Why buying a Condominium might be the right choice for First Time Home Buyers
When you live in a city where condos are still in the mid tens of thousands, you can afford to think about buying a small home. But when you live in a city like Vancouver, where I live, you have to think of your first step as a condo. That’s of course, unless you have parents that are going to buy for you. Most of us aren’t that lucky. While I write this about Vancouver, I think many of you can relate this to where you live. Real estate markets are different all over the world but they are always part of a trend, and reading that trend can make and save you a lot of money.
If you want to buy a decent home anywhere near downtown Vancouver, you’re easily looking at or above a million dollars in today’s market. For the cheapest condos that were built a while back, you’ll be looking at high $200,000s but for a decent and new one bedroom condo, you’re actually looking at high $300,000s to low $400,000s. Isn’t it ridiculous? We’re talking Canadian funds here so for you Americans, that means it’s even more expensive with our dollar’s strength, oh how times have changed!
I’ll breakdown some of the pros and cons of condo ownership as well as some other things for you to take into consideration. And well the big question is can you afford to buy? I won’t get into every single pro and con of buying a condo, there are millions of articles written on stuff like that, I’m here to give you my take. I’ll give you a couple solid places to look at the end of this article if you’re desperate for more information.
The key to buying a condo, the Down Payment
Are you ready to buy a condo financially? You always hear the “rent vs. buy” argument and it’s a valid one, but just because you want to buy doesn’t mean you always can. Even if your monthly payment may be similar, the big question is do you have the down payment to buy a place?
Zero down payment times are over. If you are financially responsible, you should be looking at putting 20% down. Now, that might not be realistic to many but I wouldn’t suggest otherwise. In Canada, if you are putting less than 20% down on your home, you have to pay for insurance and that insurance increases the less your down payment is.
If you have to consider putting less than 20% down, try and find sources of funds you can borrow. Your best bet is of course your parents. Talk to them about your situation and have a solid plan, if you have parents that are understanding and you show to them that you are financially responsible and are willing to sign a contract (yes you need to pay them back), then they might oblige.
Do Your Condo Research
When you start looking around for a new place, it can be extremely exciting. You see all the different finishes in granite countertops, gorgeous tiles, beautiful engineered hardwood floors, stainless steel appliances…ok stop drooling please. After looking at a few places you’ll really start to understand what you want, and this is extremely important. It is as important to do market research as it is to understand what your needs are in your condo search.
I say needs, because if you start listing things that you want, you’re going to find it really tough to find a place within your budget. Sure we all want to live in a penthouse with 5,000 square feet with everything top of the line, but it isn’t going to happen, at least not for now.
You should be looking at things like:
Do you need a washer/dryer?
Dishwasher?
A full bathroom? Ensuite bathroom?
Are you going to have a lot of guests over? Staying overnight?
Lots of close space? Walk-in closet? Really?
Do you need a balcony?
Are you going to want to use a gym/sauna/swimming pool?
And the list goes on…
Other Condominium Costs to Take Into Consideration
The biggest costs you have to think about that renters don’t are the monthly maintenance costs and property taxes. These two costs are significant and you have to do your homework before jumping in. I’d estimate you’d be paying anywhere from $400-600 a month for a one-bedroom condo in downtown Vancouver. That’s a big chunk of money that you could be putting to your daily lunches, once a week gourmet dinners, and a gym membership! Buying a condo is expensive, and don’t forget other fees when you are buying like legal and appraisal fees. You also have to worry about insurance on your unit as well, although even as a renter you should have insurance on your property.
Why You Shouldn’t Buy a Condo as an Investment
If you’re going to buy a condo, you should be buying it to invest in. I’m speaking strictly for those in Vancouver, and this will different for every market. With condo prices near $400,000 and rent for a one bedroom at around $1,500 a month. You are not going to get your money back on your investment unless you have a huge down payment with a maximum 30 year amortization.
For example, let’s say you have 20% down ($80,000) and have an 80% mortgage of $320,000. Your interest rate is 3% for a 5 year open mortgage with a 30 year amortization. You will be looking at roughly $1,350 a month just in mortgage payments. You have to consider monthly maintenance fees and property taxes on top of this! So if you want to ensure that you are cash flow positive, you have to increase your down payment significantly.
But at the end of the day, if you are considering a condo as an investment, you aren’t only thinking about cash flow. You’re thinking about getting the best return you can on your money and negative cash flow eats into your return, and there’s no guarantee that property prices will continue to rise. My advice, never buy property if you have negative cash flow, unless you have other investments that are making you completely financially stable, it’s a loser’s game for most people.
Is buying a Condo Right for You?
That depends, the greatest part of living in a condo are the location and having everything taken care of for you. Of course you have to clean your own unit, but if there’s a problem in the building, it will be taken care of by the management company. If you don’t care about having a yard and enjoy the stylish lifestyle of living downtown then living in a condo is for you. Many people downsize to a condo after living in large home for years, once their kids are all out of the house. They save money and they have less of a headache of taking care of their homes.
Is it for you? Only you can find out but buying a condo is the most logical step for many first time home buyers, especially in today’s expensive real estate market.
Sites that will give you a solid pros and cons comparison of buying a condo:
http://www.homebuyer.ca/2006/05/22/what-are-the-pros-and-cons-of-condo-living/2/
Useful down from CMHC for Canadian Condo Buyers:
https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?cat=1&itm=3&lang=en&fr=1312223977464
Condo picture by Mirage Floors on Flickr.
