# Advice to someone STARTING to think about buying a first home.



## sisco (Oct 18, 2011)

Hi all!

First of all, as a newly registered member but long time reader, thanks for all the helpful advice and insight you've provided me over the years. I'm a pretty careful person when it comes to my finances, and (I think) you have all aided me in making sound financial decisions thus far.

My current situation:


31 years old. Living in Nova Scotia.
Finished my M.Sc. roughly 4 years ago and have been working for the federal govt. on a contract basis ever since (never been unemployed, but also not a lot of long-term job security). Currently making $60,000+ per year.
Have a 2 year old daughter who's mother I am not with. I have 50% custody, the mom does not work, and I pay her monthly to watch the little one while I am at work...she essentially acts as a "daycare" during the weeks that I have my daughter.
Aggressively paying down RBC student loans (1-2 years away from completion), federal and provincial student loans on backburner due to low interest rate and favorable tax treatment on interest.
I have health/life and disability coverage for myself and daughter (health).
Renting a very affordable 2-bedroom apartment which serves my needs for the moment, but certainly also leaves something to be desired in the way of accommodation.
No credit card/line of credit debt and my car is paid off. No pressing need for a new car anytime soon (car loan was the first thing I paid off).

I am currently planning to finish paying off my relatively high interest bank (student) loans then use the "new" cash flow to save for a down payment. As of right now, when the time comes, I'm considering building or buying a duplex of some sort and renting the second unit.

I realize that there is still several years to go before I will be pulling the trigger on a home, but I can't help but wonder what you folks think about the speculation that property values will drop when many of the the baby boomer generation look to "cash in" on the value of their primary residences. Based on what I see and hear, if there is one, the dip/drop in property demand (and concequently, prices) should begin to occur immediately after I am looking to buy. Needless to say, I see this as a potential problem...or at least something I should pay attention to.

What do you all think?

Thanks in advance!


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

Hi,

No one really knows for sure what effects we may see when the boomers start shedding their houses. It has started to happen on a very limited basis. Don't forget that generation is fairly active and has been entering retirement for the past few years. Senior's homes are generally hard to get into and expensive. The gov't is looking towards home care as an alternative to placing people in homes (for which there are no/few good spaces available). I don't know any 60 year olds who want to give up their houses and cars they've worked for their entire lives to go and live in a home. So it may be a few years yet before they start leaving their existing houses.

As for your plan, I see some serious flaws in it. I disagree that you should be thinking about buying investment property at this time for the following reasons:

1. job not permanent (it could end at any time and then where will you be?)
2. you have unpaid student loan debt that will take you several years to pay off
3. you do not have an emergency fund of any kind
4. after all of the above have been resolved, then you would need more time to save up any actual downpayment

Resolving these issues will probably take a minimum of 5 years if you change your present course immediately.

As well, have you read any of Berubeland's posts about specuvestors? There is a seemingly endless supply of people, many of them newbies posting in CMF, about buying investment/rental property, all the while these people are in debt and have no emergency savings. Not good.

Sorry to burst your bubble.


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## Four Pillars (Apr 5, 2009)

I'm not a fan of the idea that all the boomers will sell their houses (and stocks) at a certain age.

I realize that only a small percentage of them selling can affect the market, but when I think of my parents and their friends or my friends' parents (early 70's) - I can't think of one example of anyone selling their house to downsize or move. 

They all seem to be planning to stay in their homes as long as possible.

Of course, they (or their estates) will sell eventually, so that could be a factor - but it's so hard to quantify or time.

Bottom line is that I wouldn't be surprised if the boomers retiring/getting older has some effect on the real estate market, but I don't know if it will be all that significant or even noticeable.

It will also take place over a long time period - if you are going to wait out the "boomer effect", you might be retired yourself by the time you buy.

I wouldn't worry about it.


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## sisco (Oct 18, 2011)

the-royal-mail said:


> Hi,
> 
> No one really knows for sure what effects we may see when the boomers start shedding their houses. It has started to happen on a very limited basis. Don't forget that generation is fairly active and has been entering retirement for the past few years. Senior's homes are generally hard to get into and expensive. The gov't is looking towards home care as an alternative to placing people in homes (for which there are no/few good spaces available). I don't know any 60 year olds who want to give up their houses and cars they've worked for their entire lives to go and live in a home. So it may be a few years yet before they start leaving their existing houses.
> 
> ...


I appreciate the critique TRM - to address your points;

This is also my #1 concern, actually. The way I've been looking at it is this - I have been working for the same people for 4 years on a series of consecutive short-term contracts. Although I don't have long-term security, these days, I'm not sure that my situation is much different than anyone else. Short of those people who have "guaranteed" union positions, most people could lose their job on short notice for one reason or another. I have a valuable set of skills, and my employer has a vested interest in keeping me around. The current job/hiring climate within the federal government is such that it is nearly impossible to hire new indeterminate employees, so here I am, still on contract 4 years later.
My plan is to pay off bank-sourced student debt, then save a down payment, THEN purchase a house...several years in the future. I may not have been clear on that in my initial post.
You're right about not having an emergency fund. I my own mind, I've addressed this by maintaining an unused $15,000 line of credit. When I do the math on holding thousands of dollars in cash (in a HISA), the opportunity cost between savings interest and interest paid on outstanding loans does not add up to me. To me, it is more worth while to continue paying off my loans and realize greater overall savings that way. Right now, short of losing my job, there isn't much that could create an "emergency expense" large enough to warrant having a lump sum of money saved for such an occurrence. In the case that I DID lose my job, EI and part-time income could sustain me at my current standard of living.
See #1 and #2.

Point taken re. "specuvestors". That said, in Halifax where we have 4 universities, 3 community-college campuses, and a fairly brisk rental market, I see the addition of a second unit in any prospective property as a increase in security, rather than additional risk.

-------

Thanks Four Pillars. More and more, my own thinking has brought me to the same general conclusion. As I have several years before I will actually be looking to buy, I guess time will tell me more. I'm hoping/expecting that property value increases around Halifax will simply slow down, rather than take a dip. With any luck, yesterdays announcement of the 33 billion ship-building contract being awarded to Halifax should also help stabilize the housing market in the long term.


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## MoneyGal (Apr 24, 2009)

sisco said:


> The current job/hiring climate within the federal government is such that it is nearly impossible to hire new indeterminate employees, so here I am, still on contract 4 years later.


I worked as a term PM for the federal government for five years in the late 80's, and ultimately left after having won a competition, and then the position was cancelled.  

So honestly I'm not sure when it was possible to hire new indeterminate staff within the federal government.


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## sisco (Oct 18, 2011)

MoneyGal said:


> I worked as a term PM for the federal government for five years in the late 80's, and ultimately left after having won a competition, and then the position was cancelled.
> 
> So honestly I'm not sure when it was possible to hire new indeterminate staff within the federal government.


Based on what I've see with DFO (Dept. of Fisheries and Oceans) since I've been here, it goes through phases. In know there was a significant hiring freeze in the 80's which perhaps you witnessed first-hand. That stayed in effect for all positions other than those deemed too important to lose by the powers that be, so in reality, very few new permanent employees were hired. To cope with this, researchers looked to term (with a clause that they wouldn't be hired as permanent following the term), casual, and contract employees to deal with the labor shortages. Not a good situation for the employers or the employees. That said, things were relatively good for a few years in the early 2000's, then with the change in government and economic/recession issues, funding got cut, and accounting practices were changed (no longer allowed to fund permanent employees using B-base (government issued project funds) or C-base (outside funding) money) which essentially put every department into a deficit position over night, and again put the clamps on outright hiring.

I was in a similar situation to you roughly 2 years ago, but not only did "my" position get canned, the competition being held to replace my boss at the time also got cancelled midway through the process. Brutal. None the less, I'm still here, still being paid, but it's all outside the "official hiring process".


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## MoneyGal (Apr 24, 2009)

I shouldn't put that upset smiley. I left, with a boss, and we contracted back to the federal government for years.


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## Berubeland (Sep 6, 2009)

Hi,

Prices in Halifax are nowhere near as crazy as Toronto, and it is indeed possible to buy a house and rent out part of it to increase your stability. 

This is how I bought my house that is a duplex. I was and still am self employed. 

I was at the time paying $750 per month rent plus hydro and heat for my place. 

I bought my house with 25% down. The mortgage payments were $750 per month. I had to pay utilities. The downstairs apartment was rented for $700 per month. I chose to use that money to make double payments on the mortgage. 

Every month I was able to pay the $1500. Except for 1 where I paid the $750. 

The house was small and awful but I knew I could pay it as I was already paying rent in that amount. I also knew that if I hit some kind of hardship I could just use the money from the tenant to pay the mortgage and just make a single payment. 

I did not stretch myself to buy the house, I just substituted one expense for another. My housing costs did increase but that was not a necessity. I could have chosen to go back to a single payment if I wanted to. 

Most people don't really use this strategy, for them their house is like a reflection of their status. The bigger the house the more successful they are in their own mind. I don't suffer from those delusions, while I do have a great affection for this house, I don't care about what people think about me or my house. 

I have at times been very good at generating income but once you start hiring staff and paying rent and paying a mortgage... holy crow! I remember some times payday, rent day for the industrial shop, and mortgage day were the same day, I would literally break out in hives from the stress. Customers don't really care when your pay days and rent days are they tend to pay you when they get around to it. 

So in a job where you know your income is or can be unstable, you may want to emulate my strategy, and create greater security for yourself and your family.


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## sisco (Oct 18, 2011)

Thanks for the advice Berubeland!

Seems like you and I have/had similar plans for our first homes. When the time comes, I'm looking to acquire something inexpensive - likely a two bedroom duplex, possibly three bedroom if the price is right. In the long term when I'm feeling more financially secure I'm planning to move my own primary residence somewhere else, and begin renting both units. I don't expect this first stop to be a big step up in size from the 2-bedroom apartment I am in now - the key difference will be that I own it!


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