Economics of buying a condo outside of the GTA
I am writing because I would like to hear everyone’s opinions on the following issue. It’s going to be a long post, so please bear with me.
First off, a few words about myself. I am a young professional living in the KW (Kitchener-Waterloo) area. My income is close to 100k (base), no debt, and I am saving to increase my net worth. My SO is a student. They have 27k in student debt and most of the money to pay it off, just delaying it for now because it is not necessary (so that inflation can eat up a part of that debt). We are renting. I was thinking of entering the real estate market only after I build a robust stock/bond portfolio (which is happening) and only if I find a good investment opportunity, i.e., I didn’t plan to buy because I need to live somewhere, rent is paying someone’s mortgage, blah blah blah.
Not so long ago we decided to change our rental place with the intention of getting something better (although we can continue stay where we are now). Not only the rent went up significantly but also the competition increased. I was kind of surprised. Quite a few landlords told me that I had to hurry to secure their place because they have 5-8 groups coming to see it. Seems like that wasn’t just a cheap salesman tactics, the properties were actually rented as the ads were brought down quickly.
Long story made short, that made me think about entering the real estate market sooner that I planned and buying a condo in the KW/Cambridge/Guelph. I plan on keeping the condo as an investment property later on. My rationales for that are as follows:
1) The area has two universities and has a strong tech/financial job scene;
2) Recent improvements in infrastructure (LRT);
3) Projected population growth;
4) Proximity to the GTA;
5) Recent measures of the Liberal federal government to “improve” housing affordability.
What I was looking for:
1) Something close to transit, in prime areas, close to universities;
2) Recently built (not a pre-con);
3) Ideally with minimum or no amenities (gym, rooftop terrace, etc) to keep condo fees low. Just an apartment in a low-rise apartment building will do.
I also did some number crunching, and seems like numbers line up - I am making money in the medium and long term under conservative assumptions. Here they are:
1) annual rent increase of 1.8%;
2) 25y mortgage with 2.6% fixed rate;
3) annual opportunity cost of 20% downpayment is 6%;
4) inflation is low and equals to 2.5%;
5) condo fee is 300$ and increases at the pace of inflation as are other payments (insurance, property tax etc).
6) 1% of the property price is used towards its maintenance annually.
Now, I have the following questions:
1) Is condo purchase a good idea in my situation in your opinion? If yes, would you consider Guelph/Cambridge or focus on KW?
2) Is there anything in my analysis that is questionable?
3) Are my assumptions reasonable?
4) Is it possible to find a recently built condo with low condo fees in a prime location?
5) What to look for in a condo purchase? How would you approach it? Should I buy a precon? Where to shop for condos? etc.
How do I buy a condo like a pro?
Thanks in advance, and sorry for the long post. I am researching the topic at the moment. I hope this will be useful to other prospective condo buyers.
EDIT: Based on calculators, I can afford up to a 800k home ( I plan to spend 500k max).