Author Topic: Buying a house in Calgary, Alberta  (Read 5186 times)

janey

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Buying a house in Calgary, Alberta
« on: December 08, 2012, 07:58:32 PM »
Hi

I would appreciate your thoughts on my dilemma as to whether to buy a house in Cowtown.

I'm 36, single parent, & gross about $130K/year including bonuses. I expect to have reasonably decent raises that outpace inflation in the coming years. In 2012, I was very lucky to see my income increase by 18%.

I save roughly 30% of my gross income per year and could easily save more if I were more disciplined (seem to keep buying toys to explore the Rockies with). I have a company pension plan (non-contributory), max out my remaining RRSP room (around $7K/year right now & shrinking), and contribute 9% gross to a tax-free account the company set up (and manages) to compensate for lost RRSP room taken up by the pension. If I stay with my current company, I will retire with an unreduced pension at 57 that provides me with a reasonable amount of money to live on. I really enjoy my job.

My fixed expenses are approximately $3K/month, rent is $1400 (taxes are bout $35K/year).
I have no debt, and here's my net worth breakdown:

$220K Retirement (index funds, some stocks, also including pension commuted value of $99K)
$43K short/long term savings (mostly cash & cash equivalents, some bonds & company stock - no specific purpose in mind)

I have a ten year old car I hope to keep for another 5 years. I use it to run errands & spend time in the mountains.

I live & work in downtown Calgary, Alberta, and housing prices are very high. There is some debate whether the market is over-valued. It's certainly less so than Vancouver. I watch price-to-rent ratios, and the gap has been narrowing somewhat in the last 6-12 months.

I have been thinking about buying a 'forever' home lately for personal reasons (convenience for my hobbies, having enough room to comfortably live with my mother for child care & as she gets older). I also have a sense that I'm going a bit overboard saving for retirement & will probably end up saving more (forced savings - and I don't like debt) if I start shovelling money into a house. Long term, the Calgary housing market has outpaced inflation by about 1-2%. I have no illusions that the real estate market will make me a pile of money, though the capital gains exemption appeals to me.

I rent a nice condo, but have owned one before and am not keen on the common ownership/insurance/lack of control on maintenance issues. It's also the typical case of renting lower cost housing than what I would want for my 'forever home'. Biking or walking to work is very important to me, so I will stay in the inner city.

As a result, I'm looking at spending a lot of money to live in a house in the inner city. I'm seriously considering a duplex/rental basement suite to improve my cash flow situation short term & generate passive income once the place is paid off. I haven't looked into crunching numbers on the differential between a single family house & a duplex in the inner city, but anecdotally, it doesn't seem that much.

My mother would provide a down payment of $250-275K & thereafter pay for her share of maintenance, property taxes & bills. In three years time (our target for buying), I could save an additional $150K as down payment. The type of place I'm looking for would be around $700-850K. Let's ballpark that I could get rental income of $1200/month.

So what do you think guys? Should I buy into Calgary's ridiculous housing market & take on a giant mortgage or try harder to save more money?

« Last Edit: December 08, 2012, 08:02:19 PM by janey »

totoro

  • Handlebar Stache
  • *****
  • Posts: 2102
Re: Buying a house in Calgary, Alberta
« Reply #1 on: December 08, 2012, 09:13:02 PM »
I think we will know where the market is in three years.  That will be enough time for a correction to play out and it is premature to run numbers right now if you are not planning on buying.   I would lean towards a duplex or triplex.  We own a triplex and will live basically for free once we finish some renos due to rental income.

$800 000 seems high to me but I don't know the Calgary market.  In Victoria this would get you a nice duplex near town with one side renting at approx $2000 a month.

If you buy for $800 000 your costs for mortgage and all expenses including maintenance and insurance are ballpark $4400-4600/mos if you only put 20% down.  I always look at whether the investment is cash flow positive on these numbers first because appreciation is not certain and I want to know that my money is in a place where the numbers work as is. 

If you are buy a place for $800 000 and only getting $1200 a month rental income you are not in a strong investment position but for appreciation - it would actually cost you $3200-$3400 a month to live there with 20% down.  I know you are putting more down but you are losing the investment potential on this capital as a result.  The numbers are stronger if you start counting principal repayment in the mix though.

However, given that your mom is willing to invest as well and live with you and share expenses it is a better than average investment for you if she does not currently live with you because it will cost you the same to own as it currently does to rent (if you also have $1200/month rental income) PLUS you will be paying down principal each month.

KMMK

  • Handlebar Stache
  • *****
  • Posts: 1472
  • Age: 42
  • Location: Edmonton, AB, Canada
    • Meena Kestirke Insurance
Re: Buying a house in Calgary, Alberta
« Reply #2 on: December 08, 2012, 09:31:01 PM »
At least with your target being 3 years away that's lots of time for a market correction. I'd just start saving outside of retirement accounts and see what the market does. I can't believe prices are so high there. Here in Winnipeg $800,000 is pretty much a mansion. And our market hasn't crashed at all yet. We probably want to buy eventually but it's too much of a seller's market right now. Either we'll do a private sale or wait it out. For comparison, our rent for a nice 2 BR is $1100, and to buy all the house we'd ever need is $300,000. We'll probably get a condo for less. So it sounds like Calgary is currently better for renting. At least compared to here.

Gerard

  • Handlebar Stache
  • *****
  • Posts: 1410
  • Location: eastern canada
Re: Buying a house in Calgary, Alberta
« Reply #3 on: December 12, 2012, 11:13:52 AM »
I agree with others that three years is a long way away... whatever choices you have to make now (wrt where your savings go) will not have a huge effect on your overall 'stash in the next three years.

It sounds like your excellent high-paying job is guaranteed for a number of years, which tilts the playing field toward buying (as you won't be moving to find work).

One thing I would suggest: if you haven't already done so, talk to a lawyer and accountant about the legal and tax implications of the setup you envision with your mom. There may be issues there that would influence the decisions you want to make now. With your mom supplying so much of the down payment (and presumably earning less than you, unless *everyone* in Calgary is rich), it might make more sense for her to own the home and charge you (and your "real" tenant) rent, perhaps with you guaranteeing the mortgage.

fubared

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Buying a house in Calgary, Alberta
« Reply #4 on: December 12, 2012, 01:42:18 PM »
Wait for the RE correction. It is coming with CMHC tightening lending. CMHC is the only reason our Canadian RE market didn't crash with the rest of the world. $800,000 is way too much for Calgary. Wait a couple years and you will get a lot more with a smaller mortgage.

Norman Johnson

  • Stubble
  • **
  • Posts: 174
  • Location: Moving around, currently in Florida!
Re: Buying a house in Calgary, Alberta
« Reply #5 on: December 13, 2012, 07:31:21 AM »
Kestra - Winnipeg (or at least some areas outside the city) is already starting to cool in my opinion. I've noticed that more houses in the 250-400K range are sitting on the market longer and are also being sold for list or less. Hot areas of the city will always have competition.

Janey - I wouldn't bother buying into the market if you think it's "ridiculous" unless you really want to. I bought my house years ago when the market was going crazy because I was tired of hearing my neighbours fight and then "make up" every damn day, so I won't be looking down on anyone for their reasons to buy! On the flip side, it took me months to find the right place and I bought it for list with an inspection when everyone was involved in bidding wars and waving house inspections. So to answer your question, I would continue to save a ridiculous amount, decide exactly what I want for a house and how much I'm willing to pay for it, and then watch for the real estate you are looking for.

Posthumane

  • Bristles
  • ***
  • Posts: 306
  • Location: Alberta
    • Getting Around Canada
Re: Buying a house in Calgary, Alberta
« Reply #6 on: December 13, 2012, 04:08:53 PM »
I've been looking around Calgary in case I end up moving back there in the not-too-distant future, and I think you could do better than $800k, even for a full duplex. Depends, of course, on how far you want to live from work. If you want to be close to downtown, have a reasonable rental market and a price that isn't through the roof, the area around the stampede grounds has some occasional deals. If you prefer a "nicer" neighbourhood and want to be closer to the Rockies, then some of the newer areas in the NW and around COP can be reasonable, but the commute will be longer and rental prospects are worse unless you're near the new LRT line.