Personal Finance

House vs. Condo for Young Professional

  • Last Updated:
  • Sep 23rd, 2014 9:18 pm
Moderator
May 28, 2012
10181 posts
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Saskatoon
guyver0 wrote:
Sep 11th, 2014 11:10 am
What about OP's parents' retirement? If that's coming out of their retirement money, I'd suggest OP thinks hard about whether it's a good idea to raid their retirement account so he can live in a condo.
Do young adults even consider others, especially parents? This goes back to my earlier post...if you can't afford it on your own, then wait until you earn more...but that's just my opinion. I have no qualms about paying for my children's education in full, but I doubt very much I would help them with a down payment on a house.
Member
Nov 27, 2009
319 posts
25 upvotes
My 2 cents. Live with your parents as long as you can since you will be saving a lot more this way. Buy a house when you get married and move in together.

If you buy a 1 bed condo, it will get pretty boring to be by yourself. You will likely end up going out more often and your cost would go up in that area.
If you go this route, your only option later on(2-5 years) would be rent it out and as selling it would likely not be profitable. As a young professional myself, the idea of being a landlord is not very appealing. I understand that it can be decent source of money if it is cash flow positive when you rent it out but the headache of maintenance and finding good renters/repairs is not worth it for me. I would rather invest money in the stock market and generate dividends if I want cash flow.
Also take into account, cooking and cleaning. I try to cook and clean every week (we are a couple) and even then it gets tedious.

If you buy a 2-3 bed house, the same argument applies. Will be too much to maintain for one person. If you sublet, you might get some extra money but you might be stuck with a person you dont enjoy living with and all the chores.

If you really wish to lower your commute, find some friends/colleagues your age who work in the area and rent a place together. This way your rent expense would be quite low(500-900) and you will be closer to downtown.

Invest the money in equities and you will earn more than 2-3%. You are young enough to take some risks. Put 50k in a 1-2 year GIC/savings vehicle earning 2-3% and keep it reasonably liquid for a future down payment and invest the rest. The power of compounding is on your side since you have so many years before you have to retire. It will have at least as good as if not better returns than buying a place over the long term for sure.

It is difficult to consider not buying once you start looking in the market. But do consider it especially if you believe there is any chance you will get married in the next 2-3 years.
[OP]
Newbie
Sep 7, 2014
6 posts
Scarborough, ON
JHW wrote:
Sep 11th, 2014 9:40 am
Usually one considers the size of the mortgage, not the purchase price of the house per se. The rule-of-thumb I have seen most often is that the mortgage should be no more than three times your annual household income.
That makes much more sense but still leaves people in a bind when the average 20-something is putting down an average down-payment of $48k or less according to this article.
JHW wrote:
Sep 11th, 2014 9:59 am
I agree with you, but in this case the OP has to deal with a deeply entrenched cultural disdain for renting and renters in general. He risks being alienated or disowned by his family if he becomes a renter. In that sort of environment, it is best if he just stays put (keep living at home).
Where the hell did I write that I would get disowned by my family? You're acting as though my parents are waging a holy war against renting and being a tenant. They're just opposed to it from a financial perspective consdiring they came to Canada with nothing and built a solid living by working hard and using their equity they built up over the years to buy properties and rent them out.
guyver0 wrote:
Sep 11th, 2014 10:36 am
Meh, OP wants to commit financial suicide because of his disdain for renting a condo makes me wonder, what's going on in his life?

The only difference between renting a place and buying a place with mortgage I see, is that you're renting money from the bank to buy a place, but out twisted culture believes that this "renting money from the bank" is a good thing. To make it more enticing, it's coined "mortgage". Notice the French word "mort" in it?
I guess some people have difficulty reading English on RFD. For the xth time, I can get up to $200k interest-free. Ie. Take no mortgage or a very small mortgage depending on the price of property I decide to purchase. If you look at this first post of this thread, I clearly outline this.
guyver0 wrote:
Sep 11th, 2014 11:10 am
What about OP's parents' retirement? If that's coming out of their retirement money, I'd suggest OP thinks hard about whether it's a good idea to raid their retirement account so he can live in a condo.
Also mentioned in this thread (not in the first post), they have a commercial and residential property in Pickering that is paid off and they rake in about $3500 a month from that. Not to mention two pensions (including one government-employee pension) that will be coming in when they retire. Not that any of this is necessary, my parents are quite financially wise and would factor retirement savings into any decision they made.
Mars2012 wrote:
Sep 11th, 2014 11:28 am
Do young adults even consider others, especially parents? This goes back to my earlier post...if you can't afford it on your own, then wait until you earn more...but that's just my opinion. I have no qualms about paying for my children's education in full, but I doubt very much I would help them with a down payment on a house.
Do you even read the entire thread before replying? Where have I ever made any concessions towards my parents well being? On the contrary, they offered/B] all of this.I guess it must be a difference in cultural values. Please, I would like to see your ignorant ass make another assumption.
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Jan 29, 2008
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BauhausConcept wrote:
Sep 11th, 2014 2:06 pm
That makes much more sense but still leaves people in a bind when the average 20-something is putting down an average down-payment of $48k or less according to this article.


Where the hell did I write that I would get disowned by my family? You're acting as though my parents are waging a holy war against renting and being a tenant. They're just opposed to it from a financial perspective consdiring they came to Canada with nothing and built a solid living by working hard and using their equity they built up over the years to buy properties and rent them out.


I guess some people have difficulty reading English on RFD. For the xth time, I can get up to $200k interest-free. Ie. Take no mortgage or a very small mortgage depending on the price of property I decide to purchase. If you look at this first post of this thread, I clearly outline this.


Also mentioned in this thread (not in the first post), they have a commercial and residential property in Pickering that is paid off and they rake in about $3500 a month from that. Not to mention two pensions (including one government-employee pension) that will be coming in when they retire. Not that any of this is necessary, my parents are quite financially wise and would factor retirement savings into any decision they made.


Do you even read the entire thread before replying? Where have I ever made any concessions towards my parents well being? On the contrary, they offered/B] all of this.I guess it must be a difference in cultural values. Please, I would like to see your ignorant ass make another assumption.


Oh wow. OP I agree with your views on the subject and I'm glad you're smart enough to plan ahead, but you can't expect all these RFD people to carefully read every line in this long thread before they reply. Most people on RFD just want to toss out a few opinions based on what they know, don't expect too much.
[OP]
Newbie
Sep 7, 2014
6 posts
Scarborough, ON
Shady_Dealer wrote:
Sep 11th, 2014 2:20 pm
Oh wow. OP I agree with your views on the subject and I'm glad you're smart enough to plan ahead, but you can't expect all these RFD people to carefully read every line in this long thread before they reply. Most people on RFD just want to toss out a few opinions based on what they know, don't expect too much.
Thank you and I'm glad you agree. I don't expect a detailed analysis to this thread, but I expect people to think before they speak (or type in this case). In the case of JHW, Guyver0 and Mars2012, their responses were ignorant, assumptive, and blatantly incorrect, which is fine, this is the Internet after all. Just don't offer advice on a serious matter if you are going to type a haphazard and ignorant response.
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May 28, 2012
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Saskatoon
This is what I don't understand...buy whatever the heck you want, you have your parents to fall back on. I never had that opportunity, nor would I have done it if I did. We all make choices; when I bought a house, I made sure the spouse and I could afford it. That's not an ignorant assumption - you buy what you can afford. You obviously can't afford that much, especially in Toronto without help from others - and that's a fact. Anyway, it wasn't my intent to offend you with my comments, just wanted to say, again, not many people come from that degree of privilege.
Deal Addict
Jan 15, 2009
1031 posts
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Just north.
Meh, typing out random response is fun! OP should reconsider next time asking random strangers on an internet forum for financial advice.
Deal Addict
Nov 24, 2004
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Toronto
BauhausConcept wrote:
Sep 11th, 2014 2:06 pm
That makes much more sense but still leaves people in a bind when the average 20-something is putting down an average down-payment of $48k or less according to this article.
The rule of thumb comes from an era when interest rates were much higher, so it is not necessarily as suitable guideline as it once was, but there is still some validity in it.
Where the hell did I write that I would get disowned by my family? You're acting as though my parents are waging a holy war against renting and being a tenant. They're just opposed to it from a financial perspective consdiring they came to Canada with nothing and built a solid living by working hard and using their equity they built up over the years to buy properties and rent them out.
Forgive me for making an overly strong conclusion, but you wrote that your parents believe that rent is a "black hole" and that you are vehemently opposed to the idea of renting. From this I concluded that there are cultural issues involved and that if you somehow did end up renting in Toronto, it would cause a rift with your parents.
I guess some people have difficulty reading English on RFD. For the xth time, I can get up to $200k interest-free. Ie. Take no mortgage or a very small mortgage depending on the price of property I decide to purchase. If you look at this first post of this thread, I clearly outline this.
You did mention the $200k interest-free, but it was one line in a very long post in which you asked for advice. You have to cut people some slack.
Deal Addict
Nov 24, 2004
3786 posts
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Toronto
Getting back to the OP's main question, I think you have to make some decisions about (a) whether you can handle the lifestyle of a house-owner (the time and money required to do repairs, maintenance, day-to-day stuff, etc.) (b) where you see yourself in five years -- will you still be living in Toronto? Married? Will your income be significantly higher? And perhaps most importantly, (c) whether you are treating this purchase as "buying a home" or as "investing money", and in the latter case, what your tolerance for risk is. These are questions that really can only be answered by you alone.

Do recognize that your situation is enviable and pretty rare -- you are young, likely just starting out in your career and with a very modest income that would ordinarily preclude home-ownership, and yet (through your own efforts and those of your family) you have a lot of money that you can use to buy real estate. Everyone has their own perspectives based on their background and ideologies. Some are "philosophically" opposed to renting and are willing to take financial support from family if it helps them buy a home instead; others are "philosophically" opposed to taking financial support from family and are willing to rent if it means they can later buy without outside help.
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Dec 18, 2007
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I'll bite. I'd say op should get a townhouse as that's a happy medium between a freehold house and condo.
Although personally I've resigned myself to a condo, if I had the chance to get a townhouse I'd be all over that. All things being equal of course.

Some of my friends are pro house and while there are pros and cons for a house vs a condo personally I have no interest in having a massive house and lawn. Boo to yard work!
I'm looking for a NZ Silver Fern Kiwi coin! :)
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Mar 24, 2004
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Toronto
BauhausConcept wrote:
Sep 11th, 2014 1:32 am
I don't think the numbers quite work out, to be honest. By that logic, you would need a $150k salary to purchase a $450k home (the average price of a house in Scarborough these days). I can tell you right now that the average household incomes in Scarborough are not that high and until I graduated and started working, our household income was about 60% to 65% of that and we managed to pay off a house in Toronto and buy a second residential/commercial property in Pickering that we currently rent out. Maybe if you multiply it by 5 that should be more accurate. I highly doubt that a lot of the condo dwellers in the city who buy condos between $250k and $350k make $85k to $120k. There is just no way.
The numbers don't work out, and that's my point. It's not even a stab at you, it's just the housing market in the GTA (and also GVA) is ridiculously overvalued and FAR TOO MUCH of the typical Canadian's net worth is in RE.

What happens when the interest rates go up? So many of us Canadians are "house horny" and can barely scrape together enough to make the monthly mortgage payment, how about when the interest rates return to their historical mean? I don't imagine many of us are able to service our debts once that happens.

My point is this: don't be too heavily invested in the RE market, especially when the prices are so ridiculously high (compared to average family incomes), don't overextend yourself and diversify diversify diversify. Don't be afraid of renting, just make sure you are still building your net worth with a low cost and balanced portfolio. There's not much higher the RE market can grow, and you will come out ahead if you keep saving. JMHO of course.
Penalty Box
Apr 16, 2012
3565 posts
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Greely
KevC wrote:
Sep 13th, 2014 12:14 am
The numbers don't work out, and that's my point. It's not even a stab at you, it's just the housing market in the GTA (and also GVA) is ridiculously overvalued and FAR TOO MUCH of the typical Canadian's net worth is in RE.

What happens when the interest rates go up? So many of us Canadians are "house horny" and can barely scrape together enough to make the monthly mortgage payment, how about when the interest rates return to their historical mean? I don't imagine many of us are able to service our debts once that happens.

My point is this: don't be too heavily invested in the RE market, especially when the prices are so ridiculously high (compared to average family incomes), don't overextend yourself and diversify diversify diversify. Don't be afraid of renting, just make sure you are still building your net worth with a low cost and balanced portfolio. There's not much higher the RE market can grow, and you will come out ahead if you keep saving. JMHO of course.
The numbers don't work out, and that's my point. It's not even a stab at you. It's just the stock market in general is ridiculously overvalued and FAR TOO MUCH of the typical P/E ratio.

What happens when dumb money stop fueling into this heated market? How about when the P/E ratio returns to their historical mean? I don't imagine many of us are gonna be ok with a 20% 30% drop.

My point is this: don't be invested in the stock market, especially when the prices are so ridiculously high (compared to average P/E ratio or family income), don't be afraid of NOT investing, just make sure you are still building your net worth with a low cost savings account. There's no much higher the stock market can grow, and you will come out ahead if you keep saving. JMHO of course.
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Feb 29, 2008
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Don't buy yet. Prices are going to stabilize or even drop. You live at home so you have the time to wait. The area you're looking (Fort York/Bathurst) is by no means close to recession proof. Are you talking about Cityplace area? I would never invest there for various reasons (I'll let you know if you do want to purchase there). I personally don't think you make enough to afford a house, there are just too many costs that come along with homes nowadays especially homes that are in need of repair.

The "recession proof" areas if you want to call i that are most likely out of your budget. Wait, bump up the salary, save more money living at home and buy something an a year when IMO the market will be more of a buyer's market. You're buying at probably the highest point of the market. If you can afford to wait, I say do it. Just understand that there are a lot of costs with hoemownership. Especially now.
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Feb 29, 2008
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Mars2012 wrote:
Sep 11th, 2014 4:09 pm
This is what I don't understand...buy whatever the heck you want, you have your parents to fall back on. I never had that opportunity, nor would I have done it if I did. We all make choices; when I bought a house, I made sure the spouse and I could afford it. That's not an ignorant assumption - you buy what you can afford. You obviously can't afford that much, especially in Toronto without help from others - and that's a fact. Anyway, it wasn't my intent to offend you with my comments, just wanted to say, again, not many people come from that degree of privilege.
Agree here but how does one know what they can afford? The bank won't tell you that. They'll tell you buy buy buy!
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Oct 25, 2009
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I don't understand single people who want to buy a home. There are significant costs associated with buying and selling a home. Being single, chances are your future partner won't like your home (inconvenient location, wrong size, watever). When you rent, making a rational decision on home size and location is easier (if I go for a bachelor pad, I won't be having friends over, but I'll have an extra 2 grand a year to travel).

Although there are impressive tax incentives to own. At equal value, in Ontario, owners end up paying significantly less property tax (like half). There is no income tax on any capital gains you make for your home, whereas landlords, thanks to Brian Mulroney's Progressive Conservatives, have to pay capital gains on any profit (as well as income tax on profit from rent).

As for choosing between buying a house or an apartment as an "investment". That's a tough one. Land increases in value, buildings depreciate. An apartment is smaller and is generally made of more durable materials, but you get less land. A house is a never ending money pit, and even if you do enjoy mowing the lawn, requires constant care. But if it is on land, which unlike wood, concrete and labour, in an urban area like Toronto is in very limited supply, it could potentially increase in value, much more so than an apartment.

Also, if you maintain the house yourself, you don't pay tax on your own labour. With a condo, you or your condo board usually have to hire somebody, so you are paying income tax on the money your earned, HST/GST, plus the person you hire has to pay income tax.

I think the best thing to do is not view home buying as an investment, but rather as a good expense. And as an expense, you probably don't need more than one bedroom, so an apartment (aka condo) would make more sense.
Toronto is a very small part of Canada

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