If you are renting because you believe it’s cheaper than buying a home, it’s time to take a close look at your math. Current interest rates make mortgage payments equivalent to or lower than rents in many areas.
At the end of a tenancy, you have paid out thousands of dollars and have nothing to show for this expense. Yes, renting may get you into a house or condominium that you could not afford to own at this point, but it still leaves you with nothing but the illusion of security.
Answering the question, “Should I rent or buy?” starts your real estate adventure. Don’t rely on your own reaction to this question. A knowledgeable local real estate professional can take you through the process of evaluating possible answers to this question.
Decide to buy smart and you can gain enough financially on your first purchase to make a significant step up with your second buy. The equity, or accumulated value, increases in parallel with the marketplace and as the mortgage is paid down. Equity represents the potential down payment for your next property.
Buying a home is the largest single investment most of us will make. Buy the right property in the right location at the right time, and it will provide security, growth and a hedge against inflation. Your real estate professional can help you set realistic goals for building your real estate worth and can direct you in your “Step One” purchase.
Condominiums are a great place to start. Your first real estate purchase may need to be the most affordable unit rather than the largest unit you can squeeze into financially.
Marketing for many hi-rise condominium projects is geared toward making the units accessible and affordable to those who are currently renting, so there is plenty of support for your venture.
Step back from the marketing, sales and promotion to take a close look at the neighbourhood surrounding the proposed or existing building. Why would someone want to call this location home? Who are they? Where would they work, etc? What percentage of the units will be investor owned? Clarity about the resident mix in the building will help you determine what will appeal to the buyer you hope to sell to in the near future.
A small condominium unit in the best location and complex you can afford will usually appreciate in value more quickly than buying the best unit in a lesser building and location.
Within each complex, there are preferred floors and views. Put your money here rather than in trendy furnishings.
Check out projects that are in the planning stage. Aim to be ready to take advantage of an early purchase as soon as the sales office opens. Even a well-located smaller unit may increase in value over the selling period, so by move-in your unit may be worth more than you paid for it.
Consider a well-situated existing building which may have larger units or more design features, including fewer bulkheads and oddly-shaped rooms. You may be able to afford a parking space, too. Buy a “tired” unit you can makeover cosmetically and you may see solid returns. Your real estate professional can help with sales statistics to determine what elbow grease and clever interior design could net you. Before you buy, check with the condo committee, through your real estate professional, to ensure you’ll have permission to make the changes you plan.
Amenities are nice but they cost money each month. Monthly maintenance fees also affect purchasing power. This amount is factored into monthly expenses to determine the size of mortgage you can carry. It may sound great to have a pool and roof garden, but how often will you realistically use these features. In some cases, green roofs are not available for resident use.
Additional monthly expenses should also be weighed when considering affordability. Electric heating versus forced air gas can have a big impact on your wallet. What additional costs should be considered?
Most Ontario and British Columbia first-time purchases will be under Harmonized Sales Tax (HST) levels, so there many be post-July-1 benefits. Markets may stall when HST begins, especially if interest rates rise at the same time.
Negotiate for everything. Ask for deals, packages and discounts. If you don’t ask, you won’t get. Educate yourself by comparison shopping. Ask condominium owners about what they did and would do differently. Check with your real estate professional for more tips and cautions.
Shop around for a mortgage so you become familiar with terms and options beyond the interest rate. Explore the impact of interest rate increases with online calculators. Push for the longest possible commitment period when you are pre-approved for a mortgage. Committed rates usually hold to insulate you against increases.
Whether you decide to tackle this purchase alone or to take in a room mate or boarder to carry costs, remember that this is the first real estate step to that down-the-road dream home.
Is this the year you move from tenant to owner? The answer lies in your determination.
Written by PJ Wade
for my Realty Times newsletter