First-Time Buyer
Making the decision to transition from renting to owning is a significant shift in lifestyle. There are many studies that indicate that home ownership is the better solution. However, everyone has different life criteria and financial situations. There are prevailing economic conditions to think about as well i.e.: job stability and interest rates to note just two.
From a simple point of view, home ownership is preferable because you are paying into a home of your own which will over time decreases your mortgage. At the same time as you are building equity, your home may be appreciating making it more valuable should you decide to buy a different house or a larger home. When you rent, you will never own the property but your landlord will be happy as you make their mortgage payments for them.
Dollars Lost Renting
The most common deterrent for home ownership versus renting is the down-payment, particularly for those just wishing to enter the housing market. However, if you take a look at the potential lost opportunity, it just doesn’t make sense to rent if you don’t have to.
If you are paying an average rental rate of $1,200 per month, it would cost you $14,400 at the end of year one, after two years $28,800, after three years $43,200, four years $57,600 and after five years an astonishing $72,000. And what are you left with … lost opportunity.
Cumulative Yearly Cost of Renting Over 5 Years
| Rent/Mth | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| $800 | $9,600 | $19,200 | $28,800 | $38,400 | $48,000 |
| $1,000 | $12,000 | $24,000 | $36,000 | $48,000 | $60,000 |
| $1,200 | $14,400 | $28,800 | $43,200 | $57,600 | $72,000 |
| $1,400 | $16,800 | $33,600 | $50,400 | $67,200 | $84,000 |
| $1,600 | $19,200 | $38,400 | $57,600 | $76,800 | $96,000 |
| $1,800 | $21,600 | $43,200 | $64,800 | $86,400 | $108,000 |
At the end of a renter’s tenure, what do they have to show for their rent? The landlords of rental accommodations really like renters, particularly for those investment properties, as renters help them pay their mortgage and gain significant appreciation over the course of time.
There is a level of responsibility which comes with home ownership including financial, maintenance, taxes, and so on. However, it just doesn’t make sense to throw away hard-earned money and not invest in you in the form of home ownership.
In general, owning a first home tends to be strongly correlated to financing, household income, and the down-payment. The choices tend to be limited to an older home (perhaps a fixer-upper), a townhome, or a small condominium -- all of which are not bad choices. Additionally, in some cases, the location tends to be somewhat compromised as significant premiums exist for water-views, valley-views, established neighborhoods, and so on. However, if you take the time to shop property there are great opportunities for first-time owners.
Here are some considerations to account for as a first-time buyer purchasing new:
- What are your size requirements – square footage and bedrooms?
- Location – does it meet your current and future needs?
- Does the home have all the features you require?
- If a pre-sale, when will it be completed? Is your down-payment secure?
- What is the down-payment? Will the developer allow for 5%?
- If a pre-sale, what are the upgrade costs, if applicable?
- Know your extra costs – parking, locker, finishes etc…
- Does the Developer offer financing assistance?
- What is the New Home Warranty being offered?
- Taxes – what are the rebates in place and are there any government subsidies?
- Lastly, research the developer’s history. Do a background check.
Move-Up
This is the group that tends to follow the first-time buyer segment. Perhaps you have lived in your new home for a few years and decided to start a family and now realize that the walls are moving in on you. There may even be lifestyle changes including the need for a home office. Have you outgrown your home? The two most common options include renovation to make the existing home more efficient because you like the neighbourhood, the friends, the school and established sense of community. The other choice is to move into a larger home.
Move-up purchasers have a significant advantage over first-time buyers as they have probably built up significant equity in their homes and depending economic conditions, have gained a significant appreciation. This allows for greater flexibility in their next steps.
Other benefits of buying new versus resale include:
- If presale, flexibility in floor plans and options.
- Superior financial position allowing you to make your home your own through customization, depending on the builder.
- Ability to get exactly what you want to suit your family needs.
Empty Nester/Down-Sizing
Have your kids have moved on and started their own lives, leaving you in a relatively large home with the majority of the rooms un-utilized? Are you now left with all of the usual maintenance chores i.e.: mowing the lawn, landscaping, exterior house maintenance, cleaning, up-keep of the pool etc? If so, this is when you start thinking about yourself a little more and perhaps begin to consider a lifestyle change. Down-sizing may be considered the next stage in your life but it doesn’t have to be negative.
Typical non-maintenance living includes strata apartment condominiums and townhomes. The benefits of this lifestyle include: lower costs, reduced taxes and no or limited maintenance. With the projects amenities and you can take more time to focus on what’s important: you and living. Additionally, a non-maintenance lifestyle allows you to be away from the home without worrying about who is taking care of it.
Buying New has some significant advantages over older homes:
- A New home generally means less maintenance and lower strata fees.
- Generally have more available amenities depending on the home – pool, lounge, conference centre, fitness area, bbq pit, etc.
- Latest technology built into the home ie: internet, security.
- Latest finishes and décor.
- If pre-sale, significant choice of finishes available to suit your needs.
- Much of what’s noted in the first-time buyer section is also applicable for down-sizing.
