FSW WORLDWIDE

[Windsor37]

Dont trust those flyers or ads. Those are all new constructions and builders are trying their level best to drag people into stupid deals.. You want real prices, look at realtor.ca. Also given the situation right now, there is a massive scope of some aggresive negotiation.

I purchased my place for a price even less than its 2019 assessment because I pushed them hard over a period of 2-3 months while they kept on doing open houses after open houses with no offer even after price drop.

It is note worthy that I failed in this tactic atleast 10-15 times before I succeeded. But then I was never going into the market to buy now. I wanted to buy at the best price I could get.

I dunno where your workplace is, but I assume it is in downtown, by choosing the right location, even port moody or coquitlam is less than 30-40 minutes journey in west coast express. Very reliable and very comfortable journey. Plus you have skytrain as back up as well. Coquitlam has some great schools to boot.

Even in vancouver proper, there are some decently priced places for that kind of income.
And you can also look at burnaby too.

https://www.realtor.ca/real-estate/26380371/58-6528-denbigh-avenue-burnaby#view=neighbourhood
https://www.realtor.ca/real-estate/26396845/130-6588-southoaks-crescent-burnaby
https://www.realtor.ca/real-estate/26085967/6-1263-w-8th-avenue-vancouver#view=neighbourhood
https://www.realtor.ca/real-estate/26382584/4795-slocan-street-vancouver#view=neighbourhood

https://www.realtor.ca/real-estate/26357487/186-james-road-port-moody
https://www.realtor.ca/real-estate/26396313/276-balmoral-place-port-moody

https://www.realtor.ca/real-estate/26155401/1-6391-cooney-road-richmond

I'm not in downtown, much closer to Burnaby. Those are townhouses, and I personally am looking at detached houses. I don't like being too close to neighbors, and I'm wary of townhouses/condos, I know someone who was prohibited to install air-conditioning during the summer due to some shared insurance issue. And yes, I am looking at brand new one, not interested in buying used. If I'm getting a house, it's because I plan to settle there long-term, and I'm not trying to flip it.

The typical tactic that is suggested is called "Climbing the housing ladder". You start with a 1 bedroom condo before marriage when you moved out of college in the job -- may be with some help from mom and dad. Then you find a partner, hopefully not a total bum and get married. For few years your 1 bedroom is enough. Then you move to townhouse by selling the 1 bedroom condo and using proceeds as downpayment for townhouse. Have a kid or two in next 4-5 years. Then sell townhouse and move into a house.

Anyhoo, I come from India and in Mumbai, the equivalent of Vancouver for India, families live in condos very typically and in small condos to boot. Famously, one of the highest paid cricketer in India grew up in a condo and I believe till some point used to live there even after getting rich. I heard same is in Tokyo. So in these costly places, condo life is very common.

Maybe it's just me, but I feel that's a more expensive way of doing it. If I get into a mortgage, then I'll be paying interest which is a net negative, wouldn't it be better to just stick to rentals and let the money grow in equities? Especially at these interest rates. Some of my co-workers, who accumulated multiple small properties are renting it out, while that would definitely generate income, it's starting to look more like a business than an investment. Other people I know, are simply moving further out like Maple Ridge, Pitt Meadows or Langley.

 

[GandiBaat]

You didn't mention anything about what to do if anyone or both lose their jobs which is highly likely to happen in this recessionary time.

I did. You buy insurance for that. Those pay some part of mortgage payment. There are more details to it. Secondly one should have a buffer of 75-100K as well. Lastly, depends upon your employer too. I will get about 10 months worth of salary as my severance package if I were laid off. After that I will also get EI payments too. Beyond all that I will have to start touching my savings.

 

[GandiBaat]

I'm not in downtown, much closer to Burnaby. Those are townhouses, and I personally am looking at detached houses. I don't like being too close to neighbors, and I'm wary of townhouses/condos, I know someone who was prohibited to install air-conditioning during the summer due to some shared insurance issue. And yes, I am looking at brand new one, not interested in buying used. If I'm getting a house, it's because I plan to settle there long-term, and I'm not trying to flip it.

In that case the issue is not the market or income of CDN 250K. The issue is mismatch of lifestyle desired and income to support it. If you wish to buy the most expensive segment, new builds + detached, you will pay the price for that segment.

 

[GandiBaat]

Maybe it's just me, but I feel that's a more expensive way of doing it. If I get into a mortgage, then I'll be paying interest which is a net negative, wouldn't it be better to just stick to rentals and let the money grow in equities? Especially at these interest rates. Some of my co-workers, who accumulated multiple small properties are renting it out, while that would definitely generate income, it's starting to look more like a business than an investment. Other people I know, are simply moving further out like Maple Ridge, Pitt Meadows or Langley.

There are tangibles and non-tangibles in this equation. Can renting for long term together with investment in equity produce better RoI? Absolutely! No doubt. But then you will need to adjust yourself to the long term renter mindset and life style, specially in a place like Vancouver.

What that means is be ready for your house owner to flip, hopefully occasionally. Or hunt down a purpose built rental units and all the things go with them. Be ready for reno-victions. And hostile negotiations over rent (inspite of law). Be ready to be interrupted in your life and entered upon by the owner for showing your place to prospective buyers whenever they want to flip. Most importantly, be ready for dealing with a lot of different kind of "owners". Some very amicable, some paranoid, some downright insane! Mine all were amicable, I was amicable with them too! I still send greeting cards during new years to my past property owners and get the same from them but YMMV.

At some point, you will have kids (hopefully?) and then you will NEED to stay in one place as much as possible. With rentals, you will have that sword hanging on your head perpetually. Even if you go with purpose built rental buildings. You can delay this transition by adjusting your life. I believe at one point or other you will need to make that call. I believe earlier is the better because it gives you chance to fix things if you mess up.

In the end, if you treat your lifestyle like business, sure you will get business like results over investment but then your life will also become business too. It will come down to some kind of constrained optimization, real world is always like that. But then, I am damn sure you knew that already, isnt it?

Lastly, be sure to compare apples to apples. If you want to live in a newly built dettached house, it will cost something like CDN 5500 or more per month in rent. This will leave a lot less for investment. If you are ready to compromize that in rental then may be buying a townhouse or condo is not a bad option too! You can always do the due deligence.

 

[Windsor37]

In that case the issue is not the market or income of CDN 250K. The issue is mismatch of lifestyle desired and income to support it. If you wish to buy the most expensive segment, new builds + detached, you will pay the price for that segment.

It's a bit of both,

On one hand, if you look fundamentally at the "cost" of housing, how much of it goes to the cost of land, materials, and labor, and the rest to profit? given that the market is inflated due to the lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits, and I don't blame them, I'd do the same - but at the same time for a buyer's perspective, most of my money goes not to the house, or the quality of home I'm getting, but to the seller's profits. Given that I don't see a house as an investment, but as a necessity. I find it difficult to justify paying extremely high profit margins.

On the other hand, yes it is a mismatch and I understand that by "lowering my standard" or desired "quality of life" I might be able to fit the budget, which is why I'm trying to do something about it.

At some point, you will have kids (hopefully?) and then you will NEED to stay in one place as much as possible. With rentals, you will have that sword hanging on your head perpetually. Even if you go with purpose built rental buildings. You can delay this transition by adjusting your life. I believe at one point or other you will need to make that call. I believe earlier is the better because it gives you chance to fix things if you mess up.

Precisely, though whether or not that place is Vancouver is yet to be seen. I'm exploring other options where the income meets the lifestyle.

In the end, if you treat your lifestyle like business, sure you will get business like results over investment but then your life will also become business too. It will come down to some kind of constrained optimization, real world is always like that. But then, I am damn sure you knew that already, isnt it?

Agreed.

Lastly, be sure to compare apples to apples. If you want to live in a newly built dettached house, it will cost something like CDN 5500 or more per month in rent. This will leave a lot less for investment. If you are ready to compromize that in rental then may be buying a townhouse or condo is not a bad option too! You can always do the due deligence.

But if that's the case then the quality of life isn't the same. If you're willing to buy a townhouse or a condo temporarily while you save up for a detached house, why not rent a townhouse or condo instead?

 

[GandiBaat]

It's a bit of both,

On one hand, if you look fundamentally at the "cost" of housing, how much of it goes to the cost of land, materials, and labor, and the rest to profit? given that the market is inflated due to the lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits, and I don't blame them, I'd do the same - but at the same time for a buyer's perspective, most of my money goes not to the house, or the quality of home I'm getting, but to the seller's profits. Given that I don't see a house as an investment, but as a necessity. I find it difficult to justify paying extremely high profit margins.

On the other hand, yes it is a mismatch and I understand that by "lowering my standard" or desired "quality of life" I might be able to fit the budget, which is why I'm trying to do something about it.

Price of commodities is discovered by the market. Usually through demand and supply.

But if that's the case then the quality of life isn't the same. If you're willing to buy a townhouse or a condo temporarily while you save up for a detached house, why not rent a townhouse or condo instead?

So lets see...

On downpayment part?


EFT : Gain = Gain from downpayment in EFT - Capital Gain Tax
Condo : Gain = Gain from downpayment after sale

Typically Capital Gain Tax offset all the additional growth from EFT. Not to mention you are betting on one market against another. Mostly housing market for all types of houses go in sync, but not always with equity market.

On monthly payment?

You spend 3000 in rent. Thats all gone. You invest remaining (from after tax income of 7000) 4000 in EFT (say). When you cash out EFT to buy house, you also pay capital gain tax on EFT too. Then you buy house.

So my total saving for downpayment is 4000 * months invested in my EFT + gain from EFT - capital gain tax on EFT.

You buy a condo. You spend 3500 on mortgage installment. You invest remaining 3500 whatever way you want to do, (say in EFT). You sell condo. Your gain from condo are : remaining principal - condo sale price - early loan closing penalty. If you were a bit crafty, you will try to give the closing date of sale on renewal date of your mortgage. This way you pay no penalty. If I am not too unlucky, I can make money over what I have put into the condo and much more. Best part? Any gains are completely tax free! Because it is my primary residence.

So my total saving = Net gain from selling my Condo + 3500 * months invested in my EFT + gain from EFT - capital gain tax on EFT.

Mostly Net gain from selling my Condo (even after interest and carrying cost) is more than after capital gain tax on 500 not invested in EFT.

 

[seadrag0n]

Buying a home in Canada is like living in a dystopian society.

 

[GandiBaat]

Buying a home in Canada is like living in a dystopian society.

Only if you do not have enough money. Ensure that you have enough money either by income or by existing wealth, and you will be fine. Also, only few cities have this massive cost issue. If you can avoid them while keeping your earning, you can escape this situation.

There are also some creative solutions to this problem as well.

 

[seadrag0n]

Only if you do not have enough money. Ensure that you have enough money either by income or by existing wealth, and you will be fine. Also, only few cities have this massive cost issue. If you can avoid them while keeping your earning, you can escape this situation.

There are also some creative solutions to this problem as well.

How many new immigrants do you think are coming here with big bags of cash? I am sure 99% of the new immigrants will not have such a big amount of savings to dump into a home in Canada and take massive amount of debt on top of that. Like you said, saving for a 20% down payment even with high pay will take a lot of time and it is stupid to assume that every family will make 250k per year, single people can just piss off I guess!

Also, I read that homes in Calgary will cost a quite a bit in upkeep because it hails a lot in the winters and the roof gets damaged every year. There is also property tax and god knows what in expenses of owning a home, what a scam.

 

[Windsor37]

Price of commodities is discovered by the market. Usually through demand and supply.

Yes that's why I said "due to a lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits". Now we can have another debate on why supply is low, but personally that's way too deep the rabbit hole.

So lets see...

On downpayment part?


EFT : Gain = Gain from downpayment in EFT - Capital Gain Tax
Condo : Gain = Gain from downpayment after sale

Typically Capital Gain Tax offset all the additional growth from EFT. Not to mention you are betting on one market against another. Mostly housing market for all types of houses go in sync, but not always with equity market.

On monthly payment?

You spend 3000 in rent. Thats all gone. You invest remaining (from after tax income of 7000) 4000 in EFT (say). When you cash out EFT to buy house, you also pay capital gain tax on EFT too. Then you buy house.

So my total saving for downpayment is 4000 * months invested in my EFT + gain from EFT - capital gain tax on EFT.

You buy a condo. You spend 3500 on mortgage installment. You invest remaining 3500 whatever way you want to do, (say in EFT). You sell condo. Your gain from condo are : remaining principal - condo sale price - early loan closing penalty. If you were a bit crafty, you will try to give the closing date of sale on renewal date of your mortgage. This way you pay no penalty. If I am not too unlucky, I can make money over what I have put into the condo and much more. Best part? Any gains are completely tax free! Because it is my primary residence.

So my total saving = Net gain from selling my Condo + 3500 * months invested in my EFT + gain from EFT - capital gain tax on EFT.

Mostly Net gain from selling my Condo (even after interest and carrying cost) is more than after capital gain tax on 500 not invested in EFT.

Wait what's EFT? Electronic Funds transfer like Interac? or do you mean ETF? the investment.

If you have a condo at 500K, and you made a 5% downpayment. This means you have a principal of 25K to begin with, + 3.5K / month on mortgage installment.

At a 5-year period:
Condo:
Assumes that property price increases by 7% per year, and there are no penalties on mortgage, no taxes when property is sold, no transfer tax when property is bought (meaning brand new property)

Net Expenses: 25K + 3.5K * 60 = 235K
Net Debt (after 5 years) = 436K
Asset FMV (7% compounded rate) = 500 * (1 + 0.07) ^ 5 = 701K
Total Value = Asset FMV - (Net Expenses + Net Debt) = 701K - (235K + 436K) = 30K

Non-FHSA (if invested instead of getting a condo):
Capital: 25K + $500/month (delta from renting and mortgage payment 3.5K - 3K) anything above is similar between the two, meaning if you invested in something in condo version, you should be able to do the same in the investment version since renting is cheaper.
Net Asset Price (S&P 500, 10% return) [25K compounding + 500/month at annuity] : 25K * (1.1)^5 + (500 * 12) * ((1.1)^5 - 1) / 0.1 = 76.89 K
Capital Gains Tax (assuming 40% income tax rate) = (76.89K - 55K) * 0.5 * 0.4 = 6.6K
Total Value: 76.89K - 6.6K = 70.29K

FHSA:
Only looks at tax rebate from FHSA, assumes 0 tax exemption, and exempted income is not re-invested (because I'm too lazy to compute annualized tax exemption and gain, so let's look at worst case FHSA)
Tax Savings: 40K * 0.4 = 16K
Total Value = 70.29K + 16K = 86.29K

Condo has no FHSA version because you have a primary residence which disqualifies from FHSA.

So you should have 40K (non-FHSA)/ 56K (worst-case FHSA) MORE money to invest in a house in the end, if you opt to rent instead of flipping a condo, and you loose your FHSA benefits, which really saves a lot of money and I truly suggest getting one.

 

[abhiram.kumar]

125 or even 150k in GTA is a average pay in IT for a mid tier IT worker. I talk to people from other professions e.g. Bankers, non-IT white collar office goers most seem to make less than 70 k even in Greater Toronto. The most shocking I have seen is where my team is implementing Warehouse software for a F500 Manufacturer, the warehouse operators make like 50k generally, the senior most supervisor with 15+ years of experience makes 85k or so. These are all GTA pays, I was shocked to hear and learn of these jobs and people. I can't even imagine how they survive or pay their mortgages.

I can understand PRANIT01's dilemma and I was thinking last week where 'Windsor37' is getting his data from when he was talking about 500k Family income and 2.5M house prices.

Lol. Accountants with 5 years of experience easily cross six figures. Investment bankers in Toronto start off with six figures. The wages you quoted are entry level wages for people working in Finance or Accounting. I’m not sure where you got your figures from. Professions in Canada don’t pay as much as the US. That is true but they are nowhere as low as you put them to be. What other countries are you comparing Canada to?

 

[iSaidGoodDay]

Lol. Accountants with 5 years of experience easily cross six figures. Investment bankers in Toronto start off with six figures. The wages you quoted are entry level wages for people working in Finance or Accounting. I’m not sure where you got your figures from. Professions in Canada don’t pay as much as the US. That is true but they are nowhere as low as you put them to be. What other countries are you comparing Canada to?

I think he loosely used the word "banker". I think the professions he meant were more like Bank Tellers who don't make much in comparison.

 

[GandiBaat]

Yes that's why I said "due to a lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits". Now we can have another debate on why supply is low, but personally that's way too deep the rabbit hole.



Wait what's EFT? Electronic Funds transfer like Interac? or do you mean ETF? the investment.

If you have a condo at 500K, and you made a 5% downpayment. This means you have a principal of 25K to begin with, + 3.5K / month on mortgage installment.

At a 5-year period:
Condo:
Assumes that property price increases by 7% per year, and there are no penalties on mortgage, no taxes when property is sold, no transfer tax when property is bought (meaning brand new property)

Net Expenses: 25K + 3.5K * 60 = 235K
Net Debt (after 5 years) = 436K
Asset FMV (7% compounded rate) = 500 * (1 + 0.07) ^ 5 = 701K
Total Value = Asset FMV - (Net Expenses + Net Debt) = 701K - (235K + 436K) = 30K

Non-FHSA (if invested instead of getting a condo):
Capital: 25K + $500/month (delta from renting and mortgage payment 3.5K - 3K) anything above is similar between the two, meaning if you invested in something in condo version, you should be able to do the same in the investment version since renting is cheaper.
Net Asset Price (S&P 500, 10% return) [25K compounding + 500/month at annuity] : 25K * (1.1)^5 + (500 * 12) * ((1.1)^5 - 1) / 0.1 = 76.89 K
Capital Gains Tax (assuming 40% income tax rate) = (76.89K - 55K) * 0.5 * 0.4 = 6.6K
Total Value: 76.89K - 6.6K = 70.29K

FHSA:
Only looks at tax rebate from FHSA, assumes 0 tax exemption, and exempted income is not re-invested (because I'm too lazy to compute annualized tax exemption and gain, so let's look at worst case FHSA)
Tax Savings: 40K * 0.4 = 16K
Total Value = 70.29K + 16K = 86.29K

Condo has no FHSA version because you have a primary residence which disqualifies from FHSA.

So you should have 40K (non-FHSA)/ 56K (worst-case FHSA) MORE money to invest in a house in the end, if you opt to rent instead of flipping a condo, and you loose your FHSA benefits, which really saves a lot of money and I truly suggest getting one.

Just one issue in your calculation. For a 500K condo, 25K downpayment (ie mortgage of 475K), the monthly installment comes out at 2869 (at 5.39% mortgage product available in almost all of the banks / credit union. I am using here vancity's calculator because that is what I am familiar with) for a 25 years ( Mortgage remaining 423K at the end of 5 year term).

So, redoing your calculation :

Net Expenses: 25K + 2.87K * 60 = 197K
Net Debt (after 5 years) = 422K
Asset FMV (7% compounded rate) = 500 * (1 + 0.07) ^ 5 = 701K
Total Value = Asset FMV - (Net Expenses + Net Debt) = 701K - (197K + 422K) = 82K

---------

Now, with all other options, you have actually a NEGATIVE cashflow from savings if you are assuming a rent of 3K over a mortgage payment of just 2.87K. that is you are paying MORE for your shelter.

so, for 25K invested in S&P, you get

25K*(1.1)^5 = 40.26 K

And you lost on rental, 131 dollars per month = 131 * 60 = 7860.
So your total amount at 5 years is 40.26 - 7.86 = 33K

I will assume you pay no capital gain tax too due to FHSA.

--------
I did not include FHSA because for the amounts involved mostly for down payment of 20% (which is what I feel more comfortable with), I felt FHSA is just peanuts of saving.

At a cap of 40K, in over all picture it will not amount much, especially if you are trying to save for a house.

And yes, I meant Exchange Traded Funds. ETF, EFT was a typo.

 

[GandiBaat]

How many new immigrants do you think are coming here with big bags of cash? I am sure 99% of the new immigrants will not have such a big amount of savings to dump into a home in Canada and take massive amount of debt on top of that. Like you said, saving for a 20% down payment even with high pay will take a lot of time and it is stupid to assume that every family will make 250k per year, single people can just piss off I guess!

Canada will never say it officially, but what do you think happens with Indian students coming here, who are short on real cash? Most of places in BC and Ontario are expensive. The only way around is to have a comfortable income or have a bag of cash.

 

[Windsor37]

Just one issue in your calculation. For a 500K condo, 25K downpayment (ie mortgage of 475K), the monthly installment comes out at 2869 (at 5.39% mortgage product available in almost all of the banks / credit union. I am using here vancity's calculator because that is what I am familiar with) for a 25 years ( Mortgage remaining 423K at the end of 5 year term).

So, redoing your calculation :

Net Expenses: 25K + 2.87K * 60 = 197K
Net Debt (after 5 years) = 422K
Asset FMV (7% compounded rate) = 500 * (1 + 0.07) ^ 5 = 701K
Total Value = Asset FMV - (Net Expenses + Net Debt) = 701K - (197K + 422K) = 82K

---------

Now, with all other options, you have actually a NEGATIVE cashflow from savings if you are assuming a rent of 3K over a mortgage payment of just 2.87K. that is you are paying MORE for your shelter.

so, for 25K invested in S&P, you get

25K*(1.1)^5 = 40.26 K

And you lost on rental, 131 dollars per month = 131 * 60 = 7860.
So your total amount at 5 years is 40.26 - 7.86 = 33K

I will assume you pay no capital gain tax too due to FHSA.

--------
I did not include FHSA because for the amounts involved mostly for down payment of 20% (which is what I feel more comfortable with), I felt FHSA is just peanuts of saving.

At a cap of 40K, in over all picture it will not amount much, especially if you are trying to save for a house.

And yes, I meant Exchange Traded Funds. ETF, EFT was a typo.

No, because you're not exempted from paying property taxes, and you're required to avail CHMC insurance since your downpayment is only 5% otherwise the bank won't approve your loan. I thought at 3.5K you're already counting both of them, but here goes.

https://www.cmhc-schl.gc.ca/consumers/home-buying/calculators/mortgage-calculator/mortgage-calculator-result?mc_PurchasePrice=$500,000&mc_DownPayment=$25,000&mc_AmortizationPeriod=25&mc_Interest=5.69&mc_Frequency=1

total price of mortgage with insurance: $3,070.19 / month
property taxes: $1,390 / year[down town vancouver @ 500K property price] = 115.8 / month
average house insurance: $300 / year = $25 / month

Total monthly mortgage cost = $3,210

Net Expenses: 25K + 3.21K * 60 = 218K
Net Debt: 444.58 K
Asset FMV = 701K
Total Value: 38.42K

By the way Vancouver raised property taxes by 7.5% so this reflects 2023 property tax, and I did not account for property value inflation for tax evaluation purposes.

Non-FHSA (if invested instead of getting a condo):
Capital: 25K + $210/month
Net Asset Price (S&P 500, 10% return) [25K compounding + 210/month at annuity] : 25K * (1.1)^5 + (210* 12) * ((1.1)^5 - 1) / 0.1 = 55.6K
Capital Gains Tax (assuming 40% income tax rate) = (55.6 - 37.6) * 0.5 * 0.4 = 3.6K
Total Value: 55.6K - 3.6K = 52K

FHSA:
Only looks at tax rebate from FHSA, assumes 0 tax exemption, and exempted income is not re-invested (because I'm too lazy to compute annualized tax exemption and gain, so let's look at worst case FHSA)
Tax Savings: 40K * 0.4 = 16K
Total Value = 52K + 16K = 68K