You want to save money. One of the ways to do so is to cut the expenses. If you live in a city and you are in your twenties I am 90% certain that you rent. This is your major expense. In Toronto, where I am from, the cost to rent is RIDICULOUSLY high. One bedroom apartment prices start at $2,200 /month. One bedroom… Start…
Whatever your goals are, you are determined to save some cash. You are willing to tighten belt for some time, so later you can live better. Do you save for the downpayment for your mortgage? If so – great! I encourage you to do so, so when you buy your own house – you pay your own mortgage, not someone else’s.
I used to rent the house not too far from the city. Great place: three stories, including basement; big fenced backyard; garage in a quiet safe family neighbourhood. Everything was great, besides one thing – the price. Lived there for a year and quickly got sick from paying off someone else’s mortgage. I decided enough and did not extend the lease for another year. I was going to scale down by finding something smaller and cheaper so I can safe more money faster. I moved into my buddy’s basement apartment. The price I agreed to pay was half the price I payed for the entire house. Never lived in basement before, I had no second thoughts about possible issues that could arise. “Anyways, I am here only temporary” – I told myself and moved in. The plan was to spend the winter there and move out as soon as the snow melt down. Not a long time, what can go wrong? I ended up occupying the shithole from November till May, 2020. Basement life for 6 months though me a few things that I MUST reflect on if I don’t want to fall back into the same trap again.
Lesson #1: There is nothing more permanent than temporary.
Life happens and things that we plan almost never go according to the plan. COVID-19 happened and crushed almost all of my plans…
Lesson #2: Don’t sign the long-term lease unless you absolutely have to.
If you decide to scale down and sacrifice your comfort for some period of time in exchange of money, do not tie yourself down to the shithole. You need to be able to pick up and leave at any time. Things will get ugly, you will get sick of it. When you reach the breaking point, there is nothing worse than feeling locked without a chance to change anything. No long-term leases, save your freedom.
Lesson #3: You sacrifice your health.
You NEED the sunlight. You NEED the fresh air. You NEED warm place to live.
Those two are no-negotiable for your physical and mental well being. Few months into the cave, I’ve experienced what’s the basement life like and how it impacts my body.
Resting Heart Rate. My normal RHR is 39-42 bpm during sleep. Living in the basement it became a norm to see RHR of 45 and up. Your body does not rest. Your body does not recover. Interesting fact: every time I slept elsewhere, I instantly saw the drop in resting heart rate.
No Sunlight. There is no sunlight coming into the cave. It’s hard to tell in the morning if its day or night. I bought a few daylight lamps, which will turn on automatically each morning to awaken me. The last nail into the coffin was when the house owner put his backyard grill right against my tiny window, completely cutting any sunlight access. I didn’t tell him anything about that though, but probably should’ve as it bothered me. Living in a cave might work for a few weeks, not more. You NEED the sunlight, otherwise, vitamin D deficiency will start playing tricks on your mind and body. It did on me.
Fresh air. Where do you think the water heater is located in the house? Central heating unit? Breaker box? I can tell you from my own experience – right beside your head. What do those gas heating appliances feed on, except electricity and gas? The air. Where is the air intake located? Exactly! In the basement. Living in the basement you get oxygen-deprived. What are the health implications of such living in such conditions? Also, not to mention that those appliances are noisy. The heater doesn’t have a schedule that it runs on. Day and night you will hear the machinery working. It is loud! Keep that in mind when you sing the basement lease.
FREEZING cold. I spent the winter in the basement and I know exactly what it’s like. It was so cold that even my dog would sleep with his feel bent under him to stay warm. Sleeping in warm socks, pants and T-shirt became the norm. I would also put two blankets over to stay warm. Every morning was a struggle because you had to get out into the cold. My change of clothes had to be as fast as possible, otherwise, I would get the goosebumps from saying naked for more than 15 seconds. I don’t do well in cold, no-one does. Owner of the house was nice enough to get me the oil heater. It did absolutely no difference.
Basement Life is one of the major causes of Suicides and Depression.
*on my personal opinion =)
Lesson #4: Child’s cry will make you INSANE.
Screaming Crying Baby
I love kids, don’t get me wrong however, I underestimated the power of a child’s cry. Little babies can’t talk, so anytime there is something wrong – they cry. I don’t know what’s a normal rate of them cry, but it seemed like the baby upstairs was crying no-stop. In the middle of the night, at 5 am, during the day. There is no schedule. Maybe they all cry so much or could be that parents are doing something wrong – not my business. Obviously, I have nothing against the child or parents, but if you try to put in few hours of concentrated work – it’s not going to happen. Earplugs don’t help. Noise-canceling headphones don’t help. Keep that in mind if you are looking to move into the place with small kids or babies.
Leeson #5: It’s not worth the savings.
I’ve been thinking about getting out of the shithole for a while. I was not happy there and even my friends noticed the change in me. Quietly, all this negativity and coldness creep up on you and suck you in. ENOUGH! 6 months were enough for me to say enough and run away as fast as I could. I am not a picky man and live a pretty minimalistic lifestyle, however I cracked only after 6 months… A lot of people live like that for years! I genuinely feel for them. How long will you last?
Only after it moved out I realized how deep that hole had sucked me in. Leaving the shithole in my U-Haul I could not stop smiling. I felt such a relief! I am freeee! Now I live in a house, with big bright windows, backyard and lots of fresh air. Only three days as I’m here and I can’t stop enjoying it. I love it! I feel the energy comes back. The first night I slept above the ground, instantly my resting heart rate dropped to normal 39 bpm. I want to create, I am inspired to live. I smile to others and receive the smiles back. Huh, it feels like an escape from the prison of some kind… I am also grateful for a chance to chose the place to live. I realize that for many reasons, a lot of people don’t have the opportunity to get up and go so easily. That really sucks! I am sorry for those folks. However if you do have the opportunity to live in place that you like – don’t chose to save by compromising your living conditions.
It will cost you much more in terms of mental and physical health.
Nevertheless it was an experience and I learned from it. I think I did… I am grateful for that period of my life because now I appreciate my new place a 100 times more. Now I know exactly where I don’t want to spend my life and what I need to remain happy and healthy.
RENTS IN THE DISTRICT OF COLUMBIA The hearing of June 17, 1932, which appears below, was held prior to the approval by the Senate of Senate Resolution 248, directing an inquiry into the rental situation in the District of Columbia. The record of the following hearing is included herein, however, because of its close relationship to subsequent proceedings under the resolution.
FRIDAY, JUNE 17, 1932 UNITED STATEs SENATE, CoMMITTEE on THE DISTRICT of Columbia, Washington, D. C.
Mr. BRINKMAN. In a case where a building is mortgaged for $200,000 and the interest is 6 percent, if that interest rate were lowered to 5 percent and some of the excessive commissions charged for renewals every three years on these loans were eliminated, you would have a saving in interest charges and commissions of $2,500 on that loan. The usual rental of a building of that type is about $33,000. You could give the tenants of that building a 7 percent reduction in their rent, without diminishing the return to the owners at all, simply by lowering the interest rate 1 percent.
Mr. BowTE. Do you mean a building that you would loan $200,000 on would only produce $30,000 a year? Mr. WHITEFORD. That is the worst loan I ever heard tell of. Mr. BRINKMAN. $33,000. Mr. Bowie. Nine times. Mr. WHITEFORD. You talk about vicious loans. I am surprised at how little you know after all your study about this. Mr. BRINKMAN. Thank you for the insult.
The Rust firm took in the ‘Clifton Terrace Apartments at $750,000. The income from that property is sufficient to produce a net return of about 13 percent on the investment.
Apartment-House Game
Senator Copeland. Are you familiar with the apartment-house game at all? Mr. GoRDON. Fairly well. I know they are all broke. Senator Copeland. Well, is your business comparable to theirs? Are they better or worse off than you are? Mr. GoRDON. Well, I would say—I can not swear to this—more than half of the apartment houses in Washington have been foreclosed through the inability of the people to carry them. Either the Second or first trusts have been foreclosed and the people lost them. I think that is the best proof that they do not pay. Senator CAPPER. Well, were not the most of them financed for a great deal more than they had in them? Mr. GoRDON. Some of them, although a few firms here, which you probably know about, did some very wildcat financing, but we don’t account that. That was the exception. Most of our lenders here lend on an apartment house about 60 percent to 65 percent of the actual cash cost of the building and ground. That isn’t bad. Then, this man will have a second trust above that, maybe of 20 percent, and then when a smash comes, he gets squashed. Senator CAPPER. The second trust is where the high financing took place? Mr. GoRDON. Not necessarily. Senator Copeland. Your idea and contention is that even though there has been a foreclosure and new owners have taken possession, that with the amount of the investment they have to make, it goes up to the original cost? Mr. GoRDON. Well, maybe not that. He takes it over at $150,000. Maybe he will have to spend $15,000 to fix it up, but he may lose that much in vacancies before it is filled up again. Sometimes you have to take these houses and fumigate them with poison to get the bedbugs out. Senator KING. What do you allow for deterioration in buildings here per year? Mr. GoRDoN. Well, 2 percent or 3 percent. Senator KING. In 10 years a building costing $200,000 would deteriorate 20 percent? Mr. GoRDON. It may go further than that; and if the neighbourhood goes back, you get hit awful hard. It is a very risky business. Senator Copeland. Well, the present investment in an apartment house, according to your figures, is at least 25 percent less than the investment made by the original builder? Mr. GoRDON. I would say so, yes; but he hasn’t got a new building and is not getting the same rents, either. Keep your mind fixed on this: One-half of the apartment-house owners have lost their buildings because they would not pay. That is a fact. Look at the Star every evening and you will see big foreclosures all the time. Senator CAPPER. Do not the loan companies—the loan companies. are companies—the loan companies who are doing the financing—make the clean-up? They get the money.
House Values
Senator KING. Has there been a reduction in the value of the real estate in Washington during the past few years? Mr. GoRDoN. You can build houses now, the actual cost bein about 30 per cent less than you could four or five years ago. Ground has held its own. I am surprised it has, really. In many places vacant ground has gone up a little bit. Senator CAPPER. Are conditions in Washington in that respect better than probably any other city in the country? Mr. GoRDON, I consider Washington the safest city in the world. Senator CAPPER. Is it not due largely to the fact that there is a steady payroll here out of the Government Treasury? Mr. GoRDoN. Yes, sir. Senator Copeland. And no industrial life.
Construction and building new houses had become 30% cheaper. During the financial crisis, it is safer to live in non-industrial cities.
Land Value
Senator Copeland. And, as a matter of fact, the present value of the property is probably not half that? Mr. GoRdon. No; I would not say that. I would say the building is 30 percent off and the ground has held its own. I think that is it. The ground has held its own. Senator Copeland. Then, your judgment is that the average apartment house, thoroughly modern, is worth about 30 percent less? Mr. GoRDON. The building; yes. The ground at the same value. The ground has held up very nicely.
Buildings had lost about 30% in value!!! However, what is really interesting is that the land price remained the same… Investments in lad are much safer.
Senator Copeland. What about land values?
Mr. Do YLE. They are off in the majority of cases. There are instances where surrounding improvements naturally are holding or maintaining values, and in some places, they are going up, depending on the use of the particular property. Senator Copeland. Has there been anything abnormal in that? Mr. Do YLE. Just a general lack of demand caused by general conditions. Mr. BRINKMAN. If a building is worth given amount to-day, and if it would cost to reproduce that building 25 percent less than it cost to put it up originally, ought not rents to come down proportionately assuming the building was on a fair rental basis before? You would have a building worth less and you could not sell it on the market for the same price as when it was constructed. Should there not be a reduction of rentals? Mr. Doyle. There is no arbitrary situation where the landlord can dictate what he will get out of his property. He has to take what his tenant will pay. That is regulated by supply and demand. Mr. BRINKMAN. How much of a reduction should occur? Mr. Do YLE. It is not dependent on what costs have gone down, because we have in mind normal conditions and not abnormal conditions. Mr. BRINKMAN. You had a good many vacancies at 3901 Connecti cut Avenue, had you not? Mr. Do YLE. Yes. Mr. BRINKMAN. You reduced rents substantially, did you not? Mr. Doyle. They have been reduced. Mr. BRINKMAN. Did you rent a great many of the apartments? Mr. Do YLE. When we first took it over we did not reduce them as much. Vacancies occurred to some extent afterward. Rents were reduced in the last two months quite materially, and old tenants were given a month’s rent. Mr. BRINKMAN. And you were able to rent some of those empty apartments? Mr. Doy LE. It has been, through very careful and good management, rented up, and I think it is practically 100 percent rented. They are very reasonable rents, but it pays no return on its cost.
Construction Costs
Mr. BRINKMAN. How much have apartment building construction costs come down approximately in the last few years? Mr. Doyle. Approximately 25 percent. Mr. BRINKMAN. Twenty-five or 30 percent, would you say? Mr. Do YLE. I said 25. Of course, I am testifying.
The cost of construction reduced by 25%. It got much cheaper to build, hence it made sense to buy deteriorated houses just for the value of its land. Demolish -> Build a new house. However, if you wanted to build an apartment house and had to have a first-trust loan of $300,000 or $400,000, I do not think it would be humanly possible to get it. Build for cash?
Mr. WHITEFORD. I would not put a dollar in any building enterprise, and I do not think any other sagacious businessman would. Senator Copeland. I know you can now build property very much less than you could two or three years ago. I built a building three years ago and another this past summer. My cost on the second building was about one-third less than on the first one. There is not any question about that.
Rents
Mr. WHITEFORD. … we hear these complaints of distress that can not pay any rent. I know of people who are living in houses, in apartments, where they are not paying rent. They can not pay it. There are homeowners who can not keep homes. A man came in my office yesterday and asked me to loan him $200 to pay the little installment of interest due to his home, and it is a nice, great big home worth $20,000 odd. That man is suffering. He is in danger of losing his home for a few hundred dollars, but you can not do it by wishing you could. These property owners are in a jam. They are in difficulties and have their properties on valuations and purchase prices that go back for several years. Many of them are losing them now. Their security is jeopardized, for a lot of these properties are not worth the trust.
A drop of 2.5 percent in rents in Washington between June 1929 and June 1932.
The CHAIRMAN. In looking over Mr. Brinkman’s report I see that the reductions are very small. Mr. BRINKMAN. That is correct. Senator KING. You mean it is to the personal advantage of an owner to take charge of the rental of his own property? Mr. BRINKMAN. If I were the owner of the property I would not put it in the hands of a real estate agent, because I would have to pay them 5 percent commission, have to let him manage the property, buy supplies for it; pay in some cases 8 to 10 percent discount on purchases for the property, let them fix the scale of rates, and if a tenant is already a tenant of another member of the Real state Board, they will not accept him as a tenant. I will say it is a disadvantage in many respects for an owner of a property to turn it over to real-estate agents.
In order to reduce operational costs, owners will start managing properties on their own. Not the best time to be in the property management business.
Increase in rents by colored people
Mr. J. C. OLDEN. I represent the Better Citizens Bureau. I have made some further investigations with reference to the reduction of rent during the last week or so. I was to bring that further testimony to Mr. Brinkman, but they said they had closed reports on that matter. I can give the facts to this committee; as far as I have been able to find out in the apartment houses and houses that are rented by colored people there has been an increase in rents in the last three years and in some cases no reduction at all, possibly $2.50 or $3 reduction in an apartment. Senator Copeland. Does this cover a good many houses? Mr. OLDEN. Practically all the apartment houses rented by the colored in Washington. Senator KING. Are any of those apartment houses owned by colored people, to which you refer? Mr. OLDEN. No; they are owned by white people. Some have white agents and some have colored agents. Might not be the case in the modern world. I suspect there was much more racism back in the 30th. Mr. BRINKMAN. Properties are not worth the assessments? Mr. WHITEFord. Not to-day, they are not. Senator Copeland. I do not know any reason in the world why the landlords of Washington expect they are going to make money when nobody else in the world is doing it. Mr. WHITEFoRD. Most of them are not. Property owners and landlords, in particular, are losing money. If you had $500,000 you would not buy a piece of property and pay for it in cash. All large rental properties have trusts or mortgages on them made by an insurance company or trust company. There is no way in heavens world that they can escape paying 5 or 6 percent interest on their trusts and that interest rate was incurred several years ago. When you figure these properties have got to go on and pay that interest if they do not they will lose them.
Cash is King. Save cash, leverage.
Mr. WHITEFORd. The landlord gets to it every six months when he pays his interest. Sixty percent of the assessed value represents a fair mortgage, which is a fair way to approximate it. Senator Copeland… What percentage? Mr. WHITEFORD. Sixty percent of the assessed value. If that be true, then our figures show the property owner is getting less than 3 percent on his equity. Mr. WHITEFORD. Yes; and as Mr. Lusk says, it is less than savings bank interest; it is less than Liberty bond returns. Senator Copeland. Do you not think he would be lucky if he got enough to pay carrying charges? Mr. WHITEFORd. That is true. When you reduce the rent, you will have people that can not do it which will result in a series of foreclosures in the community.
Only sixty percent of the houses’ value is backed up by mortgage.
It seems to me that the owner and the agents overlook the great opportunity to increase the number of their tenants, and increase their income by reducing the rent.
Senator Copeland. I will tell you about my experience. I just came from Michigan where I went to see my father. My sister and I own some modest little homes and I asked her how she was getting along with the tenants. She said she cut the rent in two, in each instance, because by doing that she kept the tenant. They could not pay more than that, and if they had moved out because of the rental they had been paying, certainly she could not have rented the property to anybody else, because nobody else would pay it, but by making those reductions houses are occupied. As the chairman said, it seems to me in view of this great crisis, as it is going to be worse after this Congress adjourns, we have got to do something to take care of these people, and the landlords have just got to face the situation. If they do not cooperate they are go ing to lose anyhow, because these people can not the rent. They will have to reduce them or they will move out.
Mr. WHITEFord. We are reducing them. We have shown a lot of reductions, and experience shows it every day. Many of them are losing their property under foreclosure, anyhow, whether they reduce them or not. Senator KEAN. In the city of Elizabeth, where I come from, there is a row of apartment houses that used to rent for from $55 to $60 a month. They had been getting it right along, but now they are down to $27. Mr. WHITEFORD. If they have any trusts on the property they can not carry them.
Increase the number of their tenants, and increase their income by reducing the rent. How many tenants can you put under one roof? Now there are a lot of regulations that will restrict that.
Reference
United States. Congress. Senate. Committee on the District of Columbia. Subcommittee on Rental Investigation. (1932). Rents in D.C.: hearings before the United States Senate Committee on the District of Columbia, Subcommittee on Rental Investigation, Seventy-Second Congress, second session, on June 17, July 28, Sept. 9, Nov. 10, 30, Dec. 1, 2, 17, 20, 21, 23, 27, 29, 1932. Washington: U.S. G.P.O..
I began my real estate investment journey from picking the market to invest in. My main goal is cash flow. Through my research and speaking with multiple real estate agents I narrowed down my scope of search to 5 markets:
Let’s talk real-estate. Have you heard of the First-Time Home Buyer Incentive?
As a first-time home buyer I got really interested in First-Time Home Buyer Incentive provided by the government of Canada. It was released just over a month ago (September 2nd). Government of Canada plan to spend $1.25 billion over three years for the First-Time Home Buyer Incentive (FTHBI). They designed it to lower new homeowners’ monthly mortgage payments without boosting their down payment costs. Okay… Continue.
What exactly are you being offered?
5% for a first-time buyer’s purchase of a re-sale home
5% or 10% for a first-time buyer’s purchase of a new construction
It is not interest bearing and does not require ongoing repayments.
It all sounds too good to be true. How much and when do I need to pay back?
You can repay the Incentive at any time in full without a pre-payment penalty. You have to repay the Incentive after 25 yearsor if the property is sold, whichever happens first. The repayment of the Incentive is based on the property’s fair market value.
You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000. If your home value increases to $300,000 your payback would be 5% of the current value or $15,000.
You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.
A-HA! Now I see where is the catch. Easy money for the government. Here are the few examples to demonstrate how this is beneficial for the government:
Government does not like to lose money and there are some smart people working to make sure it doesn’t happen. Consider that fact and examples above I make the following assumptions:
Government anticipates the growth of real estate market over the next several years. It is safe to buy.
Government tries to stimulate the new affordable housing development. It is profitable to build. This is a great time to be in construction business.
Property prices on the outskirts of GTA real-estate markets are expected to grow. Here is why: Total borrowing is limited to 4 times the qualifying income($120,000 annually x 4 = $480,000). The combined mortgage and Incentive amount cannot exceed four times the total qualifying income. The amount for the mortgage loan insurance premium is excluded from this calculation. It is almost impossible to find a decent property in Toronto GTA for $480K. You got to expand the scope of search and look further. People will start buying houses in the areas like Barrie, Hamilton, Niagara, Oshawa, Windsor, Brampton etc… Because of increased demand I expect significant raise in house prices in those areas.
For a personalized example, I used the First-Time Home Buyer calculator to see, if qualified, how much money can I save using this incentive. Let’s say you make CAD$100,000 annually and want to buy a house for CAD$440,000 with $40,000 down payment. FTHBI will save you about $120 on monthly payments and $1440 /year respectively.
