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?