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episode # 304

Home Ownership, Investing & Retiring Young with Romana King

We often talk about how all real estate purchases are investments, whether the buyer feels that way or not. But how can you supercharge your homebuying and home-ownership experience to ensure you can grow both the value of your home AND your net worth? This week, award-winning personal finance columnist & Director of Content at Zolo, Romana King, joins Matt & Adam to discuss increasing your home value through renovations, reducing your monthly expenses, and tapping into dead equity in your home or revenue properties. How can your home become the centerpiece of your financial outlook? Join us for our last episode of the year to chat HELOCs, saving big & retiring young. Giddy up!

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Episode Summary


Who is Romana King?

I have been covering personal finance and real estate for almost two decades. I began my journalism career covering trades and have continued helping consumers make the best finance decisions when it comes to real estate. My parents came to Canada with very little money and wanted to give us kids a better life through education. My dad knew getting into the property market would be a good idea, but it took him a long time to get in. He lost two houses due to poor education and finally was able to buy on his third try. I knew from a young age that where I live was a big financial decision and one I needed to be educated about. Where you live is a big decision and it has huge financial ramifications.

How are personal finance and real estate related? 

A lot of people see buying a home as either a smart financial decision or not, but I think that’s too simplistic. People don’t buy a home just because it’s a smart financial decision. It’s a lifestyle decision because there’s an emotional tie to real estate. So as much as buying a home is a financial decision, it’s motivated by personal reasons. 

Why did you write House Poor No More

I didn’t want people to have to justify or beat themselves up for buying a home. Your personal reason for buying is a good enough reason. Then you can learn how to make it a smarter financial decision. If you make an emotional decision and then have the tools to make a smart financial decision, your home doesn’t have to become a burden.

How can you avoid becoming house poor? 

You can have anything but you can’t have everything. If you want a home in an expensive market, you have to make some decisions. If you extend your budget for housing, you’ll be pinched. Or if you limit your budget, you may not be able to get your dream home.  It’s okay to want to buy a home in an expensive market but you have to be realistic. You have to acknowledge the emotional component of the decision instead of trying to find ways to justify it.  Be realistic about your budget and how you can make smart decisions. In a high price market, do you have a strategy to make extra mortgage payments? Can you make rental income?  Everyone wants that fantastic, luxury home. But the reality is not everyone needs it. We have to be more comfortable having conversations about what decision is smart for us. 

Should you buy a smaller house if you’ll have to sell and move through the market in just a few years?

It depends on your goals. Buying a home is a milestone, not a goal. Financial independence is the goal. Buying a home is a milestone on the way to financial independence. If you think you’ll have to move in the next 2-3 years, you haven’t bought the home you’re supposed to be living in.  My husband and I bought our dream home in Toronto and then sold it when we realized we wanted to move to the west coast. A home is just a structure. Buy a structure that is going to work for your family now and in the next 5-7 years. Anything past that and I think you’re buying too much home. The home you’re living in needs to work for the component that you’re in right now. 

How can you use your home for financial growth?

We need to revamp our thinking on how we consider debt and how we can use the equity in our homes. Your decisions will depend on your risk tolerance and tolerance for debt. If you have equity sitting in your home and have no plan for it, it’s a waste. Your home is a safety zone but it’s also an investment. 

How can you use the equity in your home? What is the Smith Manoeuvre?

One way that a lot of people are familiar with is the Smith Manoeuvre. In Canada, when we sell our principal property, all of the profit is tax-free. But the interest we pay on our debt isn’t tax-free. So Smith developed a method for essentially swapping out the non-deductible debt for deductible debt. There are other strategies for using your home equity and some are more complex than others. But there are different ways people can use their mortgage and equity in their homes.

Should you pay off your mortgage faster? Or should you make the minimum mortgage payment? 

It depends on your risk tolerance and what strategies work best for you. You have to look at what works for you and ask yourself: What are the interest rates now? What do you anticipate they will be in five years? How does that impact how you will pay your mortgage?  If you can aggressively attack your mortgage at the start and then wean off, I think that’s the best strategy since you pay more interest at the beginning. That way, you can build up the equity in your home, re-borrow and invest again. 

What are the risks to using the equity in your home?

There are risks to everything. Whenever you’re taking on leverage, you have the potential to maximize your earnings or magnify your losses. There are always gains and losses, and you have to be comfortable with your risk tolerance. If you’re in the stock market, you have to be able to stomach the ups and downs. You need to examine your own strategy and goals before making any decisions. 

Should you invest in real estate or the stock market?

Diversification is my answer. Again, it depends on your goals, risk tolerance and lifestyle. If you’re looking just from a financial lens, diversification is the way forward. If you already have a rental property in Vancouver, what is something different you can invest in? Look at your whole portfolio and see if you have a basket of stocks that are separate from real estate. You can capitalize on the gains and weather the storms when you have your hands in different buckets. 

Should you change your investment plan based on market conditions like rising inflation and interest rates?

You want your investment plan to have a core component and an explore component. The core component should be diversified and hold the bulk of your money. This is the money you can’t risk losing. Once you have that set and rolling, you can look at your explore component. This is where you can make decisions based on market conditions, like rising inflation and interest rates. For example, you could buy a rental property to help hedge against inflation.  So we do look for market opportunities, but only in our explore component. Our core component does not waver. We monitor it and allow it to keep going. That’s our passive investing bucket whereas our explore component is where we do our active investing.  Real estate is accessible to anyone because there’s a lot of education out there. As a landlord, you’re starting a business. If you’re willing to put in the work and education, you can make a go of it.

Rent VS buy: Should you rent or buy a home? 

People want an easy answer and a universal response but it really depends. Paying rent is not throwing money away. It’s foolish to buy a home because you don’t want to pay rent. It can be smart to rent as long as it makes sense for you. But it’s hard to find a rental that’s less than a mortgage payment in some markets. So if you can scrape together enough for a down payment, it could be smart to buy a home.  Does it make sense to rent? Yes, if you’re not established and not settled in your career, location, etc. Try to find a rental that is less than a mortgage payment and put that extra money away for a down payment or investments. But most people can’t find a rental that is less than a mortgage, so it would make more sense to buy. Especially when interest rates are so low, buying makes sense. 

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