# Critique my finances please. Should I play a condo?



## clovis8 (Dec 7, 2010)

Sorry for the recent rash of questions about my finances but everyone here is so helpful I cant help it. 

I just finished my PhD and have a pretty solid job making pretty good money. I am thinking of buying a condo in the near future but I only have the 5% minimum down payment. I am wondering if I should buy now or wait and save some more. I am looking in Calgary in the 180-220k range. 

Any general comments on my finances would be appreciated. 

I am 35, single. I have had my current job for one year. 

Income: ca. 75k/year
Savings: 12900 (2000 of which is in stocks in a TFSA)
RRSP: 4000 (last year was the first I contributed)
Debt: 45k student loan, no other debt
Credit score: 770

I live very cheap, having been a student for so long. I would guess I live off about 2000/month (this includes student loan payment, rent, food etc).

This leave about 2k/month in extra money, after taxes.

Is buying now crazy? Should I wait and pay down my student loans some more and/or save some more for down payment?

Any comments would be greatly appreciated.

edit: damn didn't proof the title! Should read buy a condo obviously.


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## Jungle (Feb 17, 2010)

I don't like the idea of buying CHMC insurance, it's really expensive and adds nothing for you. All that money (like 5K + ) goes down your black hole. 

Save your 20% ( you can with that income) and buy when you are ready. 
Don't bother with trying to time the market, no body knows what's going to happen. 

Doomers dream of a crash that they have been waiting for in a wet dream from 10 years ago..aka Garth Turner and some usual posters who have no clue when it will/might/ will not happen.


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## Jon_Snow (May 20, 2009)

If interest rates return to historical norms there will be a correction/crash...especially in the bubbliest of markets - that includes Calgary. I would certainly advise to wait and in the meantime save as much as you reasonably can. More savings = more options/flexibility.


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## I'm Howard (Oct 13, 2010)

I hate the thought of buying a Condo, having some one tell me what I can do with my property, condo fees, and unexpected condo Fees.

My thoughts are, instead of paying $500 a month for condo fees, buy a house with a little bit larger mortgage, rent out the basement, let the renter help pay the mortgage.


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## clovis8 (Dec 7, 2010)

As for waiting won't the $850/month I am paying for rent easily counter the mortgage insurance I will pay for only putting down 5%?


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## clovis8 (Dec 7, 2010)

I'm Howard said:


> I hate the thought of buying a Condo, having some one tell me what I can do with my property, condo fees, and unexpected condo Fees.
> 
> My thoughts are, instead of paying $500 a month for condo fees, buy a house with a little bit larger mortgage, rent out the basement, let the renter help pay the mortgage.


I was thinking of getting a house to rent but I spend 5 months of the year traveling for work.


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## ChrisR (Jul 13, 2009)

clovis8 said:


> As for waiting won't the $850/month I am paying for rent easily counter the mortgage insurance I will pay for only putting down 5%?


I'm not sure the $850 a month you're paying in rent will even counter the monthly carrying costs of the condo (without factoring in CMHC). Here are some examples: (mortgage payments and principals calculated using the ING direct mortgage calculator)

If you take a $200,000 mortgage, 5% down, 5 year variable at 2.3%
Monthly mortgage payment = $880
Condo fees = $350
Property tax = $100
Total = $1330
Principal paid = ($500)
Rent saved = ($850)
Monthly difference = $20 (ie. you save 20$ per month).

If you take a $200,000 mortgage, 5% down, 5 year fixed at 3.99%
Monthly mortgage payment = $1050
Condo fees = $350
Property tax = $100
Total = $1500
Principal paid = ($400)
Rent saved = ($850)
Monthly difference = -$250 (ie. you pay $250 more per month than you are paying now).

Now keep in mind that the above are just numbers (and if you torture the numbers enough, they'll confess to anything!). They don't take into account the following:
- your principal paid per month will increase the longer you pay the mortage, while the monthly payment will not (at least until your interest rate changes!)
- Your rent will almost certainly increase every year if your choose to keep renting, whereas your mortgage payments only change when your interest rate changes.
- Presumably, buying a $210,000 condo will make a significant impact on your quality of life (ie. its probably much nicer than your $850 a month apartment), but will also result in additional costs. The coffee table made out of 4 cinder blocks and a piece of plywood may look cool in your apartment, but you'll probably want a furniture upgrade when you move into your new spread!


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## clovis8 (Dec 7, 2010)

Great post Chris, thanks.

Am I correct in assuming that buying will cost me more for the first part of my mortgage, but less for the last part? This assumes rent keeps going up. 

I can afford more than the $850 I pay now, as you can see from my finances (at least I think I can  ). 

The big tipping point is that paying a mortgage I am building up equity while renting I am just losing that money. 

I am going to buy, I am just not sure if it should be right now or wait and save/ pay down debt. 

Does anything think paying down my student loan should be a huge factor in my decision given it is really low interest debt?


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## the-royal-mail (Dec 11, 2009)

I can't believe of all the posts here not a single one mentioned the $45K in debt held by the OP. That is CRAZY. I know it's for good reason but that needs to be paid off FIRST before any home purchase, kids, RRSP or RESP. 

I don't see why you are apparently in such a rush to buy. I get that sense from your posts, but I may be wrong. Point is, you need to FIRST clear away all of your debt. THEN setup an emergency savings plan BEFORE buying. 

Only once these two items have been addressed thusly, should you then begin the process of looking for a house. Not before.

Any banker who gives you a $200K mortgage when you have $45K of debt would be foolish. I don't see it happening. I also agree with the suggestion above to avoid the CMHC fee and save for a bigger down payment. When you consider you'll probably have a new car purchase and some other life crisis between now and then, you realize that you'll probably be renting for a little while yet. And there is NO shame in renting. If you are happy with the dwelling, then use the time to save your cash and pay off your debts before tying yourself down with a mortgage.

My opinion.


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## Jungle (Feb 17, 2010)

the-royal-mail said:


> I can't believe of all the posts here not a single one mentioned the $45K in debt held by the OP. That is CRAZY. I know it's for good reason but that needs to be paid off FIRST before any home purchase, kids, RRSP or RESP.
> 
> .


I did notice at and wanted to mention that he should try and pay off some of that osap , but I forgot to mention it. 

Owning property with no other debt/loan obligations makes things so much easier.


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## GeniusBoy27 (Jun 11, 2010)

To be honest, given your mobility, I wouldn't be changing a thing, as buying a place that you're not using, to me makes little sense. And the fact, that I'm not sure you're settling down in Calgary long-term.

Your condo fees, mortgage interest, taxes, and insurance will probably be as much as your rent.

There's been a thread on here, rent vs. buy, and I'd review the pros and cons of it.


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## ChrisR (Jul 13, 2009)

clovis8 said:


> The big tipping point is that paying a mortgage I am building up equity while renting I am just losing that money.


One of the main points I wanted to show with the above numbers is that *you are NOT just losing money by renting*.

Take the example of the variable rate mortgage at 2.3%. 

Your total monthly cost would be $1330. Of this you would be saving $500 in the form of principal paid (ie. equity built in the condo).
If you instead rented, your total monthly cost would be $850. The difference between buying and renting ($480) could then be saved and invested. In other words, you are basically saving the same amount regardless of whether you rent or buy. The only difference is that if you buy, your $500 a month is being invested in residential real estate. If you rent your $480 is available to invest in another security of your choosing (stocks, bonds, GICs, lottery tickets, etc), or as some other posters have pointed out to pay off that gruesome student loan!

If on the other hand you choose the fixed mortgage at 3.99%, then you would actually be saving LESS money vs renting. 

In this case, you pay $1500 a month to save $400 a month in the form of equity in your condo.
If you instead rented for $850 a month, this would leave a difference of $650 a month to save or invest in some other security.

Please note: I'm not arguing either for or against buying a condo! I'm just throwing some numbers around to quash that old "renting is throwing money away" adage.

In the end, the decision to buy a condo should be more of a lifestyle decision. Realize that buying with a 5% down payment will probably cost you a lot more than renting (unless variable rates stay low for a long time), BUT will make significant difference to the way you live.


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## the-royal-mail (Dec 11, 2009)

Great post by ChrisR!

On the lifestyle point, keep in mind that many condos are in towers and many of those towers are lacking in quality. Apartments of course have the same issue, but some apartment towers are well managed and kept clean. I've lived in both and viewed every variation in the tower living scenario and would say that my quality of life is better in the apartment, which has more space, less $ obligation every month and freedom to leave whenever I want without having to concern myself with selling and paying RE agents after. I find it easier to "sleep at night" in the apartment without the huge $ responsibility hanging over my head.


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## Pigzfly (Dec 2, 2010)

Given my rather limited, but partially there, knowledge of Calgary condo real estate, have you considered having a roommate? The prices you mention would buy an 800 sq ft '70s 2 bedroom condo in the "SE teens," downtown Calgary. Knowing that rent is 1300-1500 for such a thing, would you be willing to share your place for an additional income of $600?

Otherwise, the Calgary condo market is a bit overbuilt, not quite sure how that has affected the pricing on the older stuff, the new stuff is pretty pricey still. Construction of new stuff is going to slow starting around next summer, as the financing wasn't lined up when the recession hit 2 years ago. So, I don't necessarily know how this will play out, just be aware that these things are happening. 

If you're willing to live in Oakatokes, there are new townhouses available in the 1 bedroom variety for that kind of pricing.

While mortgage rates will go up in the future (sometime) and the above supply/demand things will play a part, I would probably want to pay down some student loan first. Yes, it is tax deductible, but it's still debt even at the low rate. Given your income, it will still take awhile to pay down that debt, even with aggressive pay down. 
Personally, I would probably want to cut that in half or so, before going after a mortgage, which you could do within a year with your 2K/month. However, choice is totally up to you.


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## andrewf (Mar 1, 2010)

You have debt--it's probably a better investment to repay that than to buy a condo.

Ask yourself how likely it is that you will be in your condo for 5 years. If it isn't that likely (getting married, potentially changing jobs, etc.) then you should probably ask yourself whether it makes sense to incur the expense of buying a property. Tying yourself to a property in a city might make you reluctant to take better job opportunities, too.


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## Sampson (Apr 3, 2009)

Pigzfly said:


> The prices you mention would buy an 800 sq ft '70s 2 bedroom condo in the "SE teens," downtown Calgary.


Umm, not likely. 10 year old 800-900 sqfts are $280-$350k.

It will buy you a nice 2-bedroom apartment condo or townhouse in the boonies though. Many are $250k for 1000 sqft, reasonable finishings.



Pigzfly said:


> Construction of new stuff is going to slow starting around next summer, as the financing wasn't lined up when the recession hit 2 years ago.


?!? This sure happened a year or two ago when there were giant holes all over downtown because companies abandoned projects when building costs were stupid high, but every project has been restarted. Much of the product is certainly cheaper, and most complexes have reduced the number of buildings planned, but look at the oil patch. Things are heating up or at least stable.


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## Pigzfly (Dec 2, 2010)

Sampson said:


> Umm, not likely. 10 year old 800-900 sqfts are $280-$350k.
> 
> It will buy you a nice 2-bedroom apartment condo or townhouse in the boonies though. Many are $250k for 1000 sqft, reasonable finishings.
> 
> ...



I said 1970s and I actually meant SW teens, but w/e.
Just one example: http://www.realtor.ca/propertyDetails.aspx?propertyId=9600495&PidKey=-1935259418

Yes, existing projects may have returned to construction, however new projects which would have started their planning stages approximately two years ago did not move beyond the idea stage. Most of the massive commercial construction companies are facing a major drop off in the work that they have lined up.


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## Sampson (Apr 3, 2009)

Pigzfly said:


> I said 1970s explicitly, and I actually meant SW teens, but w/e.


Wow, just spent some time on MLS in Connaught. Who knew there were so many 2 bdrm, 1 bath places?

Seems the qualifier for low $200ks is actually that second bath. Any 1.5-2+ baths and you really are in the $270k+ region.


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## the-royal-mail (Dec 11, 2009)

These prices are absolute madness. So glad I said 'NO' to Calgary when I came back to the west. High house prices, commuting, traffic. NO thanks.


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## clovis8 (Dec 7, 2010)

I have found several 5 year old condos in the Mckenzie Towne area for 180-210. That is 2 bedroom and 1 or two bath.


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## cannon_fodder (Apr 3, 2009)

When I was OP's age I faced a similar situation. My income was significantly higher, I had no debt, and I had some substantial RRSP savings.

To me, it was a no brainer. Rent and invest the difference. I could not see how a condo would be a good investment when I could get an apartment for much less and still be satisfied with my accommodations.

I didn't look at a condo as a long term living arrangement. The condo fees are a major expense and I couldn't influence their expected increase. I've seen too many stories of troubles owning condos as well as not realising value appreciation on par with a house.

If I wasn't single, then things would be different. In fact, when I met my current wife, we bought a townhouse together. There were her two kids to consider and that made it much more reasonable to buy a house.

Otherwise, pay down your debt (assuming it's at a non-trivial interest rate) and if your circumstances are much the same when its gone, start investing.


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## iherald (Apr 18, 2009)

ChrisR said:


> I'm not sure the $850 a month you're paying in rent will even counter the monthly carrying costs of the condo (without factoring in CMHC). Here are some examples: (mortgage payments and principals calculated using the ING direct mortgage calculator)
> 
> If you take a $200,000 mortgage, 5% down, 5 year variable at 2.3%
> Monthly mortgage payment = $880
> ...


Great post! A perfect example of how you need to run numbers to find out what you think makes the most financial sense doesn't always.


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## Taxsaver (Jun 7, 2009)

Can you rent a room in your apartment?


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