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FINANCIAL PLANNING CASE STUDY

 

When does it make sense to purchase a primary residence?

  • Due to our commitment to confidentiality, client names and images have been changed to protect their privacy. To hear what real DLD clients have to say, see our testimonials.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

When does it make sense to purchase a primary residence?

  • Due to our commitment to confidentiality, client names and images have been changed to protect their privacy. To hear what real DLD clients have to say, see our testimonials.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scenario 1: 
When does it make sense to purchase a primary residence?

Lindsay, 32 year old is a successful lawyer residing and working in Downtown, Vancouver. At a recent review meeting, Lindsay inquired about whether it makes sense for her to purchase a condo. She made it very clear that she would like to retire with a decent retirement income and not have to work too much longer than her original goal of age 60. 

 

Current Financial Snapshot

Lindsay makes $155,000, pays $1600/mth in rent and spends $4500/mth excluding savings.

 

Current net worth:

RRSP: $71,500 (Saving $1834/mth)
TFSA: $40,000 (Saving $458/mth)
Life insurance cash value: $30,000
Cash: $41,500 ($650/mth)
Total monthly savings: $2942

 

Based on the above savings, at age 61, Lindsay will be able to generate $75,000 after taxes indexed for inflation.

 

Lindsay has asked us to put together a scenario if she were to make a home purchase of $500,000:
20% down payment: $110,500 from liquidating all of her assets
Mortgage: $400,000 at 2.9%, ($1661/mth)
Savings ability is reduced to $850/mth to her RRSP and expenses are increased due to strata and property taxes.
Retirement at age 61: $37,500 after taxes indexed for inflation or she can work an extra 7 years to achieve an income of $75,000.

 

As a result, Lindsay has decided not to purchase a property for the time being and will reassess at a later time.


 

Scenario 2:
When does it make sense to purchase a primary residence?

Michael , 35 is a successful lawyer in town and his wife Alexis is a stay-at-home mom. Michael and Alexis have been married for 3 years and now two children – a newborn and a 2 year old. They live on Michael’s income of $160,000 / year. At a recent meeting, Michael inquired about whether it makes sense for him to purchase a home in East Vancouver. He’s looking to spend about $900K to $1 million.

 

Current Financial Snapshot

Michael makes $160,000/year, pays $3000/mth rent and spends $3000/mth. He has no liabilities outstanding. 

 

Current net worth:

Cash: $82,000
Life Insurance Cash Surrender Value: $44,000
TFSA: $63,000
RRSP: $50,000
RESP: $8600
Total monthly savings: $3232/mth

 

If Michael and Alexis decide not to purchase a home, all of their existing assets will be re-allocated towards retirement and will continue to pay $3000/mth in rent and retire at age 60 with $68,000 in after tax income in today’s dollars. Their net worth at age 60 would be $2,828,405.

 

If Michael and Alexis decide to purchase a $900,000 home, they would derive their down payment from cashing out their TFSA ($61,000), cash account ($82,000) and borrowing from their life insurance policy cash surrender value ($44,000).

Monthly expenses: $3800 (maintenance and taxes)
Mortgage: $713,000 (3.5% 5 year fixed rate) with a monthly payment of $3192.

 

Their monthly savings will be $2832/mth and will retire at age 60 with $51,000 in annual income. Their net worth at age 60 will be $3,166,726. 

 

In this scenario, Michael and Alexis have decided to purchase a home. 

 

The partners at Strategex Group value the relationship with DLD. The two companies share a common philosophy of providing excellent customer service and a desire for creative innovative and custom tailored strategies for our clients. We are extremely appreciative of the high level of professionalism that Dave and his team provide. We look forward to maintaining and further developing our business relationship with DLD." ~ Lakh Multani, CA, Partner, Strategex Group Chartered Accountants & Management
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