Tuesday, April 29, 2014

Will U.S. inflation increase?

Those of us who are old enough remember when mortgage rates were in the high teens and you needed a 10% salary increase just to keep up with inflation.  Other lowlights of that era are tunes like "Disco Duck", Barry Manilow, the Ford Pinto (I had one), and rationed gasoline.

The US economy is now recovering with unemployment falling, house prices increasing, and the fed is still pumping tons of cash into the economy via Quantitative Easing, a tactic never tried before.  Inflation in the past was either driven by printing money (check) and/or a tight labor market (hmm maybe a check there too).  This Bloomberg graphic shows the dramatic change in the US labor market over the past 5 years.   A little inflation (2-3%) is a good thing, could we see 10%+ inflation if the fed's tactics have unintended consequences?

Friday, April 25, 2014

Why Toronto House Prices are so High

Just saw this article on Yahoo/Reuters about how mainland Chinese are buying up properties sight-unseen in the USA etc.  Although it does not mention Canada, which is just poor journalism, I went to the websites like and found that the bulk of the properties listed are Canadian in Toronto, Vancouver, and Calgary.  Lots of helpful information for the Chinese on immigration, taxes, how to get children into schools, etc.

I also talked to a real estate agent in Toronto the other day and she gave me her standard speech on why Toronto houses are going to continue to increase in price.  It was basically "..foreign and immigrant buyers are going to continue to buy..prices will go up..Canadians will be priced out of the market".  Not sure why she thought that last point was a good thing, but it is certainly good for the real estate brokers.

By the way, I am not against immigration as I am an immigrant myself.  Most past immigrants, like my family, started out stretching to rent a decent place like an apartment or duplex, then slowly moved up the housing ladder as they succeeded in Canada.  Distorting Canada's premier housing market to absurdity with rich offshore (not immigrant) buyers is an issue to be addressed in my opinion.

Here are some snippets in native Chinese script and google-translated English from the website.

Tuesday, April 22, 2014

What Do You Get for One Million Dollars ($1,000,000) in Toronto?

As some of you know, we are trying to move to Toronto to be closer to family.  We are looking for a condominium, townhouse, or house with 2 bedrooms plus a den or 3 bedrooms.  We want to be fairly central within the square bounded by the Don Valley Parkway, the 401, the 427, and Lake Ontario (big area).  The ideal place would have:

  1. At least 1400 sq feet of living space, a locker, and one parking space
  2. Nice building or house, no obvious immediate maintenance needed like a new roof.
  3. Nice neighborhood.
  4. Updated or recent flooring, bathrooms, and kitchen.
  5. Decent closet and kitchen cupboard space, enough to have a pantry, a linen closet, and one large clothes closet.
  6. Pleasing layout, no crazy angles or funny solariums turned into bedrooms or dens.
  7. Close to the subway.
  8. Close to shopping (walking distance).
  9. All living areas on one or two floors i.e. a townhouse would have the master bedroom, kitchen, living room, dining room on two floors, not three.
  10. A nice view of the city, lake, or something else.  Do not want to look at the 6 different kinds of recycling bins of the neighbour or a brick wall.
  11. Maintenance fees under $1200 if a condominium apartment or townhouse.
In terms of a house, you might get three (3) of these features for a million dollars.  Most likely, you would get a small old 1800 sq ft bungalow in a decent neighborhood that needs a lot of work, and the shopping requires a drive.  You would have to win a bidding war to get the tired old house.  We have "been there, done that" with our first house in Barrhaven Ottawa, not going to do it again.

In terms of a townhouse, you might get six or seven of these features for a million dollars.  Most likely, you would get a small older unit in a good neighborhood and the shopping requires a drive.  However, these units are as scarce as Toronto Maple Leaf playoff games.  Most townhouses have the master bedroom on the third floor with lots of stairs.

In terms of a condo, you might get eight or nine of these features for a million dollars.  Most likely, you would get 1500 sq ft in a decent building, close to shopping and subway, but no view and a high maintenance fee. This is our most promising alternative.

Our conclusions:
  1. $1,000,000 does not buy much in Toronto
  2. As usual in Canada, a price of $1,000,000 means you pay more because there is a "welcome suckers to Ontario and Toronto" tax of $32,200 making the total $1,032,200.

Friday, April 18, 2014

Blogging is not a Good Second Career

So far, the ads on this blog have generated about $8.87 over 3 months, and the threshold to get a check from Google is $100.  Thanks to the 5 or 6 people who have clicked on the ads.  I find the advertisements pretty lame so its no wonder that Google missed its earnings target, if they had put more enticing ads on my blog (and others), they might do better.

Maybe if I switched to blogging about something more interesting I would get more page views and more ad clicks?  The most popular topics seem to be sex (no surprise there), celebrities, cute cat and dog pictures and videos, and weight loss.  My best idea so far is the Nude Kardashian Pet Food Diet Blog.

Thursday, April 17, 2014

The Smelliest Taxi

We just had a ride in undoubtedly the smelliest taxi I have ever smelled.  This Toronto taxi in its inimitable orange and green paint job took us for a 10 minute ride.  The body odor in this cab would knock your socks off, even though the windows were partially open on a 0 degree C evening.  My wife tried to hold her breath for 15 minutes, then gave up and pinched her nose and kept asking, "are we there yet?".

Having taken gym at school, done manual work outside in the summer, and taken the Paris Metro, I have smelled bad body odor, but this was definitely the worst.  I hope Uber will improve taxi service in Toronto and they should definitely add a smell test to their driver qualification tests.  It is not good enough to ensure that you are not a meth addicted pedophile serial killer, you need to also do a nose test on the person and the car.
You can smell it coming a mile away.

Wednesday, April 16, 2014

Lost in the Toronto Bermuda Triangle

We are back in Toronto, subject of my previous post on the Bermuda Triangle, looking for a home.

We finally saw some condo units that might work, but the prices were very high:

  1. Ground level 1600 sq ft unit (2 bed+den) for $1M in nice area.  In Toronto, no one has to stage their home, so we saw all the family pictures also in another unit, an old cat with a smelly litter box.
  2. New 1500 sq ft unit (2B+D) for $1.2M with view of Humber River but the building is still under construction.  On top of this, I believe you have to pay the $40000 land transfer tax and some other bits and pieces for a total of $1.25M.  The saleslady was completely obnoxious until our realtor had a word with her.  The carrying cost would be about $66K per year including taxes, maintenance fees, opportunity cost of money invested @ 4%.
  3. Same building as 2., but rent the same apartment for $4500/mo = $54K per year.
In contrast, here are some other options:
  • Stay in a suite hotel (Embassy Suites type) for $1000-1500 per week as needed.  $55000 cost per year max.  Includes maid service, gym, pool..
  • Stay in furnished apartment at $5000 per month, $60000/year.  Probably has gym, weekly maid service.
  • Unfurnished rental at about $3000-4000 per month, $35,000-$50,000 per year.
So my opinions are that the market is still crazy.  It is cheaper to rent than buy, maybe even cheaper to go for a short term rental just for the nice months when you want to be in Toronto (May-Oct).

Thursday, April 10, 2014

Bermuda Triangle of Real Estate - TORONTO

The Bermuda Triangle does not get as much press nowadays with the Malaysia Air disappearance in the vast Indian Ocean.  Remember the Bermuda Triangle is a place where things get lost, no one knows why, they are never found, its a big mystery, etc.

We are trying to move to Toronto from the Washington DC area to be closer to family.  Trying to buy a condo or home in Toronto is Bermuda Triangle-esque.  We are looking for a centrally located 1500+ sq ft condo with two bedrooms and an office, or something similar (townhouse) and our budget is up to $1,000,000 (way more than our 3500+ sq ft house in the expensive DC market).

  • In 5 weeks of searching with an agent, we have identified about 12 to 15 properties and seen 8.  There is not much on the market and not much like this being built within the 427-401-DVP area.  A vertically stacked 3+ level townhouse does not really work because of all the stairs, not that there are a lot available anyway.
  • Nothing is under $700,000, maintenance runs about $1200 (condo) to $250 (townhouse) per month.  Once you get above $1M, maintenance seems to shoot up to $1800+.
  • Houses are often bought with no inspection, no conditions, huge earnest money in a certified check ($50K), a love letter to the seller, and after a bidding war that starts the day the house is listed.  Our agent says the condo market is "more normal" because you can have a condition of inspection, a certified check for $35K, no love letter, and only occasional bidding wars.
  • All the new condo buildings with tens of thousands of units are 1 and 2 bedroom  units with less than a thousand square feet in a high rise 50+ story building.
So the mysteries are:
  1. Who buys houses and condos in Toronto?  Is it Torontonians moving up, people moving into the area, new immigrants?
  2. Where do the buyers get the money?  The down payment has to be at least $100K and the mortgage would be approximately $4500 at today's 3.5% rate and will go up as rates rise.
  3. Why is there so little available?
Our agent does not seem to know why, Canadian newspapers are full of speculation, there are no government statistics that I can find.  We will continue to explore the triangle in search of a place to live and hope we come out OK.
The Bermuda Triangle of Toronto Real Estate

Wednesday, April 9, 2014

One Car Family

The lease on my Buick Regal expired and I turned it in yesterday making us a one car family.  We don't really need two cars since I no longer have to commute while I find my second career.
  • I think we are the only family in our subdivision with only one car
  • The last time we were a one car family..umm..we were not even a family, I had hair and my BMI was in the healthy range
  • I now have two of everything: toll tags, ice scraper, battered kleenex box, cellphone charger
  • My wife fears that I will be riding my bicycle in the neighborhood and will get run over by a young mother in a Chevy Suburban who is texting while yelling at her kids
  • If we get another car it will have to be a real old-person vehicle like a 1995 Mercury Marquis

Sunday, April 6, 2014

Is a College Degree Worthwhile?

I am very opinionated on university level education and found a recent study that supports my opinions.  Of course if I found a study that contradicted my opinions I would not be writing about it, but that is beside the point.

I believe that you should have clear expectations for your future when you pick a degree to pursue and a university to attend.  If you choose to pursue a degree that teaches you little that is of practical use in society, you should not expect to be any better off than someone who quits after High School and goes to work.  For example, a BA in French History will not qualify you for a well paying job in your field when you graduate.  Another example is a BSc in Physics, which will give you knowledge of physics, advanced math and computer programming will likely qualify you for a well-paying job in many industries including Nuclear power, Information Technology, Simulation, Semiconductors, etc.

An extension of this is that if you took on $50,000 of debt to get your BA in History ($100,000 if you decided to go to a school away from home), you are actually worse off than your classmate who finished High School and got a job at Sears stocking shelves.  You may never catch up with the high school graduate who spent $100,000 less and worked 4 years while you were at university.

This does not mean that there is anything wrong with a BA, just know what you are getting with the degree.  Don't graduate and complain that you cannot get a good job with your degree.  Be happy that you have studied something you love (I hope) and accept that you are more likely to struggle financially.

A company called Payscale has updated their yearly study of the return on investment of a university degree, by major, by school, etc.  The results align with my opinions:

  • Practical degrees like engineering, science, education, medicine .. are good investments
  • Degrees with little practical use are poor investments
  • There are some degrees that benefit society, give you a good job, and give you more satisfaction, but are not as lucrative, such as Nursing or Special Education.
  • Degrees from better universities are better investments but this is not a simple cause and effect.  Better universities are more selective and pick better students, so the better pay is at least partly due to the intelligence of the students independent of the fancy university where they studied.
Below is a graph from the study and I encourage you and your children to take a look at the website.

Friday, April 4, 2014

US Taxes Done

Finished my US taxes using Turbotax, just as difficult as ever, maybe more so with all the foreign account reporting.

Some of the more absurd parts of my return:

  1. Deducting clothing and other stuff donated to Charity.  This used to drive my wife's Canadian Uncle Art nuts whenever I mentioned it - " get to deduct the cost of old stuff you don't want from your taxes, that is crazy!..up here, nothing is deductible!.."
  2. Deducting mileage you logged for charity work, another Uncle Art peeve.
  3. Deducting insulation and weatherstripping for the house.
  4. The US forms only allow you to enter foreign addresses in the 1116 form to get a deduction for foreign taxes paid.  If you try to report the foreign income that generated those taxes, there is no capability in the forms.  You fill it in manually with workarounds such as listing Quebec as a state on form 4852.  And they wonder why people don't always report their foreign income from pensions etc??
  5. Virginia uses a different mileage rate for charity, so the Turbotax program has to account for this.  The Virginia form looks like a misprint since it is set up to be machine-readable but not human readable.  It looks like all the headings and boxes did not print out, but it is fine, it looks like this every year.
  6. If we had a pontoon boat with a miniature chemical toilet under the console and a tiny stove (very popular here), I could deduct the interest on the loan to buy it since it is technically my second house.  We don't have a party boat like this, but if we did, I would probably throw my back out getting into the toilet but the interest is deductible.  There would also be no beans served at any meal.
Second Home Toilet

Wednesday, April 2, 2014

Cross Border Financial Transaction - Who does it Better? - Canada

Made some inquiries and did some transactions to help with cross border financial planning.  
  1. Moved some of my US mutual funds to their equivalent ETFs.  Easy to do since it was all in the US and this is part of my cross border preparation discussed earlier in the blog.  The Vanguard rep was fine with the conversion but knew nothing about how to handle anything in Canada, was not even sure that Canadians can own US Vanguard ETFs.  They can, and it is covered in this Moneysense Canada article.
  2. Talked to my US bank about possibly leveraging US house to buy Canadian property.  Complete stupefaction - had no idea if it was possible or what I was trying to do.  I gave up.
  3. Called Canadian bank about getting a Canadian mortgage as a US resident and citizen.  No problem, they knew exactly what to do.  They have lots of experience with the US and also do a lot of business with immigrants to Canada.
So, the lesson is that Canadians know how to deal with international personal finance and the average US bank or brokerage does not.