, you work from home now. Well, you don't have to worry about the commute anymore, you can move further away and still do your job and still collect your paycheck. So we're finding that affordability is moving outwards. It's not as central anymore as it used to be.

Housing prices are still going up. They're not really coming down, maybe maybe not as rapidly as it once was. But it'll still continue to rise over time. But I'm finding the younger generation shifting further and further away, and trying to either work from home or find other employment further away from GTA.

Cadeem: So going back to that rule that you shouldn't spend more than 33% of your income on a home. How would you rewrite that rule today? Steve?

Steve: I don't know if I'd rewrite it. But I would say this just makes more sense to have the household put together a proper budget and saying what are we comfortable with here, and not having to stretch yourself while everybody might want to own real estate. If you're really stretching yourself and having to cut off vacations and restaurants and dining with friends and family, then maybe homeownership isn't quite right for you at this moment.

Or maybe it's time to look at, you know, different communities that are more affordable. Or maybe you need to go and rent for another couple years while you save. So I think it's just you know, you don't want to be over leveraging yourself. So I think the 33% I don't know if I’d stick to that exact percentage, but I think it's still prudent advice.

Asif: I agree. I don't think I would change the rule, I just know that it's very difficult to adhere to because of the way things are today. So keeping it in place, as much as it makes sense, isn't overly applicable in today's world because cost of living is significantly more. From a financial standpoint, when I'm qualifying mortgages, so on one hand, I teach mortgages, when we teach, we teach around 33%. But on application, we're using about 40% to get clients approved.

Majority of your mortgage applications being approved, approved today is using 40% of their income. So 33, as much as that's nice. It's not really applicable and relevant in today's world. I don't know, I don't know if I’d change it. Because if you change it and you increase it, that only pushes the parameter parameters up higher.

It's like speeding on the highway, right? The speed limit is 100. Everybody does 120, right? It's the same idea. If you change it from 33 to 40. That means they're going to make exceptions up to 50. And that just makes it even worse, I keep everything as is.

Bethan: Alright, so I think we should move on to rule number three, which is that fixed rate mortgages are always the safe option. Cadeem, I think that you're going to take this one.

Cadeem: So we've seen from what we've looked up so far appears fixed rates are kind of more popular, and variable rates, seems like they were more popular during COVID, kind of 2020 21. And then obviously, with Bank of Canada interest rate hikes, not so much now. So there's kind of a double edged sword of is the interest rates rising versus decreasing?

So I'm wondering — address this to Asif first — what is your opinion on this? Which one is kind of a safer option for a long term investment with a home?

Asif: I would say I've always been a proponent for variable rate. When I got into the industry, variable rate was a way to go and other than one or two periods of time variable rate has always been the cheaper option.

Now, specifically for short, or looking shortsightedly, the last 12 months have been horrific, right. Most people would agree that the fixed rate has been the best option. But I don't believe the Bank of Canada is going up anytime soon or any more. So it could stay where it is for a little bit and then start heading back down again over time.

Historically, the variables always been better also because you can break your mortgage and have a smaller penalty versus having to pay an IRD cost. It offers flexibility and part of that conversation with clients is you know, everybody has a five year plan. Everybody says yeah, I'm going to be in the house for five years.

There's a lot of clients, a very large contingent of clients who break that mortgage in under five years, and they end up having to pay a penalty. Well, your penalties are cheaper if it's variable versus fixed. So I mean, that's a conversation to be had. It's not always the case, but more times than not. But I've always found that variable tends to be just the lower interest cost to the client.

Now, I say all of this, assuming you’re a seasoned client buying. If this were a first time homebuyer, I often tell them: go fixed. And the reason being is you're brand new to homeownership, you need to have some degree of consistency and comfort in this sort of thing. And if you can't stomach fluctuation, as a first time homebuyer, get used to just paying a mortgage in general, just get used to being consistent and knowing exactly what's being deducted.

If you're a move up buyer, you're I would call it an experienced homeowner. And you have the stomach to handle possible fluctuations, I’ll always recommend the variable.

Cadeem: Okay, thank you. And because that's an interesting take on it, too, I guess just basically almost like a starter, better to go with the fixed just because of the stability it offers for someone who's new to everything. And because I'm wondering, Steve, what are your thoughts on that?

Steve: I mean, I think that's always just gauging, you know, the individual's risk tolerance, you know, how much cash they might have? Right? I mean, obviously, yes, historically, I would agree that, you know, the historically variables have outperformed. So there's certainly an argument for that.

But I think it's about understanding one's risk tolerance. Yeah, I agree. Like, you know, if you're a first time homebuyer, and you've scraped together, you know, 8% of the downpayment, to squeeze into the housing market, and you don't really have a whole lot of cash sitting around, well, you probably don't want to be taking the risk of having floating variable. So you want to lock in those costs. Right now, if you're a higher net worth individual, this is your third property, I would totally agree on that angle.

I think, you know, I think the other thing to sort of keep in mind, it'll be interesting moving forward, nobody has a great crystal ball on like, where interest rates are going. But like, I think the part of the reason that variables have also outperformed is that we've really been in like, a 30 year cycle of just historically declining interest rates. And so at some point, we've hit this kind of lower bound, we saw in the pandemic, right, where, where interest rates get to zero, and like, there's really, there's nowhere else for them to go.

But you know, in the best case scenario to stay on the floor. So now, of course, we've seen this sharp rise, which I don't even think the Bank of Canada was prepared or planning for. So, you know, rates are hard to predict. But I think like in the environment moving forward, I'd be curious to see if the old adage of variable will outperform just given that interest rates seemingly don't.

My view is that next year, I think we'll see some rate cuts from the Bank of Canada. So that will provide some, some some opportunity maybe for variable people who want to roll out of variables and look at locking in fixed rates. So it'll be interesting.

Cadeem: So looking at rule number three fixed rate mortgages are always a safe option. So you have had some support for variable rate mortgages. So I'm interested to see, would you change this rule? What are your thoughts on that? First, Asif.

Asif: I don't know if I'd make any changes to it? I think it really comes down to the client's comfort level with risk. Can they handle fluctuations? Are they more risk averse, and they prefer to have static payments all the way through? It's a personality thing more so than anything, because at the end of the day, if we're looking at the general numbers, we've talked about this variable has historically outperformed. But there has been a few occasions where the fixed rate has been about our product.

But that being said, it really comes down to can you put your head down at night and sleep without, you know, being stressed out about it? So I'm not sure if there's anything I'd change on that. Go with what you're comfortable with.

Steve: Yeah, I think the same thing? I don't know. I think it's a personal risk assessment. I think it’s understanding your cash flow, your lifestyle, your plans, the property. So I think there's a lot of information to take in and really self assess. So yeah, again, I don't think I would change that rule.

Cadeem: And then I think with that, we could move on to rule number four. This is one that we've come across, maybe a little less hard data on, we kind of want to ask you too if it's something that you're familiar with, as well, or something that was a kind of a rule of thumb in your eyes was: always staying in your home for at least five years.

So we recommended that you do that so you can recoup transaction costs, better chance of building equity, a better chance of able to basically sell for more. So what are your thoughts on that? And I'll start with Steve first.

Steve: I mean, I think it's a pretty good general rule of thumb, like we tend to tell clients like you should when you're planning a purchase, we usually say minimum five years because like, yeah, the market can go sideways, which is not unforeseeable. I know everybody's so used, you know, in the last 10 years, everybody's just so accustomed to the market goes up 10% a year.

But you know, if you look in the period of the 1990s, prices moved sideways for a decade, so like we always say that's a possibility. It's not the likeliest of outcomes, but it's a possibility that one should always plan for it. So we just say minimum five years to obviously to recoup, transfer taxes, realtor fees, etc, in order to move right, so what like what I'm saying is basically, if you I've had people come to me and say, hey, you know, we're, we're a young couple we just got married, we're planning to have kids really soon, and we're gonna buy this, you know, studio apartment and then we're going to automatically our next purchase is going to be a townhouse in two years.

And it's like, well, how can we be sure that the market is going to go up enough that you're going to be able to sell your studio apartment for profit, and then roll it into a townhouse purchase, like, so we, we always try to encourage clients to have like a longer term outlook. Now, again, obviously, the five year rule, I think, has been less of a talking point, because the market has basically gone up 10% a year for the last 10 years. And so, it's been easy for people to trade in and out of houses every two, two and a half, three years.

So we're seeing a lot of people, if you time the market correctly, we're able to climb the ladder very, very quickly. But I don't know if that's a recipe for success moving forward, you know, so we always try to encourage people to err on the side of caution.

Asif: I think the five year thing comes from people getting five year mortgages, I think a lot of things are timed around “When’s your renewal?” so let's not break the mortgage renewal itself. Right. I think a lot of decisions financially are based around five years based around a five year mortgage, fixed variable, whatever it may be.

I 100% agree with Steve: you need time to recover those costs. Selling at a profit? And yes, in the last 15 years, maybe 20 years? Let's call it 15 years, the rate of appreciation has been so astronomical. And it's out of what we knew historically, that yeah, it's not a conversation of five years. In two years, I could flip a property and make significant money.

I myself got myself into a transaction in around 2012, purchased a condo downtown Toronto and two years later flipped it for an extra $300,000. Right. That was just the market at the time. It's not normal. There's no logic behind it. It's just what was happening. Now, would I dare do that in today's market? Probably not. Things have slowed down, things are getting a little bit more different, or what it used to be.

Now, holding that property for five years to ten years makes sense. If you're in the rental part market, I know for sure. You want to hold it for as long as you can and let someone else pay it off, write off that interest. And I mean, that's just my perspective on it. But I don't think flipping properties quickly makes a lot of sense.

Even the mentality of buy a pre con, wait till you take possession and flip it a year later. I don't think that's happening anymore. I don't think that those major profits are happening the way it once did. Forget precon condos, but even houses, I don't think you're seeing the same games that we once did. It's all priced in now.

Cadeem: I guess I was wondering because it seems like there's both kind of reservations about how the market’s changed since. Maybe fear of instability, when it comes to all these price increases and being able to make a profit flip it is quick. So if there was a new number that you would recommend, I'm wondering if there is one that you would recommend as opposed to five years.

Asif: you know, I'll be honest with you, 5-10 years like I like the idea of holding a property longer term, but everybody's short sighted everybody's let's get in, let’s move, let's make a quick profit and keep building and they only know what they've seen and what they hear and let's be real: social media has sensationalized the concept of buying and flipping and making money, right?

Cadeem: Oh, for sure. 

Asif: And you could turn properties inside out and make a fortune. I don't think that's the reality. That's just what's promoted. And unfortunately, for professionals like myself and Steve, who are in this, we have a lot of false expectations or clients coming in with the wrong perspective. And we have to now educate and teach them about okay, this is how it really is going to work, not what you think is going to work. Right?

So I couldn't give you a number. And Steve is probably better for this because he is in the real estate market more so I'm really just a finance guy. I would say five to 10 years but again, Steve might be able to give a better answer than that.

Steve: I mean, I think that you know, my view is obviously to each their own but I view like if you're gonna be on the real estate investment side, so maybe less so your primary residence is yeah, you want to hold as long as you really can. I mean, the government is ultimately I think incentivizing you to do that. We’re seeing, I can tell you like NBC are now looking at apparently coming out this fall is like a flipping tax and like the way but the way that like, consistently flipping real estate is taxed, it's not taxed favorably.

You're taxed much more favorably if you hold real estate sort of indefinitely, you write off the interest. And eventually you'll have a capital gains tax when you go to sell and you for selling obviously, in your retirement years, you're gonna have probably a lower income so a lower tax hit.

So you're again, you're incentivized to think through government policy to hold real estate long term. Primary residence, of course, always depends on your life circumstances, right? I mean, your family grows, and you have another child that of course, like, yeah, you might have to break it in year four, unexpectedly.

But we always say, if you're looking, you know, don't speculate. And we see this now like, I know that the presale condo space has become this, this sort of speculative fever, because everybody's seen the riches that have been made over the last 10 years. But to extrapolate that forward, you start to have to really pencil the numbers.

So I can tell you I know, like anecdotally, at least in some of the parts of the GTA, but I can see it here in Vancouver. Like, oftentimes, what we see in the presale side, is the presale side, we marked up 10, 15, 20% above the resale prices, because the developers are saying, well, this is what it costs us to build. And listen, if you're going to put down your deposit in three years time. Well, the market always goes up. So three years time, you know, this will look like a pretty decent deal.

But like there's no guarantee of appreciation. So I think we're potentially in a circumstance where presale has been the best performing asset, probably over the last 10 years. It's been a fantastic trade. I think, my personal opinion, if you could rewind the tapes, 10 years from now, I think it might be probably the most underperforming asset over the next 10 years. I'd be curious, maybe I'm wrong, but I just caution people on speculating for time horizons.

Bethan: So that's a great place to move on to our rule number five, which is that you should treat your home as your biggest investment. Steve, I'm going to come straight to you on this one. What do you think about that idea? In today's housing market?

Steve: I think that it's kind of a loaded question. Because I personally feel that there's a lot of people I see, and sometimes it's clientele, where I think they're putting all of their eggs in one basket, which is your primary residence so that I've seen, you know, okay, draining savings, boring for parents, pushing all into one asset. And ultimately, that asset isn't producing a cash flow.

So I see where people are now detracting from their lifestyles like, we can't really afford to go on vacations, we can't afford to go to the restaurant that we want to go eat at, because we're chips all into this one asset class. And that, that worries me that concerns me. So I think that there's kind of a fine balance.

Now the one thing I will say is, I understand and I think it makes sense to definitely put a decent chunk of your sort of investing into your primary residence, particularly in Canada, because A) you have to live somewhere. But B) it's tax free. That's the one- I mean, let's be honest, Canada's is taxed heavily. I mean, income taxes are extremely high in this country.

And so it is, you know, we talked about the ability to save for a downpayment. Well, again, if you're a top income earner, you're being taxed at more than 50% on a tax bracket. So it can be very difficult to save after tax. Now your home obviously, as it as it appreciates, over time, all of that gain is accrued through tax-free shelter.

And so that's the one advantage and I think that's why Canadians, I think, have been all in on real estate over the past 25, 30 years is because it has been a great wealth builder, where you're now seeing these these boomers that are retiring with homes they bought for $300,000 that are now worth $2 million. And they're selling, they're selling the $2 million for tax free and they're taking a million dollars of it and going buying a retirement condo and putting the other million dollars to fund their lifestyle. So it's kind of a fine balance.

Asif: I agree with Steve. I would hate to see everybody or anybody sink everything into real estate. But I understand why. I think real estate, no matter where you are in the world, whether it's Canada or anywhere on the globe, real estate has always been the winning formula for long term wealth development. But you also have to stop and think at what cost and you know, cash flow is king here. A lot more than a lot of other things.

Do you have money to live a life and are you sacrificing? And let's put into perspective. Our parents, their generation, they did really sacrifice, right, to pay the mortgage, make sure the house was paid off for you know they’re house-rich but they don't have a lot of investments. They put us through school, they paid the bills, clothe us, fed us that sort of stuff.

But they don't have RRSPs or GICs, or stuff put away for the long haul, but that house is paid off for. It was a different mentality. But if we're looking from an investment standpoint, could they have done different? Could they have done better? Possibly, but that education wasn't around. I like the idea of putting your money into real estate as your first and foremost, primary asset with other peripheral products as well. But we also have to think about are you sacrificing life to make that happen?

And there's something to be said about a wealthy renter, someone who's renting, but has lots of investments, and they're, they're not tied to the heavy investment of a real estate property. There are those individuals who can make it happen. There not a lot, but it does exist. So I still believe real estate should be the primary asset. But they shouldn't be the I shouldn't be the only asset

Cadeem: That actually leads well into question, as we kind of get wrapped up here is when does it make sense for you in terms of his financial situation to rent and just put the money in other investments? You know, if you said, I mean, people can do it? And if they can, what are the keys to being able to actually pull that off?

Asif: I think once an individual does a personal cash flow statement, and they take a look at where do they really stand? You have to take a lot of different things into account, depending on your life circumstances, if it's just an individual, is there a spouse? Is there a family? You know, from a hierarchy of what's important to what's not important.

Do you have emergency funds put aside because God forbid somebody loses a job? How are you paying those bills, right? Can it cash flow in with your mortgage payment, which is typically significantly more? Do you have investments put aside for retirement? Do you have rainy day funds, you have, you know, insurance policies?

There is so much more to life than just real estate, and I know in Canada, we sensationalized real estate ownership. And I again, I truly believe it's a major part of wealth, but it's not the be all and end all to life. There are so many other aspects to life that your average consumer needs to take into account.

So you know, if I'm looking at everything, cash flow is going to dictate a lot of you know, should I rent, should I buy? You know, where am I going to be if I lose my job, and I can't replace it in three to six months? If I were injured, what would happen? Am I sinking all my wealth into this?

I have clients of mine that I've advised, you know, you're better off renting for another couple of years before you get into the real estate world. I've had some clients that I've talked out of real estate ownership, out of owning a home because their lack of ability to manage cashflow.

So I said listen, liquidate, sell, clear off all debt, clean up your credit scores, and rebuild again. Why? Because you're underwater. So teach their own depending on how they do their money management. But there are going to be situations where homeownership isn't the right answer.

Steve: Yeah, I think that's some really good points there. I think that, you know, where I've seen it too, and just having to talk the odd person out of a deal, which is like, thinking that real estate is the be all and end all and you have to get it. And sometimes that's okay, well, this is all I've got, I've got this very small budget, which is almost an unrealistic budget, let's say in Vancouver's market, and I'll buy anything.

So they’ll point to me about a bunch of buildings that I think are dilapidated, coming up with big special levies coming down the pipe, you know, it looks like they're going to need to do a new envelope, new windows, new balconies, but I can get into the market. I said, well, you can get into that market, but you're gonna get hit with $50,000 in projects over the next three to four years. Is that really what you want? Is that actually going to set you ahead?

I think in most cases no, but I don't think people are necessarily always getting that advice. And so you see, sometimes I think people just feel like they have this fear of missing out that they have to get in. So I think that's one of the signs where I'd say you shouldn't be entering the market. You definitely want to try to buy quality real estate and not just anything.

And then I think number two is just your lifestyle. Which is like okay, maybe if you're not sure if you're going to be living in Vancouver a year, year and a half from now, maybe you should just rent and stay you know, and have that flexibility, that liquidity to sort of pick up and pack your bags and if you want to if you've got a new job opportunity in Toronto or you got a new job opportunity in the US you can pick up your bags you can leave.

So I think it's really just about understanding your unique situation and figuring out if real estate makes sense for you at this specific time.

Cadeem: So with all of that in mind thinking about that fifth rule that your home should be your biggest investment. Steve, would you change it in light of today's housing market?

Steve: Yeah, I don't know if I would change the rule. I think it's, I don't love the rule. I don't know if like, I think real estate is so expensive. So your primary residence tends to be your largest investment. Should it be your largest investment? I'm not necessarily convinced that shit, I think people should have a diversified pool of assets and income streams to support no your investments and your future retirement.

Because at the end of the day, while your real estate might go up in value as a tax free primary residence, it's not necessarily spitting out revenues and cash flow either. So it's great if you can hold it, you know, for a very, very long time and eventually sell assuming the prices go up, then you're getting that tax free benefit. But it's not necessarily producing a cash flow for you.

Asif: I agree, I don't think it should be your number one, or that your primary investment. I think it's very important to have. But one thing from this rule is the generation prior, used to look at strictly holding on to the house as an asset. And that was your largest asset? Well, in today's world, we're a lot more educated in understanding how cash flow means more. And it's much more useful.

So could you get into investment properties that have better cash flow, or other products that have higher levels of cash flow? Those are, to me, much more valuable. So I agree, I don't think it should be your primary, but or the only thing you have. It should be one of them. But I think there are other ways of doing it that are much more beneficial.

Bethan: All right. So thank you both so much for sharing your insights on those five rules. Lots to take away from there. But I want to finish this discussion with kind of one final quiz to kind of round it all together, which is, why are these rules so sticky?

These are things that you know, our parents have told us that keeps feeding down the chain. Why don't we have a new set of homebuying rules for first time buyers in 2023? Steve, I'll come to you first.

Steve: Well, I think that you said it, which is it's passed down from your parents. And so I think that a lot of people receive their sort of financial advice from their parents, so they don't think a lot of people, you know, take the time to pick up a book or listen to a new podcast or watch some YouTube. You know, from smart people. I mean, there's so much available content today, the economy's consistently evolving and changing.

I think these rules ultimately need to be updated. But I think for a lot of people finance and, you know, investing is not necessarily the most exciting and entertaining thing. And so a lot of times you're just taking conversations that are passed down to you at the dinner table from mom and dad. And the reality is I think a lot of people look at mom and dad and say, well, they did so well, by just buying a principal residence and became millionaires through that channel and just assume that those rules will apply to them over the next 20 to 30 years.

But like I said, I think things are constantly evolving and changing. So I think some of the rules do need to be updated.

Asif: I want to piggyback off of that, but add to it this, look at who our governing bodies are: our regulators, our politicians and people who are in charge and look at their average age demographic, and who's in control of the education and the message is pushed forward.

They're not our generation, they're typically double our age or significantly older. A lot of the rules and regulations that are coming out, or that have been around, it's just regurgitated from the same generation.

If you were to change the regulators. And you know, I'm thinking of the FSRAs and the OSFIs of the world that have a direct impact on these regulations. If you were to change the leadership, the management and bring down the age demographic by 15 years, 20 years, you'd see a major difference in how things are taught and absorbed and learned and what the message would be.

Cadeem: Oh, thank you so much. I think we'll wrap up with that. I think this has been a very illuminating conversation. I thank both Asif and Steve for your time, and it's been great talking to both of you.

Asif: Thanks for having us.

Steve: Thanks for having us.

Bethan: Thanks for having thanks also to our listeners for tuning in.

Cadeem: Make sure to come back next week for the next episode in the series where we share some home buying horror stories and explore just how much young people are sacrificing to get on the property ladder and whether that's worth it. You can find that on halfbanked.com, Apple, Spotify, wherever else you find your podcasts. Also check us out on Facebook, Twitter and Instagram.

Bethan: If you liked this episode, be sure to subscribe rate and review us on Apple, Spotify, or wherever you're listening to this podcast.

Cadeem: Special thanks to executive producer Samantha Eamon and producers Evan Hamilton, Jenny Potter, Shane Murphy, James Bastin, Mary Alcaber and technical producer Mohammed Tabish. This episode was edited by Lead Podcasting.