First Time Homebuyers - How Much House Should We Consider?

[JAYSLOL]

Hey all, DW and I are in our late-30s with one child, living in a fairly HCOL area in western Canada (not quite Vancouver, but nearly as bad). We have about $170-180k we could comfortably spend as a down payment, and we make about $120-130k gross (about $105 take home after tax, Canada Pension Plan and DW’s work pension contributions.  We would still have a little over $100k in retirement/savings if we spent the $170-180k.  We currently have a very good rent situation, we pay about 1/4 of the going rate through my work, which on the surface makes this appear to be a dumb decision to look for a house to purchase, but we’ve had cheap rent and watched the average homes in our area go up by $40-$50k a year for the last 10 years, so it’s actually been pretty brutal being out of the market.  Starter homes in our area (think sub-1000 sqf wartime house that hasn’t been updated since the 80s) are $500k minimum, a comfortable but boring 70s/80s/90s home is in the $650-750k range, and the 70s home on one acre with a big shop we rent is worth about $850-900k.  I may actually have the option to buy the place I’m renting, and rent the yard/shop back out to the business I work for (maybe $1200-1500/month), and I might also be able to buy the home a bit below market value, but that’s not a guarantee.  Obviously $800k even with our decent down payment is way out of budget, but is it worth considering if we look at rental income from it? And if we look for a different home, what would be your price limit with our income and down payment?

[Morning Glory]

You didn't say how much your rent is and how likely it is to go up or not be renewed if the owner sells or something.  If the situation is stable and provided your rental is a comfortable size, my price limit would be 25 x (current annual rent - ownership costs that are currently included in rent).

So for example if your rent is 18k/year and the house ownership costs would be 3k per year for things like insurance and property tax and maintenance then your price limit would be 375k as that + the 75k you set aside for ongoing costs is the amount you would otherwise need to continue renting in FIRE on the 4% rule.

A house should be treated like a bond in your investment portfolio.  You tie up your capital and it throws off imputed rent (the amount you would have to pay if you didn't own a house) every month and you get your capital back when you sell it (plus a little more if you are lucky or less if you bought in 2007). "House prices are going up" is not a good reason to buy a house. If it costs less than the amount you would need to keep renting at a withdrawal rate you are comfortable with in FIRE then it is better to buy the house, provided it suits your needs and you are likely to stay there a few years.

[Dicey]

Lol, our house has gone up every year, too. During those years we've paid tons of taxes, repairs, and improvements, (not to mention opportunity cost since we paid cash), while you've had none of that stress. Comparing what a house sells for to what they paid for it XX years ago is pure magical thinking.

It's perfectly okay to not be in a rush.

[RWD]

In 2016 our gross income was very similar to yours (~$130k). We had about $250k in investments at that time (a little over $100k outside of retirement accounts). That year we bought a house for ~$230k with a 15-year mortgage. Payments were around $1,650/month. We sold it last year for a modest gain of ~$60k after fees and such.

Because we bought a house well below our means our invested assets increased by $1M over that time period. I'm not saying that you can replicate finding such a cheap house to buy at such a low interest rate, but you should consider the effects on your long term retirement savings by potentially locking away ~60% of your investable assets into home equity (down payment).

Last year we bought an $800k house. But that's only after already having $1M+ invested and increasing our income (~$225k). Making this move has effectively tripled our expenses and added quite a few years of working required to hit FI...

My recommendation would be to run a few scenarios to see how long it will take you to hit FI with continuing to rent, buying a $500k house, $600k house, etc.. Then think about what levels of trade-off you're willing to make.

[JAYSLOL]

My rent is only $800/month (not including utilities).  For comparison, to rent just a room anywhere within 100 miles starts around $1000/month, the bare minimum for what we would need - a two bedroom apartment, starts around $1800, but most are well over $2k.  A house like I’m in is $3500-4000/month. The problem with continuing to rent is I can’t take this rental with me into retirement or even if I changed jobs, but if I could, I’m on track to hit FI in about 10 years give or take a year.  Obviously I’m aware buying a house would drastically affect my FI number, but seeing as we won’t be able to keep renting anywhere near that rate forever it’s going to have to change anyways.  Unfortunately, even (livable) mobile homes are $400-500k here.  So I get that having a mortgage and paying interest and repairs and taxes aren’t cheap, but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.  Best case scenario maybe I put in another couple years renting and get another $100k to add to that down payment, and hopefully prices stall for those couple years, but I feel like that’s a game I’ve been loosing, I’ve been “a couple years away” from affording a home for the last 8 years, but the market continues to outpace me. 

[Metalcat]

Is it a given that you will stay in that location in 10 years?

Homeownership in Canada is really a nasty beast, but this is still a lifestyle question. Is staying in your location worth what it's going to cost to stay there? That's really the question you need to answer.

As for what to spend, our household has made under 150K for the last 4 years and we have no kids, and we could never feel comfortable buying a place over 500K on that income.

Some people could, but for us that would be too tight, we would sooner relocate than commit that much cash flow to housing.

That's just us though, that's our personal lifestyle priorities. But that's kind of my point, you need to seriously hammer out what your priorities are and if living in that location rises to the top of the priority list.

We've purchased 3 properties (4 units) in the last 5 years, with the specific purpose of locking in low housing prices in inexpensive areas before they get too expensive. We have a 1 bedroom condo in a major Ontario city, a larger duplex in a small New Brunswick city, and a small detached home in a tiny Newfoundland village. Total purchase price for all 3 was 388K.

We've lived in each location and there are substantial pros and cons to each, but we did an enormous amount of research and found the areas where factors we could tolerate significantly lowered the cost of housing.

And that's pretty much it. There's a reason real estate where you live is expensive, and you need to figure out if paying a premium for those reasons is worth it or not.

If it is, then it's a matter of looking at your income and determining what other things you can cut that aren't as valuable as owning in that location.

There's really no rule of thumb. The max we're willing to pay for housing on the same income is likely radically different because we have different priorities.

If it were me in your situation, I would rent until I retire and then take all of the extra savings I have and relocate somewhere cheaper when I retire. The shitty part is that if you want to stay in that location indefinitely, then rising housing costs will actually hurt you as your expenses on the house will just go up with higher taxes.

So the question is less about how much you want to spend now, but what do you think you will want from a location in the future, and what that is worth to you now.

[GilesMM]

We always bought the most house we could afford but also in the best location, even if it meant being on the cheaper end for the area.  It all worked out.


20% down and 3x salary works, generally.  If dual income, safer if 3x one salary and not both.

[Bartlebooth]

Textbook FOMO

Make sure you want to be house poor in your location for the next 10 years before buying.

[JAYSLOL]

I can definitely see us staying in the area for another 10-12 years, which should cover until our kid has gone through high school and 2-4 years of college. We also have other family in the area. Yes, it’s definitely FOMO, not going to deny that, but I feel pretty burned because for 10 years I was the guy telling everyone else exactly that when they were jumping into what I thought was a crazy market at the time, and that I would be better off renting. 

[Morning Glory]

I would continue renting and invest the savings for as long as the subsidy lasts. Buying would make a lot more sense if you were paying market rate rent for your house.

[tweezers]

I don't know the numbers but a friend was in a similar situation as you: very low rent as "caretakers" but in an area where home prices were rapidly increasing.  They stayed in their rental but bought a house that they rented out.  When their unicorn rental ended they moved into the house, which had increased considerably in value.  YMMV but maybe something to consider. 

[JAYSLOL]

I don't know the numbers but a friend was in a similar situation as you: very low rent as "caretakers" but in an area where home prices were rapidly increasing.  They stayed in their rental but bought a house that they rented out.  When their unicorn rental ended they moved into the house, which had increased considerably in value.  YMMV but maybe something to consider.

I’ve considered doing this, I’m not sure I’m ready for the whole landlord experience, but it is tempting.  The (usual) rent here is arguably even less affordable than buying here, which I know is a little different from the situation in the US, where it seems more favourable to rent at the moment. 

[Dicey]

That's how I bought my first house, and my retirement house.

[Freedomin5]

I don't know the numbers but a friend was in a similar situation as you: very low rent as "caretakers" but in an area where home prices were rapidly increasing.  They stayed in their rental but bought a house that they rented out.  When their unicorn rental ended they moved into the house, which had increased considerably in value.  YMMV but maybe something to consider.

This is what we did. The best advice we got before moving abroad and getting free housing was to buy a condo in Toronto to avoid being priced out of the market when we lost our free housing deal (ie, when we repatriated).

At the time, we thought the prices were exorbitant ($250k for a one bed room). Twelve years later, it’s more than doubled in value, our tenant has paid off our mortgage for us, and we are trading it for a townhouse in a smaller, cheaper city. There’s no way we would’ve been able to afford a place anywhere within a two hour drive of Toronto if we hadn’t gotten a foot in the market, and we needed to stay within a reasonable driving distance of Toronto for family reasons.

It’s also a good time to buy. Prices are depressed compared to the past few years and interest rates have come down a bit. We just got preapproval for another mortgage (we just bought last year) so that we can take advantage of any deals that might come up.

The Canadian real estate market is weird.

[RWD]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

[Metalcat]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

Don't forget property taxes and possibly increased utilities if any are currently included in rent.

And capitals gains if OP looks at buying a place and renting it out.

And the fact that the increased value of the house is absolutely useless unless/until it's sold. So if the reason to buy is to stay there very long term, then that value is essentially useless.

[RWD]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

Don't forget property taxes and possibly increased utilities if any are currently included in rent.

And capitals gains if OP looks at buying a place and renting it out.

And the fact that the increased value of the house is absolutely useless unless/until it's sold. So if the reason to buy is to stay there very long term, then that value is essentially useless.

I included property tax in the mortgage estimate (the T in PITI). OP said utilities were not included in their current rental situation.

Yes, good point that all that house equity isn't helping if you never sell.

[Metalcat]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

Don't forget property taxes and possibly increased utilities if any are currently included in rent.

And capitals gains if OP looks at buying a place and renting it out.

And the fact that the increased value of the house is absolutely useless unless/until it's sold. So if the reason to buy is to stay there very long term, then that value is essentially useless.

I included property tax in the mortgage estimate (the T in PITI). OP said utilities were not included in their current rental situation.

Yes, good point that all that house equity isn't helping if you never sell.

Lol, reading comprehension failure on my part.

[Morning Glory]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

Don't forget property taxes and possibly increased utilities if any are currently included in rent.

And capitals gains if OP looks at buying a place and renting it out.

And the fact that the increased value of the house is absolutely useless unless/until it's sold. So if the reason to buy is to stay there very long term, then that value is essentially useless.

I included property tax in the mortgage estimate (the T in PITI). OP said utilities were not included in their current rental situation.

Yes, good point that all that house equity isn't helping if you never sell.

I count the property taxes and insurance separately because they don't go away once the mortgage is paid off.

[RWD]

Lol, reading comprehension failure on my part.

No problem, I probably could have written it clearer as well. There are a lot of variables and assumptions you can make with all of them.

I count the property taxes and insurance separately because they don't go away once the mortgage is paid off.

For FI calculation purposes I do the same. For the purpose of seeing what choice will result in a higher net worth after 10 years it doesn't need to be broken out (since you'll still have the mortgage in that short of a time frame). But for clarity, I estimated (annually) about $2k for insurance and $2k for taxes then rounded the combined mortgage payment down.

[aloevera1]

I think buying a house is a lifestyle decision at this point. Canadian housing market is so distorted at this point that most traditional financial analysis fails. At some locations, you cannot have a mortgage equal to 2-3 annual salaries anymore. LOL at that.

There are other questions to ask yourself:
1) How tied am I to my current location for the next 20 ish years? Will I have any flexibility to move to a small (hopefully not yet crazy expensive) town in the middle of nowhere later?
2) Do I realistically understand how much money / effort owning a house will require?
3) Am I willing to pay a giant cost of servicing a giant mortgage? You don't ACTUALLY own the house because it comes with this huge expense attached for many years.

Also, if you are considering one of the bigger, more "rural" properties, I suggest you take an honest look at how much work you are willing to do. More land = more maintenance. More structures = more maintenance. More house = more maintenance.

I assume you have a full time job on top of your family responsibilities. Be realistic.

I used to live in a condo and deep cleaning of the whole condo took me about 45 minutes. Now I can't even finish with the bathrooms in 45 minutes.

I am not saying you shouldn't do it. There are still very valid reasons to buy houses in Canada.

I am just saying houses come with all sorts of costs, not just financial ones. Given how stupid our market is right now, owning a house is not a right of passage any more or some sort of glorified accomplishment. It's not even a necessity many make it out to be. It's a lifestyle decision. 

[GilesMM]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

You don't even need to do the math if the assumption is investments returning 10% vs house equity growing at 7%.  The investments will win every time.  Add in heavily subsidized rent, and it is a no-brainer to continue renting and invest the difference.

[RWD]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

You don't even need to do the math if the assumption is investments returning 10% vs house equity growing at 7%.  The investments will win every time.  Add in heavily subsidized rent, and it is a no-brainer to continue renting and invest the difference.

It's not as simple as just comparing growth rates. A house with a mortgage is a heavily leveraged investment, so the return on investment is higher than the growth rate. Buying the house (that will double in value in 10 years) wins if the rent isn't subsidized so much. If rent was $1,600/month (still probably less than half market rate) then renting loses.

[Mustache ride]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

You don't even need to do the math if the assumption is investments returning 10% vs house equity growing at 7%.  The investments will win every time.  Add in heavily subsidized rent, and it is a no-brainer to continue renting and invest the difference.

It's not as simple as just comparing growth rates. A house with a mortgage is a heavily leveraged investment, so the return on investment is higher than the growth rate. Buying the house (that will double in value in 10 years) wins if the rent isn't subsidized so much. If rent was $1,600/month (still probably less than half market rate) then renting loses.

Your PITI estimate seems pretty low for $700K.

[JAYSLOL]

I think buying a house is a lifestyle decision at this point. Canadian housing market is so distorted at this point that most traditional financial analysis fails. At some locations, you cannot have a mortgage equal to 2-3 annual salaries anymore. LOL at that.

There are other questions to ask yourself:
1) How tied am I to my current location for the next 20 ish years? Will I have any flexibility to move to a small (hopefully not yet crazy expensive) town in the middle of nowhere later?
2) Do I realistically understand how much money / effort owning a house will require?
3) Am I willing to pay a giant cost of servicing a giant mortgage? You don't ACTUALLY own the house because it comes with this huge expense attached for many years.

Also, if you are considering one of the bigger, more "rural" properties, I suggest you take an honest look at how much work you are willing to do. More land = more maintenance. More structures = more maintenance. More house = more maintenance.

I assume you have a full time job on top of your family responsibilities. Be realistic.

I used to live in a condo and deep cleaning of the whole condo took me about 45 minutes. Now I can't even finish with the bathrooms in 45 minutes.

I am not saying you shouldn't do it. There are still very valid reasons to buy houses in Canada.

I am just saying houses come with all sorts of costs, not just financial ones. Given how stupid our market is right now, owning a house is not a right of passage any more or some sort of glorified accomplishment. It's not even a necessity many make it out to be. It's a lifestyle decision.

1) somewhat tied to here for the next 10-12 years
2) I think so, I treat the home im renting right now as if its my own place (I maintain the house and landscaping, I fix the appliances when they need a part replaced etc), and I’m well aware that even buying a “cheap” starter home will leave me house poor for the next decade or so until my income starts significantly outgrowing the mortgage payment
3) I am if it’s the right property, I don’t have much desire to buy some pos house I can barely stand just to check home ownership off the life goals list, if I’m going to blow 2/3rds of the wealth I’ve built over the last decade as well as tie myself to a big payment and upkeep and everything i want to be happy to own it.

I’m not too afraid of the upkeep and maintenance, I do landscaping for a living and am somewhat handy around the house

[Freedomin5]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

How would the calculations change if OP has a renter paying $3500/month for his 700k house for the first five years? 10 years? While he stays in his $800/month rental situation.

[RWD]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

You don't even need to do the math if the assumption is investments returning 10% vs house equity growing at 7%.  The investments will win every time.  Add in heavily subsidized rent, and it is a no-brainer to continue renting and invest the difference.

It's not as simple as just comparing growth rates. A house with a mortgage is a heavily leveraged investment, so the return on investment is higher than the growth rate. Buying the house (that will double in value in 10 years) wins if the rent isn't subsidized so much. If rent was $1,600/month (still probably less than half market rate) then renting loses.

Your PITI estimate seems pretty low for $700K.

I was surprised as well. But according to my brief research mortgage rates in Canada are currently 4.75% (I used 5% amortized over 25 years). My understanding is that this is not a fixed-rate mortgage for the full term and has to be renewed periodically (every five years?) so we just have to assume the same interest rate even though it could go up or down at least once during the 10-year calculation period.

The calculator I linked as one of my resources gives a mortgage payment (PI) of $3,257/month, assuming the above  and a 20% down payment.

The property tax calculator I linked estimates $1,946 for a $700k house in Vancouver. I couldn't find a value based estimator for insurance but I did see that a commonly quoted range for British Columbia is $1,200-$1,700. I used $2,000 in my numbers but that's probably on the high side considering the average home in BC is nearly $1M. So you could make an argument for $1,050 in annual insurance.

Using the lower insurance value would bring the PITI number to $3,500/month. Though that only affects the final number over 10 years by ~$20k.

[RWD]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

How would the calculations change if OP has a renter paying $3500/month for his 700k house for the first five years? 10 years? While he stays in his $800/month rental situation.

Good question. This becomes more whether it is worth it to invest in real estate in the area.

Assuming you don't get taxed on any of the rental income or capital gains (not sure if this is realistic), maintenance costs aren't any extra for having renters (definitely not realistic), and the mortgage interest rate would be the same (not sure)... Then if you move in after 5 years the net worth at the end of the 10 year period would be $1.8-1.9M. Assuming it is rented out for the full decade then the net worth number will become $2.0-2.1M.

It shouldn't be too surprising that if real estate is going to double in value over the next decade then it will make an excellent leveraged investment. Borrow money at 5% to invest in a rentable asset appreciating at 7%. The problem is we can't actually know if real estate will perform like that. Of course, we don't know what the stock market will do either. So all these calculations are effectively wild estimates to try and make an informed decision.

Just tweak a few variables and even the rented out house-value-doubling doesn't look like a slam dunk. Increase maintenance/repairs to 2% (from 1%), subtract 10% of rent for management, 10% for vacancy, 26% for tax... Brings the 10-year rental scenario right back down to $1.6M.

[Metalcat]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

How would the calculations change if OP has a renter paying $3500/month for his 700k house for the first five years? 10 years? While he stays in his $800/month rental situation.

Good question. This becomes more whether it is worth it to invest in real estate in the area.

Assuming you don't get taxed on any of the rental income or capital gains (not sure if this is realistic), maintenance costs aren't any extra for having renters (definitely not realistic), and the mortgage interest rate would be the same (not sure)... Then if you move in after 5 years the net worth at the end of the 10 year period would be $1.8-1.9M. Assuming it is rented out for the full decade then the net worth number will become $2.0-2.1M.

It shouldn't be too surprising that if real estate is going to double in value over the next decade then it will make an excellent leveraged investment. Borrow money at 5% to invest in a rentable asset appreciating at 7%. The problem is we can't actually know if real estate will perform like that. Of course, we don't know what the stock market will do either. So all these calculations are effectively wild estimates to try and make an informed decision.

Just tweak a few variables and even the rented out house-value-doubling doesn't look like a slam dunk. Increase maintenance/repairs to 2% (from 1%), subtract 10% of rent for management, 10% for vacancy, 26% for tax... Brings the 10-year rental scenario right back down to $1.6M.

We absolutely get taxed here on both rental income and capital gains, and there's also insurance.

Plus higher maintenance cost, plus vacancy time and turnover costs between tenants.

And then yeah, there's the performance of real estate that's very tricky right now because it's a major mandate of the federal and provincial governments to bring the cost of housing down over the next several years, so things could be quite unpredictable.

[JAYSLOL]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

How would the calculations change if OP has a renter paying $3500/month for his 700k house for the first five years? 10 years? While he stays in his $800/month rental situation.

Good question. This becomes more whether it is worth it to invest in real estate in the area.

Assuming you don't get taxed on any of the rental income or capital gains (not sure if this is realistic), maintenance costs aren't any extra for having renters (definitely not realistic), and the mortgage interest rate would be the same (not sure)... Then if you move in after 5 years the net worth at the end of the 10 year period would be $1.8-1.9M. Assuming it is rented out for the full decade then the net worth number will become $2.0-2.1M.

It shouldn't be too surprising that if real estate is going to double in value over the next decade then it will make an excellent leveraged investment. Borrow money at 5% to invest in a rentable asset appreciating at 7%. The problem is we can't actually know if real estate will perform like that. Of course, we don't know what the stock market will do either. So all these calculations are effectively wild estimates to try and make an informed decision.

Just tweak a few variables and even the rented out house-value-doubling doesn't look like a slam dunk. Increase maintenance/repairs to 2% (from 1%), subtract 10% of rent for management, 10% for vacancy, 26% for tax... Brings the 10-year rental scenario right back down to $1.6M.

We absolutely get taxed here on both rental income and capital gains, and there's also insurance.

Plus higher maintenance cost, plus vacancy time and turnover costs between tenants.

And then yeah, there's the performance of real estate that's very tricky right now because it's a major mandate of the federal and provincial governments to bring the cost of housing down over the next several years, so things could be quite unpredictable.

IMHO, nothing meaningful will be done to address housing affordability here, since it’s in politicians best interests not to gut the value of their most influential voters/campaign contributors real estate portfolios. 

As far as the other costs of running a rental, those are spot on, I definitely don’t foresee buying a home and renting it out to go perfectly smoothly.  Thats why if I go for someplace that isn’t my current home that I plan to rent out until we are ready to move to in 5-10 years, i would go as cheap as possible like $500k small detached home or even a $400k-$450k apartment. But I would consider going a lot higher if I were buying the home I’m currently renting, since it would be my primary residence and I could rent out the yard/shop to the business and I would only get taxed on income, not capital gains. Sort of like house hacking, but instead of living with a bunch of roommates, I’d rent it out to a company.  I would actually also consider renting out the two rooms in the basement (or even spending $$ converting the basement into its own two bedroom suite) to help cover costs until we could get the income-mortgage ratio a lot less scary lol. 

[JAYSLOL]

[...] but if I put in another decade renting and the average home goes from $750k to $1.5m, that’s also going to be not ideal.

We can take these assumptions and run some math on this. You say $105k income after tax. Cost of living in Vancouver for family of three with rent at $800/mo is roughly $55k (CAD). So you're saving about $50k/year (not counting pensions). You have ~$275k now. With 10 years of $50k contributions and 10% nominal returns that brings you up to $1.6M.

If instead you buy a $700k house. The mortgage payment on that is probably around $3,600/month (PITI). Assuming a low 1% of house value for maintenance/repairs that would drop your savings to $10k/year. After the $140k down payment (20%) you have $135k that would grow to $520k with those contributions. We're assuming the house doubles in value, so $1.4M of which your equity would be $0.99M. Bringing your net worth to $1.5M.

There are a lot of assumptions here, but I just wanted to point out that house prices doubling in 10 years is not an automatic win for purchasing one for your primary residence.

Resources used:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
https://www.calculator.net/canadian-mortgage-calculator.html
https://wowa.ca/taxes/bc-property-tax

You don't even need to do the math if the assumption is investments returning 10% vs house equity growing at 7%.  The investments will win every time.  Add in heavily subsidized rent, and it is a no-brainer to continue renting and invest the difference.

It's not as simple as just comparing growth rates. A house with a mortgage is a heavily leveraged investment, so the return on investment is higher than the growth rate. Buying the house (that will double in value in 10 years) wins if the rent isn't subsidized so much. If rent was $1,600/month (still probably less than half market rate) then renting loses.

Your PITI estimate seems pretty low for $700K.

I was surprised as well. But according to my brief research mortgage rates in Canada are currently 4.75% (I used 5% amortized over 25 years). My understanding is that this is not a fixed-rate mortgage for the full term and has to be renewed periodically (every five years?) so we just have to assume the same interest rate even though it could go up or down at least once during the 10-year calculation period.

The calculator I linked as one of my resources gives a mortgage payment (PI) of $3,257/month, assuming the above  and a 20% down payment.

The property tax calculator I linked estimates $1,946 for a $700k house in Vancouver. I couldn't find a value based estimator for insurance but I did see that a commonly quoted range for British Columbia is $1,200-$1,700. I used $2,000 in my numbers but that's probably on the high side considering the average home in BC is nearly $1M. So you could make an argument for $1,050 in annual insurance.

Using the lower insurance value would bring the PITI number to $3,500/month. Though that only affects the final number over 10 years by ~$20k.

You are correct, in Canada, even a “25 year fixed-rate mortgage” is only fixed for the first 5 years, then is reset to whatever the new interest rate is for the next 5 year period etc