# Buying 1st Home in Calgary to rent the basement suite out or just keep renting?



## Betterlatethannever (May 15, 2018)

Hi everyone, first time posting here on CMF. I've been lurking for a while. Let me explain my situation

I'm in my mid 20s and married(yes, young). We have some savings and I've been poking around looking at real estate in the northeast/southeast of calgary in some of the older areas. I've been seeing some property available for between 250-300k with basement suites and have been toying around with the idea of buying, living in the upstairs and renting the basement. I have a pretty good network and I think I could get decent renters quiet easily. Also parents will be giving around $10k to us(as a gift) for the purpose of a down payment-when we need it. This is something that I've been factoring in

Here is my question: What numbers/variables would I have to take into account to figure out if its best to buy a place and rent the basement out or continue to rent for around $1200/month and invest elsewhere?

Looking forward to hearing ideas

thanks


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## sags (May 15, 2010)

Why would you buy when house prices are falling ?


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## Just a Guy (Mar 27, 2012)

Having been a long time landlord, I would never give access to my house to a tenant. Of course, if I was single, I may consider roommates, but that can also end friendships. 

I also agree that prices look to be going down, so I'd continue to rent and wait for an opportunity.


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## Betterlatethannever (May 15, 2018)

sags said:


> Why would you buy when house prices are falling ?


Valid, I mean how would I learn if we are at the bottom or close to it here? Is it just a huge risk in Calgary right now?


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## Betterlatethannever (May 15, 2018)

Just a Guy said:


> Having been a long time landlord, I would never give access to my house to a tenant. Of course, if I was single, I may consider roommates, but that can also end friendships.
> 
> I also agree that prices look to be going down, so I'd continue to rent and wait for an opportunity.


I think I have a large enough network that I could find good renters- not just any random, if that makes a difference in your mind let me know, also would having a seperate entrance or a locked door from the upstairs to the downstairs make a difference to you? 

I agree prices have been going down, what would that opportunity look like? Right now looks to be like an opportunity, or should I wait to see if things begin to rise again?


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## Spudd (Oct 11, 2011)

A few things to think about from someone who used to rent the main floor of a house, the basement was rented to others. 

1- heating/cooling will be controlled by you from upstairs, most likely, and could cause friction if the basement dwellers want different settings than you do
2- will the basement dwellers get garage access? in the place we rented, we shared the garage with them, and they stole some of our stuff.
3- will you buy a separate laundry suite for the basement dwellers?
4- noise issues - we could often hear the conversations from the basement if they got animated, and I'm sure they could hear stuff from upstairs as well.


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## Betterlatethannever (May 15, 2018)

Spudd said:


> A few things to think about from someone who used to rent the main floor of a house, the basement was rented to others.
> 
> 1- heating/cooling will be controlled by you from upstairs, most likely, and could cause friction if the basement dwellers want different settings than you do
> 2- will the basement dwellers get garage access? in the place we rented, we shared the garage with them, and they stole some of our stuff.
> ...


Thanks so much, these are the questions I'm looking for. 

1) I agree, could be a problem
2) I think if I bought a place with a garage I would either use it for myself or my wife or just rent it out seperately or increase the basement tenants rent if they want to use it.
3) Great question, I guess it depends on the place and if there is space
4) I mean I'm in an upstairs right now with a guy in the basement, quite frankly I don't care what he hears, he probably knows us better than anyone haha


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## sags (May 15, 2010)

From what I read, Calgary is awash in new condos and rents are likely to be going down because of all the empty units.

You would be buying into declining price and rental markets.............not good.


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## Just a Guy (Mar 27, 2012)

As interest rates rise, prices will continue to fall. Eventually they will stabilize, that would be your buying opportunity. 

As for locked doors, they are meaningless. Inside, they can work on them all day and no one would ever see. When you have young kids, do you want to expose them to potential threats? We once had a close family friend who was later convicted as a pedophile. None of us ever suspected. He won all sorts of humanitarian and volunteer awards over the years. 

Also, I've had many good tenants over the years who've run into troubles of some sort and turned into bad tenants. Can't imagine what would happen if I was away for a weekend and they had time to break into my part of the house. Even close friends of mine have gone down the wrong path in the past after something major happened to then (bad breakup, lost job, develop a drug addiction, etc.). 

I prefer to keep tenants isolated in their own places. Nothing may ever happen, but I'm also not willing to chance it after what I've seen over the years.


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## Betterlatethannever (May 15, 2018)

sags said:


> From what I read, Calgary is awash in new condos and rents are likely to be going down because of all the empty units.
> 
> You would be buying into declining price and rental markets.............not good.


Might be better off just keeping my eye out for cheaper rent then


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## Betterlatethannever (May 15, 2018)

Just a Guy said:


> As interest rates rise, prices will continue to fall. Eventually they will stabilize, that would be your buying opportunity.
> 
> As for locked doors, they are meaningless. Inside, they can work on them all day and no one would ever see. When you have young kids, do you want to expose them to potential threats? We once had a close family friend who was later convicted as a pedophile. None of us ever suspected. He won all sorts of humanitarian and volunteer awards over the years.
> 
> ...


Ya I don't think I would stay when we have kids, probably sell it or rent the whole thing and buy a new place(again a numbers game I guess). 

ON your point about people going down the wrong path etc, I think a lot of that could be solved by buying a couple of those little feed to your phone cameras and setting them up at the entrances to your home, when something happens they alert you and you can deal with it. Just an idea

really appriciate the input thanks a mil


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## Just a Guy (Mar 27, 2012)

Cameras don't do a lot of good, I have them in all my buildings. Aside from catching tenants on things I can go after them for (dumping large items in the dumpster, breaking windows, etc.), they aren't a lot of use. The police rarely prosecute anyone, even when we gave them video. 

All that being said, why try mitigating issues when you can easily avoid them completely. If you want to own a rental property, buy a rental property. If you want a home, buy a home. The two have different criteria for a reason, when you try to combine them that you run into problems because they aren't meant to be combined.


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## OnlyMyOpinion (Sep 1, 2013)

Welcome to CMF. 

My two cents:
As you know, it is a renter's market in Calgary right now, rents have been dropping, supply is up. I would not be buying a house primarily intended for a short term hold. In other words, I would not be buying a place based primarily on a 'good' price just to live in and rent the basement, with the intention of selling within 10yrs or even eventually renting the whole place. It is just not the right time for that.

I would however consider buying my 'forever' home in Calgary after carefully thinking about my criteria and patiently looking over the next 6-12mos. It would require that one or both of you have reliable jobs, can carry a mortgage without living in poverty, and see no possibility of moving elsewhere for +10 years. It would consider location & neighbourhood, ease to-from work on public transit, area schools that have available space, house features, etc. 

Of course nothing is forever, but I mean that I would be buying it without making concessions to my criteria. I wouldn't want to be pouring my hard-earned after-tax dollars into a place that I didn't 'love'. A place I wouldn't mind being 'stuck in forever with a growing family, etc.' IMO this would not include renting the basement for reasons others have noted, but some people do it for a few years and it seems to work out. Still, at this time in the market my primary objective would be buying my long-term house. I would also be planning to save and pay down each year and retire my mortgage as quickly as possible.

This is only my opinion and I'm being specific here to a housing market that is not rising robustly (in a rising market people can still profit from their RE mistakes). I'm sure many people buy a house without these criteria and still manage. But I also believe that buying a house puts a lot of people into locations they don't like, houses they don't keep, hobbles them financially causing friction and angst, and ultimately can cost them their financial independence.


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## Betterlatethannever (May 15, 2018)

OnlyMyOpinion said:


> Welcome to CMF.
> 
> My two cents:
> As you know, it is a renter's market in Calgary right now, rents have been dropping, supply is up. I would not be buying a house primarily intended for a short term hold. In other words, I would not be buying a place based primarily on a 'good' price just to live in and rent the basement, with the intention of selling within 10yrs or even eventually renting the whole place. It is just not the right time for that.
> ...


Thanks for the input, some I agree with, especially the part about making sure there is no possibility of moving for at least 10 years. However, from a $$ perspective doesnt it make sense to live in a place for 5-10 years with someone renting the basement to retire the mortgage as soon as possible-building up equity? The way I see it is if I rent now, I'm spending 1200/month. If I bought a place and rented the basement I'd probably be spending the same amount, except/month except I would pay down $50-100k of my mortage from the renters over a 5-10 year period. Just a thought. I suppose if we did want to buy to reduce monthly cost I could consider a small townhouse or something, but I imagine that brings a host of new issues.


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## Just a Guy (Mar 27, 2012)

Yes, but did you also consider prices may continue to fall 50-100k in value over the next 5-10 year period? They could also fall more.


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## Betterlatethannever (May 15, 2018)

Just a Guy said:


> Yes, but did you also consider prices may continue to fall 50-100k in value over the next 5-10 year period? They could also fall more.


I suppose its hard for me to think that a $300,000 house in Calgary could be only $200,000 in 5-10 years, but I mean we've seen a huge drop already so its definitely a possibility, especially with the direction this economy has been going.


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## scorpion_ca (Nov 3, 2014)

I am also kind of in your situation. I have started to look for a suitable bi level house in the NE area. However, I have no plan to rent it. 

I have been living in a house for the last 10 years in Calgary and my rent is dirt cheap $800 including utilities. The relationship with the landlord is good and I don't think he has any plan to increase the rent in the near future. I am debating myself now. Should I buy or rent? If I purchase, I will pay at least 20% down payment.


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## Betterlatethannever (May 15, 2018)

scorpion_ca said:


> I am also kind of in your situation. I have started to look for a suitable bi level house in the NE area. However, I have no plan to rent it.
> 
> I have been living in a house for the last 10 years in Calgary and my rent is dirt cheap $800 including utilities. The relationship with the landlord is good and I don't think he has any plan to increase the rent in the near future. I am debating myself now. Should I buy or rent? If I purchase, I will pay at least 20% down payment.



800 for a full house or an upstairs or what? what area if you dont mind sharing?


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## OnlyMyOpinion (Sep 1, 2013)

Which is why IMO it needs to be a place you fully intend and are happy to live in for many years - not one you will need or want to sell in the future. And I would say that if renting the basement is a requirement for being able to make ends meet then it is a bad idea. If you can go into it intending to rent the basement, but don't need to, and if it doesn't go well you then can stop renting, then yes it could make sense for you.

Our first house, and the one we are still in after 38 years (although we have owned 2-3 other properties concurrently at various times) lost value for the decade after we bought it. But it didn't matter becasue we love the location and house and weren't moving. It's value has never been relevant to us. 

Realize that I am by nature conservative. You may have a more 'easy going' approach to life and living. But then I know a lot of 'easy going' folks in ther late 50's and 60's who still have a mortgage and need to work, which is not what I would choose.


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## scorpion_ca (Nov 3, 2014)

Bi level two bedroom basement in Rundle. Upstairs rent is $1,000 plus 60% utilities. I prefer to save the variance. 

It used to be $750 and I willingly increased the price last year.


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## scorpion_ca (Nov 3, 2014)

OnlyMyOpinion said:


> Which is why IMO it needs to be a place you fully intend and are happy to live in for many years - not one you will need or want to sell in the future. And I would say that if renting the basement is a requirement for being able to make ends meet then it is a bad idea. If you can go into it intending to rent the basement, but don't need to, and if it doesn't go well you then can stop renting, then yes it could make sense for you.
> 
> Our first house, and the one we are still in after 38 years (although we have owned 2-3 other properties concurrently at various times) lost value for the decade after we bought it. But it didn't matter becasue we love the location and house and weren't moving. It's value has never been relevant to us.
> 
> Realize that I am by nature conservative. You may have a more 'easy going' approach to life and living. But then I know a lot of 'easy going' folks in ther late 50's and 60's who still have a mortgage and need to work, which is not what I would choose.


As long as I have a job in Calgary, I have no plan to move. But the way economy is going, don't know what's gonna happen in the next couple of years. I could purchase the house in 2010 or 2011 but somehow didn't pull the plug. Now I have no regret.

I lived two years in Toronto and still like it. Perhaps when I retire, I may move in some part of ON.


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## Betterlatethannever (May 15, 2018)

scorpion_ca said:


> Bi level two bedroom basement in Rundle. Upstairs rent is $1,000 plus 60% utilities. I prefer to save the variance.
> 
> It used to be $750 and I willingly increased the price last year.


seems worth staying if you're comfortable. Any place you buy is going to cost that much in just property tax, utilities etc.


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## Betterlatethannever (May 15, 2018)

OnlyMyOpinion said:


> Which is why IMO it needs to be a place you fully intend and are happy to live in for many years - not one you will need or want to sell in the future. And I would say that if renting the basement is a requirement for being able to make ends meet then it is a bad idea. If you can go into it intending to rent the basement, but don't need to, and if it doesn't go well you then can stop renting, then yes it could make sense for you.
> 
> Our first house, and the one we are still in after 38 years (although we have owned 2-3 other properties concurrently at various times) lost value for the decade after we bought it. But it didn't matter becasue we love the location and house and weren't moving. It's value has never been relevant to us.
> 
> Realize that I am by nature conservative. You may have a more 'easy going' approach to life and living. But then I know a lot of 'easy going' folks in ther late 50's and 60's who still have a mortgage and need to work, which is not what I would choose.


From what I've been thinking and the responses I've been getting, it seems that I could make the $'s justifiable in my mind, but it might not be practical for the near future concerning work, the Calgary market, kids etc...


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## scorpion_ca (Nov 3, 2014)

Betterlatethannever said:


> seems worth staying if you're comfortable. Any place you buy is going to cost that much in just property tax, utilities etc.


I may stay there a little longer and I am not rushing to buy a house now. 

If oil price goes to higher again, the market will pick up and some landlords will be greedy as usual.

Have you applied for pre approval of your mortgage? I have applied mine today.


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## Betterlatethannever (May 15, 2018)

scorpion_ca said:


> I may stay there a little longer and I am not rushing to buy a house now.
> 
> If oil price goes to higher again, the market will pick up and some landlords will be greedy as usual.
> 
> Have you applied for pre approval of your mortgage? I have applied mine today.


I havent, no. I wanted to get a good idea of what people recommend before I take any steps forward at all


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## scorpion_ca (Nov 3, 2014)

Have you decided about fixed vs variable interest rate and old vs new house? I am kind of confused what to select.


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## Just a Guy (Mar 27, 2012)

In a rising interest rate, fixed can be better (depending on how fast the rates rise). In a flat or falling interest rate, variable should be better.


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## scorpion_ca (Nov 3, 2014)

Just a Guy said:


> In a rising interest rate, fixed can be better (depending on how fast the rates rise). In a flat or falling interest rate, variable should be better.


I spoke with my mortgage broker yesterday and the fixed and variable rate is 3.44% and 2.45% respectively. She mentioned that it may take around two years to catch up variable with fixed rate. My plan is to pay my mortgage ASAP. I asked her to do an analysis assuming variable rate would be increasing 0.5% every year for the next five years. After that, I can see if I gain or lose money at the end of the term.


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## Just a Guy (Mar 27, 2012)

It's not really a hard calculation, if the interest rate is higher for more than half the term, then it'll cost you more.


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## scorpion_ca (Nov 3, 2014)

Just a Guy said:


> It's not really a hard calculation, if the interest rate is higher for more than half the term, then it'll cost you more.


Here is the analysis that I have received from my mortgage broker today. I am little bit of confused now. Based on the calculation, even variable interest rate increases to 4.45% in 5th year, I would save around $107,661 (Variance between mortgage remaining at the end of term). How come is this possible? Something is wrong in the calculation. I would really appreciate if seniors could provide some guidance/suggestion.

View attachment 18746


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## Spudd (Oct 11, 2011)

I would question whether they made a mistake. The length of the term looks weird - for the 5 year fixed they put in 2 years for the length. For the variable it's 1 for each of them except the last one, which is 5. 

I think the bottom number is the total interest paid over the length of the amortization. So for the fixed, it's a 20-year amortization so that's the interest you'd pay if you took 20 years to pay off the loan and the rate was the same for the entire 20 years. For the variable, she's modified the amortization for each interest rate level, I'm guessing she's trying to simulate how you would have a rate increase before your term is over, and at the new rate, your amortization is less. But then the "total interest over amortization" number is kind of irrelevant.


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## scorpion_ca (Nov 3, 2014)

Spudd said:


> I would question whether they made a mistake. The length of the term looks weird - for the 5 year fixed they put in 2 years for the length. For the variable it's 1 for each of them except the last one, which is 5.
> 
> I think the bottom number is the total interest paid over the length of the amortization. So for the fixed, it's a 20-year amortization so that's the interest you'd pay if you took 20 years to pay off the loan and the rate was the same for the entire 20 years. For the variable, she's modified the amortization for each interest rate level, I'm guessing she's trying to simulate how you would have a rate increase before your term is over, and at the new rate, your amortization is less. But then the "total interest over amortization" number is kind of irrelevant.


Yes, I would contact my mortgage broker and find out if there is any error in the calculation. I asked her to do an analysis assuming interest rate would increase 50 basis point every year. I wanted to see if I lose or save any money at the end of 5 year period by selecting variable over fixed interest rate.


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## scorpion_ca (Nov 3, 2014)

BMO and TD are offering 2.45% variable interest rate. Which bank would you select based on your experience of mortgage?


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