# Laggard First Time Home Buyer



## amack081 (Jun 23, 2015)

Looking to draw upon the experience of CMF in dealing with my current situation and perhaps have some guidance on first time home buying in Canada (including books, leaflets or factsheets etc).

My situation:

I'm 26 years old CPA,CA in Ottawa with zero debt and ~$20,000 in savings (not including my rainy day fund of $4,000). I was able to pay off my student debt slightly over a year ago by paying about 35% of my net salary. My current monthly expenses are in the range of $1000-$1200 per month (includes rent, car insurance/repairs, gas, food, gym, cell phone, internet, entertainment). I feel like I have my expenses under control and have a clear savings plan for the future. I live with my girlfriend whom works for the Federal Gov and is two years older than I am. Similar to me, she is pretty much in control of her spending habits and has savings of about $30,000 (obviously not including her government pension and rainy day fund).

Needless to say, we would be pre-approved for a mortgage in Ottawa.


The issue:

Over the last year or so many of my friends have purchased their first home and I'm starting to feel the pressures of home ownership. Most have purchased their home with the minimum 5% down and certainly don't have the same spending habits as me (they own new cars, still have student debt). I'm not trying to Keep Up with the Jones (in fact I think a lot of them are headed in the wrong direction with their spending habits, alas I don't tell people how to spend their hard earned money) but overall I feel like I'm missing something. 

Perhaps what I'm missing is the emotional side of home ownership (being able to host, having a backyard, owning something tangible etc) because I can't get passed the numbers. I see home ownership as an investment (I'm aware that a lot of people don't see it this way and perhaps that's why they are more willing to purchase a home immediately) and in most scenarios I come up with renting comes out ahead (when considering investing the rent-buy difference). I understand the point of leveraging and the impact it has on homeownership however I don't see how even with housal/market appreciation can exceed overall interest paid throughout the life of the mortgage to actually make ownership a worthwhile investment. 

In contrast to above, I do see the value of rental properties and realize the value of being cashflow positive after interest and that ROI would also include the paydown of interest.

I originally had the plan to own a duplex or a house where I could rent the other side to paydown the mortgage in the early years before building enough equity to keep that property and move into my "dream home". 

I'm also not interested in paying CMHC if I don't have the 20% down. Perhaps this is an archaic way of looking at things, or an unrealistic expectation for first time home owners.

My questions:

1) Is any of my lines of thinking incorrect?
1) How did you get over the likelihood of mortgage interest exceeding appreciation?
3) Is having 20% down no longer prudent given the rise in the housing market? 

Other risks

I'm committed to my girlfriend obviously home ownership between two people is a risk. One of my friends who owned his home with his fiancé recently separated. Unfortunately for him, she left the home and he was stuck with it and this really set him back.

My question:

1) Is there a way to protect oneself in a situation where a relationship fails and they own a home?


Finally, I wanted to just ask for recommendation on CDN real estate books/leaflets/fact pages. I'm particularly interested in home ownership as well investment properties (being a landlord/tenant law)

Kindly appreciated CMF


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## Mukhang pera (Feb 26, 2016)

amack081 said:


> My question:
> 
> 1) Is there a way to protect oneself in a situation where a relationship fails and they own a home?


I would suggest a "cohabitation agreement". The precise nomenclature is not so much important as the contents of the document. It should start with some basic recitals as to each party's current circumstances and the intent of the agreement. It should then go on to deal with the rights and obligations of each party, at least with respect to any house purchased. Probably the simplest is where both parties have near equal earnings and the agreement sets out that both will contribute equal amounts to any down payment and each will contribute equally to ongoing expenses such as the mortgage, taxes, insurance, maintenance, utilities, etc. 

If one of you is a significantly greater income earner, then you might want to stipulate that each party contributes in proportion to earnings. 

You will have to do a certain amount of pondering the imponderables. What if you fail to agree on major renovations or repairs? You want to spend $20k on a new roof and she wants to spend $20 for a tarp. Some way of resolving these things should be incorporated. 

The agreement should contemplate termination of the relationship. You might want to provide that, in such case, the house gets listed for sale and net sale proceeds get split evenly (or proportionally if that was how expenses were shared). If contribution to the down payment was unequal, then typically contributions are returned before any division of net sale proceeds occurs. There should be provision for what happens if the sale is at a loss. Also, what occurs if one party wants to buy the other out. 

The agreement should perhaps deal with the eventuality of kids coming into the picture, unless one or both of you has been fixed. What happens in the event of job loss or major illness of one party and if the other then contributes both shares? What if the relationship does not end, but one party simply wants to sell? All of these things can - and probably should - be covered.

Given your lukewarm attachment to the notion of becoming a homeowner, perhaps the forgoing will make the prospect of renting in perpetuity more attractive. You can host guests, have a backyard and a bbq without having to own it. 

As for your other questions:



amack081 said:


> 1) Is any of my lines of thinking incorrect?


I would say no, not incorrect, but perhaps at variance with what some others would think. However, expect here to be castigated for even hinting about a home as an "investment". That applies with equal force to a duplex or triplex. The mainstream view on CMF is that such be "investments" for those mental midgets with more money than brains. 


amack081 said:


> amack081 said:
> 
> 
> > 1) How did you get over the likelihood of mortgage interest exceeding appreciation?
> ...


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## peterk (May 16, 2010)

amack081 said:


> and in most scenarios I come up with renting comes out ahead
> ...
> 2) How did you get over the likelihood of mortgage interest exceeding appreciation?
> ...
> I'm particularly interested in home ownership as well investment properties (being a landlord/tenant law)


Can you identify, within yourself, where the disconnect between this assessment and this conclusion is coming from?

Be confident that you are smarter than the average bear. Are you being influenced by someone close to you to go against your better judgment and follow this path that you have identified as a dubious one? Your girlfriend, a close friend or family member?

It takes nothing at all to buy a house, everyone is doing it. It isn't insightful to think about buying a house with the intent of keeping it as an investment and upgrading to your "dream home" later. Everyone is doing that too. It isn't savvy investing at all.

Or just buy as much or many houses as you want and hope for the best, like everyone else is doing. Maybe you'll get lucky and the Pan Pacific Property Plunderers will choose Ottawa as their next mailing address.


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## Feruk (Aug 15, 2012)

Wait, so do you wanna buy or not? I would pay zero attention to what other people are doing. Lots of my friends bought places in their mid-20s. Almost all of them broke up with their significant others and the house became an issue. A cohabitation agreement doesn't protect you from having to either buy out your partner or pay hefty fees to break the mortgage. That's on top of all the realtor/closing fees you could be paying and any potential downside if your place drops in value. Can't really tell you if the house is a good purchase or not... Likely not.

As for the 20% down... can't help you much there. I put 20% down on my principal residence because it allowed me to avoid CMHC fees as well as being able to potentially walk away from the property scot free (Alberta) in the worse case of scenarios.

Oh and a principal residence is not an investment. Viewing it as such is wrong.


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## OnlyMyOpinion (Sep 1, 2013)

Maybe you just haven't shared it, but I get no sense of shared goals. What future goals, including home ownership, family, etc. do you and your girlfriend have? I would be reluctant to plunge into home ownership if you are not on the same page.


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## Bowzer (Feb 25, 2015)

Just anecdotally, the people I knew personally that bought a house together and were not married all turned into "war of the Roses" situations. I don't know if I'd ever recommend it.


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## amack081 (Jun 23, 2015)

peterk said:


> Can you identify, within yourself, where the disconnect between this assessment and this conclusion is coming from?
> 
> Be confident that you are smarter than the average bear. Are you being influenced by someone close to you to go against your better judgment and follow this path that you have identified as a dubious one? Your girlfriend, a close friend or family member?
> 
> ...


The disconnect is coming from a cashflow perspective:

From a primary residence perspective, mortgage, property taxes, repairs/maintenance, insurance etc are to be paid from a salary. Obviously the counter argument is that you own something tangible as opposed to paying a landlord rent.
From a rental property prospective, the line of thinking is that in the early stages rent will cover the majority of cost and any short fall will be subsidized with salary. As the principal of the mortgage is paid down, you should be generating positive cashflow and equity.


In terms of influence, I think Ottawa is a very yuppie town. You are expecting to work, own a house, have kids, go to soccer practice. I'm originally from Hamilton and I know what its like to live paycheque to paycheque. My apprehension for home ownership is also due to my parents never owning a home. Which is why I may not have the same perspective as native Ottawa citizens.

In regards to dream home, what I meant by this is to own and manage a property. Either buy a duplex or purchase a home and have a tenant in the basement. 



> Maybe you just haven't shared it, but I get no sense of shared goals. What future goals, including home ownership, family, etc. do you and your girlfriend have? I would be reluctant to plunge into home ownership if you are not on the same page.


We are on a similar page when it comes to the majority of our future goals. The difference we have is that her being a few years older feels like she is even further behind in her life with regards to home ownership. With that said, she is from Northern Ontario where a lot of her friends already own homes as the cost of ownership is a fraction of of Ottawa so I can definitely understand her feelings.



> I bought in Vancouver, where appreciation exceeding mortgage interest (even in the days when 10% p.a. mortgage interest was dirt cheap) is as certain as death and taxes.


This made me laugh out loud.

Ottawa is a more 'stable' environment. Housing appreciation in Ottawa has been around the 2% mark for the last 3 years and hasn't had depreciation since the mid 90s. I believe this is due to Ottawa's job environment (i.e all government workers make a good salary within a specific range).


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## peterk (May 16, 2010)

amack081 said:


> From a rental property prospective, the line of thinking is that in the early stages rent will cover the majority of cost and any short fall will be subsidized with salary. As the principal of the mortgage is paid down, you should be generating positive cashflow and equity.


Sure, but you realize that an investment property that "generates positive cashflow" is not the definition of what you just described. It means a property with 100% mortgage and ALL expenses in. If it's not generating positive cash flow, properly, then it's not really an investment at all, it's an expense.

You clearly have the numbers side of you saying one thing, and the social side of you saying another. You say you don't care about keeping up with the Joneses but then say you and your girlfriend are "behind in life"...

Agreed with bowzer too that you should not be doing this unless are married, asking for trouble. I'd also add you should have kids on the way too, for extra stability/reassurance.

What's so bad about renting? You aren't even in Toronto/Vancouver and among the Gen-Y "regret renters" crowd. Those guys I feel bad for.


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## peterk (May 16, 2010)

amack081 said:


> Ottawa is a more 'stable' environment. Housing appreciation in Ottawa has been around the 2% mark for the last 3 years and hasn't had depreciation since the mid 90s. I believe this is due to Ottawa's job environment (i.e all government workers make a good salary within a specific range).


I agree. If you _must_ buy, there are much worse and riskier places than Ottawa.


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## amack081 (Jun 23, 2015)

peterk said:


> Sure, but you realize that an investment property that "generates positive cashflow" is not the definition of what you just described. It means a property with 100% mortgage and ALL expenses in. If it's not generating positive cash flow, properly, then it's not really an investment at all, it's an expense.
> 
> You clearly have the numbers side of you saying one thing, and the social side of you saying another. You say you don't care about keeping up with the Joneses but then say you and your girlfriend are "behind in life"...
> 
> ...


I have no issue with renting. I currently prefer it. 

I'm seeking assurance that owning a home in my mid twenties vs thirties (or ever) isn't going to hold me financially down the line (which is what I mean when I say behind in life).


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## Mukhang pera (Feb 26, 2016)

amack081 said:


> I have no issue with renting. I currently prefer it.
> 
> I'm seeking assurance that owning a home in my mid twenties vs thirties (or ever) isn't going to hold me financially down the line (which is what I mean when I say behind in life).


No one can give the assurance you seek. None of us the kind of prescience to see into your future and know how things will unfold. I was never able to do that for my own life. I don't think I can predict yours. For myself, I was able to make some projections, educated guesses, etc. 

Let me observe, however, that I know of no one who, well on in middle age like me, can be heard to say: "Darn, I wish I had never bought a house when I was young. What an egregious error that was." I bought my first house in Vancouver when I was your age and I look back upon it as one of the best things I ever did. But there may be some here who will come forward with stories about how early home ownership destroyed their lives. Maybe worse than teenage pregnancy. I just have never encountered such. 

It may be easy to postulate - or even to find real life examples - of disaster scenarios. For example, as alluded to here, a young unmarried couple buying a house, splitting up, perhaps in a down market, fighting over who should bear the lion's share of the loss, etc. More often, however, the skirmish is over who gets all or the lion's share of the appreciation in the asset value. But the possibilities and variables are endless. 

Another approach, if you are concerned about relationship breakdown, is not to make it any kind of a joint venture to begin with. You buy the place on your own, in your own name, with no help, financial or otherwise from your SO. Own it before cohabitation begins, so, at least under BC law, you can call it "excluded property" under the Family Law Act. Do not let your SO contribute in any way that could be seen as enhancing the value of the property or contributing to its costs of ownership. Do not intermingle your finances. Have a written agreement in which she waives any right to claim an interest, ever.

Right now my nose tells me you are not ready. When I was 26 and buying my first house I had no reservations, I embraced the idea whole-heartedly. In your case, freezing at the clutch, it's not an auspicious beginning. Being a rookie homeowner does present some challenges. But they are easy - even satisfying - to meet if you are in the right frame of mind. A reluctant mind does not, in my view, bode well.


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## james4beach (Nov 15, 2012)

Don't worry about it. I'm nearly 10 years older than you, also no debt, and much more savings and I still won't buy a home.

Avoid the temptation to fall into "keeping up with the Jones's". Just because your friends are doing it, doesn't mean you have to.



Mukhang pera said:


> Let me observe, however, that I know of no one who, well on in middle age like me, can be heard to say: "Darn, I wish I had never bought a house when I was young. "


Many Americans do say this. Buying a house near the peak of a housing bubble drove many Americans into terrible financial condition, or even bankruptcy. Both old and young, people bought houses thinking they were rock-solid. Then the housing market crashed.


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## cashinstinct (Apr 4, 2009)

I bought at 26 years old, gf was 26 too (2012). I had 20% down. Felt it was time. 

I was affraid prices would go down just after I bought... realized I could not have certainty on that. Prices have been pretty stable since then In Montreal... so went up to be ok. I am jealous of price increases elsewhere in Canada.

-----

I would have preferred to rent myself since I hate maintenance, but with a kid now, I appreciate the space.

-----

i don't think we can expect the kind of price increases in the lash +- 10 years in Canada. I am jealous of older work collegues who got low price on real estate.

If prices end up going up a lot in my area in next couple of years, I would have feel stupid not to buy...

------

Consider this in your scenarios
1) would you regret if prices increase in Ottawa and you continued renting?

2) would you regret if prices decrease in Ottawa soon after you bought?


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## Mukhang pera (Feb 26, 2016)

james4beach said:


> Don't worry about it. I'm nearly 10 years older than you, also no debt, and much more savings and I still won't buy a home.
> 
> Avoid the temptation to fall into "keeping up with the Jones's". Just because your friends are doing it, doesn't mean you have to.
> 
> ...


While quoting my words, and in suggesting that the experience of "many Americans" is different from what I have seen, you are addressing something quite different there James. You are speaking of, in general, buying near the peak of a housing bubble. I never suggested that doing so would be a smart idea for a young person or a person at any age. I also said I know of no one, "well on in middle age" whining about having bought when young. Maybe Americans age faster than some. The peak of the housing bubble in the US was around 2007. How many 20-somethings who bought then are now well on in middle age?

If a young person buys wisely, and does not jump into a superheated market, I remain of the view that very few, 40 years down the road, will look back and say they did themselves a disservice. And ya' know what? Even if they make an improvident purchase and the market drops soon after, if it's a home and they stay in place for the next 40 years, they won't be left hurting all that much. When I lived in Vancouver in my 20s and bought a house for $110,000, I saw it climb to about $275,000 in 2 years. The sensible types could see that market was not likely to be "rock-solid". More likely built on sand. I saw that $275,000 house become a $140,000 house after about 2 years. Many were then saying: "That's it. It's over. We'll never see those prices again. I'll never buy real estate again. Only a fool would do such a thing." I just bided my time, enjoyed living where I was, and sold 10 years after I bought for $525,000. I never spent a dime on the place. It was a 1914 bungalow when I bought and just a tear-down. A successor in title eventually did just that. Today, BC Assessment puts the land value at $3 million and the land plus improvements at $5 million. That's not gonna' last either. But, again, in another 40 years, the 25-year-old who buys that today will probably not be smarting too much on account of the decision to buy.

The early 80s experience was not a one-time thing. It's a recurring cycle. After I sold my Vancouver house for $525,000 I bought another older house for $770,000 (on Adera St., for those who know Vancouver). I sold it 2 years later for $620,000. Ouch! you say. I just "lost" $150,000. I happily did so because I wanted to return to live in MacKenzie Heights. The Adera property was on Vancouver's south slope. They announced that YVR would be building a new runway one mile closer to Vancouver. We could already hear airport noise. How much more with a runway a mile closer? So we bailed. Did we really take a loss of $150,000? I don't think so. The early 90s saw another general bloodletting in Vancouver. The house we bought had dropped in price in a similar amount. A few minutes ago I looked at the BC assessment for the Adera house. It reads" Land $3,073,000; Buildings $1,558,000. The building is a kind of homely large box standing where in 1928 Cape Cod house that we used to own. Just taking the land value, even accepting the 1989 purchase at $770,000 as a foolhardy move, the passage of time has lessened the sting. 

T'was ever thus, the fallout from buying near the peak of a housing bubble. A few folks I know quite well lost their shirts in the Vancouver fiasco in the early 80s. Yes, they were foolish to think it would go forever. They borrowed all they could and tied up as many properties as they could. They borrowed cheap 11% money and were unable to repay at 23%. For an old-timer like me, I am frankly at a loss to understand why a young person would not buy today, when mortgage money is all but free. But I do not suggest throwing caution to the wind and paying any amount in any location and regardless of one's individual life circumstances. I accept there are, indeed, some for whom home ownership will never be a great idea.


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## Mukhang pera (Feb 26, 2016)

cashinstinct said:


> I am jealous of older work collegues who got low price on real estate.


As I alluded to in my last post, supra, I am jealous of younger colleagues who can borrow mortgage money at ridiculously low rates! Had it been like that - instead of 10-14% (and as high as 20% and more) when I was in my 20s, I would have bought whole city blocks!


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## Mortgage u/w (Feb 6, 2014)

Life is short. Its not always about numbers. Go out and live it the way you want, or you'll soon look back and realize what you've missed.


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## StayThirstyMyFriends (Jul 29, 2016)

If you don't mind me asking, what would the kind of place you would buy go for? Also, what is your rent, in isolation from your other expenses? You're a CPA/CA so I expect I'm not going to prove you wrong in your analysis, but it would be interesting to see why you came to the conclusions you have.

Buying our first home (when I was 36) was (a) way too expensive, I thought I would be a mortgage slave for 25 years and never recover and (b) was the best move I ever made.


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## amack081 (Jun 23, 2015)

StayThirstyMyFriends said:


> If you don't mind me asking, what would the kind of place you would buy go for? Also, what is your rent, in isolation from your other expenses? You're a CPA/CA so I expect I'm not going to prove you wrong in your analysis, but it would be interesting to see why you came to the conclusions you have.
> 
> Buying our first home (when I was 36) was (a) way too expensive, I thought I would be a mortgage slave for 25 years and never recover and (b) was the best move I ever made.


According to CMHC the median rent/month in Ottawa for June is $1120 per month which is basically what I pay now ($1100/2 people incl. utilities).
With that in mind, my girlfriend is able to walk to work and I'm within 10KM so we only use one vehicle. 
The average detached home is per CMHC is selling for $513,008 in Ottawa. In my neighborhood $450,000 seems to be the approximate average. With that said, I would look for house in the $300,000 range and move to another area of the city. 

Suppose I'm approved for 2.6% variable closed bi-weekly. My total mortgage payments per month would be $625 bi weekly---> $1250 monthly
Property Taxes 2% of housing value ($6000 yearly)------------------------------------------------------------------------------------> $500 monthly
Maintenance/renos 3% of mortgage yearly----------------------------------------------------------------------------------------------->$350 monthly
Home Insurance ---------------------------------------------------------------------------------------------------------------------------->$200 monthly
Utilities (~$300 a month)------------------------------------------------------------------------------------------------------------------>$300 monthly

Total Cost to own house per month: $2,600 per month
(please let me know if I missed anything significant or if my estimates for prop.tax, maintenance, utilities etc are way off)

Total Cost to Rent: $1100

Difference: ~$1,500 monthly

Obviously the above doesn't take into account the appreciation of the home nor does it take into account if I were to invest the difference monthly. I've gone through that exercise numerous times and typically so long as the difference is reinvested the ROI is higher renting. 
You can use the following calculator the http://www.getsmarteraboutmoney.ca/...r-rent-calculator/buy-or-rent-calculator.aspx which shows the rent vs buy return.


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## Spudd (Oct 11, 2011)

My home insurance was always closer to $100/mo than $200. You can look up the exact property tax rate on your city's website, they always have it posted. 

Keep in mind, if you move to another area of the city, your transportation costs will go up since your GF won't be able to walk to work anymore. That will add costs as well. 

It seems like all things considered, renting is a better move for you at this time. $1100 including utilities is fantastic especially if you like your place.


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## StayThirstyMyFriends (Jul 29, 2016)

Ok... I don't live in Ottawa so I don't know the local numbers. But your numbers here seem to me to be pessimistic and designed to convince you of the answer you want  (Or you are pulling them from that web page 
defaults).

So doing a little digging...

http://www.ratehub.ca/blog/ontario-homeowners-pay-on-average-780year-in-home-insurance-costs/

This kind of indicates that your insurance would be may $800, compared to the $250 you would pay for insurance when you rent. So a difference of $550. I don't know but if you are really serious about this, you could get a quote.

You should be able to look up accurate city taxes. $6000 sounds really really expensive. I looked up Ottawa property tax assessor and it said for a 300K house that it expected you'd be in for $3235. I hope this link works:

http://ottawa.ca/cgi-bin/tax/tax.pl...ssessment=300000&submit=Submit+Query&lang=en#

I also find your maintenance/renos kind of high. Well, for a reno it is laughably low but you get the value back from some of your renos in house value. As for just repairs and appliances... well, if you are do-it-yourselfer and frugal v.s. want a lot of shiny stainless steel and a TV on your fridge door, it will obviously be a lot different.

And of course, a big issue is that your house value will go up. The way the mechanics work, if the house appreciates more than your interest rate, you are getting the benefit of a leveraged investment and it makes everything better. If it doesn't go up, then you have a huge millstone around your neck.

I'm using your web-tool and added that the house value goes up by 4% per year (which is low historically, but who knows, we seem to be in an overvalued market in some areas of the country), and put your re-investing the savings from your rent in the market at 5% return and I get buying is better from year 4 on.

(I used a bunch of the defaults, 10% down, 25 years, with a property tax of 1.08% (=$3235) and maintenance being 2% of the home, and insurance being $550).

It is a pretty finely balanced issue. If you load up with either optimistic or pessimistic assumptions, you can make it go wherever you want. By switching the maintenance costs to 3% it goes from a clear win for buying, to a marginal win for renting. It is easy to tip this model to what ever you want to do.

So... I guess I just want to ask you "what do you WANT to do?" Forget the numbers, what do you want? I'm wondering if you have a built-in bias towards renting.


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## StayThirstyMyFriends (Jul 29, 2016)

Go for the 450K in the area you like with a mortgage helper suite in the basement... those are the numbers you want to run. And buy the crappiest house on the nicest block, not the nicest house on the crappiest block. And location location location. Ok, I'm out of wisdom now, you've got it all.

edit: did I say I was done? I just stumbled across this article which you might find interesting.

http://www.financialsamurai.com/buy-real-estate-as-young-as-you-possibly-can/


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## Mortgage u/w (Feb 6, 2014)

Your calculations are definitely off. A home of $300k will require a mortgage of $240k - you'll want to put 20% down. Mortgage payment per month is no more than $1000. You can easily get 2.30%. Taxes are figured at 1% so no more than $250 per mth. Heating you figure $150 per month. Take repairs out the equation for now - you should save for a rainy day regardless and repairs/maintenance would fall in the same category. Insurance $100 per mth. So big total is $1500 per month vs $1100 renting.

One major factor you are not considering is debt repayment. About half of your $1000 mortgage payment is going towards your capital which you will recuperate once you sell - an advantage you don't have while renting. So if you consider this, owning is more profitable by $100/mth or at least equivalent to renting. The kicker is value appreciation so in the end, you're a winner being an owner in this example.

Finally, you can't just live life through numbers. Money is just an object. Go for what you truly want. Just my opinion.


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## amack081 (Jun 23, 2015)

StayThirstyMyFriends said:


> Go for the 450K in the area you like with a mortgage helper suite in the basement... those are the numbers you want to run. And buy the crappiest house on the nicest block, not the nicest house on the crappiest block. And location location location. Ok, I'm out of wisdom now, you've got it all.
> 
> edit: did I say I was done? I just stumbled across this article which you might find interesting.
> 
> http://www.financialsamurai.com/buy-real-estate-as-young-as-you-possibly-can/


Ironically his article says he wouldn't buy till 2018!

Thanks for providing info regarding the other costs (i.e prop taxes, utilities etc).

I've considered the mortgage helper suite in the basement- one of my friends recently was able to rent the basement of his place in which he paid $400,000 with 5% down for $1200 while living in the top half. Definitely helps build up equity quickly.



> Your calculations are definitely off. A home of $300k will require a mortgage of $240k - you'll want to put 20% down. Mortgage payment per month is no more than $1000. You can easily get 2.30%. Taxes are figured at 1% so no more than $250 per mth.


I agree mortgage u/w that having 20% down definitely brings the rent vs buy closer to par. My calculation is based on my current situation - I'm closer to 10% down (where I didn't take into account CMHC). Moreover, the mortgage rate of 2.6% is what TD is offering as a fixed-5 year or a variable 5-year mortgage. You can see here : https://www.tdcanadatrust.com/products-services/banking/mortgages/numbers-resl.jsp

Perhaps you can answer why the banks are offering lower fix rates on 4&5 year fixed mortgages compared to 3 year?

I'm sure there's ways to reduce the rate, however I went conservative and went with what they provided online as the basis for my calculations.

I'm curious as to how many first-time home buyers actually have the 20% down and if there are situations where having less of a down payment (5%-10%) is better (excluding Toronto/Vancouver).


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## Mortgage u/w (Feb 6, 2014)

amack081 said:


> Ironically his article says he wouldn't buy till 2018!
> 
> Thanks for providing info regarding the other costs (i.e prop taxes, utilities etc).
> 
> ...


You can't rely on the bank posted rates because those are driven by profits derived by penalty reimbursements. See my other posts in which I explain this in detail. The real rates out there are much lower that what the banks post and right now, the lowest and most beneficially rates are 1-2 year rates. A typical variable rate is really prime minus 0.40% - also beneficial. Banks don't want you to go variable because they lose out on penalties when customers break their mortgage which is why they post a slightly higher rate.

There aren't many first time buyers putting up 20% - 5% is the most common, but I would recommend to anyone to save up the 20%. The savings in premium and interest on the premium is substantial. The only time it is beneficial to pay an insurer premium is on commercial loans - provides a lower rate, the interest on it can be written-off and less money to acquire the property.

My advice is to go for the property ownership. The numbers may initially seem better when renting, but in reality they are not much different and at the end, the renter will have nothing to show for all the rent paid. Real estate is tangible. Lots of options open up if investing and growing your money is important to you. If you buy equities, you're essentially in the same game since you view a property as an investment. Equities go up or down just like a property can - your investment is never secure. But, you have greater options. For me, a property is a home first. I like the fact I have a place to call my own and enjoy it as I please. Others don't and that is ok too. You just have to determine which category you fall into.


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## StayThirstyMyFriends (Jul 29, 2016)

This CBC article today seems relevant 

http://www.cbc.ca/news/business/house-investment-wealth-1.3716641

However, I think Vancouver and GTA are kind of special markets as they are simply out of reach.


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## sags (May 15, 2010)

So Garth Turner helped them get rich ? Maybe he isn't as wrong as many on CMF seem to think he is.

If the statistics on Turner's blog are anywhere near accurate, a lot of people are going to be crying the "why didn't we sell" blues.

The average home price in Vancouver peaked at $1.5 million in March 2016 and has fallen to $1.1 million in the past 6 months for a reduction of $400,000

If home prices are falling and it gets published all over the media, renters won't be interested in buying for awhile.


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## CalgaryPotato (Mar 7, 2015)

I think if you can rent for $1100 and the average cost is $500,000 it's a no brainer to rent. But is that a real apples to apples comparison? Or are you comparing renting a studio apartment in a bad neighborhood with owning a large single family home in a nice neighborhood.

Also unless you are married, or engaged and planning your wedding, I probably wouldn't consider buying a house together.


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## dougbos (Jun 4, 2012)

amack081 said:


> Ironically his article says he wouldn't buy till 2018!
> 
> Thanks for providing info regarding the other costs (i.e prop taxes, utilities etc).
> 
> ...


The "special" 4 and 5 year TD rates shown are certainly not special. A mortgage broker can get lower rates for you at TD than they are posting. The variable rate they post is very high also. I am not sure why their 3 year rate is so high. Either it is a typo or hugely overinflated.
Also any mortgage that TD offers you, whether conventional or high ratio, will be registered as collateral. Basically if you want to get a lower rate with a different lender at the end of your term you will not be able to do a simple switch. Rather the new lender will treat it as a switch/refinance and you will have to use a lawyer to close it and possibly have to pay for an approval also.


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## amitdi (May 31, 2012)

I was in a similar boat as you are few years back. I will give you some non-financial advice from my experience, which may help you.

it looks like you are trying to achieve the best of everything. dont. ask yourself - what do i want from home ownership? A) home and supplement income, or B) home experience

for simplicity, treat this as mutually exclusive. why do i say that? because landlording is not easy and takes away your time and mental energy. i would rather buy a smaller home and enjoy the experience (think - hosting, backyard, etc) rather than buy a big home and rent. so advice - dont mix things and try to achieve everything. go for one thing that is a priority for you.

appreciation - again, you are trying to mix things. do you want to invest or do you want to buy a home? mixing and trying to achieve everything always leads to confusion and suboptimal decisions IMO. you end up not doing one thing properly. so choose one and go with it. if you get the other thing, consider it a bonus. for me, i chose a home and the experience. if i get appreciation, its a bonus. also its useless to predict real estate appreciation especially when experts are calling for a bust since last 5 years.


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## amack081 (Jun 23, 2015)

StayThirstyMyFriends said:


> This CBC article today seems relevant
> 
> http://www.cbc.ca/news/business/house-investment-wealth-1.3716641
> 
> However, I think Vancouver and GTA are kind of special markets as they are simply out of reach.


I think financial independence and home ownership aren't mutually exclusive but the time period of achieving it increases when purchasing a home because you are tied to the payments.



> > I think if you can rent for $1100 and the average cost is $500,000 it's a no brainer to rent. But is that a real apples to apples comparison? Or are you comparing renting a studio apartment in a bad neighborhood with owning a large single family home in a nice neighborhood.
> >
> > Also unless you are married, or engaged and planning your wedding, I probably wouldn't consider buying a house together.


Last Sunday I went to an open house a block away from my place. Asking price was $470K, 3 bed, 2 bath, and two car garage (if small vehicles imo) was a nice place overall but needed work. Girlfriend looked at me and says "470k for that?!". I smiled inside.

@ amitdi I like the way you view it. Home ownership is obviously one the biggest decisions in life and perhaps because I'm not an expert in the field I don't want to get duped.


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