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We are homeowners!

I honestly cannot believe how fast the last two years have flown by. Life has changed so much, and back in the summer of 2015, I never would have guessed that I’d meet someone as amazing as RD, and that we’d be settling down and planning the rest of our lives together.

Before we decided we wanted to buy a home, we spent a few months going through all the possible scenarios that life could throw our way in the next 10-15 years. We thought about where we wanted to live, what kind of space we wanted, what our lives would look like, and whether we wanted kids or a pet (or maybe both). In the end, we agreed that Vancouver is where we’ll be until we retire. And because of that, we decided to make home ownership a goal with the idea that whatever we end up buying, we’ll be living there for the long-term.

I know, buying real estate in Vancouver in 2017 is crazy, right? Maybe, yeah. But we have good jobs and a nice amount of money saved, and we are both level-headed enough to not buy anything out of our comfort level. So even though we were pre-approved for a mortgage of about $850,000, we set a top end budget of $475,000.

Location

We didn’t struggle at all on where we wanted to live. I’ve always been in love with New Westminster (where I owned my townhouse, and also where I rented an apartment years earlier). It’s just got a strong community vibe, and since our budget wasn’t going to buy us a 2-bedroom home where we currently live in Mount Pleasant (that would have cost us about $800,000), it was the obvious choice. Especially considering my commute would only increase by 10 min., and RD’s commute actually gets shorter.

The Search

We targeted a very specific area in New Westminster and started our home search by getting pre-approved for a mortgage in early March. We wanted to have our finances sorted out just in case something amazing came onto the market. Weeks went by. We saw a lot of bidding wars, condos that regularly went for $100,000 over asking … and we went to a lot of open houses, but most places just didn’t suit us for one reason or another. It’s not that we were being overly picky, we just knew exactly what we wanted.

Related: Thoughts on our open house tour

One day we went to view a 2 bed/2 bath condo in a high rise building. It had a great layout, floor-to-ceiling windows, and an amazing view from the gigantic balcony – but we’d have to do work just to move in (replace carpet, fix doors, etc), and that would have taken us over our budget. So we reluctantly passed. The following week, we saw another unit just a few floors down which required no updating, and the views were just as stunning. But that price point was at the very top of our self-imposed budget, and we just assumed everything was going to sell over asking (like all the other condos we had viewed). So we left the open house and didn’t consider it a contender.

The next week, I noticed the listing was still online, so I messaged my Realtor and asked if it was still available – and to our surprise, it was! So we snuck in a low ball offer, and after a bit of negotiating, we ended up getting it for about $10,000 less than list price.

The Financials

We had a $125,000 down payment, and decided to use $115,000 towards the home, holding back $10,000 for closing and moving costs. So no, we didn’t end up meeting our original goal of $150,000 towards a home, but I really feel pleased with the amount we were able to save.

Our purchase price was $468,000. And after the down payment, our mortgage will be $353,000.

The mortgage amount represents 2.2x our combined gross annual salary, and all housing expenses come out to 23% of our combined net monthly income – this is based on our full-time jobs alone. Even though I have consistently made a nice chunk of freelance income every year, we decided to only get pre-approval (and create a budget) based on our secure income.

Related: My biggest home buying regret – not considering the future

And what kind of PF blogger would I be if I didn’t include a mock budget? :) This time the chart below indicates our joint household expenses, and what we expect to put into our joint account every pay cheque. We’ve also built in a nice buffer each month which will serve as our household savings fund for emergencies and future large household expenses.

We pay $1,650/month for rent right now, and as you can see our base housing costs (mortgage/strata/property tax) is $2,045/month. While normally I would scoff at such a big increase to our living expenses, we are both absolutely ok with it because we knew we were going to move eventually (and that it would cost us more money), but also:

  • We can still comfortably pursue our financial goals of early retirement and travelling every year.
  • 2-bedroom apartments cost on average $2,500/month to rent in Vancouver, and about $2,000 in New Westminster (units for rent in our building are going for $2,200+).
  • We will be able to sell RD’s car and go down to a one-car household.
  • The building has a nice gym (eliminating the need to continue to pay drop-in fees at the rec centre).
  • Crazy amount of natural light and a large patio (our current home has zero outdoor space and very minimal natural light).
  • A little more space (we’re going from 680 sq.ft. to 825 sq.ft.).
  • A usable second bedroom for guests, and RD can have a small art area.
  • The ability to have a small garden on the patio.
  • Pet-friendly, so we can finally get a cat.

Even though we have decided to buy a home, I am (and will always be) a fan of renting. For some, owning in Vancouver will never be an option, and there’s nothing wrong with that. What’s the point of stretching yourself to the limit just to buy a home? Renting is a fantastic choice for many people, because owning a home only makes sense if 1) your monthly housing expenses are on par with renting, 2) you’ve decided to settle down in one place for the long term, and 3) you aren’t stretching yourself to the point where your lifestyle and retirement savings are compromised.

Related: When renting is better than home ownership

We don’t take possession until mid-June when RD comes back from his annual 5-week field work trip, and we’ll officially be moved in by the end of June. But there’s a lot to do in the meantime! I’ll need to get quotes from painters and movers, change over our insurance, update addresses, as well as start to sort through our stuff for selling or donating.

Anyway, there you have it! I’m surprised but happy that we bought a home so quickly, and we are both looking forward to settling into our new home. :)

Thoughts on our open house tour

Last weekend, our Realtor took us on an open house tour in our desired neighbourhood. We wanted to see in person what we could afford, and what we actually wanted in a future home. Because it’s fine to start jotting down a list of condo requirements, but it’s completely different to actually be in the space and figure out exactly what you want.

I mentioned on Twitter a few weeks ago that our mortgage broker said we’d be pre-approved for an $850k mortgage. We both have good jobs, no debt, and a nice down payment, but still I couldn’t help but be shocked. I thought it would be much lower considering I only got approved based on income from my full time job, and didn’t take into consideration my average freelance earnings over the last 3-4 years. In what world would anyone be able to pay a $3,700/month mortgage?

The rule of thumb is that the cost of a home should be no more than three times your gross household income – which would put us firmly in the $475-500k range, which felt a lot better.

So we settled on looking at places in the $400-500k range (which is just a step above entry-level in the Lower Mainland lol) and picked a list of places to look at.

The first Open House was for a 2 bed/2 bath condo listed at around $400k, and it absolutely shocked me. There were literally dozens (!!!) of people lined up to view it by the time we got there. No joke. They had to take people through in waves because we all couldn’t fit at the same time … and who knows how many saw it in the previous 2 hours of the Open House. After we saw it, my Realtor said the condo probably should have been listed at closer to $475k, and we found out later that it eventually sold for well over $500k. Okay… moving on.

After that one, we saw a mix of other condos – some in more “entry level” buildings, some that were used for rental income (one tenant just sat on the couch while we poked around … which was weird), a beautiful (but small) condo in a heritage building, and a nice warehouse conversion loft.

Here are some observations I took away from that day … most of them didn’t come as a huge shock, but it was interesting to see with my own eyes:

  • There were a lot of young people with their parents. I don’t know if it’s because their parents were co-signing, gifting money, or if they just wanted their parents along, but I was definitely surprised.
  • One of the listing Realtors commented that he was seeing a lot of activity from younger buyers because they’re wanting to take advantage of the BC Government’s Home Partnership program, which provides loans up to $37,500 (or up to 5% of the purchase price) which are interest-free and payment-free for the first 5 years.
  • Most listings were going to multiple offers.
  • Most listings were being sold above asking price.
  • Since most people are getting priced out of the detached housing market here in Vancouver and the surrounding area, that’s putting a lot of pressure and competition on the condo market.
  • Most condos seem to be selling within 7-10 days of being listed. FAST. Not at all like when I was buying my first home back in 2011.

Personally, I was a little turned off by how competitive the market is. I’m annoyed at how listings are purposely priced low in order to push the price tens of thousands of dollars above asking. I hate the idea of multiple offers and bidding wars. I hate how crowded and busy Open Houses are. And I hate that look of desperation I can see on the faces of prospective buyers.

But I also see how easily it can be to get carried away. Emotions get involved when it comes to buying a home, no matter how much you swear you’ll think and act logically … and when you’re faced with a decision to bid $5-10k more or risk losing your “dream home,” all of a sudden it doesn’t seem like such a big deal to slap some more debt onto your back … even though $5-10k could represent an entire year (or more) of savings.

I know that RD are lucky in that we can afford to buy exactly what we’re looking for, even in this over-heated market. But it doesn’t mean that we’re going to. Maybe we’ll end up buying this year, or maybe we’ll just keep watching the insanity from the sidelines.

The crazy Vancouver real estate market

houseWe lovingly refer to our laneway house as the servant’s quarters, as it sits on top of a garage in the alley behind what is essentially a $3 million home. I’ve never been inside the main house, which looks very big and lovely from where we are. But we’ll never buy a home like that in Vancouver.

Related: We will never be homeowners in Vancouver

That’s why when we saw a piece of property in our neighbourhood being developed into multiple units, we were intrigued. I pass it every day on my way to work, so it’s been interesting to see the progress and speculate on how much it would cost to buy. From what I can tell, the property is divided into one stand alone unit (the laneway), and the main house is being sold as four separate units (two 1-bed units, and two 3-bed units). This is the only way in Vancouver to actually buy a laneway house – you’re essentially buying into a small strata, where you have to pay monthly maintenance fees towards the upkeep of the common property. You can’t buy a laneway house outright.

Related: I live in a Vancouver laneway house

Anyway, I was mostly interested in how much the laneway house would cost, as it’s the kind of place we are living in now. And since neither of us are interested in a big house or a big mortgage, we both agreed that the perfect sized house for us in the future would be about 900-1000 sq.ft.

Okay, so the new laneway house is nicer than ours. It’s 2 bed + den/2.5 bath and 1,077 sq.ft. Ours is 2 bed/1 bath and just under 700 sq.ft. Our home is nice, but their offering is bigger, has a secure parking spot, and comes with a second floor balcony (which I wish we had). But is it worth $1,400,000? 

I’ve thought about this a lot, and I can’t figure out how anyone could afford to pay $1.4m for a laneway house (and that’s not even considering a multiple offer or bidding war scenario which would drive the price up). It’s not like you have a basement suite to rent out to help offset the cost of the mortgage! If you were to estimate monthly costs at $5,800 ($5,000 mortgage + $50 hydro + $350 maintenance + $400 taxes), you’d need monthly net income of about $16,500 to stay within a 30% housing cost budget. Ha!

So then I ran the numbers through a mortgage calculator using the list price of $1,398,000 and a 20% down payment of $279,600 to see how much interest you’d pay in the first 5 years of ownership.

mortgage

The interest alone is more than then $19,800 we pay per year for our place. And that doesn’t even take into consideration the $4,080 in maintenance fees (which can only go up), or the $4,900 in property tax – which would mean whoever buys that home would see $36,425 disappear in the first year alone … and pay $128,794 in interest over 5 years. Which makes me wonder – why would anyone buy real estate in Vancouver when you can rent a similar home in a similar neighbourhood for a fraction of the price?

Related: From home ownership to renting

It seems crazy to invest so much money into one single asset – an “asset” in a market that is so unstable. But I’m pretty sure that all 5 units of this property will sell this weekend when they have their first open house (they’ve probably already received offers!).

I’ve always loved following the real estate market in Vancouver because it’s so fascinating. Even now that I’m renting and even though I know we’ll never buy a house in Vancouver, it’s still so interesting to me. I’ll be keeping an eye out on more multi-unit houses going up for sale in my neighbourhood, as well as other laneways. And in the meantime, we’ve both been looking online at vacant land on Vancouver Island, as well as the cost of pre-fab houses, tiny homes, and even yurts. :) It’s a fantasy for now, but could become reality in the future since the money we’re saving from renting could potentially pay for land and/or a home outright elsewhere in the province.

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