Author Topic: Would MMM do it? Basement apartment.  (Read 3940 times)

mojami04

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Would MMM do it? Basement apartment.
« on: September 21, 2014, 04:05:25 AM »
Dear Fellow Mustachians,

My wife and I are considering a home purchase and wish to remain closer to work for obvious reasons.  However, home prices are pricey in the area and to benefit from a significant decrease (150-200k) we would have to travel an extra 40 minutes EACH way on a daily basis.

We are in one of the most expensive areas in Canada (Greater Toronto Area) after Vancouver etc...

Yes, we could continue renting but we came across a very interesting situation. Would you consider purchasing a relatively expensive home 650k which has been remodeled from top to bottom in a good neighborhood that comes with a rental unit that could easily cover 1/3 of the cost of the mortgage payment.

I.e.   650k at 3% for 25 yrs = 3000$ a month

Minus 2 bedroom unit (high end) that  could be rented. For approx 1000$ without utils.

Leaving me with a 2000$ a mth mortgage that is equivalent to a 400k home with 3bed, 3 bath, 1500-1800sq ft, great yard, steps to a cute downtown area, 10km from work...

My financials:

Combined income: 150k + , two pensions plans (teachers in Canada) , one rental unit (60k equity) netting 200$ a month, 45K in cash, 8k in registered funds, no debts, investing approx 30-40% of income monthly.

Our other option is to buy a home in the 400-500$ without rental unit with a larger down payment .

Thoughts???

A) commute and save 150-200k on home but travel close to 2hrs a day for work
B) buy home with rental income
C) buy later a home that will end up costing the same as option B but without the tenant

tccoastguard

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Re: Would MMM do it? Basement apartment.
« Reply #1 on: September 21, 2014, 05:39:19 AM »
What do you gain by option B as opposed to option C?  In other words, what's in it for you for the price of being a landlord on your primary place of residence?

arebelspy

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Re: Would MMM do it? Basement apartment.
« Reply #2 on: September 21, 2014, 07:05:38 PM »
What about Option D, move close to work to cut the commute, but rent?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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not_a_trex

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Re: Would MMM do it? Basement apartment.
« Reply #3 on: September 21, 2014, 08:55:13 PM »
What about Option D, move close to work to cut the commute, but rent?

I think they said they are already renting and they have a 20 minute commute to/from work. It sounds like they are already in option D.


This is a non-landlord chiming in, but I'm suspicious of the idea that all of the rent will go towards mortgage. Things break. Bad tenants exist. If you're only able to buy it with everything going well I would be wary to make the purchase. Why does the down payment go up on the cheaper houses? Since the price is lower and I assume you are paying the same percentage down, wouldn't the down payment drop?

I would elect option C. But that's partially because I wouldn't want to have landlording in my own house be a long term commitment.

Dicey

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Re: Would MMM do it? Basement apartment.
« Reply #4 on: September 21, 2014, 10:52:28 PM »
B all the way, baby. Down the road you could even rent out the whole shebang and move somewhere else. I like the flexibility. However, I'm ASSUMING that both units are in excellent condition, requiring no updating. If not, can't answer, need more info.

arebelspy

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Re: Would MMM do it? Basement apartment.
« Reply #5 on: September 22, 2014, 07:54:54 AM »
What about Option D, move close to work to cut the commute, but rent?

I think they said they are already renting and they have a 20 minute commute to/from work. It sounds like they are already in option D.

In their area, renting is probably the better financial choice.

Why the desire to purchase?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Bob W

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Re: Would MMM do it? Basement apartment.
« Reply #6 on: September 22, 2014, 10:14:36 AM »
Seems like there are a lot of rentals in Toronto for $2,000 according to the net?

I would consider option E --   Buy a much smaller home close to your work.  650,000 is a lot of money.

In general,  I don't suggest buying homes unless you have the cash to cover the cost.  "Have the cash, buy the house with 20% down,  invest the 80% in the market."

Do you have 650K?   Homes are such  an emotional purchase in general so use the pen and paper method.  Why do you really "want" this home?   Would a 1,200 sq ft house meet your needs?   Is there any other option?

Why don't you live in the basement of a similar rental for only $1,000?   

I've been flamed for suggesting that people have the money to purchase things they desire on this site before.   But that is what MMM did.   (seems odd on a site like this to get flamed for that?)  At 150K annual income, you should be able to save the cash to purchase a modest home in 4 or 5 years if you don't currently have the cash.

To be fair,  there are situations where buying is the better option than renting.

I have considered renting out my basement in the past but decided the privacy,  headaches etc was not worth the effort.  If you did so, you would want to make sure it is spelled out in your agreement to purchase contract.

Good luck in Toronto.  I hear it is an awesome city.  You Canadians have it all figured out!

TrMama

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Re: Would MMM do it? Basement apartment.
« Reply #7 on: September 22, 2014, 11:14:25 AM »
Well, we did option B  and it's worked out great. Do some reading on landlord and tenant rights to make sure you set things up in a way you can live with. Tenant screening is even more important when you'll be sharing walls.

I wouldn't budget for 100% occupancy, maybe 80%. You also want to run the numbers and make sure you'll be OK with the payment when you have to renew the mortgage at a higher rate 5-7 years from now. For our US friends, mortgages in Canada cannot be fixed for 25 years. The max for a fixed rate is 5-7 years and then you have to renew at whatever the current rate is.

As our family has grown, parents have gotten older, etc. it's been really nice to have the extra space to accommodate changing needs. MIL currently lives in our suite due to her deteriorating health. However, she's still well enough to help out with light childcare. This has been a great situation for our family. If DH or I get too crippled to manage the stairs (we live in the larger upstairs part of the house), we'll just move downstairs and rent out the upper floor. In your situation, I'd seriously consider this setup until you really need the extra space.

If you plan to stay in the house after it's paid off, then any rental income will be pure profit.


palmera

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Re: Would MMM do it? Basement apartment.
« Reply #8 on: September 29, 2014, 10:47:15 AM »
What area of Toronto?
How much are you paying in rent now?
Do you have children/plan on having children?

I'm actually going to start a thread on this very topic...about whether the GTA bubble will burst or not.

A lot of people are saying not to purchase anything, hold on to your cash and save, save, save.