How and why we decided to purchase our home without a mortgage and all in cash
We bought our condo in cash for around $600,000
The main reason is because we could but other factors came into play as well. Here are a few of my thoughts on the whole process of buying as an all-cash buyer.
I had no idea it would be so stressful
Looking at places, checking, comparing, running formulas in Excel…. my goodness it is a hell of a lot of work. No wonder real estate agents have jobs.
It was almost 10 – 15 hours a week sifting through listings, making appointments, visiting with a very cranky toddler and trying to figure out what we should offer if at all.
I wonder if real estate agents even do that kind of calculation, but we were winging it and surprisingly, nailing all of the prices without having any concrete data to play with that realtors are able to access in their database.
People are absolutely right that you need to increase your budget by 50%
We started with a $400,000 budget, and very quickly in a matter of 2 weeks because we are no nonsense, practical, realistic folk, increased it by 50% to $600,000.
It was my maximum anyway.
I didn’t want more than $300,000 of my money invested in a home, seeing as that would leave me with about $200,000 in locked-in retirement funds & cash.
Basically, you should all create a budget, and then up it by 50% because WE ARE ALL DREAMERS.
We all think we can get the perfect, hidden gem for a low price, where it is move-in ready, not a lot of work, something someone overlooked, but it is near impossible.
Anything that good, is recognizably so, and gets snapped up pretty quick.
A question we got often was:
Why not take a mortgage?
Well as a freelancer, I would normally be denied. Seriously denied the cash to buy a home on a mortgage because I don’t have an earned income/salary on a slip because I take dividends from my company.
…but we definitely qualified for a big one only because the banker knew us
When we were first thinking of buying a place, I was in a bank doing some business and I casually asked about a mortgage and what I would need to do, etc.
I happened to have a banker who knew us via our accounts and saw the cheques being deposited, and she told me that normally without an earned income, I would not get approved at all, but since she knew us, and if I was willing to put down a hefty down payment (which we had), I was individually pre-approved by my banker (without my partner) for $600,000 and at a very reasonable rate of 2.8% over 20 years.
I kind of goggled at the number when I was told.
I mean, someone is willing to give me $600,000 in debt. PERSONALLY.
I asked her why and she said (and I paraphrase):
I don’t see many people with your situation.
Young, lots of assets, no debt, and a supremely high credit score.
You’re basically a banker’s unicorn.
The bank would be willing to give you a max, and even more if you asked — I would recommend you personally.
I am not sure she knew that I didn’t take my income in a salary but in dividends instead, but if I had gone down this path, who knows if I would have been approved or not. I didn’t bother, so I never found out.
Hmm. OK. Well, still kind of not interested in taking on debt, but good to know.
(I mail ordered my unicorn horn the next day.)
Mortgages in Canada are also not great
In Canada, we cannot write off the mortgage interest on our taxes.
Our rates are also not fixed for a very long time. The best rate we can get, was about 6% at a 5-year fixed rate at the time I was looking for a mortgage.
If I wanted a 10-year fixed rate, it went up to 8% I think.
The only “good” rates are variable ones, but that means one year it could be low and rocket up the next year – this is very shaky/risky and not at all desirable.
Americans, I know can lock in rates for a long time, and if I could have gotten a mortgage at 4% or under, LOCKED IN for 30 years, I would have done it and invested the money in the market instead.
But this uncertainty on what the rate would be, the lowest rate, having to refinance every 5-10 years… this is everything I want to avoid especially as a freelancer.
In hindsight with the low rates it would have been better to get that mortgage, but then I wouldn’t have invested the money – I would have kept it in cash to clear the mortgage if I needed to, which means it would have earned only a 2% on the high-interest savings account, rather than investing it.
In even more hindsight, I can see that the crash that happened this year in 2020, helped me realize that I did need a massive emergency fund, and having that mortgage would have meant keeping at least 3 years of that in cash. Would it have been worth it? A lot of headache/hassle and I did not want to start selling investments to pay down a mortgage I didn’t want in the first place.
We didn’t want debt
Call us stupid or naive but the way we see it, we make a lot of money and if we can avoid debt, we’re going to do it.
Sure, we could play the ‘leverage debt’ game and use it to propel ourselves into the stratosphere of borrowing and lending that you have never seen before in your life, but personally, I could not sleep at night knowing that:
A) I owe money
B) I owe THAT MUCH MONEY
C) I can’t clear it any time I want without incurring fees & costs for lost revenue for the banks
D) I am paying to borrow money that I don’t need to borrow
I’ve already been in debt, $60,000 in fact and I refuse to go back there no matter how simple & naive it might sound.
I have paid my dues, I have stressed out over clearing it and I’m done.
I don’t stuff my money under my mattress for a rainy day or bury it in a can in the backyard, but I’m not a fan of taking money when I don’t need it.
The good news, is that it brought along a lot of interesting insights & surprises
I am seeing it in another light: I am making X% of money on my investment
My rent is prepaid, and without a mortgage, I am seeing it as returning a certain % on my money.
So a 10-year fixed rate is 4.69%.. and I am seeing that 4.69% as the return on my money for the next 10 years.
Not too shabby.
Even if that is not technically true, I am at the very least, saving 50% on my current rent because now I just cover taxes & condo fees.
My personal calculations & figures are all here: Mortgaging versus Buying versus Renting.
We managed to have that money saved for a while
I am tax-efficient personally and also in my business. I only take non-eligible dividends from my company which means I only take what I need to live on, and minimize my taxes there.
Therefore, by the time I wanted to buy my home, I already had over $300K in my business ready to withdraw as dividends (which I did, and paid enormous taxes on that).
No inflated competition like in Vancouver or Toronto
There was no competition in this Montreal market per se even though the real estate market in Canada is about to burst.
When? I have no idea but it is frothing higher and higher each day in major cities with foreign money (not just from China) pouring in and filling up bank coffers in droves.
I suspect a good chunk of that foreign money has been illegally obtained (politicians, shady deals, etc) and this is a nice way of laundering it by putting it into a solid asset (bricks & mortar) in a stable country (Canada).
It. Is. Scary.
Montreal however, is not a market that has ever been like Vancouver or Toronto, and the prices have stayed fairly reasonable, that is to say, around or up to 30% below the city assessment.
There are a lot of great deals to be had in very nice areas of Montreal for far below the city assessment.
The market has been dropping in recent years and we’ve been keeping note of how long properties stay on the market (thus far, 2 years or more for anything over $400,000).
Nothing over $500,000 is really selling unless it is a deal (below assessment or otherwise favourable).
Lots of people are looking to get rid of their big home and downsize to a smaller condo or something easier to take care of so they can finally unlock the invested capital in their home but NOTHING IS SELLING.
Stronger & easier buying position
Our timeline was tight, we only had 4 months to find something & move once we decided to plant roots & plunk down some hard earned cash.
I say that we had a strong buying position but that would be compared to other buyers if we were in a market like Toronto or Vancouver, but nevertheless, real estate agents practically fawned over us the minute we mentioned “all-cash, no mortgage required”.
One guy to whom we made the all-cash offer to, practically staggered and fell down on the floor. He needed a stiff drink once he heard that we were making an offer and it was all cash.
Basically, we’re unicorns.
Again, no one really has that kind of money to buy a place outright at the prices we are looking at (half a million or more), at the age that we are at (early 30s) as first-time homebuyers without a previous home to sell (lifelong renters thus far).
We are lucky in that regard, but our all-cash position was also extremely attractive to sellers and they were more willing to bend backwards to go down a bit more in their price due to the inflexibility of cash.
Debt and mortgages?
They’re a piece of cake to get, considering how much we could slap down as a down payment.
Cash? Not so easy to rack up.
Also, this is minor but people are way nicer to me when they hear ‘all-cash’. Something in their demeanour changes, and they’re sweeter and more accommodating, all the more happy to get their paws on my cash.
Am I just imagining it?
Real estate agents all have the same tried & true, annoying tricks
“Another offer has just come in on the property, so you have less than 24 hours to respond.”
Is that the best you have got?
EVERY. SINGLE. AGENT. TRIED. THIS.
Y’all need a new bag of tricks.
And no, it didn’t work on us.
In many cases, we just didn’t counteroffer because they’d kind of insulted us with their so-called ‘discount’ off their inflated list price.
We had quite a number of options & just moved onto someone hungrier & smarter.
We also had a very good assessment of how much they actually paid for the place, what they’ve invested in appliances, paint, fix-ups, closets, and how greedy they were to try and turn a profit (all house sales are 100% pure profit after fees, & is not taxed in Canada).
What I found funny through the whole thing is that they imagined that my partner was the one buying the whole thing because he’s the guy.
Most guys are the only ones on the deed, not their girlfriends/partners/wives.
I had to tell them I was ALSO on the deed & ponying up half the amount in cash too.
I guess I looked really unassuming (no fancy bags, shoes or jewellery) and too young to have that kind of money.
Sellers who do it themselves come in two camps
The Dreamers & The Investors are the only two who list their properties on DIY Selling sites that do not use a realtor.
They think they can get more than what it is worth, and that everything they’ve done in their home is perfect for someone else.
These are the people who have picked those specific shades of oxblood red for the living room focal wall, lovingly touched and mangled every appliance in stores picking out the most unblemished one, and studied the veins on the tiles & marbles to be slapped onto their kitchen walls.
They are extremely emotionally invested in their properties.
These dreamers, also thought that because they put up a monstrosity of a TV cabinet that was custom made for that wall, would think that others see the value of such a hideous object and NOT want to tear it down as it is a work of art.
Every time we heard about how amazing that TV cabinet was, we’d say:
We don’t own a TV.
We’d have to rip it down, so it’s a cost to remove it actually.
These folks? .. THEY NEED A REALTOR.
If they are not living there, they are not as emotionally invested in the property, but gat damn THEY NEED A REALTOR.
A third party to step in, do the math and tell them:
You need to take a Xanax and calm down.
What the buyers are offering is what the market rate is today.
You either counter with something reasonable or hold this place for another year while dreaming about your conditional offer on a huge 3-bedroom home in the suburbs.
Even if they are desperate, they’ll still refuse to sell it for what they think they paid for it in the end.
“So keep it for yourself then.”
And they did.
The ones who want to sell, will sell. Someone was going to get our money, it was just a question of who.
I prefer dealing with these DIY sellers.
They see it as a physical asset that is losing money or tied up when they could use the liquid cash for something better.
They are more pragmatic and wouldn’t mind losing $30,000 – $50,000 JUST TO GET RID OF IT.
One guy sold his place $45,000 below what he paid for it. He just wanted to get out of the renting game.
Another, was a brand new landlord who thought he could make money by getting people in there but found it hard to find GOOD renters who are clean, pay on time & don’t make trouble, and always lost at least a month a year having the old renters move out, new ones shift in, maintain the place, etc.
They tend to be better of with a DIY site as long as they’re realistic about what they’ll get.
Notary fees are lower by 40%
All cash brought another surprising benefit to us buyers; we were quoted $1500 with a mortgage (as they have to contact the bank), but with an all-cash sale, it dropped to around $900.
No mortgage negotiation BS
No banks involved, no complexity, just cash.
My biggest worry is having enough in a bank account to make a bank draft and to hand it over to the notary to sign the deed.
We can now do what we want
As renters, we have avoided putting holes in walls and things, painting, and generally making anything comfortable or permanent.
Now we can put up our own curtains (automated!), we can do custom wood shelving in closets, and basically settle in to make it our minimalist haven.
Baby Bun will have his own room (not that it was a priority to be honest, versus the cost of a place in cash), and we see it as a family home to keep wall into his college years.
We don’t plan on buying much or over furnishing the place, but I would like to put forward a request to my partner for an Ikea Poang chair.
I’ve always wanted one to cuddle back in & read no matter how bad for the back it is.
Oh I can also FINALLY get some permanent sticker mailing address labels. 😀
..and some solid wood chairs.