I have never been a big supporter of the idea that buying a house is a good investment. What people often forget is the hidden costs that they pay in addition to the purchase price. When you start factoring the house insurance, property tax, maintenance costs and other ongoing ownership costs the returns aren’t that great. There are also significant one time buying and selling costs for things like appraisals, bank fees, property transfer tax, legal fees and real estate commission.
I’m going on memory, but I read an article a while ago that said on average a person will buy and sell a property about 5 or 6 times in their life. This works out to over $100,000 in closing costs for the average person over the span of their life. When you start factoring in these expenses you soon find out that a house isn’t that great of an investment.
I’m not saying no one should buy a home, but from a financial standpoint there are better investments out there. I think buying a house can force people into better saving habits through their mortgage payments, but I don’t have problems when it comes to saving money, so this isn’t a reason for me to buy a place.
So why did I just buy a condo?
Having just read my little rant, you; like my friends, are probably surprised to find out that I just bought a condo! I get possession in late August and I couldn’t be more excited. Both my wife and I tend to over analyze everything, so it was definitely a difficult decision. When it came down to it, we bought because we wanted a HOME, something we could make our own and live in for a long time. I’m not a fan of the starter home concept, so it was important to me that I could see myself living there in 10 years. This wasn’t the only reason, but it was the big one. I’ll get into the others soon in what I’m sure will be a looong article.
For those that don’t know I’m recently married and we’re planning for kids in the not too distant future … (With that kids statement I’ll find out how much of my family actually read this blog, lol). When you start trying to find a place to live for 10 years or more, all of a sudden you have to think about things like school districts that I haven’t ever thought about. We want two kids. Flash forward 10 years and now all of a sudden we need 3 bedrooms. Looking for 3 bedrooms may not sound like much, but it aint cheap where I live. Let’s just say I live in an expensive city on the West coast of BC … I’ll let you fill in the blanks.
Rather than going through all the considerations we made I’ll just tell you about the place and neighbourhood so you get an idea of why we chose it.
- We wanted 3 bedrooms so that we have room for kids.
- Convenience played a big factor in our decision. I take rapid transit to and from work, so being close to a stop was important. The place is a 5 minutes’ walk to the transit stop. The location also cuts down on Ms. DGI&R’s commute which is nice.
- Our unit backs onto a city park with a playground, sandpit, small water park, basketball court, public tennis courts, and lots of green space. While the place is a 1,200 sqft apartment and we don’t have a backyard, we can use the park. The property also has a small kids playground on it.
- The amenities are nice. We have a large gym with a separate yoga/pilates room. There is an outdoor pool and a steam room. There is a pool table, party room and mini-golf. While we pay higher strata fees for these amenities we will actually use them. I’ve heard that amenities like a pool are a rookie first time buyer mistake, but I think we’ll actually use them. We rented a place a few years ago that had an outdoor pool, gym and green space and we used all of them on a regular basis for over a year before we moved out. We especially like the idea of a pool with kids, although I can’t see us using the mini-golf on a regular basis. Maybe I’ll try and convince the strata to take out a few holes of mini-golf and put in Ping-Pong instead.
- Convenience: Besides being close to rapid transit, there are two good elementary schools, a high school, shopping, restaurants, library, and a community center all within a 10 to 20 minute walk.
- The price. We paid $420,000, which meant because we are first time home buyers and below the threshold we don’t have to pay the property transfer tax. This will save us $6,400.
There you have, the main reasons we bought the condo. If I’m being completely honest another reason is probably societal pressure. I don’t know why renting is considered bad in our society, it shouldn’t be, but for some reason our society is programed to believe that owning is better. When you get to a certain age people wonder why you don’t own, and are still renting. It’s a weird phenomenon, and one that I try and avoid, but likely this subconsciously factored in. I’m a firm believer in doing what is best for you, and not trying to keep up with the Jones, but it is hard for these feelings not to creep in every now and again.
I feel like with any property purchase there is always going to be some anxiety. As a first time home buyer making one of the largest financial commitments of my life, it is safe to say I felt some anxiety.
If you’ve been reading the news lately you’ll notice that quite a few people seem to think that house prices are high in Canada and that affordability is an issue. A specific risk seems to be the condo market, which coincidently is what I just bought. I can’t predict the future and what is going to happen with house prices, but I’m not hearing anybody say that prices are cheap in my market. I don’t really expect prices to increase and wouldn’t be surprised to see them drop. Owning a property for a longer period, just like stocks, will reduce the risk of losing money, so the fact that I’m planning to live here for at least 10 years helps.
Interest rates are at historic lows and eventually I expect them to go up. When? … who knows, but I would not be surprised if we saw an increase in 2015. As with most financial predications I wouldn’t put much weight into it. Regardless, at some point I expect interest rates to go up. Part of preparing for this was to make sure we can afford the mortgage in a higher interest rate environment. Right now we don’t have kids so our expenses are a lot lower. While our expenses are lower we plan to try and make large prepayments to pay off the mortgage as quickly as possible. This way when the kids start showing up and the 5 year term on our fixed mortgage rate expires we will have some extra breathing room and flexibility.
In BC the government only recently made it mandatory for strata’s to have a depreciation report. I’m no real estate expert, but I expect that this is going to ruffle some feathers. A depreciation report is prepared by an engineering firm and it attempts to predict when and how much building maintenance costs will be over a long period (30 years). This lets a strata council see how much money they need in a contingency fund for future maintenance costs like painting, repairing a roof, etc. Without this report a lot of strata councils are flying blind. The theory behind the report is that the strata will be able to better prepare for future costs. Rather than waiting for something to fall apart and then fix it, they can be more proactive which should reduce overall maintenance costs, and lower the chance of special assessments. I like the theory behind the report, but BC is only just starting to have these reports and as more strata’s, especially older buildings, get these reports then I expect condo fees to increase. The unit we bought is in a 7 year old building and appears to be well managed, so this report won’t have as big of an effect on us versus an older building with poor management. That said, I still expect an increase in condo fees.
Ontario has had depreciation reports for 10 years now. Tony Gioventu, Executive Director of the Condominium Homeowners Association (CHOA) pointed out in either 2011 or 2012 that if we compare the average monthly contribution condo owners make to the contingency reserve fund here in BC it’s $22/month, compared to $80-100/month in Ontario. This suggests that on average BC condo fees can be expected to increase $58 to $78 per month. The average condo isn’t a 3 bedroom, 2 bathroom with 1,200 sqft, so our portion of the increase would be even higher. We also have a pool, which can be costly. While I’m expecting strata fees to increase I’m also expecting less special assessments. Either way no one likes to hear that their condo fees are increasing. I’ve budgeted for increased condo fees, but there is unpredictability that makes planning for this difficult. When it comes down to it, this issue is BC wide, so I’d have this worry with any condo purchase.
Most of my worries are financial, with the overriding issue coming down to the affordability of the condo with kids. To prepare I’ve setup a reasonable budget, I’ve done a bit of stress testing if interest rates do go up, and I plan to maintain my emergency fund. While I have valid worries, with some proper planning and by not overextending myself I was still able to buy the place and not lose sleep over it. When kids do enter the picture I hope to have a large portion of the mortgage paid off which should help. We also plan to rent one of the rooms out while we don’t have kids.
Most complex decisions never have a clear solution, so a certain amount of anxiety is expected when you make a judgement call. I’ve made the best decision for Ms. DGI&R and I based on the information we have now. Only time will tell if it’s the right one. In the meantime, I’m still excited and I’m not losing sleep over it. Both good signs.
What do you think of our condo purchase?
Photo credit: dhilung / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)
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