Underwater Mortgage - Need Advice

[Bobblehead]

Originally Posted by fotze

I don't think RESP's were around until kind of recently.

RESPs have been around a long time, but they seem to regularly change the rules so an RESP of today may as well be a totally different thing from what existed 20+ years ago.

[undercoverbrother]

Originally Posted by Raekwon

I'm looking for any and all advice regarding this situation. We bought out in the great ol town of High River 4 years ago this month during the height of housing prices. We are in a condo and town we no longer wish to live in but the problem is that places around us are foreclosing like crazy driving prices down to the point where drastic action may need to be taken.

As of right now we owe roughly $285,000 and the places around us are listing at $129,900 - $150,000. What options do we have?

I think the biggest question is why leave. Do you have to leave or do you need to leave. This "want" v "need" question is key to finances. Do you want a new car, yes, do I need a new car no.

Not trying to trivialize your plight, but that question is a great one to ask:

Do you need to leave High River? I the answer is no, then stay, put your head down, live tight and put money on the property.

[1stLand]

If you really need to move, then rent it out.
eat the monthly loss (mortgage expense vs. rental income). It's more practical than walking away.

[Hack&Lube]

I may be a first time home owner soon, and I'd like to avoid something like this happening. Is this a good or bad time to invest in a downtown Calgary condo? (East Village development).

[Bill Bumface]

Originally Posted by Hack&Lube

I may be a first time home owner soon, and I'd like to avoid something like this happening. Is this a good or bad time to invest in a downtown Calgary condo? (East Village development).

It seems the closer to downtown you are the better chance you have of your value holding/not taking as bad.

East Village seems pretty safe to me if you plan on staying there for 10 years. Once that place is built out you'll probably look back and thank yourself for jumping in early while you could afford it.

[Canehdianman]

Originally Posted by AMG_G

It's only going to get worse as interest rates creep back up and expenses like property tax, gas, food, etc get more expensive. True Alberta has some of the highest wages and that might be the only thing keeping this from exploding to smithereens. I know realatives who took 75-100k loss for their place just to be in a bigger house with a bigger mortgage...like seriously really? Who here can honestly say they can take 100k loss without consequences some point in the future. These relatives have 3 kids under 10 and not a dime in RESP. Giving my kids the opportunity to get a good education without the 100k debt after is worth a lot more to them then a bigger house. I don't know how they can sleep with 550k mortgage, leased car payments and living pay check to pay check.

This market is on the brink of collapsing like dominos because almost everyone I know has a home and one or more rental property bought with downpayment from their heloc.

I'd be happy if my house value dropped by 50%, because it would mean that higher-end homes (which I intend to move into in the next 3-5 years) would likely drop 60% or more. I'd be better off in the end.

[kevman]

Just remember this simple fact when looking at a real estate investment:

A house, like any physical possession, will always depreciate in the long term - land appreciates.

[undercoverbrother]

Originally Posted by kevman

Just remember this simple fact when looking at a real estate investment:

A house, like any physical possession, will always depreciate in the long term - land appreciates.

really? i am not a finacial wizard, but I have yet to loose money on property. If you keep the property clean, maintain it, and update it as needed this shouldn't happen.

[GP_Matt]

The house itself depreciates but money/effort that you put into it can add value.
ie. if a house is worth $200000 more than the lot that it sits on and it depreciates by 1% a year the value is dropping by $2000 per year. If you spend more than $2000 maintaining/improving it than it may go up in value but that is only because you have added value to the equation.

[AMG_G]

Originally Posted by hulkrogan

I agree with most of your post, but RESP? Screw that. School is cheap in Canada. Kids can get a job and learn what it is like to pay for something instead of having it handed to them, maybe avoiding future money mismanagement.

If you let your kids live at home while they go to school it isn't very hard to graduate debt free. I'm proud of paying my own way through school, and I'm the one that reaped the rewards of going, so why shouldn't I pay? I don't care how much money I have, I'm making the little pukes pay. No free cars, no free school, they will learn like dad that you don't just ask for money and get it, and your problems go away. You have to earn it before you spend it.

I agree mostly because I have paid my own way too. But what if they want to pursue something out of town? I don't want money to be the reason why they can't do something. Hey if they don't use the money I will buy a 911 with it.

[photon]

Originally Posted by 1stLand

If you really need to move, then rent it out.
eat the monthly loss (mortgage expense vs. rental income). It's more practical than walking away.

You could do it this way and look at it as an enforced savings plan.

As long as the rent covers the interest the money you put from your own pocket goes towards the principle, so unless you sell it for a loss you aren't losing the money, you're just putting it somewhere to sit for a long time until you can access it again.

Not the best savings plan ever (cause you aren't making anything, you're just working to get to no loss), but still might be better than writing it off.

You might also check with your mortgage, you might be able to change some of the parameters (reduce payment, change from 25 to 30 year) to make it work better as a rental property.

[Sliver]

Originally Posted by AMG_G

I agree mostly because I have paid my own way too. But what if they want to pursue something out of town? I don't want money to be the reason why they can't do something. Hey if they don't use the money I will buy a 911 with it.

Haha yeah. There is a very small part of me that will be like cha-ching if they don't go to post-secondary.

[undercoverbrother]

Originally Posted by GP_Matt

The house itself depreciates but money/effort that you put into it can add value.
ie. if a house is worth $200000 more than the lot that it sits on and it depreciates by 1% a year the value is dropping by $2000 per year. If you spend more than $2000 maintaining/improving it than it may go up in value but that is only because you have added value to the equation.

if people let their property become run down they deserve the return they get....or don't get.

[AMG_G]

Originally Posted by Sliver

Haha yeah. There is a very small part of me that will be like cha-ching if they don't go to post-secondary.

hahaha honestly me too just need to pay back the grants. My son is 3 and he already as 12k in his account.

[DuffMan]

Tell your bank you are thinking about walking away from it and ask that they give you a 2% interest rate for 10 years.

[Doodlebug]

Originally Posted by GP_Matt

The house itself depreciates but money/effort that you put into it can add value.
ie. if a house is worth $200000 more than the lot that it sits on and it depreciates by 1% a year the value is dropping by $2000 per year. If you spend more than $2000 maintaining/improving it than it may go up in value but that is only because you have added value to the equation.

Not sure I agree with this...I built my home in 2001 for $300k, of which $85k was the lot price....house today is worth $700k, and similar lots selling for $200k in the area. Put in about about 60k over the years. The value of the house has appreciated above the appreciation in lot price and improvements put in.

Anyone who built a house around the same time is probally in a similar situation...caught the beginning of a real estate boom, driven by lower interest rates, good local economy.

[PeteLFan]

Credit counseling if they offer a consumer proposal, and your trying too avoid bankruptcy do not do it. It's 1 step prior to bankruptcy, and is essentially the same thing. You will be screwed for getting credit after that.

[undercoverbrother]

Originally Posted by Doodlebug

Not sure I agree with this...I built my home in 2001 for $300k, of which $85k was the lot price....house today is worth $700k, and similar lots selling for $200k in the area. Put in about about 60k over the years. The value of the house has appreciated above the appreciation in lot price and improvements put in.

Anyone who built a house around the same time is probally in a similar situation...caught the beginning of a real estate boom, driven by lower interest rates, good local economy.

Agreed, we built in Mckenzie towne around the same time, all in, including the garage i built it was $189,000 give or take.

we sold this past fall for over $450,000.00

I put money into it, basement, and maintenance, and made a killing.

[Rathji]

Originally Posted by PeteLFan

Credit counseling if they offer a consumer proposal, and your trying too avoid bankruptcy do not do it. It's 1 step prior to bankruptcy, and is essentially the same thing. You will be screwed for getting credit after that.

Yeah it is pretty much the same thing in terms of results but I think a slightly shorter term, maybe 5 years instead of 7.

[kevman]

Originally Posted by Doodlebug

Not sure I agree with this...I built my home in 2001 for $300k, of which $85k was the lot price....house today is worth $700k, and similar lots selling for $200k in the area. Put in about about 60k over the years. The value of the house has appreciated above the appreciation in lot price and improvements put in.

Anyone who built a house around the same time is probally in a similar situation...caught the beginning of a real estate boom, driven by lower interest rates, good local economy.

I don't know if your numbers make sense. Where in the city are you? How are you sure your lot is worth $700k? Why would anyone spend $700k on a "used" home when they can buy the same lot for $200k and have a house built on it for an additional $270k ($215k house price plus inflation according to Canadian inflation index). That's $470k vs. $700k and you get a brand new home.

The fact is a house is worth no more than the materials and labour of which it was constructed with. This also depreciates over time as it deteriorates or it requires maintenance which is a further sunk capital cost and shows depreciation. We're not talking about fine art here. We're talking about cookie cutter homes built out of a renewable resource.

Land, particularly close to important centres, is what appreciates. People want to live in an area and as demand goes up so do the values of the land.

This is why a condo (ie, new structure with no more value than the materials it's constructed with) in High River (ie, worthless land - sorry) has taken such a hit during the same time that old homes (ie, already worthless structure) in the inner city (ie, valuable land) have continued to go up.

Or why a brand new (non luxury) infill from 2000 in Hillhurst is worth $700k when a 1980 infill is worth $650k and a 1912 infill is worth $640k. People aren't buying the shacks on the land - they're buying the land.