Author Topic: Did we actually save 20%?!? Now What?  (Read 1553 times)

bluejay

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Did we actually save 20%?!? Now What?
« on: October 07, 2015, 04:44:15 PM »
My husband and I have saved 20% for buying our first home. We bought into an "energy-efficient town homes" building project within biking distance to work. We bought in November 2014, and with construction underway it should be completed by March 2016. So right now we're waiting and trying to plan ahead.

Our plan was to buy as an investment. We'd occupy for a year then sell, or rent it out. But then we thought, maybe we should just live in it for as long as we can. Real estate and growth where we live in S. Ontario is exploding and it looks like it is going to continue for a foreseeable future (as foreseeable as real estate future can be). So what we want to know is...

1) is putting 20% on this kind of investment still prudent or should we put less down and invest the rest in index funds?

2) there is an $80 monthly condo fee (which will likely go up): will this limit potential appreciation of the house? i.e. resell value

Advice? Thanks, guys.

MoneyRx

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Re: Did we actually save 20%?!? Now What?
« Reply #1 on: October 07, 2015, 05:12:10 PM »
I'm not familiar with mortgage rules in Canada, but assuming they are the same as the US....

I like putting 20% down. PMI is expensive and isn't tax deductible like the interest portion of your mortgage. In order to make investing the better option, your investment has to earn more than the amount of the PMI plus the interest you pay on the extra money you borrow. Keep in mind you will still have to put some money down, so you won't be investing the entire 20%.

When you are searching for mortgage rates you should be able to get different rates and PMI amount for verying amount of downpayments. You will then have to see what the PMI is costing you per month and see how that compares to your expected return from the investment. Remember the % you save from not having PMI is GUARANTEED and the % you expect from investing is not. Also, this will likely be somewhat short term, as once you have 20% equity in your house, you no longer have to pay PMI.

For #2, I think monthly fees are a turn off for some buyers, but when you are looking at condos it is often present. I think it downgrades the resell some, but do you get anything with this? Is there a pool, central office, private party room? Some of these things could help with the right buyer.
« Last Edit: October 07, 2015, 08:42:56 PM by MoneyRx »

Telecaster

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Re: Did we actually save 20%?!? Now What?
« Reply #2 on: October 07, 2015, 05:27:19 PM »

Our plan was to buy as an investment. We'd occupy for a year then sell, or rent it out.

The cart is about a mile before the horse.  If you occupy it for a year and sell, will you in fact make money?   You're betting you will recover all of your transactional costs in only one year, plus some return on the money invested.  That would require amazing price appreciation not typical in real estate.  Especially because if someone wants a condo, they can just buy a brand new condo just one development over.   Next question is similar.  Will you make money renting?   It is not always cheaper to own than rent.  You might make very little or nothing renting.   

The questions about condo fees and such are pretty trivial to the problems I've outlined.   In general, you want to minimize the amount you put down, because that tends to reduce your return on investment. 

kpd905

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Re: Did we actually save 20%?!? Now What?
« Reply #3 on: October 07, 2015, 06:13:14 PM »

Our plan was to buy as an investment. We'd occupy for a year then sell, or rent it out.

Just keep renting a place if you only want to stay for a year.