[urbandreamer]

Basement apt at BLO (bloor and ossington--an up and coming trendy nabe I see lotsa cute students in this area of town):

Monthly Expenses
Rent: $650(inclusive)
Food: $400(quite abit let's assume u eat out a bit bars etc)
TTC: $110
Phone/www: $100
Clothing: $350?
Misc: $190

Total: $1800


Income (I once made $35k per year so I know what take home is==$26000): $2100

You save: $300 (I saved 70%--or $1200 but hey I am/was cheap


You still have $100,000 to buy gold or a kinda conservative but reachable 10%/year stock investment.


Now here's what I need: someone able to calculate (using same expenses figures I used--$1800 minus $650 rent) putting 25% down on a $200k condo+mortgage+condo fees+property taxes and include interest earned (or stock investment @10% return) on the remaining $50k.

Who comes out ahead? Which scenario is realistically affordable on $26000 takehome pay?

Condo salesmen on this board, help me and the lady out.
Turns out I may have found the info myself here: Rent vs. Own calculator: http://www.canadamortgage.com/calculators/rentvsown.cgi

Found: a 1 bedroom condo on mls on Bay St: $220,000 with $413 monthly maintenance fees. http://www.mls.ca/PropertyDetails.a...rt=2&of=1&ps=10&o=A&Mode=0&PropertyID=6231739

Or a studio in Tridel's Icon building (is the club district too "scary and too noisy" for you?)
$200,000 with fees of $281 http://www.mls.ca/PropertyDetails.a...rt=2&of=1&ps=10&o=A&Mode=0&PropertyID=6149832

Or an older condo on McCaul: 1 bedroom, $205,000 fees of $450: http://www.mls.ca/PropertyDetails.a...rt=2&of=1&ps=10&o=A&Mode=0&PropertyID=6149832

while the monthly fees on new condos are lower, for $200k you get a shoebox studio that may be harder to sell in a down market. I'd go for the 1 bedrooms but the question remains: with $26,000 income and monthly expenses around $2000, is it fiscally sound?

 

[urbandreamer]

Here's the results I got (renting @$700/month) vs. buying a $200,000 condo with $50,000 downpayment.
http://www.canadamortgage.com/calculators/rentvsown.cgi

The Rent vs. Own Calculator determines how much a property must increase in value each year to perform as well as the rental option. Fill in all the fields below and click the "Calculate" button to view the results.

The rental alternative will allow you to save and invest both the downpayment of $ 50,000 and the monthly rental savings, initially at $ 966. At the end of the 36 month term your before-tax investment will have grown to $ 89,728, assuming the savings rate of 3.3 % per annum. After paying annual income taxes at 0 % on the investment interest gain, the investment will have grown to $ 89,728.
In order for the home purchase alternative with a mortgage interest rate of 7.3 % to perform as well as the rental option, the annual rate of property appreciation must be at least 7.03 % . Total property appreciation of 22.6 % together with principal repayment would result in homeowner's equity of $ 102,294 in 36 months, less the 5 % cost to market the home of $ 12,566, for a net gain of $ 89,728.

If the home value increased by more than $ 46,322 ( 22.6 % ) in 36 months, purchasing would be a better financial option than renting.



--------------------------------------------------------------------------------
Canadian Calculation - Compounding Semi-Annually
NOTE: High Ratio mortgage required (down payment less than 25%. Insurance fees should apply. Insurance fees calculated are as set out by Canada Mortgage & Housing Corporation - CMHC).

--------------------------------------------------------------------------------

RENT OWN
Down Payment (24.3 %) $ 50,000
First Mortgage Amount (Includes Ins. Fee of $ 1,550) $ 156,550
TOTAL PRICE $ 205,000

Monthly Costs
Mortgage Payment
$ 1,126
Property Taxes $ 250
Condo Fees $ 290
Other Costs $ 0 $ 0
Rent Payments
($ 700 Month 1 to $ 743 Last Month) $ 700
Total Monthly Payment varies $ 1,666
Monthly Cash Savings varies
RENTAL cost always lower than Monthly OWNERSHIP cost in example.
Future Value at Term ( 36 months)
Down Payment Saved (@ 3.3 %)
$ 55,196
Monthly Cash Savings (@ 3.3 %)
$ 34,532
Taxes assumed to be paid annually (12th period) on interest.



Required Home Price at Term End $ 251,323
Less : Mortgage Balance ( $ 149,029 )
Less : Sales Commission (@ 5 %) ( $ 12,566 )
Equity at Term $ 89,728 $ 89,728
Less Income Taxes on gain (@ 0% ) ( $ 0 ) $ 0
NET After Taxes $ 89,728 $ 89,728

Required ANNUAL Home Price Increase Rate 7.03 %
Required TOTAL Home Price Increase % (36 months) 22.6 %
Required TOTAL Home Price Increase (36 months) $ 46,322
It is always difficult to forecast home price increases, but if the likely Annual Increase is higher than 22.6 %, then buying a home would be the better option. If home prices do not rise by 22.6 %, then renting would be a better option. Note that other factors with home ownership may impact the financial decision including the potential to borrow funds at lower rates if you own a home.

Input a 0% commission rate if a sales commission is not payable. The savings rate is the percentage return on funds saved. The Mortgage Insurance Fee (Insur. Fee - ie. CMHC) is usually required for down payments less than 25%.

Other factors to consider include heating costs - are they included in rent ? Home Insurance costs may also be factored in as another cost. Additionally, maintenance costs should be considered as part of home ownership and may be added to "other costs".

Now i'm confused: somebody help me lol!

The only thing I'm getting from this is that buying costs about $1700/month vs renting of $700/month. I guess the question is would you lose more as a novice investor in equities or condos? That's the million dollar question.

 

[DTGeek]

Basement apt at BLO (bloor and ossington--an up and coming trendy nabe I see lotsa cute students in this area of town):

Monthly Expenses
Rent: $650(inclusive)
Food: $400(quite abit let's assume u eat out a bit bars etc)
TTC: $110
Phone/www: $100
Clothing: $350?
Misc: $190

Total: $1800

Income (I once made $35k per year so I know what take home is==$26000): $2100

You save: $300 (I saved 70%--or $1200 but hey I am/was cheap

You still have $100,000 to buy gold or a kinda conservative but reachable 10%/year stock investment.

Bad advice. Don't buy gold. Not having a diversified portfolio is a mistake that can easily bankrupt you. Gold right now is about the same price it was in 1980, and in between these two peaks was flat at about 1/2 the current price. If you had invested $10,000 in gold in 1980, you'd only have $3,734 left right now. In fact, if you invested in gold any time before 1998, you'd be *much* worse off than if you'd invested any major stock index fund -- I'm talking about the difference between losing real dollars and doubling your portfolio.

Now, it could be that even after the recent run-up gold is still undervalued and will go up, but you don't know that. But the efficient market hypothesis says that any known factors are already discounted in the price, so you're purely gambling by buying it. On the other hand, with a diversified portfolio of index funds (apart from not paying management fees or commissions), you tie the performance of your investment to real economies, which you KNOW are going to grow significantly in the long run, because the economy grows as long as the world is progressing, and furthermore the indices cut out inefficiency of the public and non-profit part of the economy ensuring an even greater return.

Edit: it bears repeating that the gold standard is long gone. Some people, especially older people, may have forgotten that our money isn't backed by gold anymore. So the price of gold is therefore tied to its supply and demand, and *not* to the economy. If you invest in gold, you'll can expect to at least cover inflation, but that's on *average* -- averaging out the big gains and big losses. To do well you need to be lucky and hope the supply/demand shifts in your favor over the long run. That's a pure gamble, as the last 30 years have shown, and so you may as well play blackjack. On the other hand, if you tie your investments to economic growth, then you're almost assured a profit, because all of the progress the world makes in improving the average standard of living is reflected in your portfolio.

Start an RRSP and contribute as much as you can afford to it each year, especially if your benefits package includes employer matching. Invest in no-load index funds only. Actively managed funds and commissions are for suckers, and it's a simple fact that they *must* underperform the market.

When you're ready to buy your home the first time HBP plan allows you to borrow $20000 from your RRSP which you don't have to pay back for 15 years, apparently (I live in the US so I don't keep very up to date). That's essentially a free $5000 or whatever you'd pay in taxes on that $20k.

(I'm not an economist so I suggest taking all this with a grain of salt, as my knowledge is incomplete and probably not all accurate. But I do work with a lot of wealthy people who take their investing quite seriously, some of them economists. The main advice I think you need to take is to go out and educate yourself on managing your finances. It's the best favor you can do for yourself in 30 years.)

 

[urbandreamer]

Don't buy gold; trade it or short it.

Buying a condo might be smart after all--maybe, unlike Au prices, condo prices will keep going up up up?

Anyhow, I actually need advice myself: I know someone in the same income bracket as that girl but has only about $40,000 to put down. Condo specialists/investors, what is the best advice? (assuming the person--she is--is very conservative and timid and hates "gambling.")

 

[DTGeek]

Don't buy gold; trade it or short it.

If you subscribe to the efficient market hypothesis, shorting it would be just as risky as buying it. Also don't short, buy put options if you really want to bet on a decline.

Investing in gold shouldn't be viewed much differently than any other commodity -- soybeans, pork bellies, sugar. There are countless people who have expert knowledge of these industries, and love to take money of noob investors. I'm just not sure what facts there are that could convince anyone gold will go either up or down right now. If you think it's overpriced, then surely lots of other people are a step ahead of you and that's already reflected in the price.

You bring up a good point that real estate prices have had a run up too. But in general I'm guessing real estate keeps pace with the economy in the long haul. After all, a huge chunk of personal wealth that gets created gets tied up in real estate. (Not so for gold.)

 

[rbt]

Anyhow, I actually need advice myself: I know someone in the same income bracket as that girl but has only about $40,000 to put down. Condo specialists/investors, what is the best advice? (assuming the person--she is--is very conservative and timid and hates "gambling.")

I would think the most risk free thing to do would be to buy a small place with minimal amenities (condo fees around $100 to $150/month) and try to pay it off over the next 5 years. Townhouse condos are pretty good for this type of thing.

The economy is still great right now but it will eventually slow. Owning title outright (mortgage free) allows you to lose your job and keep on ticking without any difficulty with monthly mandatory expenses (fees, taxes, food, etc.) around the $500/month range.

 

[Observer Walt]

Don't buy gold; trade it or short it.

With all due respect, a couple of you are out of your minds! A young woman earning about $35,000, considering what accommodations are appropriate to her circumstances, should probably not be buying gold and definitely should not be shorting it. For those of you working in the investment industry, haven't you heard about the basic principle of tailoring your advice to what is appropriate to the client's circumstances??? If our friend newstart is to get involved in the investment markets at all, at this stage of her life (doubtful IMO), I hope she will get more sensible advice than this.

With regards to whether she should be buying a condo, as indicated before, she and others similarly situated should do some homework in terms of mortgage payments, etc., to determine what is actually affordable, then work from there. With proper planning and advice, I think she could buy a condo, at a price a bit lower than what she originally had in mind. But gold speculation and similar things can come much later.

 

[vultur]

Anyone whose sole source of income is $35k should NOT be incurring $200,000 in debt. I am certain that the end result will be foreclosure. Such a person does not earn enough money to cover the costs of the debt and live a remotely manageable life.

 

[vultur]

I would think the most risk free thing to do would be to buy a small place with minimal amenities (condo fees around $100 to $150/month) and try to pay it off over the next 5 years. Townhouse condos are pretty good for this type of thing.

The economy is still great right now but it will eventually slow. Owning title outright (mortgage free) allows you to lose your job and keep on ticking without any difficulty with monthly mandatory expenses (fees, taxes, food, etc.) around the $500/month range.

Pay it off? Even a $150,000 mortgage would cost $30,000/year over 5 years- she only nets $25,000!

You people are just nuts. Encouraging someone in that financial situation to pile on debt is just reckless.

 

[buildup]

Please tell me how a person can afford a $150,000 mortgage on $35k income. It defies logic.

SD?

 

[AndreaPalladio]

Anyone whose sole source of income is $35k should NOT be incurring $200,000 in debt. I am certain that the end result will be foreclosure.

Doubtful. Banks rarely ever foreclose now. They sell the property under their power of sale and then sue the borrower on the covenant to repay if there is a deficiency.

 

[rbt]

Pay it off? Even a $150,000 mortgage would cost $30,000/year over 5 years- she only nets $25,000!

You people are just nuts. Encouraging someone in that financial situation to pile on debt is just reckless.

Forced savings can be a magical thing to dig yourself out of a hole. Taking away the option to spend lavishly on yourself (whatever that means for entertainment, clothing, etc.) can give you a step ahead without necessarily requiring will power.


Borrow 150k with a 15 year amortization. Payments will be under $1500/month (including taxes and possibly condo fees). Allow for accelerated payments.

After 5 years, you have $50k in forced savings.

Bump the mortgage back up to $150k, taking the forced savings in cash and buy the place you really want to live in. Change the amortization of the new mortgage to the standard 25 year and rent the place out.

Rents will increase enough over 5 years that this will be a positive income property (assumption it is well maintained in a reasonable neighbourhood, etc.).

In 5 years you've become a landlord with an additional income source.


Lots of other ways of doing the same thing but most don't have the will power to live beneath their means.


If you repeat this process, even a person living on $25k/year every year of their life (raises are bound to occur) can end up retiring with 8 revenue positive properties, 3 of which have clear title and no remaining mortgage.

Not that having all of your money in real-estate is a good idea but it makes the point about saving a large portion of your income, living well beneath your means as urbandreamer has, regardless of the actual income you make.


The only real question, is employment stable or unstable? If it's stable, then dive in. If it's unstable then even an annual lease might be too much of an obligation.

 

[Observer Walt]

Well, I wasn't going to get into the numbers game as some others have, but here goes.

For a $150K mortgage, I assume that a purchase price would be $200K (75% ratio, avoiding high-ratio costs).

Mortgage payments: 5% rate, 5 yr. term / 15 yr. amortization = $1,182

Taxes: $200,000 market value x 1% / 12 mos. = $167

Condo fee (does have to be counted!): 800 sq. ft. x $0.40 / sq. ft. = $320

Assume no utility expenses (included in the condo fee).

Total occupancy costs = $1,182 + 167 + 320 = $1,669 per mo. = $20,028 per year.

Assume 42% Gross Debt Service ratio (usually the maximum allowable), and no other loan payments (big assumption, giving every benefit of the doubt):

$20,028 / 0.42 = $47,686 = annual required income to qualify for the mortgage, without which the scenario doesn't work.

I've made a couple of assumptions (reasonable IMO), and you might quibble over some details, but the point is that you have to get a mortgage in the first place.

Yes, I do know that private money is available, where they will lend above the 75% loan to value ratio, and they might not be so picky about the 42% maximum debt service ratio. But on the other side, they will probably charge significantly above the 5% "going rate", and will probably be very reluctant to agree to any prepayment privileges. As a potential borrower, you would have to seriously ask whether this is the way you would want to go.

I'm not saying it can't be done, but look at the picture long and hard before embarking on this road to riches. It's certainly not for everyone, and not for anyone earning in the $35,000 range.

 

[urbandreamer]

^Finally you proved my point: buying a GTA condo simply isn't affordable to anyone earning less than $50,000/yr (being generous--really, $70k more realistic if you don't want to eat at soup kitchens for 10 years!)

Now let's face the music: could a $35,000 salary buy a $95,000 home in Hamilton with a 25% down payment? My proposal--assuming you have $100,000 in cash like the girl says she does but a $35k income--buy two cheap ($95,000) Hamilton houses--or a combined price of $200,000--with a 25% ($50k) down payment. Rent out one home as a rooming house or 3 apts ($1300) as a "slum lord" (ie minimal maintenance) and live in the other house with 1 attic apt rented out for $500/month.

As a non-mathematics whiz, the numbers are making me dizzy so I ask a fellow guru: would rental house income(conservative estimate $16000/yr)+$150,000 mortgage+owner-occupied dwelling (with one rental unit producing $6000 income) result in living for "free?" Or at most, $4000 of $35k income devoted to housing costs.

Judging by the $200,000 condo answer above, I'd guess yes!

Now in Hamilton, how much do you think a $95,000 house will be worth in 2030? $200,000?

From an investment pov and living on a moderate income does my plan make any sense?

thx in advance

 

[rbt]

I've made a couple of assumptions (reasonable IMO), and you might quibble over some details, but the point is that you have to get a mortgage in the first place.

Sure, we're all making assumptions because we haven't been given nearly enough details to give solid advice.

Anyway, you can eliminate 75% of those condo fees by choosing a complex with limited amenities (roughly $160 per month for water/hydro/maintenance fees).

First couple of years I owned nearly 80% of my post-tax income went to directly to mortgage, taxes, and basic utilities. Very glad I sacrificed that time because I live far more comfortably and with less stress now than I did then before buying as a direct result.