# A little help for someone looking to break in...



## PoorPablo83 (Feb 8, 2010)

...To the real estate market... not someone else's home 

I am in the process of scratching together a downpayment for my first home. I live in Victoria, BC and the market here is nuts. The cheapest 2 bed 2 bath condo I found on a recent MLS search was 267000. A 2 bed 1 or 2 bath house is closer to 400,000. Townhomes are few and far between here, and really arent much cheaper then houses. I have a goal to own something before I'm 30. I think that most likely would mean a 2 bed condo while renting out the 2nd bedroom.

I am 26, a 4th year apprenticing carpenter and only really started taking a hard look at my finances a couple years ago. As of right now, I have 3000 in savings, 6000 in mutual funds, 1200 of which are registered. These are taking a long, slow climb back from the 9000 they were at last fall . I also own a vehicle which is almost paid off. My debts are the aforementioned vehicle (3500 left on my LoC) and 1500 on a credit card (physio appointments and tuition for a couple night classes - I am paying this off as fast as I can). I use 'pay yourself first' and other savings tactics, and have learned to live frugal. I have learned to love lentils, and my new favorite past time is running . My rent, which is as cheap as they come in town, is just a hair under 1/3rd of my gross income, and my focus over the last few years has been paying down my debt.

Aside from continuing to chip away at my debt, can anyone here recommend some tactics for building up a down payment? Specifically, that 4800 I have in unregistered funds... should I put that all into my registered mutual funds and use the money I get back on my tax return for something? Should I be putting some money into savings WHILE I'm reducing my debt, or just focus on wiping out debt completely first and foremost? I feel like prices here are climbing so fast that I should just scratch and claw and buy as soon as I can possibly afford it instead of trying to build up a comfortable down payment of 25%. Any help/encouragement would be appreciated, as I am a complete financial newbie and am feeling like I'm doing too little too late to accomplish my goal. 

Thank you!


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## FrugalTrader (Oct 13, 2008)

PoorPablo, if it was me, I wouldn't be in any rush to buy into the BC real estate frenzy. As well, take that $3k in savings and pay off the credit card debt.

Depending on your tax bracket, it may be a wise move to contribute more to your registered savings. If the reason why you're keeping everything non-reg is b/c of liquidity etc, you can withdraw from your RRSP under the Home Buyers Plan towards your down payment.


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## humble_pie (Jun 7, 2009)

hmmmn ... a break-in artist who writes like a giller prize-winning novelist, and an apprenticing master carpenter to boot. Ye'll go far, laddie.

victoria must be a special real estate case due to its role as a magnet for retirees for so many decades. I am supposing that competition among buyers is greatest for the very kind of smaller unit that you are seeking yourself.

pundits have now weighed in the side of tfsas as the preferred registered savings vehicle for lower-income canadians. Certainly withdrawal from a tfsa, when you do eventually find the right real estate property, is going to be a tad easier than withdrawal from an rrsp for a housing purchase.

agree w frugal, pay off the credit card pronto & never use it again. Believe it was frugal who posted a good list of recommendations for young people in your circumstances. As i recall, he recommended prioritizing debt in order of its interest rates; tackling the most onerous debt load first before moving on to lesser debt; and, finally, moving from debt-free to savings.

your vehicle and its loan could be claimed as a business expense if you're self-employed.

turning now to the real estate purchase, berubeland has recently written of odd or unusual purchases, including homes that are (strangely) vacant and sentimental longtime owners willing to sell at below-market prices to the "right" buyer. This is where time is on your side, whereas newly-retired boomers migrating to victoria will pay a market price because they can't wait for months and years.

being a carpenter, having friends in the construction trades, should also help, when it comes to considering a property with what they call "good bones" but needing a little help, ie that has not been well-maintained.

as for that sense of having to buy instantly, before prices rise out of grasp forever, surely RE prices must be settling back even in victoria & on vancouver island generally. In my community housing prices have stabilized, although asking prices are still high, and properties are on the market at least twice as long as they were a year or two ago.


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## Dana (Nov 17, 2009)

I agree that you should use your savings to pay off your debt ASAP. The money you will be saving in debt repayments will help you to re-grow your savings quickly. 

Have you opened a TFSA? Your savings will grow tax-free and you can withdraw funds to purchase a home when you are ready with no penalties or forced repayment schedule (unlike the RRSP HBP). 

I also agree that as a tradesperson you are at an advantage to many 1st time homebuyers and can look at properties that need TLC and are not considered by other potential purchasers.

You're doing great so far. You're on the right track, it'll all work out.


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## Berubeland (Sep 6, 2009)

http://www.realtor.ca/propertyDetails.aspx?propertyId=8640857

Why not a mobile home? it's probably cheaper than the rent you are paying. You can get into this one for $74,900.


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## Racer (Feb 3, 2010)

Hi PoorPablo83,

One trick that I have used to shake myself out of thinking inside a real estate bubble is to set a price range on the MLS search criteria and then see what that price range will buy me in other areas. It may surprise you.

I'm not suggesting that you actually move to those other areas. Just to do the searching and see if it changes your perspective on price.

Good luck, sounds like you're off to a wonderful start.


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## brad (May 22, 2009)

I guess the first question I would ask is: "what are your long-term plans?" Are you planning to live in Victoria for the rest of your life, or at least for the next 10 years or so? Because if, for example, you buy this house and then decide in three or four years to sell it and move somewhere else, you'd probably be better off renting. You'll have built up virtually no equity in the house (since the bulk of your early payments toward the mortgage will go to interest), and you'll have all the expenses associated with a new house and home ownership in general (although as a carpenter I imagine you can do much of the maintenance work yourself). And there's no guarantee that its value will have appreciated in that time.

Many people argue themselves into buying a house before they should, by viewing rent as "throwing money away." But if you look at the amortization schedule for a mortgage, you'll see that you'll still be "throwing money away" for the first few years -- it's just that you'll be throwing it to a bank rather than a landlord.

If you're going to stay in the house long enough to build up some equity, or if you're in an area where housing prices are likely to keep appreciating, then buying makes sense. But otherwise it may be a better idea to keep renting. I didn't buy my first house until I was in my late 40s, and in my case it was absolutely the right thing to do. My career and relationships were unstable throughout most of my 20s and 30s, and I moved frequently.


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## PoorPablo83 (Feb 8, 2010)

Hi everyone,

Thank you for your responses and ideas.
First off I should make a correction to my original post: my rent is just under 1/3rd of my NET wage, not gross.

The first thing I did when I got home from work today was pay off my credit card with my savings. Thank you for the tips on prioritizing my debt!

For those who commented or had questions regarding the RE market here in Victoria, yes it really is that crazy! We had a SLIGHT correction last winter... but come spring time everything started up again. Personally, I work for a small (4 person) building company, and I didn't miss a single day due to lack of work. In fact, I remember working over time and weekends to save money for a layoff that never came! Currently, the average price for a single family home is 644,000, with the 6 month average being 615,000. Even on the outskirts of town (1-1.5 hrs drive) the average is 630,000. For condos, the average is $315,000, which has dropped slightly over the last few months. (stats taken from victoria real estate board's website).

To answer brad's question, yes I do plan on settling here. It's a beautiful, clean, reasonably quiet city where I was born and raised. My friends, family and girlfriend are all here, and there will be a demand for builders here in the coming years as all the old boys retire. I feel like I will be well set up in my career here as it is small enough that I've come to develop relationships with many of the trustworthy contractors and sub-trades here. Even if I do move away for a couple years for whatever reason, I will always want a foot in the door in Victoria. The warm climate and university ensures a reasonably constant demand for rental properties (currently around 0.5% vacancy rate, amongst the lowest in Canada) so I figure I could always rent a place if I were away.

Dana, yes I have opened a TSFA... but I admit I have NO idea what to do with it. I currently have one of those ING accounts where the money is just sitting earning 3%. What are my options?

I feel like I have a pretty good grasp on how to save where I can. As I said in my previous post, I am quite frugal. I just have no clue how to get the most out of the money I save. As I was initially browsing through the website I saw updates from FrugalTrader's net worth growth and I was astonished at some of those numbers. Thanks again to everyone who contributed to my first post here! After browsing more thoroughly through the website and boards I'm sure I'll come to you with more questions in the near future 

Kind regards,
Paul


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## Dana (Nov 17, 2009)

Congrats on paying off your credit card...doesn't it feel good?! 

Good for you for opening a TFSA. This is a good place for you to park your emergency fund, or the savings you are accumulating for a home of your own. If you decide to keep money in your TFSA that you will need in the near-term it is a good idea to keep that money liquid and risk-free (like you have done with the *high*-interest savings account.

The R/E market in Victoria sounds crazy. It sounds like first-time homebuyers are priced right out of the market.


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## Shadow_6 (Feb 8, 2010)

I also live in Victoria. I'm pretty much at the same stage, 1 year left on my debt. No savings though, opening a TFSA this week. I have been watching the market here for the last 3 years. When the down turn hit there was a small market correction. But we are even over supplied here right now for housing, condo's especially. There seems to be a huge refusal in the market to correct itself here. The builders maybe have made too much money and can afford to keep the prices high while waiting months and months for a listing to sell, since intrest rates are low.
A friend of mine bought in a new condo, 2 units were left a few months later, they remained unsold for over a year and half, and dropped in price from 265,000 to about 225,000 before they finally sold. Other's dont even slide an inch in price and have been sitting on the market the same amount of time. Lots of projects half sold and still more going up.


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