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How much would you spend in my shoes?

C

condostar

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Hi all,

I've been looking to buy a condo in downtown toronto for the last 6 months. The whole experience has been depressing to say the least. I'm picky and don't want to purchase a low end unit. From my searches a decent sized (650+sqft) 1 bedroom with parking your looking at $330k minimum.
I'm wondering how much would you mortgage considering my situation...

Age: 26
Salary: ~80k, increasing at least 4%/year.
Debts: $0. Car is paid off.
Assuming Condo fees are in the ~$400 and property tax ~$200/month.
25 year amortization
fixed mortgage.

I know rule of thumb is 35% of your income should be spent on housing. But thats next to impossible in the downtown core. My math brought me to about a $270k mortgage amount. Neglect the downpayment. I am going to put down 20%. It seems most of the units i like are in the 350-400k range, which i don't think i can afford. What would you do? Go variable to keep your initial payments lower and afford more? 35 year? Your input would be appreciated.
 
Borrow $300k at 25 yrs - 4% fixed

payment $1578
tax $200
condo fees @ 0.55 psf for 650 sq ft - $357
hyrdo $50
__________

$2185/month to carry your shelter payments

divided by $6666 (gross monthly income)

and you get 32.7% GDS

It's reasonable. 32.7% is Ok with the banks. You seem to manage your money well.
 
I'll pre-qualify my comments by acknowledging that I'm cynical about the sustainability of present housing prices

As such, my advice is to rent. You can rent a condo for less than the cost of owning the same unit.

I did a quick search and found the following unit that is both for sale at $425k and for rent at a very expensive $2500. Let's accept both those figures as is, (although the actual sale or rent price might be lower)

http://www.realtor.ca/propertyDetails.aspx?propertyId=8886701
http://www.realtor.ca/propertyDetails.aspx?propertyId=8866655

However even at $2500, when you factor in mortgage at 4.2% on the full $425k list price ($1500/month), the condo fees $460/month, property taxes $200/month?, and various closing costs amortized over the 5 years, then your rent is the same or less than the cost of owning. Plus you can put your downpayment and principle paydown money into a higher rate of return investment. The imbalance becomes greater of course if mortgage rates are higher in 5 years (generally accepted)

In conclusion, if you feel a deep need to own a condo/home and you're willing to pay for it than go ahead. But unless you think there will be continued appreciation in a condo market which you yourself already think is overpriced, I'd say rent, and live stressfree.

My 2 cents.

ps. I know the $425k purchase price is out of your price range, I just used it as an example as it was the first condo I found listed for both sale and rent.
 
Last edited:
cdr108 said:
how big is that unit? just from the maintenance fees, i'm guessing ~800+ SF.

$2500/m in rent is alot for 800 SF, especially in an average non-luxury building on low floor.
Click to expand...

I agree. Seems very high, although it talks about a recent reno/etc. I'm guessing it would end up leasing for much less.
 
to the OP, what do you consider a 'low-end' unit and what is the type of building you like ... ie. high-rise, mid-rise, location, etc?

i think there are plenty of choices for $500 PSF that are not 'low-end' but definitely not 'high-end luxury' either ... just your average TO condo.
 
cdr108 said:
to the OP, what do you consider a 'low-end' unit and what is the type of building you like ... ie. high-rise, mid-rise, location, etc?

i think there are plenty of choices for $500 PSF that are not 'low-end' but definitely not 'high-end luxury' either ... just your average TO condo.
Click to expand...

by low end i ment projects such at cityplace, fortyork, etc. more interested in soft lofts or hard lofts.
 
daveto said:
I'll pre-qualify my comments by acknowledging that I'm cynical about the sustainability of present housing prices

As such, my advice is to rent. You can rent a condo for less than the cost of owning the same unit.

I did a quick search and found the following unit that is both for sale at $425k and for rent at a very expensive $2500. Let's accept both those figures as is, (although the actual sale or rent price might be lower)

http://www.realtor.ca/propertyDetails.aspx?propertyId=8886701
http://www.realtor.ca/propertyDetails.aspx?propertyId=8866655

However even at $2500, when you factor in mortgage at 4.2% on the full $425k list price ($1500/month), the condo fees $460/month, property taxes $200/month?, and various closing costs amortized over the 5 years, then your rent is the same or less than the cost of owning. Plus you can put your downpayment and principle paydown money into a higher rate of return investment. The imbalance becomes greater of course if mortgage rates are higher in 5 years (generally accepted)

In conclusion, if you feel a deep need to own a condo/home and you're willing to pay for it than go ahead. But unless you think there will be continued appreciation in a condo market which you yourself already think is overpriced, I'd say rent, and live stressfree.

My 2 cents.

ps. I know the $425k purchase price is out of your price range, I just used it as an example as it was the first condo I found listed for both sale and rent.
Click to expand...


i am also very cynical and don't have much faith in the current prices. It is the reason I have yet to purchase a unit, cause i get caught in bidding wars and i'm unwilling to overpay. In any case i've worked out the buy vs rent scenario and my conclusion was that you only needed roughly a 2% appreciation over 5 years to make the buy option financially beneficial.
 
Why don't you wait until you find a partner/spouse--could be 6 months from now or 5 years from now--and then buy a house together. 5 years from now you could both afford a $500,000 house in the city, while in the meantime, save up for a bigger down payment.

Rent, and rent as cheaply as possible. Try to save at least 50% of your income. You can do it.:)
 
urbandreamer said:
Why don't you wait until you find a partner/spouse--could be 6 months from now or 5 years from now--and then buy a house together. 5 years from now you could both afford a $500,000 house in the city, while in the meantime, save up for a bigger down payment.

Rent, and rent as cheaply as possible. Try to save at least 50% of your income. You can do it.:)
Click to expand...

the question is what will 500k buy you in the city in 5 years? I'm thinking not very much...
 
^Interest rates will be going up by then, so prices should level off or perhaps decline. There will always be 'hoods in Toronto where $500-$550k will get a decent home with more value and space than a condo. By 2014/15, you and your spouse could have $100-$200k saved for a hefty down payment.
 
I agree with urbandreamer regarding living frugally for several years, saving a big downpayment, and paying off the mortgage quickly - nobody should be stuck with such debt after they're 40. You may also find that your priority of living in the core may change in a few years. Also, do you really want to buy in a market such as the present one, where prices are rising?
 
Prices have been rising since the pyramids were built.

If you're 26 and making 80k, get in the game.

I'd try queens quay if you work downtown. Prices will go up 25% by 2013 when the harbourfront revitilization is complete.

Look for a 1 bdrm. Live there for 5 yrs and then get married, re-mortgage (pull out your equity) and buy a sweet house for you and the lady. Keep the condo as a rental and happily ever after.

If you don't want to live in a ghetto, 500k wont get you much in 2014.

Get Invested.
 
condostar said:
i am also very cynical and don't have much faith in the current prices. It is the reason I have yet to purchase a unit, cause i get caught in bidding wars and i'm unwilling to overpay. In any case i've worked out the buy vs rent scenario and my conclusion was that you only needed roughly a 2% appreciation over 5 years to make the buy option financially beneficial.
Click to expand...

Consider that expect return on equities is in the 9% range. Any equity you save in a tax-sheltered instrument such as TFSA or RRSP rather than in your primary residence would likely appreciate faster than real estate.
 
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