Thursday, June 12, 2008

Darts and laurels

When you work in the media (and by association, hang out with journalists) while also being one of those weird people who actually enjoys talking about financial topics, it makes two things more likely to happen. No. 1, the odds that your drunken ramblings might ever see the light of mainstream publication are infinitely increased. And No. 2, how they're received is likely to be all over the map...

I'm "in the news" (so to speak) a couple of times at the moment, and I figured I'd be remiss if I didn't point my loyal readers (Hi mom!) toward the fruit of my overactive brain.

My good friend Andrea is under the mistaken impression that I somehow know what I'm talking about when it comes to financial topics, so she's enlisted me to answer a few basic questions about opaque financial topics on her new financial blog, Unspending. This week, we're talking about net worth: what is it, and why does it matter. This may or may not become a recurring feature, since believe it or not, there's few things I enjoy more than chatting about things like personal finance. So if Andy's pleased with the results, expect more topics to be discussed in a rough Q&A format over there. So far, the early reviews of my thoughts appear to be positive.

But clearly, that's not a universal view. Another friend, who works at the Toronto Star, has been writing an 8-part series about the process of jumping into the real estate market for the first time. I'm something of a contrarian when it comes to real estate, as my B.S.-detector tends to go into overdrive when I'm at a cocktail party and overhear someone bragging about how "you can't lose money in real estate." At any rate, Robyn and I have been having an ongoing debate about Toronto real estate for a few weeks now, the distilled version of which, it turns out, is the focus of her series' final installment: Home, Sweet Home.

As impossible as it is to poke holes in such air-tight financial advice (from a financial advisor, no less) as "never pay off your mortgage," the point I was trying to make isn't so much that real estate is a bad investment, but more that it's quite often a good idea to at least question the conventional wisdom of the massive financial move you're making -- not to mention that 40-year mortgages might not be your best friend.

No matter. Though I'm clearly the villain of the piece, it's all in good fun. And I doubt it'll be the last time anyone takes mock umbrage with something I say.


Mr. Cheap said...

Congrats on your mentions, its always most fun to be the villain :-).

Robyn is cute! Put her in touch with me if she ever kicks her scowling, ice-cream eating, small-dog-sitting-next-to boyfriend to the curb. ;-)

Anonymous said...

Robyn's piece was kind of scary to read.

"My monthly payments are the same price as my rent... I might keep the place and rent it out to Ryerson students" How does it make sense to rent it out if the rent barely covers the monthly payments? Does she not realize that there may be other costs to being a landlord?

"I hope to sell in five or so years... I plan on making money through appreciation..." And how much appreciation, exactly, is she planning on? If her closing costs are around 10%, then she's got to make 2% per year just to break even after 5 years. Historically not too much of a challenge, but:

"But if a home isn't worth gambling over, what is?" It is a gamble... and one shouldn't put more money into a single investment than one is prepared to lose. She can't help but have seen the US housing market melt down over the last year, and so many people are calling for the market up here to stagnate or even decline...

She seemed to get a place that she can afford, and enjoys being an owner, which is good... but I don't get the impression at all from her articles that she put much deep consideration into one of the biggest purchases of her life, or that she really understands the financial aspects. She doesn't seem to appreciate that owning carries some risks that renting doesn't (it's her fridge now... and she has to pay to fix it if it breaks; she also needs all kinds of insurance that she didn't have to pay for as a renter).

"If I lose my job, or fall on hard times, I won't need to stress any more than if I was renting." Does that make sense to anyone besides her? Sure, the monthly payments might be the same (and again: kudos for her in that regard at least and not completely overbuying), but if she falls on hard times she can move out of a rental into a cheaper rental with 60 days notice, and have her savings to fall back on. She's implied that now all of her savings are in the condo, so if she falls on hard times she's got no savings, is stuck at the same monthly payment until she can sell it (unless she rents it out and moves in with mom), and then if things go really poorly in the housing market, she could be underwater on the mortgage to boot.

And there are countless other amateur condo speculators out there who are even less contemplative than Robyn...