Another interesting topic that came up at CPFC15 was the concern that First Home Purchasers are relying more and more on Parental help with the transaction (monetary help, as well as advisory help).
The Bank of Dad (Always Open)
I have spoken a few times about how both sets of parents helped my wife and I purchase our first home (leading to the Best Financial Advice Given, ever), and I don’t think parents helping kids buy their first homes is a new thing. In our case my parents helped us to make sure that we didn’t have to pay CMHC Loan Insurance premiums, and my wife’s parents helped with furniture purchases and repairs in our first home.
Is this a good or bad thing? As usual, it all depends on the situation.
In my opinion this is mostly a good thing (if the parents can afford to help out their kids, however, if the parents have to borrow money to do this, it is a very bad idea), but there are scenarios where this might not be the best idea:
If the parents are loaning the entire down payment on the house for the children, this is a bad thing. I always espouse that with all things people are much more diligent and attentive to a debt if they have “skin in the game” (i.e. their own money is part of the purchase). It also might create a sense of entitlement in the children, assuming their parents will continually bail them out in hard economic times.
The money loaned can simply allows the “kids” to become very house poor, and ties them down to a home that symbolizes being broke (to them).
If the money is loaned because “the kids” don’t have a very good credit rating, and can’t get a mortgage without a large down payment (or worse without a co-signer). Most times a bad credit-rating is earned, and maybe they really are a bad loan candidate ?
Families and money sometimes are a very bad mix, both parents and children should think carefully before there are large monetary transactions “between them”.
I had a great time at CPFC15 this past weekend, where a bunch of Personal Finance folk got together to discuss things and two of the speakers touched on points on Home Insurance that resonated with me:
Rob Carrick from the Globe stated that the Insurance Industry needs to be put under higher scrutiny for some of their practices.
Ellen Roseman mentioned about the folks that have contacted her about having their home insurance cancelled (for many reasons)
With these two points in mind I will share with you an upsetting story that happened to my mother, with her home insurance.
Home Insurance are you really covered ? For How Long ?
My parents have lived at the same address for more than 50 years, and they dutifully paid their home insurance premiums. There were a few small incidents in the house, but never any major claims until about 7 years ago. The water tank in the basement gave up the ghost in a spectacular way, and flooded the basement causing damage to the finished basement (dry wall, carpeting and clean up), so my parents made a claim due to this incident.
About a week after the “new” tank was put in, something went wrong with it, and it dumped its contents as well, so my Mother called the insurance company about that, and it was cleaned up as well.
The last straw (for the insurance companies) happened on my birthday about 2 years ago, when the oil tank in the basement leaked. The entire contents did not dump out, but it was a significant spill which caused a very large claim to clean all of it up.
Thanks to this, the next year the Home Insurance on my mother’s house came up, she was told she was “uninsurable” due to these 3 incidents (uninsurable by any main stream insurance company, as we found out after calling a few). This is someone who had paid their insurance rates, and had been a model customer, but thanks to these 3 incidents (which in my opinion is really only 2 incidents, as the second water tank giving way was a function of the first tank failure, but we were told that is not the case in the insurance industry), she was going to have to use “off market” home insurers.
Can I Get Insurance ?
In this world you can insure anything, and you can find folks who will insure anything, however, they do not do it for cheap. For the next 4 more years (at least) my Mother must use these “alternate insurers” to insure her home.
I tell this as a cautionary tale, be aware that your Home Insurance can be cancelled for many reasons and the “Three Strikes” rule is one of the ways this can happen.
Image courtesy of fantasista at FreeDigitalPhotos.net
That was the gist of a comment left on my post Let’s Define Debt Free (which you might have seen yesterday on my Twitter Feed).
Interesting point of view that I don’t agree with for a lot of reasons, but mostly because rates are not going to stay this low for that much longer, but even with that aside, I have never been a big fan of borrowing money to make money.
I lived through the dog days of the 90’s in the High Tech World, where our CEO attempted to rationalize how for every dollar that Nortel borrowed they made $3 back, it never really made a lot of sense to me at the time, and at the end of it, maybe I was correct in my assumption that this didn’t make any sense. I realize that most businesses do have to borrow to get on their feet, but to continuously borrow without paying off debt has always seemed rather fool-hardy to me.
Yes, I could have made a crass comment about how one “poke” from debt could deflate this balloon
Getting back to the statement of why should I pay off debt when I can make more money investing, depending on what you are investing in, how long do you think the gravy train will last? If you have a Mortgage at 4% that you are simply paying down as needed, but you are investing that extra money in the Market currently, you most likely are ahead of the game (i.e. making more than 4% back on investments), but are you sure that is going to last, and are you taking your profits?
This is my other concern, I had many colleagues and friends who were “on paper” millionaires, but never took their profits (and jumped to the wrong conclusions). Many folks did one of the following:
Never took out their profits, and they kept thinking that the bubble would keep growing (it didn’t).
Borrowed against perceived profits, using their stock as collateral for loans to either buy oversized houses or extravagant vacations, those loans were called when those stocks went bust.
Fiddled while Rome burned (i.e. didn’t get out because they kept thinking things would get better) (yes I was very guilty of that too).
Sold, took their profits, but then invested in even riskier stocks (remember Pets Inc., or Groceries to the Door?). Some of those risky stocks burned through cash and then just shuttered the windows.
These are some of the reasons I am paranoid about Debt (yes I said paranoid) and feel it is a much better “investment” to pay it down, than invest in anything else.
This past week we purchased yet another replacement Bar B Q at the Big Cajun Chateau (we get a new one every 4 years or so (if anyone can give me a method to make them last longer, feel free to leave a comment)) and this new one is working quite nicely, however there is a problem that I have had with every propane Bar B Q that I have owned, and that is I never can figure out when my tank is empty and needs to be refilled (I find out when the bar b q goes out). What could be the solution to the problem of empty tanks?
When Your Bar B Q is Full of Insulation from a Squirrel, Time To Get a New One
I have noticed that the tank seems to always run out about 10 minutes into cooking either chicken or pork, I am not sure how this happens, but it just does seem to happen that way. It has on occasion run out 2 minutes into cooking hamburgers as well, and in these situations we are stuck trying to finish cooking things that really do need to be cooked well.
I have come up with a fantastic solution to this problem, that should resolve this confounding problem. If I simply only cook steak on the Bar B Q I will never run out of propane, because I have yet to have a tank “give out” in the middle of cooking steaks.
In a non-related story, I have also noticed that my AmWex card doesn’t seem to ever have a very high balance however my MisterCarte seems to have high balances every month, so I am thinking of using my AmWex card more, so I have lower balances.
It’s been a while since Mrs. C8j and I purchased the Big Cajun Estate (actually about 13 years ago now), but I noticed that many folks are talking about what to look for in a house when you are out buying a house, so I’d like to pass on a few of the things that I (or friends of mine) learned while looking for the “house of their dreams“, or maybe just the “house of their reality“.
Being On the Level is Important
One of My Favorite Albums – Status Quo – On The Level
Mrs. C8j and I were looking at a very nice house one time, and the visit was going well until I walked into one of the bedrooms. I had had a few late nights, so I suddenly felt off kilter, like I was about to fall over, so I sat down on the bed. Mrs. C8j wandered in and had this odd look on her face and said, “What is with the floor?”.
I stood up and realize that the floor actually sloped into one of the corners and that “off kilter” sensation I had, was the floor itself not being level.
Bring a level with you to a house viewing and start checking if walls are actually vertical and if the floors are level, you may be surprised what you find.
Look for a Flush of Success
Plumbing is really important in your house (anyone who says otherwise hasn’t had to snake out a backed up toilet) so the old trick of flushing toilets and seeing if the water pressure drops is a great tip, but I find if you simply wander around the house constantly turning on and off taps and flushing toilets you will annoy the vendors to no end (or at least their sales rep). Also look for water stains behind toilets and if you are in the basement see if you can see under bathroom floors to see if there have been any “floods” in the house.
Model Home Sounds Nice Doesn’t It?
Never buy the Model Home, I have written about this before, but seriously, this house was slapped up quickly and may not even be to code.
Bluffing Works in Poker and House Buying As Well
definitely NOT the Big Cajun Estate
More than once, I have made off-handed comments to my wife while looking at a house, which I thought were innocuous, but which has caused an outpouring of information from the vendor. This won’t work with real professionals who know how to sell, but if you are dealing with folks who are “doing it themselves”, sometimes an innocent sounding comment can give you a lot of information.
An example might be a comment like “What is that smell?”, when you walk into the basement, if the vendor replies quickly with “What smell, I don’t smell anything, there are no smells here, not an odor to be smelled!”, and get very nervous, you should pursue this a lot more. If the vendor sniffs with you and shrugs their shoulders, then maybe there isn’t anything to worry about, but who knows?
Notice What is On the Walls
Mrs. C8j and I looked at a house once, and in the master bedroom, was a large framed photo, of a buxom woman, topless in the middle of a tropical lagoon setting, smiling at the camera. Mrs. C8j didn’t really notice, but let me tell you, I didn’t miss it. I smiled knowingly, and as we were finishing our viewing, the home owners came home and I was surprised to see that the buxom model in the picture was in fact one of the homeowners.
As we left Mrs. C8j asked me why I had that goofy grin on my face, so I explained what I had seen. To this day she claims I am making this story up. Yes, this story has nothing to do with buying a house, just a funny story I like to tell, but we also didn’t buy that house.
I don’t remember details much (even less as I grow older), but if you can convince the vendor, bring a video camera and tape your visit, so you can go back over the house later. We still have the video from when we had the house inspection done on the Big Cajun Estate, and noticed lots of things that were different, nothing big, so no point in calling the lawyers, however, good to know in case something bigger had happened. You may not be able to convince your vendor to allow you to videotape, but the vendor may also have a video they will give you of the house, either way, good to have a video of a possible future home.
Which House Did I Buy?
If you buy a house, or a town house, make sure you bought the house you want (and not another house accidentally). A dear friend bought his first town home, after seeing 3 different homes in the same housing complex, but it was only on the day he moved in that he realized that he hadn’t bought the house he thought he had. Saying on move in day, “I don’t think this is the house I bought” is a little late to notice your error. Before you sign anything make sure you are buying the house you want.
Who do You Work For?
I always have an issue if you end up using the same agent as the vendor for your purchase. Who is your agent really working for? I am sure most agents would “poo poo” my concerns, but I am a naturally untrusting person, this just seems wrong to me.
Hopefully your purchase will go smoothly, but remember to be thorough in your due diligence before buying.