REAL Cost of Owning a Car

For those of you that read my blog, I typically write about real-estate-related matters, however I am going to deviate slightly to some personal finance – the true cost of car ownership.

I overheard one of my colleagues mention last week that she ‘really would love to buy a car’.  She hates walking, waiting for the bus to around is a pain, and her hair is always messed up by her hat in cold weather.

Ho-hum.  I still hate my car…and I told her that.

Why? Because it takes money out of my pocket.  Some people list their vehicles as an ‘asset’, but if you are a follower of Robert Kiyosaki (author of Rich Dad, Poor Dad), you might be inclined to think of it as a liability.  Let me explain….

I have a very accurate picture of how much a vehicle costs as I save every receipt for business purposes so here is my breakdown in expenses for 2012: (note, this is based on driving almost 40,000KM last year, which I realize is above average)

Car Payment:  $0…..(it is a 13 year-old car….no payment here!)

Insurance: $1390…(this is actually low as I qualify for a good discount based on my rental properties being with the same company)

Routine Maintenance: $2020…(oil changes, coolant flushes, tire changes, general issues)

Non-routine Maintenance: $1600…($1200 for a brake-job and ABS sensor, $400 to repair a bumper from a hit and run event in a parking lot)

Miscellaneous: $400..(CAA membership, registration fees, safety + emissions test)

Gas: $3800…(again, I drove 40,000KM)

GRAND TOTAL:  $9210

Remember, this is WITHOUT a car payment.  I also did not include any depreciation, of which I have very little due to my car being 13 years old, but everyone knows that cars depreciate at blinding speed.  Throw in a $300 per-month car payment (which is low) and this number jumps to $12,810.

Don’t get me wrong, I hope to never sell my car.  I need it for work and business  purposes….and like my colleague, I don’t know if I could stand waiting in the cold at a bus stop!  OK, so maybe I don’t ‘hate’ my car like I mentioned above…I just hate that it takes money out of my pocket.

So what I do hope to accomplish with this post?  At least get people thinking about the TRUE cost of car ownership…don’t just look at that advertisement for a nice car at only “$149 bi-weekly”…..what they don’t tell you is that it is bi-weekly payments for the better part of a decade..

And who knows, maybe  you can live without a car for 4 years and have $40,000 in your pocket to invest in some cash flowing real estate!

Numbers Don't Lie??

According to the Jan 14^th issue of “Maclean’s Magazine”, the average debt-to-income ratio of a Canadian household is now 164 per cent, higher than the pre-crash levels in the USA.

So what’s in a number? 

This calculation of this ratio is simple.  Take your current debt load (car payments, lines of credit, credit cards, mortgage, etc) and divide this by your income.  YES – your mortgage is included in this.

Let’s take one scenario about Joe. 

Joe is 30 years old and makes a $50,000 salary.  He has paid all of his student loans, owns his car outright and has no consumer debt – in fact he has saved up $25,000 for a down payment on a $150,000 condo in Kitchener, Ontario.  This leaves him with a mortgage of $125,000 that he has locked in for 10 years at 3.5%.   His mortgage payment is only $625….add a condo fee of $150 and his total payment is $775.

Sounds pretty good doesn’t it?.......except one thing…..Joe’s debt-to-income ratio is 250%  ($125,000 / $50,000) - almost 100 points higher than the (already outrageous!) national average. 

Joe must be crazy.

Here is a more detailed breakdown of Joe’s monthly income and expenses. 

Income	(after tax)	3000
Expenses
mortgage		625
condo fee		125
utilities		150
property tax		100
house insurance		70
house up-keep		100
cell phone / cable / internet		165
car insure		125
car gas		200
car maintenance		100
food		300
entertainment		300
misc		200
clothing		100
Total		2660
Monthly Savings		340

 Yes, there are some fairly large assumptions and generalities, but if Joe keeps this up and invests his $340 per month at 8% interest, he will have a mortgage free condo and $322,000 in financial assets…all this with a debt-to-income ratio that started at 250%!

Yep, Joe is nuts.

Take Pictures While you Can!!

If you have a long term buy and hold property, chances are you will have turnover….actually you can guarantee that you will have turnover.

For this reason, it is a good idea to take pictures while you can (ie. Right after you complete any renovations, painting, etc). 

There are several benefits to doing this:

-          You can continue to use those pictures over and over again whenever you have vacancy! 

-          No more tidying up to take pictures or asking your tenants to clean up after themselves prior to picture taking!

-          Gives you a chance to ‘stage’ the unit slightly to give your pictures that extra “wow” factor!

 Here are some pictures that I have taken of my basement apartment when I renovated last summer. It turned out very nicely and the pictures look quite nice!

Another tip is to save your Kijiji ads on your computer.  Either the “screen shot” of the ad, or just a word document that has the written information. This is a huge time saver, especially if your ads are as detailed as mine, as they can be used again and again.  And each time you make an improvement or think of something else you can just update the ad.

To everyone, the proof is in the pudding.  I recycled my Kijiji ad and used these pictures for this year’s student turnover and had a dozen hits on my ad in the first day, resulting in 5 showings for this week!  I don’t think I’ll have much trouble renting it this year J

Anyone else use this technique?

Please Look Past the Headlines

A couple of days ago, the Globe and Mail published an article entitled "Home Sales Plunge, Market 'clearly' in Correction Mode"

For the average Joe, looking at this headline without reading the details would likely result in misinterpretation, drawing incorrect assumptions and generally cause panic among homeowners.  

Again, this article focuses on “National” numbers.  As I have always said, the “Canadian” real estate market is non-existant….it is made up of tens of thousands of markets and submarkets.   Yes, other markets may feel a slight ‘domino effect’ resulting from neighbouring markets dropping in value, but the market in Yorkton, Saskatchewan, for example, will generally not be affected by a slump in the Vancouver or Toronto markets – an entirely different set of factors are at play in Yorkton namely oil, potash and other commodities that are the backbone of the economy.

For real estate investors and even the average home owner, this article should all be ignored – even if you live in Vancouver and Toronto (the 2 markets that are feeling the worst effects of the ‘correction’).   Again, focus on your own sub-market.

If you read further into the article, you find that, not only have prices not dropped….they have actually increased by 1.6% from December 2011!  But you won’t see that in any article headings – it’s not what they want you to see.  They want you to see the shocking numbers – the double digit declines – that will sell newspapers and cause panic among regular folk. 

While I don’t disagree that the market will go through some sort of correction over the next year or two, I understand that this will likely be restricted to the markets that are at the highest risk and have the highest inventory of high priced homes (Toronto and Vancouver).  For all other homeowners, please ignore this article and focus on your own market and submarket because I can guarantee that if prices are dropping in one area, they are going up in another.

Beans before Steak

The New Year is upon us and 'tis the season for resolutions that we have no chance of keeping!

While I won't bore you this year with my resolutions and goals, what I will say is that our entire nation...and most other nations need a hard dose of reality....maybe we can tie this into a New Year's resolution?

With consumer debts at an all time high, the "fiscal cliff" issues and entire nations hopelessly in debt...here is a quote written by Kevin O'Leary in his recent book "Men, Woman and Money".....

"Beans before steak"

Simple as that.  He speaks of an older gentleman in Winnipeg who immigrated in Canada in the 50s with nothing to his name.  Slowly, but surely he amassed a huge real estate portfolio of income properties by paying down the mortgages as fast as possible by saving as much money as possible.  In his own words he "ate nothing but beans for years".

How much truth is there to this story?  I don't know.  Can someone really survive on beans alone?  I don't know that either.

What I do know is that this quote can relate to everything in life.  Do you NEED that new car?  Do you NEED that new pair of shoes?  Do you NEED that new coat?....or do you WANT them?  If you save the money that you would have spent and invested it...will you be better off in the future?  The answer is probably yes.

Eat beans now so you can have your steak later.  Not only will you have much more steak to eat in the future, you will appreciate it that much more because of all the beans that got you to that point!

Do You Need a Fake Address?

OK, so the title is a bit deceiving....I'm not talking about a fake address that one would use to try to hide from the Mafia or some other type of shady outfit!

What I am talking about is getting an 'alternative' mailing address, namely a "PO box", in order to protect you and your family from those bad-apple tenants.

For those who don't know, a "PO box" or "Post Office box" is a uniquely addressable lockable box located on the premises of a post office station.  This is different from a safety deposit box that is located in a bank, which is not capable of receiving inbound mail.

In the land lording world, it is not out of the realm of possibility to have tenants get mad at you.....REALLY mad at you.  This could be for a variety of reasons including evictions, lack of maintenance, perceived unfairness....the list could go on forever.

The last thing I want is a tenant-from-hell to come knocking on my front door when he feels he is looking to give me his two cents.  Worse yet, he decides to vandalise my house, vehicle or personal possessions.

For this reason, I rented a PO box from Canada Post.  It is only about $12 per month and you have the security of knowing that your tenants will have great difficulty tracking you down!  Yikes! I sound like I'm a slumlord!  Rest assured..this is NOT THE CASE! :)

I plan to use this "fake address" for all business purposes whether it is a Lease Agreement, Option Agreement, Agreement of Purchase and Sale, or receiving cheques.

Does anyone else use this type of system for their real estate investments?

How Much can Your Landlord Raise Your Rent?

I came across this article on Moneyville.ca today and thought I would post my thoughts on my blog seeing as I am not registered with Moneyville.

http://www.moneyville.ca/article/1283748--rental-condos-new-bidding-war-battleground

It is actually scary how little people know about the rental industry and what some of the rules are.

The rules for rental increase, as per the Ontario Landlord and Tenant Board (LTB) are as follows:

- Each year, the landlord can raise your rent by the standard guideline, as set out by the Province of Ontario. 
- Until last year, the increase was based partially on the Consumer Price Index (CPI), until this backfired in 2012 with an increase of 3.1% (too much according to most pro-tenant groups)......seems as though they all forgot that the 2011 increase was only 0.7%
-  Now.....the minimum increase is 1% and the maximum is 2.5%
- Landlords may apply for an Above the Guideline Increase (AGI) if they have done capital work to a building that would be considered more than general repairs and maintenance (most landlords are actively pursuing this option to make sure they maximize returns).

Now for the BIG ONE that relates to the article mentioned above:

*****If the building was built after November, 1991, rent restrictions DO NO APPLY*****

I suggest that if you are currently renting a fancy new condo, that you re-read that. 

Yes, this means that if you are paying $1500 per month this year, your rent could go up to $3000 next year and there is little you can do.

I'm not saying that all landlords will do this as most like to have long-term tenants who care for their property, but it pays to be informed and this might be something that you will want to think about before making the choice between and older rental building and a fancy new condo.

Thoughts?