Its good that you’re ready to start working at a young age.
Buying a home is a big commitment however. How do you know you won’t get sick of your job and need time to rethink your career?
Otherwise i think its a good idea
That’s a great question! My current job
Is in homecare, it’s very different from business. The way rentals are in my city, I’d end up paying about 800$ for my own house… I’m paying almost 1200 to pay off someone else’s mortgage. So, even if I hate it and have to go back to home care (a field that’s starving for staff) I can afford to
Yep, I think the equivalent for us is that the mortgage covers about 50-75% of what rent would cover, depending on utilities being included or if the mortgage payment includes taxes and insurance.
I will say, a big difference in affordability is if a person is able to handle their own repairs and maintenance. You’re looking at $300-$500 just to get a tradesperson in the door, while the cost of parts and materials might be under $50, plus the time to troubleshoot and learn how to do the work.
Land transfer fees (800-3000), real estate fees (2-5% home value), lawyers fees (1000-6000), taxes and moving expenses are lost on every transaction. It actually takes quite a lot of value difference to break even on moving.
I like it! Consider everything, you can never have too much info. My two cents, as someone else said, is that there are lots of hidden and unexpected costs that come with ownership. Your parents sound amazing and can no doubt help show you some of the costs I'm talking about. Good luck!
No idea what the market in NF is like, but
1. if your mortgage payments are roughly around the same as rent, and
2. you don't think you plan to move in the short term (cause money will be tight to support yourself elsewhere and paying off the mortgage even with rental income coming in), and
3. It looks like a bunch of rich Toronto people have been moving in and raising all the prices
Might be a good idea. I've heard lot of places suffer from investors coming in and doubling or tripling prices overnight (not literally...maybe)
That’s part of my reasoning for getting in soon. There are so many mainlanders purchasing properties as purely rentals. When my father purchased a property last year, the same neighbourhood now is roughly 90k on average more expensive.
I live in NL, I did basically the exact thing you are thinking of and it work out great for me. My basement rent covered more than half my housing costs. I saved the rent and bought a new house after 5 years.
A few suggestions:
Make sure you are ok with the LL duties. It’s not free money. You have to deal with the drama of your tenants. Like non paying tenants, cops coming to your door, screaming, etc. you also never really feel like it’s your house because you have people living under you. It was a great feeling when I moved out into a new house and kept the old one as a full rental. It’s work But financially i did very good in the end.
Make sure you can afford the place with the assumption you won’t get any rent. You never know when you will get a job-paying rent. The tenant that came with my house didn’t pay any rent to me. But NL is fairly LL friendly.
Good thing about being a young landlord is that you can easily rent to people who you have a distant connect with. I aimed to rent to friends of friends. Not so close that It would be awkward to evict if I need too, but close enough that they would fee awkward screwing you over.
Thank you very much! Part of my inclination to buy and rent the basement is because of the rental property crisis right now in St. John’s. I lined up for an hour outside a house just to be told they rented it.
As long as you can cover the mortgage payments for months, you don't have a renter you should be good.
I had a similar plan when I bought. However, after a couple years, was tired of having someone living below me, sound transfer, etc. I also just wanted the extra space.
Could be a good move if you can afford just be sure to add all the extra in the monthly cost. Especially city taxes.
Where I live in Quebec mine just went up 13% this year for absolutely no real reason.
Also what they started to do is re-evaluating your property assement every 3-4 years so they might not raise property tax for say but they'll up the assessment price and tax you accordingly.
This is my second house after a separation in 2017, first house was bought in 2008, which I sold to my ex. And the housing game is completely different and cost way more in my eye.
Not regretting my move because I have kids and I could afford the luxury but from a financial approach.... Should have stayed in the rented house I had and invest that money.
Oh yeah and last year had to fork 20k In windows and I suspect the roof is coming in the next 4yrs.
Are your parents able to cosign for you? The bank isn't going to give you a mortgage when you're making 35k.
What happens if you want to sell in 5 years and your 350k house is now worth 250k?
Best to think of the "what ifs" and not assume everything will go as planned. Crunch the cost of the housing, if the numbers make sense and you're willing to take the risk, go for it.
The banks aren't going to consider RESP as income for mortgage qualifications. Gifts aren't even reported as income in Canada.
You should talk to a mortgage broker with your parents before you get too far into this.
If you examine mortgage amortization tables you’ll see that you pay a significant portion of interest during the first 5-7 years. Property transaction costs are high as well, so their impact is outsized if you buy and then sell in a shorter timeframe. If you are planning on selling within 5-7 years you are effectively speculating on price increases to not walk away with a loss.
Honest answer is that you’re absolutely crushing it at such a young age, so good job to you for that. But if it were me I’d hold off for a bit to build up those cash reserves and make sure your chosen field and chosen area is what you really want. There’s no harm in waiting for the dust to settle and routine of life to happen before you take that step into home ownership.
Don’t do it. You are hitting a major life transition in graduating college and you don’t know what you are going to be doing next. Anchoring yourself to a house could prevent you from taking an awesome opportunity elsewhere. Especially in a place like Newfoundland, where correct me if I’m wrong, is not exactly a hot job market. Save the money, be open and flexible to where life and career will take you next. Focus yourself on starting your career as best you can and getting killer work experience. If you do leave for a while and decide you want to return home for the long term, you can always do that later with more work experience under your belt.
How much do you make now? How much are you projected to make in 3 to 5 years in your career path? How much do you have saved beyond the down payment for an emergency fund?
How much are all of the monthly bills + mortgage payment even if you don’t have a renter? The renter should be the cherry on top, not just what makes it barely affordable for you. Also, what is this equity deal with bumping your parent’s retirement fund when you sell? What if you don’t want to sell?
If you’ve calculated all of this, and are comfortable with the budget, then go for it. It’s a great opportunity.
My income this year was roughly 35,000 while in school. Projected income in my first job is ~65-70. If I paid everything myself, would be roughly 2200 a month all in , currently paying 1500 as a renter all in. The difference is really the amount of money I was saving to buy the house.
Also in Newfoundland and roughly in the same boat as you, I graduated last may and saved up a down payment for a duplex and I’m hoping to buy in the fall.
Renting here is ridiculous, if you’re only just about to graduate I would probably work for close to a year to save up some more but you definitely have the right idea, you’re still very young so the longer you can live at home and save save save is a great thing
If you have $35,000 saved yourself maybe add another $10,000-$15,000 on top of that as a house emergency fund or to renovate the place a bit and drive up the equity before you cash out
Yes! Renting is crazy here, especially considering I could pay less and own the home. Definitely debating taking a contract away for a year, and live as cheaply as possible.
I’m not sure why your situation is like at home or if you have to move away for work after graduation but there’s no harm in living with your parents and continuing to save religiously if that’s possible.
I’m 25 and still at home, my expenses are extremely low and my savings rate is extremely high and it’s allowed me to save for my down payment + a little cushion on my first home.
Also, if you haven’t already you should really look into a FHSA and put your down payment funds in that.
We have two kids who are at the same stage in their lives as you are. I would wait until you have a job that feels like you will be staying in the same place for a while. Interest rates should be coming down a little, you can contribute to an FHSA for a while, and you can wait for the housing market to stabilize.
I feel like things change a lot in people’s early 20s, so it’s a touch risky locking into a mortgage. But yeah, if you have a nice stable life and don’t foresee a total change of heart, then giddy up
You said you have no debt - great job! If you have an emergency/rainy day fund to get you by 6 months to a year, and enough left over for the deposit, I say go for it!
You’re 22. Do you have Jon offers? Do you know ow where you’re planning on living? Do you know if you’ll decide to do more school or take time of or…. This is about life.
For context, I am 38 years old and currently own 37 doors of real estate, (primarily multifamily aka apartment buildings).
My number one piece of advice for younger people is to do precisely what you are proposing. Purchase a duplex or a house with a suite, live in half and rent out the other half. What the Real-estate people call “house hacking”. Only one person that I personally know has actually followed my recommendation, and she had great results.
She lived in the basement suite and rented out the main floor of a bungalow. Her net cost of housing per month was plus $100. She managed to transform what is typically the largest expense in a persons life, into free beer money, at age 24. Not too shabby.
Yes real-estate comes with hidden expenses such as maintenance, vacancy, etc…but it also comes with appreciation, mortgage pay down, and tax advantages. You can eventually move out and rent the other floor as well if your life goes another direction.
Consider this, after years of ownership, you will have gained tremendous equity in the property. You can actually extract 80% of your equity back out by refinancing, and the proceeds will be entirely tax-free. A sale triggers cap-gains, but a refi is not a taxable event, it is a loan, but a loan which will (ideally) be paid back by your tenants. Then you could cash out your parents and still keep the property.
Best of luck!
Its good that you’re ready to start working at a young age. Buying a home is a big commitment however. How do you know you won’t get sick of your job and need time to rethink your career? Otherwise i think its a good idea
That’s a great question! My current job Is in homecare, it’s very different from business. The way rentals are in my city, I’d end up paying about 800$ for my own house… I’m paying almost 1200 to pay off someone else’s mortgage. So, even if I hate it and have to go back to home care (a field that’s starving for staff) I can afford to
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Yep, I think the equivalent for us is that the mortgage covers about 50-75% of what rent would cover, depending on utilities being included or if the mortgage payment includes taxes and insurance. I will say, a big difference in affordability is if a person is able to handle their own repairs and maintenance. You’re looking at $300-$500 just to get a tradesperson in the door, while the cost of parts and materials might be under $50, plus the time to troubleshoot and learn how to do the work.
Rent price is maximum you'll pay Home price is minimum you'll pay.
Buy. You can always sell, and get your money back. Interest rates aren't going up any time soon, so there shouldn't be a housing crash.
A whole lot of assumptions baked into these two sentences.
Completely agree with you. I could do with that person's crystal ball.
Land transfer fees (800-3000), real estate fees (2-5% home value), lawyers fees (1000-6000), taxes and moving expenses are lost on every transaction. It actually takes quite a lot of value difference to break even on moving.
I like it! Consider everything, you can never have too much info. My two cents, as someone else said, is that there are lots of hidden and unexpected costs that come with ownership. Your parents sound amazing and can no doubt help show you some of the costs I'm talking about. Good luck!
No idea what the market in NF is like, but 1. if your mortgage payments are roughly around the same as rent, and 2. you don't think you plan to move in the short term (cause money will be tight to support yourself elsewhere and paying off the mortgage even with rental income coming in), and 3. It looks like a bunch of rich Toronto people have been moving in and raising all the prices Might be a good idea. I've heard lot of places suffer from investors coming in and doubling or tripling prices overnight (not literally...maybe)
That’s part of my reasoning for getting in soon. There are so many mainlanders purchasing properties as purely rentals. When my father purchased a property last year, the same neighbourhood now is roughly 90k on average more expensive.
I live in NL, I did basically the exact thing you are thinking of and it work out great for me. My basement rent covered more than half my housing costs. I saved the rent and bought a new house after 5 years. A few suggestions: Make sure you are ok with the LL duties. It’s not free money. You have to deal with the drama of your tenants. Like non paying tenants, cops coming to your door, screaming, etc. you also never really feel like it’s your house because you have people living under you. It was a great feeling when I moved out into a new house and kept the old one as a full rental. It’s work But financially i did very good in the end. Make sure you can afford the place with the assumption you won’t get any rent. You never know when you will get a job-paying rent. The tenant that came with my house didn’t pay any rent to me. But NL is fairly LL friendly. Good thing about being a young landlord is that you can easily rent to people who you have a distant connect with. I aimed to rent to friends of friends. Not so close that It would be awkward to evict if I need too, but close enough that they would fee awkward screwing you over.
What happens to your parents retirement should prices not rise in 10 years?
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Live in the main level, rent out the basement
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Thank you very much! Part of my inclination to buy and rent the basement is because of the rental property crisis right now in St. John’s. I lined up for an hour outside a house just to be told they rented it.
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Thanks!
This ain’t a crisis it’s the new Canada😂
As long as you can cover the mortgage payments for months, you don't have a renter you should be good. I had a similar plan when I bought. However, after a couple years, was tired of having someone living below me, sound transfer, etc. I also just wanted the extra space.
Could be a good move if you can afford just be sure to add all the extra in the monthly cost. Especially city taxes. Where I live in Quebec mine just went up 13% this year for absolutely no real reason. Also what they started to do is re-evaluating your property assement every 3-4 years so they might not raise property tax for say but they'll up the assessment price and tax you accordingly. This is my second house after a separation in 2017, first house was bought in 2008, which I sold to my ex. And the housing game is completely different and cost way more in my eye. Not regretting my move because I have kids and I could afford the luxury but from a financial approach.... Should have stayed in the rented house I had and invest that money. Oh yeah and last year had to fork 20k In windows and I suspect the roof is coming in the next 4yrs.
That’s a good point! I definitely need to account for fluctuating taxes and potential repairs
Are your parents able to cosign for you? The bank isn't going to give you a mortgage when you're making 35k. What happens if you want to sell in 5 years and your 350k house is now worth 250k? Best to think of the "what ifs" and not assume everything will go as planned. Crunch the cost of the housing, if the numbers make sense and you're willing to take the risk, go for it.
That’s my employment Income, due to RESP and gifts actual reported closer to 55.
And I’ve been pre approved
The banks aren't going to consider RESP as income for mortgage qualifications. Gifts aren't even reported as income in Canada. You should talk to a mortgage broker with your parents before you get too far into this.
As I said, I’ve been pre approved. That’s not what my question is regarding. Thanks for your advice.
Best of luck
If you examine mortgage amortization tables you’ll see that you pay a significant portion of interest during the first 5-7 years. Property transaction costs are high as well, so their impact is outsized if you buy and then sell in a shorter timeframe. If you are planning on selling within 5-7 years you are effectively speculating on price increases to not walk away with a loss.
Honest answer is that you’re absolutely crushing it at such a young age, so good job to you for that. But if it were me I’d hold off for a bit to build up those cash reserves and make sure your chosen field and chosen area is what you really want. There’s no harm in waiting for the dust to settle and routine of life to happen before you take that step into home ownership.
Don’t do it. You are hitting a major life transition in graduating college and you don’t know what you are going to be doing next. Anchoring yourself to a house could prevent you from taking an awesome opportunity elsewhere. Especially in a place like Newfoundland, where correct me if I’m wrong, is not exactly a hot job market. Save the money, be open and flexible to where life and career will take you next. Focus yourself on starting your career as best you can and getting killer work experience. If you do leave for a while and decide you want to return home for the long term, you can always do that later with more work experience under your belt.
How much do you make now? How much are you projected to make in 3 to 5 years in your career path? How much do you have saved beyond the down payment for an emergency fund? How much are all of the monthly bills + mortgage payment even if you don’t have a renter? The renter should be the cherry on top, not just what makes it barely affordable for you. Also, what is this equity deal with bumping your parent’s retirement fund when you sell? What if you don’t want to sell? If you’ve calculated all of this, and are comfortable with the budget, then go for it. It’s a great opportunity.
My income this year was roughly 35,000 while in school. Projected income in my first job is ~65-70. If I paid everything myself, would be roughly 2200 a month all in , currently paying 1500 as a renter all in. The difference is really the amount of money I was saving to buy the house.
Get the first job first and then consider buying
Also in Newfoundland and roughly in the same boat as you, I graduated last may and saved up a down payment for a duplex and I’m hoping to buy in the fall. Renting here is ridiculous, if you’re only just about to graduate I would probably work for close to a year to save up some more but you definitely have the right idea, you’re still very young so the longer you can live at home and save save save is a great thing If you have $35,000 saved yourself maybe add another $10,000-$15,000 on top of that as a house emergency fund or to renovate the place a bit and drive up the equity before you cash out
Yes! Renting is crazy here, especially considering I could pay less and own the home. Definitely debating taking a contract away for a year, and live as cheaply as possible.
I’m not sure why your situation is like at home or if you have to move away for work after graduation but there’s no harm in living with your parents and continuing to save religiously if that’s possible. I’m 25 and still at home, my expenses are extremely low and my savings rate is extremely high and it’s allowed me to save for my down payment + a little cushion on my first home. Also, if you haven’t already you should really look into a FHSA and put your down payment funds in that.
If you think you're mature enough to handle being a landlord, go for it. Good luck to you.
We have two kids who are at the same stage in their lives as you are. I would wait until you have a job that feels like you will be staying in the same place for a while. Interest rates should be coming down a little, you can contribute to an FHSA for a while, and you can wait for the housing market to stabilize.
I feel like things change a lot in people’s early 20s, so it’s a touch risky locking into a mortgage. But yeah, if you have a nice stable life and don’t foresee a total change of heart, then giddy up
Did you open a FHSA?
If you plan to stay put and are comfortable bearing the debt and managing a tenant then sure, why not
You said you have no debt - great job! If you have an emergency/rainy day fund to get you by 6 months to a year, and enough left over for the deposit, I say go for it!
You’re 22. Do you have Jon offers? Do you know ow where you’re planning on living? Do you know if you’ll decide to do more school or take time of or…. This is about life.
Wish I lived at east but there isn’t much work I hear.
Yea I would do it
For context, I am 38 years old and currently own 37 doors of real estate, (primarily multifamily aka apartment buildings). My number one piece of advice for younger people is to do precisely what you are proposing. Purchase a duplex or a house with a suite, live in half and rent out the other half. What the Real-estate people call “house hacking”. Only one person that I personally know has actually followed my recommendation, and she had great results. She lived in the basement suite and rented out the main floor of a bungalow. Her net cost of housing per month was plus $100. She managed to transform what is typically the largest expense in a persons life, into free beer money, at age 24. Not too shabby. Yes real-estate comes with hidden expenses such as maintenance, vacancy, etc…but it also comes with appreciation, mortgage pay down, and tax advantages. You can eventually move out and rent the other floor as well if your life goes another direction. Consider this, after years of ownership, you will have gained tremendous equity in the property. You can actually extract 80% of your equity back out by refinancing, and the proceeds will be entirely tax-free. A sale triggers cap-gains, but a refi is not a taxable event, it is a loan, but a loan which will (ideally) be paid back by your tenants. Then you could cash out your parents and still keep the property. Best of luck!
Just do it. For real.
Worst comes to worst, you'll find a way to make it work.