I am 23, I have $10,000 and I don't know what to do with it?

[smantini]

*EDITED - I am 23 years old living in the east end of Toronto and I have saved $10,000. I am currently renting an apartment but I am in the process of buying a condo in Scarborough. I was approved for a mortgage of $150,000 and I found a great 3 bedroom condo for $130,000. I was thinking I would buy the condo, live in it for a bit then start renting it out once I can afford a second property to live in. I was reading the MMM blog and he mentions investing in stocks and mutual funds. So my question is, what should I do?

*I work in television and my current income is $2,400 a month after tax. I am currently renting a 1 bedroom apartment + den and with a parking spot for $1,185 a month plus utilities, so approximately $1,260/month.

Because I am renting with my girlfriend I am able to save $1,500 a month. We do not have any children and I am happy to say I am dept free. My car is paid for and I paid off my OSAP in the first 2 years after I graduated.

If I were to buy the condo with a 5% down payment of $6,500, my monthly payments will be roughly $1,289.55 including property tax, utilities and I will be making accelerated weekly payments of $147.01. After legal fees and everything it will cost me roughly $8,000. So I will have $2,000 as an emergency fund which I will continue to add to as I work. 3 bedroom condos rent between $1,400-1,700 a month in that area.

The condo is renovate with new appliances and laminate flooring. It is in a great area close to a few elementary schools, secondary schools and two colleges. The subway station and go station is just up the street no more then 5 minutes away.

So as of now, it will only cost me $30 more a month to own and the condo is a bigger property. I double checked and I can rent out the condo. Another note that might be interesting is that the same condo in the same building sold for $90,000 in 2011 and is now selling for $130,000.

And lastly, I would not be interested in renting out the two other rooms while I am living there as I will be using them as office space.

1. Buy the condo, live in it for a bit and once I can afford a second place start renting out the condo?
2. Buy the condo and put a small amount around $500 - $1,000 into Mutual funds?
3. Continue to rent my current apartment but put the $10,000 towards mutual funds?

Thank you

[schimt]

need more info, whats does your current rent and income look like.

[Eric]

Lots of condos have restrictions that don't allow you to rent them out.  Are you sure that's even an option? 

If it's okay to rent out, what makes it a good rental?  What could you rent it for?  Toronto's pretty expensive, right?  Is it even advantageous to buy instead of continuing to rent?

[marblejane]

Dude, seriously, save up a 20% down payment and a $5k emergency fund first. I bought a house when I was 25 years old with less than 10% down, now I'm hugely underwater on it, and it's crappy as a rental. It's the biggest financial mistake I've ever made, and it's probably going to cost me $50k when all's said & done. You need to do a lot more due diligence before going through with this.

[BooksAreNerdy]

Is that 10k the only down payment you have? What is your current rent? What is your income? How much are you currently saving per month? Do you have an emergency fund? Do you have any debt? Student loan, car?

[gillstone]

Before I run my litany of questions - awesome job saving 10k!

Is it just you or do you have a spouse and/or kids?

What are the terms of the loan?

Is there anything that would preclude you from getting 2 roommates for that 3-bed condo?

Do you have anything past that 10k for emergencies?

How long would it take to save up another 25k so you have a 20% down payment and a reserve?

Are you sure you want to own a home in Toronto at your age? If you needed to look for work does your end of Toronto have enough market demand that you won't have to commute across town or move.

[Scandium]

That young and focusing 100% (?) of your investments into a single item? No would not do it. Too much risk. Mutual funds.

[Prairie Stash]

What could it currently rent for? What are the condo fees? That's a very large chunk of your take home, you'll be among the ranks of house poor.

Two offices sounds pretty luxurious! Do you seriously do that much work at home?

Instead of saying mutual funds it should read "place the money into an RRSP and receive a tax refund of app. $3,000". Then with the $24,000 you can save in the next 16 months you could have $27,000 (24+3 from refund) and then have 20% down on a $130K place. At which point, end of 2015, your net worth will be $37K. 

[fartface]

When I was 24, my husband and I purchased our first home for $133,000 with $27,000 down.

Condos IMHO are horrible investments. Both my brother and my sister each bought one and lost their a$$es on them.

Not to mention the awful association dues - biggest SCAM out there.

My advice: wait, save 20%, and purchase a home.

[Yonco]

I would suggest saving for more of a down payment, such as 20% I put 20% down on my home when i was 21 and still ended up using a good amount of savings on expenses i never thought about.  Home improvements, extra utilities i overlooked, furniture and other items i never had because i was living with my parents. That added up to an additional 5K$ after a years worth of living there.  Always have extra than what is "planned"

[Alabaster]

nvm, I need to learn to read more slowly first.

[navystache]

I would buy a HUD foreclosure.  There is financing out there with 5% down payment as an owner occupant.  But definitely do your due diligence.  Buy a house to live in but the price should be affordable enough where if you had to rent it out you wouldn't be deficit every month.  Depending on the area if the market rent is 1% of the purchase price you should be fine(i.e. $1200 rent, $120,000 purchase price). 

I know buying real estate isn't a popular option around here since there are unexpected costs, but I have 3 rentals and even though there has been maintenance issues I took the the proper measures to where it wouldn't hurt my personal bank account.  I truly cash flow $850 a month.

I would not buy a condo.