To Buy or Not to Buy? – A House

housesmallMy best friend and I booked an appointment with a financial advisor at our favourite bank. We wanted to discuss some investment options and one of our main concerns was regarding purchasing a house or some other piece of real estate. Our goal is to purchase a rental property with a mortgage and use the rental income for mortgage payments.

We would like to invest in Toronto and fortunately we came across many good real estate investment options. However, there is much uncertainty in the Toronto housing market and we want to be investors and not speculators.

Here are some things we are considering prior to purchasing anything and we believe it would be great to share this with other prospective homeowners/landlords, as it may help them as well.

Here are the benefits of purchasing a home in Toronto:

  1. Toronto has a diverse economy and finite space so in long term the property value will surely appreciate. Our financial advisor believes that in order to see a significant appreciation, we will have to own the property for a few decades.
  2. The rental income will pay the mortgage.
  3. Bank of Canada’s interest is extremely low so mortgage interest rates are historically low. This makes mortgage payments very low. In many cases it is cheaper to pay a mortgage than rent.

Here are the disadvantages of purchasing a home in Toronto:

  1. Extremely expensive. The average cost of a home is $500,000 even though sales are down 16%. The market is saturated.
  2. Renovation costs between tenants maybe high enough that rental income will not justify maintaining the property; high overhead. Our financial advisor mentioned that the renovation costs are a high but unaccounted for expense by many landlords.
  3. In the near future the value of the property will fall which means the mortgage will be higher than the value of the asset. Our financial advisor was very assertive regarding the belief that property values in Toronto are to fall, perhaps not as drastically as in U.S.A but they shall fall.

We hope this helps some prospective homeowner/landlord make their decisions. If you have any advice for us, we would love to hear it.

Thank you and good luck.

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