Toronto Loft Conversions

Toronto Loft Conversions

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Modern Toronto Lofts

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Unique Toronto Homes

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Condos in Toronto

Condos in Toronto

I started off selling mainly condos, helping first time buyers get a foothold in the Toronto real estate market. Now working with investors and helping empty nesters find that perfect luxury suite.

Toronto Real Estate

Toronto Real Estate

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Tag Archives: rents

With Toronto rents spiking, condo ownership looks appealing

Ricky Chadha – The Globe and Mail

Question: My boyfriend and I are hoping to move from renting to buying a condo. We don’t mind renting, but prices are getting kind of crazy in Downtown Toronto and we figure now is the time to take the plunge for a condo. Do you think condo prices have bottomed out?

Answer: While I can’t see into the future, nor would I try to speculate on whether condo prices have bottomed out (I’ll leave that to the expert economists) – I do believe there may be a compelling case to buy if you can afford to do so.

Comment: Bottomed out? With prices higher than they have ever been (who cares about little 1.3% price slips compared to the larger picture), this is not the bottom. But, that being said, it is not the peak either. Prices are only ever going to rise over the long term, as are mortgage rates. Affordability goes down as time progresses.

It is very true that rents are getting pretty crazy these days, yet demand doesn’t seem to be slowing down. Just earlier this week The Globe published an article about the increasing rent prices in Toronto.

Comment: Because there are 60-80,000 people coming to Toronto every year and only about 30,000 new housing units (house and condo) being built. With no new rental buildings, or close to none, these people are having trouble finding somewhere to live. This puts pressure on both the sale and rental market.

Consider that the average one-bedroom rental in the second quarter of this year was approximately $1,600 a month in Toronto, and even more in the downtown core – $1,730. For a few hundred dollars more a month and a reasonable down payment, you could own a place for yourself.

Comment: It does make a lot of sense. The person who owns your condo is breaking even, give or take, on what you are paying them. Mortgage, condo fees, taxes… With $15,000 in your pocket, you could just buy it and stop paying someone else’s mortgage!

And why wouldn’t you?

Well, for one – many experts have been predicating a condo crash, but they have been doing so for the last 15 years! Suppose there is a crash, as a homeowner who intends to reside in the condo versus an investor who is looking at it solely from an economic perspective, you wouldn’t be too adversely affected.

Comment: The “experts” have been predicting a condo crash for 10 years now. Do you still believe them? I know I don’t. They have no reason other than buzzwords such as “over supply” and “over valued” – which mean nothing. I can give you 10 solid reasons, with data to back them up, as to why they are wrong. And, in the end, even if prices fell (which they won’t), it only matters if you are trying to sell. Look at it this way, the average price for Toronto in 2012 was $497,298, $275,231 in 2002, $214,971 in 1992, $95,496 in 1982 and $32,513 in 1972. So going back 5 10-year periods, prices NEVER fell during any of them. How is that for proof that real estate prices always rise over time?

This is because most people will live in a home about 4 to 5 years, and assuming their monthly costs are fixed, they should be able to weather a dip in the market. Historically the housing market has been cyclical and it bounces back within that timeframe.

Comment: And those cycles went out the window 10-15 years ago.

In the second quarter of 2013, the average condo price in Toronto proper (i.e. 416 area code) was $372,805.

Let’s say you decide to buy something slightly above the Toronto average at $400,000 as an example. With today’s mortgage offerings, you could hypothetically get a 5-year closed mortgage with a 25-year amortization for 3.5% interest. Assuming you put the minimum 5% down payment required, and factor in CMHC mortgage insurance, you would be paying about $1,897 a month.

Comment: But that could even get you a 2-bedroom unit. If you spent $400k, you would get a place that would rent for around $2,200 a month, I think, based on size. Your condo fees would be probably $400/month and taxes around $200/month. So you are paying $2,497 for a place that would rent for $2,200 or so. Boost your down payment to 10% and your monthly costs drop to $2,397/month.

Of course, the monthly figure above does not factor condo maintenance fees, which can vary widely among different buildings. I advise my clients to stick within the $0.50-0.70 per square foot range for maintenance. Also carefully consider what amenities you are paying for and if they provide value to your lifestyle.

One final factor to calculate into your costs of purchasing would be Land Transfer Tax (LTT). As a first time homebuyer you will be eligible for a rebate of up to $5,725 in the City of Toronto (only $2,000 for the rest of province due to double LTT in Toronto). In the $400,000 example above, you will be paying $2,475 out of pocket after rebates.

Comment: So yes, at 5% down, you are going to have to pay $20,000 down payment, $2,475 in LTT and about $1,600 in legal fees. Budget around $25,000 for closing and you should be okay. But, that $25,000 investment, even over 5 years, works in your favour. That $400,000 condo may appreciate at a lowly 1% per year. That ends up being worth $420,000 after 5 years. But you only owe $334,423 after those 5 years, so your equity is now around $85,500. Even if you deduct your original outlay, you should be up $60,000 over those 5 years. If you had rented, you would have given that money to someone else.

The decision to continue to rent versus buying may not be so black and white. Careful analysis of your finances, particularly your ability to come up with a down payment will help guide you in the right direction.

Finally, asking yourself how your lifestyle may change in 3 to 5 years is of equal importance in the decision-making process: Will you outgrow your place? Are you planning on starting a family? Where will you be in your career?

These are just some of the questions you need to be asking yourself when making the decision whether to rent or own.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.

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