“If you don’t feel comfortable with putting the $10,000 that you have saved over the last couple of years into the down payment of your home, why don’t you take advantage of the Free Down Payment Mortgage from Scotia Bank,” I said to Kirk as we discussed the pros and cons of putting all of his liquid assets into his down payment.

“I want to buy a house but I really don’t want to stay in Calgary for more than another year,” said Rachel as we sipped coffee while discussing her housing situation.

Rachel, who is in the process of going through a divorce, had just sold her home. Facing the dilemma of whether to buy or rent, she contacted me for advice. Normally when faced with this kind of question, I would be a strong advocate of buying a home based on the low interest rates and the fact that over time, market fluctuations aside, a house is a sound investment. In Rachel’s case however, there was wrench thrown into that logic.

“My heart belongs in Kelowna,” she proclaimed. “I just can’t see myself being here more than another 18 months.”

It is one thing to advise someone to buy if they plan on owning for the long term, but to advise someone to buy short term in a market where fluctuations are anybodies guess is another story (by the way, anyone who seems certain that they know where the market will go short term is either ignorant, or biased). In Rachel’s case renting was an option she had to take seriously, by buying with the intent to move in 18 months she ran the risk of being in a negative equity position just from the Realtor fees and payout penalties on the future sale alone. If Rachel didn’t see substantial positive returns on the property within the first year, she would almost surely lose money on the venture.

However, Rachel seemed to be the type intent on buying no matter what. Someone had convinced her at some point in her life that paying rent was the fools play. Most likely that person was right long term, perhaps I was wrong to advise her that renting for the short term is the best strategy in this market when an uncertain future exists. That being said, and understanding that the strong desire to buy was present, the advice I gave her was as follows.

If you are going to buy, and you are uncertain as to whether you will be living in Calgary in the near future, buy as if you are buying to invest. Don’t necessarily buy for your tastes, or your lifestyle, buy with the intent to purchase a property that will be easy to rent, require little maintenance, is in a central location, and that will provide somewhat positive cash flow. By doing so, if you decide to leave in 18 months, you can easily rent out the property and hold onto it long term, ensuring that you don’t realize any losses as a result of short term market fluctuations.

In Rachel’s case she will probably end up buying, but as a result of our conversation she will do so with a little bit more caution and a whole lot more knowledge. Most importantly, if her heart does move her to Kelowna, she won’t have negative equity in her home holding her back.

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Galileo Galilei
In 1632, astronomer Galileo Galilei was ordered to appear before the Holy Office in Rome to defend his work, Dialogue Concerning the Two Chief World Systems. His work compared the Copernican system, which theorized that the Earth circled the Sun, with the Ptolemaic system, the mainstream belief that the Earth was the center of the Universe. In 1633, Galileo stood trial for his dissenting beliefs and advocacy of Copernicanism.
Galileo did not stand trial because he had created the theory that the Earth circled the Sun; instead, Galileo faced condemnation because he had celestial evidence to support this theory. Galileo had proven, with the use of a telescope, that Jupiter’s four moons orbited that planet. He used this scientific observation to argue in favor of Nicholas Copernicus’s theory that the Earth circled the Sun, a theory which had been dismissed six decades earlier. Scientists and religious authorities had fiercely rejected Copernicanism, as a result of its conflict with contemporary religious beliefs and scripture, which upheld that the Earth was at the center of the Universe. (more…)

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