Toronto's real estate market has been hot for so many years now and it is getting tougher for first time home buyers to enter the market for a few reasons:
- Mortgage rules restricting maximum amortization to 25 years with less than 20% dowpayment
- Home prices have increased faster than inflation and income rise
- Supply of homes (excluding high rise condos) such detached, semi-detached and townhomes is lower than demand, creating bidding wars in areas of Toronto
So how can you buy your first home?
First Time Home Buyer? Buy A Duplex
There are a number of properties in the city with a basement suite. Having rental income from the basement would offset some of the homeownership costs for first time home buyers. Here is a real example:
- Purchase Price: $447,000
- Downpayment: 5% ($22,350)
- Basement Rental Income: $850
- Monthly Mortgage Payment: $2,222.44 (10 year mortgage, 3.69% amortized over 25 years)
- Monthly Property Tax: $223
- Total Monthly Mortgage Payment and Property Tax Less Rental Income: $1,595.44
The first time buyer is living in a 3 bedroom/2 bathroom house for just under $1,600 a month. Yes, there are additional living expenses such as hydro, heat, cable, internet and home insurance, however for $1,600 a one bedroom plus den can be rented in downtown Toronto and there the additional costs of hydro, cable & internet. The first time home buyer is getting into the market and building equity into their home as opposed to paying their landlord's mortgage.
Using their RRSPs, through the Home Buyer's Plan, the first time home buyer is able to buy their first home.
You might be wondering why the first time home buyer chose a 10 year fixed mortgage. Since they plan on moving up the homeownership ladder within 4 to 5 years, they plan on renting their existing home (rent main unit & basement unit). With this strategy, they will avoid renewing the mortgage in 5 years at a higher interest rate which would eat into their monthly cash flow.
If you are first time home buyer, please contact Nawar to discuss how you can own a home and start building long term wealth through real estate.
