Greetings everyone!
I am a long time lurker on this forum and love the advice provided here, I am looking to buy a 2 bedroom Condo in Downtown Toronto and rent out a room/live in the other. I know this topic has been beaten to death but I would appreciate it if you could humor me and take a look over my story.
Current situation:
I am a 28 year old accountant who recently moved from Winnipeg to Toronto in March of this year.
I have never been super open about my sexuality but I am a gay man, it was very hard for me living in Winnipeg I felt very depressed, alone, and isolated. My family has always been amazing but dating was extremely difficult and the LGBT community was limited. Since moving to Toronto my life has improved 10 fold, there is an amazing community here and I can’t see myself living anywhere else.
With that in mind, I am currently renting but have started looking more closely at potentially buying since I see myself living here for the next 10 + years.
Gross Salary: $75 000 per year
Bonus: 10% of Salary ($7500), this fluctuates based on the performance of the company
Defined Contribution: 6% match
Free GoodLife gym membership
Net: With our crazy Canadian deductions my net pay per month is $ 4200, Bonus is paid yearly in May
Expenses (per month)
Rent: 800$
Utilities/laundromat: 100$
Phone: $60
Groceries: $250
Sport league $50
Eating out/Entertainment: $350
Cloths/misc.: 50$
Travel 250$
Total: $1910
Savings: $2290 (55%)
Assets:
RRSP $50 000
TFSA $55 000
Cash $35 000 (recently sold my car so I have more cash than usual)
Total: $140 000
Allocations RRSP/TFSA are invested 100% in EFT’S and Canadian divined stocks, Cash is sitting in a high interest savings accounts
Liabilities:
None
Question: I would like to buy a 2 bedroom condo in Downtown Toronto and rent out 1 bedroom and live in the other.
Looking for someone to poke some holes in my plan.
I was pre-approved for a mortgage 5 year fixed at 2.19%
I would use my Cash, TFSA and 25 000 from my RRSP (Home buyers plan) to finance the purchase and closing costs.
Item Dollar impact
Purchase price $500,000.00
Down payment $100,000.00
Net mortgage $400,000.00
Mortgage payment $1,788.00
Closing Costs (Estimated net):
Closing costs amount
Home inspection fee $500.00
Legal fees $500.00
Title insurance $300.00
Insurance ( fire) $500.00
Bill Adjustments $1,000.00
land transfer tax $12,200.00
Total $15,000.00
Refund ( first time home buyer) -$5,725.00
net $9,275.00
I likely wont purchase for 3- 6 months so this should allow me to build up more cash for a cushion, I also will be getting a large tax return in March (7500$).
Why do I want to buy over rent?
See below sample calculations based on recent properties I have looked at, rent in DT Toronto is quite high so I should be able to easily find a tenant for 1000$ per month ( if not more). Note: I am not including the principal payment as a cost since it is another form of savings
Item Dollar impact
Interest portion of mortgage $730.00
Condo fees $437.00
Property taxes $233.00
Hydro/electirc/internet $200.00
Total costs $1,600.00
Rent from 2nd room $1,000.00
My monthly costs $600.00
Based on these calculations I am slightly ahead monthly buying vs renting
Investment loss on 100k down payment VS appreciation: Due to the leverage nature of mortgage debt and using some conservative examples. I believe I will be further ahead Buying a Condo (see sample below). Toronto Condos have averaged 5% appreciation over the last 20 years, the below is using a conservative 2%.
Item Amount Total
Assume 7% return $100,000.00 $7,000.00
Assume 2% return $500,000.00 $10,000.00
Smith maneuver: I am also planning to implement the smith maneuver after 1 year once my condo has appreciated and built up additional equity. For those non Canadians this allows me to access my home equity through a HELOC and write-off the interest expense against the investments. This will allow me to continue to diversify and not become over exposed to the Toronto real estate market.
I appreciate any thoughts or insights you can provide!