By the end of 2008 the global financial calamity was impacting Toronto’s real estate market, prompting a drop in value upwards of ten percent. After a frozen moment of hesitation and Holiday hunkering, Buyers who had been actively home-shopping prior to the financial mayhem leapt into the New Year with plucky aplomb and the resolve to pick up a better property at a new discounted market value. In the first weeks of 2009, property in demand locations priced appropriately to reflect the transition in market values started trading quickly. It appears our City’s real estate market is returning to balance and stabilization.
However, this doesn’t mean we are no longer in a climate of heightened risk, especially if you’re a first time buyer borrowing against your Registered Retirement Savings Plan to take advantage of today’s exceptionally low interest rates. No longer can you purchase with the Boom Mentality, thinking if you don’t like what or where you’ve bought you can just sell your property a year later and get your money back.
Today, you must purchase with the awareness of three real possibilities: 1) the property may go down in value and be worth less than your purchase price for a period of time before it goes back up; 2) the property must increase in market value about 10 percent to recover closing and future resale costs including the double-whammy land transfer taxes, legal fees, moving costs, lending expenses, incidentals and realtor fees for you to break even, and 3) this could take upwards of three to six years plus.
This sobering reality isn’t new, but it’s the first time in 13 years since the most recent cycle climbed and peaked where Buyers have had to assess the risks associated with owning real estate, an unusually long cycle, given the Canadian real estate market has historically oscillated in 7-10 year cycles. This doesn’t make real estate a bad investment today, but it does make it a long term one. The key to financial security is to buy smart and hold, create a contingency plan so you’re not forced into a must-sell position, and for the most cautiously prudent, choose a property that by design can help you weather the short term market for the long term gain.
5 ways to Buy Smart:
The Affordability Factor. First, determine how much you are qualified to spend towards housing costs from your mortgage lender and compare that amount against your current accommodation and lifestyle expenses. Realistically assess your job security, current income and future earning potential before deciding what your comfort threshold is to allocate towards housing. Be prudent and avoid dramatically increasing your costs from what you’re currently paying for shelter, keeping your overall debt to income ratio modest so in times of trouble you can weather a financial storm. Remember that utility costs, insurance costs, condo fees and property taxes are always rising (at least with inflation), so your mortgage debt should never be at your maximum, especially if you’re a first time buyer.
Don’t Pay An Unreasonable Lifestyle Premium for Housing. Make sure the total housing costs you’re paying after your down payment (mortgage, property taxes, water and sewage taxes, building insurance, and, if applicable, condo common fees) don’t exceed much more than $200-$400 per month over the market rent you’d generate for the subject dwelling if you weren’t occupying it. By taking this approach, if you’re relocated or can no longer afford to live in the property yourself (job loss, marital breakup, health issues), you can rent the property and cover the small shortfall until your circumstances improve. Make sure you’re buying a property you can rent if required (some buildings, often co-ops, must be owner-occupied), or is in a location that can easily attract a tenant or even command a premium rent.
Buy A Space Big Enough For Two. If you’re single and getting into the market, consider purchasing a place that could accommodate a roommate(s) if necessary. We have a number of past clients who got their start renting out rooms to offset their housing costs. Even a one bedroom condominium with a separate private den is worth leveraging, so you can temporarily get a roommate if necessary and avoid forcing a sale. Oh, and if you’re single but hope to have a mate, buy a place that is big enough to accommodate one. You don’t want to buy a property so small your partner can’t move in with you, forcing you to sell for a loss just so the two of you can co-habitate.
Buy a Multi-Unit Dwelling. If you’re buying a house, purchase one that can be easily divided into supplementary income to help offset expenses in times of need. A property with a separate entrance to a finished basement with washroom can potentially accommodate a tenant. Or a house with a kitchen roughed in on the second floor can often become a duplex. Even parking spaces can be an extra source of income in demand locations. Even if you intend to occupy the entire residence, having an easy-way to generate income might be the difference of covering your debt and losing the property.
Buy Parking. Yes, a condominium parking space can cost anywhere from $20,000 to $30,000 in the central core, but consider spending the extra money even when you don’t have or require a car. The rent you can generate from a parking space–about $100-$200 per month, can often service the increased mortgage debt, helping you build equity for minimal effort, plus it will make the unit more appealing when you resell. Just make sure the condominium rules allow you the right to rent it to both residents and non-residents of the condominium. Also, in most condominiums the parking spaces are often separately deeded, so in a real crunch you could potentially sell the parking space to reduce debt. However, you should clarify with your mortgage lender the implications of this, as they may restrict you from splitting it from the unit.
The only time people lose money in real estate is when they ‘must’ sell, but rarely do people lose money in real estate if they ‘choose’ to sell. Buying a property intelligently can give you the buffer to weather troubling financial times without losing your shirt, or your property.
Why you should call us first? At urbaneer.com, our service includes illustrating how these five factors can impact each property’s value, ensuring you can make a rational educated decision when buying your next home. As a real estate team who monitor trends and markets in housing, we offer consumers insight and assistance in making rational and educated decisions about real estate. If you are thinking about buying or selling, call us for a pressure-free consultation that will quickly put the realities of today’s housing market in perspective. Offering savvy insight and expertise for 19 years in Toronto, we are your pro-urban housing specialists. Specializing in renovated and restored character dwellings, low-maintenance living, revenue-producing income properties, and loft conversions, call us now at 416-322-8000! Or check out our website at http://www.urbaneer.com for our current promotions, past newsletters and our Custom Housing Profile that help you identify your next move!
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