Is there something to understand from all this?
This is my wife’s line on a Friday night when we realized that we were going nowhere with the house sale. Yup, you read that right: it’s been a month that we are working with potential buyers and yet, nothing happened. In fact, both dogs are dead.
Two Offers, No Winners!
I’ve been updating you for the past couple of weeks on how close we were to selling our house. Our first buyers were perfect: we got the price we wanted plus the fact that we were about to close the transaction at the end of October. This meant I was going to be debt free for 7 months, piling close to $2,000 per month in my pocket as I would be living in my mother’s basement. All plans were done and we even started to pack a few boxes while the transaction was being completed.
The inspection happened, the house is in mint condition. Everything looks perfect in the ideal world… until the buyers told us they didn’t get their financing approval!?! I couldn’t believe that. Two weeks ago, they gave me a pre-authorization form signed by their financial institution and still… The banker who did it was about to retire and didn’t fill in the paperwork correctly. The bank didn’t want them to have two properties at the same time (they hadn’t sold their house yet).
I was a bit disappointed at that time, but I had another buyer waiting in line to make an offer. Therefore, I just jumped on the phone and called him. He made an offer a few days ago for $335K… talking about a very lowball offer! Since I had accepted an offer at 355K previously, I came back with this counter offer. For one week, the buyer didn’t give me a sign of life. I finally called him the day prior to the expiry date of his offer and he told me he will not put another dollar on his offer.
So here I am, 5 weeks after receiving my first offer with nothing left but this question:
Is there something to understand from all this?
The “After” Part
I spent this Friday night doing tons of calculations. I was reviewing the project as a whole. At this point, there is only one certainty: Quitting is not an option. If I have to withdraw all my RRSPs to make it, I’ll still do it. I don’t even know if I’ll be able to enjoy this money at the age of 65 anyways, so I would rather use it now and see how it goes later. After all, money is not made for anything else but to be spent, right? Hahaha!
During these calculations; I realized something: I didn’t plan the “arrive home” part of my trip. I’m prepared for all eventualities, but I didn’t really look at what will happen next. This is when I realize that if I sell next spring (obviously, not many people will want to move in January!), I’ll come back with less money than I have right now. Meaning I won’t be able to buy another house for 1 or maybe 2 years.
I’m not quite sure about what I intend to do when I come back from this trip. My “plan A” is to continue living on my online income and grow my business to another level. My “plan B” is to become self-employed in the financial industry and combined both my online income with my book of clients to make a living. The third plan (which has been accepted by my employer) is to come back to my job and keeping everything “as is”. The three plans lead to living in the same city I’m living in right now and the first two plans requires that I have a home office… which I have already the perfect place in my house right now.
Now the option of keeping my house is gaining popularity in my mind!
How Can I Make This Work… Still
Another thing came to mind, it’s the fact that I am sitting on roughly 100K equity on my house. This is how I could easily borrow 25K from it in order to finance the cost of keeping my house. Worse comes to worst, I’ll come back with a mortgage at 288K instead of 265K. It’s definitely not the end of the world when you think about what I’ll be doing for a year.
Then, the option of renting the property is now wide open. I can probably rent the house at roughly $1,500/month leaving me with only $500/month to cover. Once I come back, I can keep my house and enjoy my place again. I have the opportunity to keep everything I have and leave with minimal costs.
But There’s Always a “but”…
When I first thought of leaving for a year, the idea of becoming debt free at the age of 35 was very attractive. Who doesn’t want to be debt free anyway? Keeping my house means keeping my comfort when I come back home, but it also comes with greater risk. Hey… nothing is perfect!
The risk is linked to my ability to cover the cost of travelling solely with my online income. If I was leaving today, I would be short of about $1,000/month to cover everything. While I’m close to my goal, I’m still in the red and draining the company to the last drop is not the best idea in the world either. As you know; there is a limit to what a company can pay in dividends in year before putting its own operations at risk.
In order to cover this risk, I still have my 60K RRSP account. If I withdraw from this account, I’ll pay a big chunk in taxes and I’ll probably finish with 35K in my pockets. Then again, this is enough to cover for my trip… therefore, I’m not at risk too much.
Still, I’m taking a huge leap of faith by leaving and keeping my house but I’m sure of one thing: I’ll definitely remember this trip for the rest of my life and barely noticed that I had to be in the hole by 25K to make it happen!
Image from author’s library.
Oh buddy, you’d never believe how similar our predicaments are. I’m not going to announce the plan until the end of the year, but we are scaling back our year long trip…..to 4 to 6 months, and keeping our house. We decided it makes sense to keep the house, because we’re coming back to the same area. The transaction costs of real estate are pretty steep. We take off in the spring!
Proud of you Mike. Adventure is out there!
I can’t wait to hear more about your trip! Life is about the experience we live, not about the stuff we buy. After all, I really think keeping my house is the best solution.
Hey Mike. Thanks for sharing. That’s a tough situation to be in which is created by yourself of course 🙂
If I had to choose, I would definitely keep my house and rent it out and collect 7/ 8 cheques in advance and cash em during your trip and come back and stay at your moms for a bit until you’re tenant moves out so you can move back in.
The cost of selling a home is quite expensive as the average of such transaction is around 20 – 25k ( Realtor Fee, Property transfer tax, lawyer fees, and knick knack paddie whack fees ). I would definitely liquidate that RRSP of yours and hope you can do some sort of income splitting / accounting strategy to minimize taxes paid.
Just my 2 cents. Whatever you decide is all good. I like keeping the house because I like hard assets like that. You gotta live somewhere and it’s here already.
Take care and hope to hear more posts soon.
I realized something else too; my ability to generate income is better than my ability to cut down my budget. Therefore, as long as I work on my strengths, I should be okay!
I think your alternate plan makes sense in the context that this “trip” means a lot to you and your family. In my view, it will stretch your financial life plan but there is no way one can put a price on this family adventure. I remember when we decided to buy a $30,ooo small plane when we were in our early thirties. We had a big mortgage and 2 growing boys, etc. Many friends and family tried to discourage us, for obvious reasons. But frankly, it’s the best thing we ever did, and now in our early sixties, we often think about the great time we had with this plane, as a family. Now our youngest son is a pilot!
Good luck; my wife always says that” things happen for a reason.” Someday, you will reflect on this decision, and be very happy about it! Sorry about the long message 🙂
wow… this is an amazing story! I guess you are proud of your son! Memories is all we own for the rest of our life, they are our most precious assets!
Thank you for sharing,
Sylvia @ Miss PF
Thanks for sharing. Renting out the house does sound like a good and safe bet.
Good luck to you!
I also rented out my place when I took a year off. I should have done a better job screening my tenant–it’s not fun dealing with issues from a different continent. But it was nice to have a place to come back to, and our trip was certainly memorable!
Also look into filing an election with the CRA under subsection 45(2). Otherwise, you will have to pay capital gains tax if your house appreciates during the time you are not living in it. There are some more details here: http://www.taxtips.ca/personaltax/propertyrental/changeinuse.htm