Let’s look at when buying a home is a better option over choosing to rent a place out:

You plan on settling down.

If you’re ready to settle down with your career and with life, a home can give you the stability that you need. Renting provides a great sense of flexibility. If you want flexibility, then renting is probably in your best interest. When you’re ready to settle down, a home purchase can help you get grounded. If you’ve found work in the career/company of your choice, you also might be ready to settle down. There are many instances where you can find yourself planning to settle down. I recommend a first home purchase at this point.

You’re starting a family.

This is the most common instance where we find ourselves settling down. For those of you with a baby on the way or looking to start a family in the short term future, you may want to purchase a home in a community where you would want to raise your kids. Right before I was born, my parents purchased the home that I lived in for 22 years. Starting a family can be the perfect excuse to look into that spacey home in that calm community.

You know where you want to live.

The problem with many young professionals is that a primary residence is often viewed as an investment. The problem with this thinking is that real estate is not the greatest investment. Aside from all of the taxes and expenses that go along with home ownership, you still need to hope that your home appreciates in value. You must also factor in the rate of inflation. Buying a home for the sake of a “great investment” isn’t the best option. If you want to settle down and you know exactly where you want to live for the long term future, you’re ready to buy your first home.

Looking for responsibility.

As strange as it sounds, many of us young people find it a challenge to save money for no reason. Saving money without an end goal can get either really boring or you might just spend the money on random purchases that come up along the way. I don’t want to say that a home is a “forced savings tool,” but it’s a great reason for many of us to start saving up money.

A certain sense of pride comes along with owning your own place. You’ll find yourself taking pride in the presentation of your place and the responsibility that goes along with maintaining a home. Buying your own place can fill that gap that you feel as a 20-something living at home with no real responsibilities.

You plan on renting out space.

I’ve noticed that a few acquaintances have bought a home so that they can rent out a portion of the space while building their equity. The idea here is that you own the place, live in one of the units, and rent out the rest of the place. I see this as a great opportunity for a young couple looking to get their life started. You purchase a home and get a taste of life as a landlord in case you ever planning on buying a rental property.

Those are the instances that I could think of where you would be better off owning a home instead of renting one out. Did I miss any other times when you’re better off with owning? Please share with us.

(photo credit: owlhere)

I saw that on Mint and I thought of sharing this with you. It’s a great infographic on the decision to rent or buy a house. Enjoy!

Provided by Mint.com

There is snow, you can go see the Montreal Canadiens for nothing,  women are beautiful (alright, there are good looking men too ) and our Canadian Dollar worth more than the US currency. I think that I should ask my question differently: Who would not want to have a condo in Florida? Many of my clients bought a condo in Florida since 2008 and one of my friends did it last year. It appeared to be a pretty good deal since 2 condos in the same tower were sold last fall for 40% more than what he paid. But wait, things are far from being perfect in the Capital of the sun. Before you make a move, I’d suggest you do your homework as buying a condo in Florida is not the same thing as buying a condo in Canada ;-0.
Financial situation of the condo association

One of the key aspects to look at is the financial situation of the condo association. Why? Because some condo associations in Florida have major financial problems! Imagine a 30 condo tower with a vacancy rate of 25% (yup, there are a lot of people leaving their condos since they can’t pay for them anymore). I’m sure you can imagine how your condo fees could be hiked up to a ridiculous amount to compensate for the lack of paying owners.
Type of insurance coverage in place

If you are about to invest in Florida, you want to make sure that your investment is covered. We don’t have many hurricanes in Canada, but things are different down south. Depending on the area, it is important to look at the insurance coverage offered on your property along with what the condo association has decided to go with (don’t forget, you are not alone in this deal, the condo association plays a big role).
How many units are for sale in the building

Here again, the number of units for sale (or owned by the bank) could be a deciding factor when making your choice. If there are many units for sale, you will surely get a good price for your condo. However, it also means that your condo value will take more time to grow. And we are not talking about the chances of having squatters as well…
Can you rent out the place?

Your plans are made; you did your research carefully, you are well insured and you found a super condo in a great location. On top of it, you are going to rent your condo in Florida to your friends for half of the year… Oh wait! Can you rent out your condo? This should be part of your list of questions to answer while shopping for a condo. Some condo associations only allow a specific number of units for rental purposes and yours might not be part of the lucky owners.

What happens if you die?

Well, that’s an easy one; I have a Canadian will and the condo I just bought will go to my wife or kids. Watch out! The State of Florida might not recognize your Canadian will or might cause some trouble (well, cause trouble for the liquidator of your estate ) regarding the transfer of the condo. In order to play it safe, you are better off creating a US will as well. Then, you will be fully covered.
Get professional help

If you don’t know much about Florida and you plan on buying a condo there, you will need professional help. Ask your bank if they have a branch there that can hook you up with the following professionals for a successful transaction:

- Real Estate Agent

- Banker

- Property Inspector

- Closing agent / Lawyer

- etc.

Your bank should be able to help you out and guide you through the buying process in Florida. It might cost a few thousand more but you are better to be safe than sorry!

Do you own a condo in Florida? I’d be curious to read your story!

EDIT: I have found an article written by Ellen Roseman from the Toronto Star on buying condo in Florida and the effect of exchange rate. interesting ;-D

image credit

I rarely do this, in fact, I never write a second post during the day unless there is a modification in the interest rate. But today, I just read an article about the Canadian housing market and I was thinking of all your reaction towards my article on the (possible) Canadian Housing Market Bubble.

According to the CREA (Canadian Real Estate Association), housing sales went up in August by 4.1%. Interesting enough, the activity in both Ontario and British Columbia (2 hot Canadian Housing market) was in good shape.

So housing prices are slightly going up and sales are following the same trend. Interesting enough in a market where we forecast interest rate hikes, isn’t?

I don’t think we will see the Canadian housing market going up like crazy but I think that reaching a balance between sellers and buyers is more likely to happen. Looking forward to the end of 2010, I think the housing market will continue to cool off slightly and smoothly avoiding the abyss of a bubble burst.

What is your take on those new housing stats?

To burst or not to burst, that is the question! I recently had this conversation about the supposed housing bubble in Canada with my best friend (and partner in my online adventure). He was explaining that he believed that there was a housing bubble in Canada and that it wasn’t normal that the US housing market tumbled while ours barely bent its growth curve for a few months.

I must admit that he is a big follower of the US economy and while I think that Canada is in a enviable economic position for the next 10 years (solid banks, solid economy and full of natural resources).

In my opinion, we don’t have a housing bubble in Canada since our mortgage criteria are way stricter than our southern neighbours. Therefore, both the CHMC and Canadians banks are following severe debt servicing ratio guidelines to the dot (trust me, trying to qualify for a mortgage when you are 1% over the accepted TDSR is becoming a challenge these days!).

Another point to take into consideration, we never had 100% mortgages, interest only mortgages or 125% mortgages on our properties. In fact, the Canadian Government also forced new buyers to have at least 5% cash down and they can’t count on a 40 year amortization anymore. This is why I think our housing market is under control.

On the other hand, my friend is also strong willed and wanted to prove his point. This is why he forwarded me the following graph:

As you can see, this is the indicator of both the US and Canadian housing markets. They both start at 100 points and fluctuate according to the average price of houses over time. This means that when the index reaches 200 points, a house that used to sell for 100K back in 2000 will now sell for 200K.

The 2 indices are the most used references to demonstrate housing prices over time. They are well known and I can’t question the validity of the data.

What the graph shows is that the US market hit a summit back in 2006 at almost 210 points and then suffered a huge drop back to 140-150 points in 2010.

What concerns me about this graph is the Canadian Housing index. As you can see, we are dangerously approaching the 210 points mark as we are around 200 points right now.

While I still don’t believe that we will enter into housing down market, I am a bit concerned about this graph. One thing is for sure, I am pretty happy to have bought my house since I think I will live in it for a while. In fact, if you don’t expect to sell your house in the next 5 years, you don’t really have to care about a housing bubble that may burst, right?

What are your thoughts about the Canadian housing market?

What will happen when the housing market reaches the US peak? Will it tumble? Is our economy is built on the same housing bubble model as the US was?

Image source:

It is a fact of life that everybody needs to have a roof over their heads. However is it a better option to own your own property or rent one?

This is a question that has been asked many times before, and I suspect the answers you will have received 10 years ago would be very different to the answers you might get today. There was a time when property was very cheap to buy, and with prices on the rise the trend was to buy for future profit! Now there has been a global crash in house prices people view the situation very differently.

What we can do is look at the situation in general, and try to come up with sensible arguments for and against both.

Long Term Plans

The first thing that should be considered when deciding whether to buy or rent should be your plans for the future. Do you intend to have a family in the near future? Are you looking to stay somewhere for a short period of time and then settle in a different part of the country? Do you travel a lot for work?

These are all questions that need answering in order to gain some insight into what is going to suit you best. For a couple looking to settle down and have a family, owning a home may be a sensible option. A couple who like to travel, change jobs regularly, and are more free spirited may be better suited to rented accommodation.

You need to be really clear as to your position in life, and future plans because if you commit to buying a property, it becomes much harder to just up sticks and move on if your plans change.

Financial Affairs

Although how the world economy and housing markets are performing should at least be investigated, it is your own personal finances that should determine whether you are better buying or renting.

For people who have enough money to buy then this could be a good time economically to proceed because house prices are much lower than they were a few years ago. This is due to the world credit crisis.

Many countries also have very low interest rates at present which could also benefit those looking at buying. This is all great for those who already have enough money put by to buy a home, however for those who need to borrow, lending is at an all time low in most countries meaning even people that want to buy cannot raise the funds to do so.

This of course also restricts the people looking to move up the property ladder and buy a bigger home. In other words if you want to buy, and have the money then it’s a great time to buy, but if you don’t have the money then you will find it hard to raise enough to get anywhere close to buying.

Why Would I Want to Buy?

Let’s look at some of the reasons people decide to buy their home instead of renting:

Security - When you buy you are paying for what will eventually be a home owned by your family. Nobody can kick you out, and you are able to keep that home in your family for generations.

Investments – Although property prices are low at present, there is always the possibility that they may one day increase again which could make people who buy today a nice profit somewhere down the road.  Of course this is something that you will only benefit from if you  buy a property.

No payment increase – When you rent you are always susceptible to rent increases. If your landlord decides to increase the amount of rent you pay then you will have to shell out more.

When you buy a property eventually you will pay the mortgage (if you have one) off, and that will mean no more payments towards staying in your home. When you rent a property you have to pay for however long you are there. In other words your payments will never stop.

Do as you like – In a brought property you can make any alterations to it that you want without permission. If you want to rip up the carpets and lay wooden floor then you can do it.

If you want a whole new bathroom suite then you can go straight to your local home improvement store and get one. This is a luxury that renting does not allow. No changes can be made to the property without the owner’s permission which is of course not guaranteed.

What About Renting?

Renting a property is not all bad. In fact there are some big advantages of renting that are not available with brought homes:

Repairs are not your responsibility – There’s a big storm and your roof gets damaged. It is down to the owner to pay for the roof repairs and not you. If your water tank fails and needs replacing then again it is the responsibility if the owner to fix the problem as soon as possible.

When you sign your tenancy you need to check what you are responsible for and what your landlord is responsible for so that there is no future confusion.

Not tied down – If you decide you do not like the area anymore and want to move then you can. Leaving a rented property is a much quicker and easier process than homeowners have to deal with.

Not affected by interest rates – When you are paying a home loan and there is a hike in interest rates, homeowners can find hundreds added to their monthly loan payments. If you rent you are mostly unaffected by these interest rate rises unless your landlord decides to raise your rent.

As you can see there are both positives and negatives on both sides, and much depends on your personal and financial position. Be certain of where you are in both these areas and you will be in a much better position to make an informed and accurate choice.

This article was written by Timothy Ng who is a regular personal finance writer and part of the team at Credit Card Finder, a 100% free Australian credit card comparison and application service. Visit the Credit Card Finder website for more information on buying or renting a home.

I wanted to steer our previous real estate discussion in a different direction today. We talked about rental properties, negatives of real estate, positives of real estate investing, and various other sub-topics. I just missed one CRUCIAL STEP. I completely neglected the fact that getting a mortgage these days isn’t that simple!

For today let’s look at what needs to be done so that you even get approved for the actual mortgage:

Excellent credit score.

Without a high credit score (in the 700s) you’re an extremely risky loaner in the eyes of the lender. Why would anyone loan you hundreds of thousands of dollars if they’re not sure that you’ll pay it back? Great point. This is why you need to ensure that your credit score is up to par before you even attempt to go in for a mortgage application. Years of late credit card payments may come back to bite you in the know what here.

Hefty down-payment.

The days of leveraging a real estate property with 5% or 10% are pretty much long gone. Unless the underwriter working at the bank is your buddy John from third grade, chances are that you’re going to have to put down a serious down-payment to get approved for a mortgage these days. What’s a hefty down-payment? Well I don’t work for a bank, but it’s fair to assume that at least 20% is recommended. Anything less than that and you’re going to have a difficult time with your mortgage approval application.

Savings/assets.

If the home property is going to eat up 100% of your savings, how will you survive? How will you cover your mortgage payments if you lose your job? It doesn’t matter if you need the mortgage to pay for a rental property or your primary residence, you need to show the lender that you’ll have sufficient savings “just-in-case.” If not, then you simple become another risky client. Being in possession of additional savings/assets shows the lender that you have money to cover any surprise expenses that may come your way.

Steady work.

Do you have a steady source of income? When being loaned a large sum of money, you need to prove that you’ll have enough of an income to consistently make your payments. If you’re an entrepreneur or someone that has a difficult time proving their financial situation, the lender may not be too eager to loan you money. It’s not that they don’t believe in your potential to earn lots of money down the road. They simply want a guarantee of this.

Paper work.

Saying that you make X or do X for money is irrelevant. You need to back everything up with extensive paperwork. This never happened to me thankfully. Unfortunately, many readers have informed me of stories where their place of employment was called 3-4 times just for verification. Apparently, there were no errors with the actual application form, but the lender wanted to double check a few pieces of documentation. Are you prepared to deal with this?

Have any of you gone through the mortgage approval process recently? If so, how did it go for you?

We’ve gone over the negatives of real estate investments, common real estate misconceptions, and the positives of real estate. What’s next? Now we can assume that you’ve decided that purchasing a piece of real estate is the ideal option for you at this very time in your life. What do you do next? In my opinion I feel that the next step is to look at some of the important factors when it comes to purchasing real estate.

Now that you’ve decided to invest in real estate (I’ll be referring to your primary residence in this post, not investment property) you need to look into a few important factors:

Location.

Real estate is 100% all about location. Let’s be honest, the cost of my downtown condo could probably get me a mansion out in the northern part of Ontario– but why would I live there? I’m not trying to raise a family. Real estate prices are directly related to the location. The question that you need to address is: where do I want to live?

Proximity to work.

If you commute to work you’ll likely want to find a place that’s relatively close (unlike some crazy people that travel 1.2 hours to work, wink wink) to your destination of work. One of the most important factors is to consider how long it will take you to get to your job from your new place.

Are you willing to travel a little longer for a more spacious home? Do you prefer to live in a more compact unit that is closer to work?

Neighbourhood– what are you looking for?

What’s in the neighborhood? Do you want to be located near a elementary school for your young children? Or do you want to live closer to a high school/college for your older kids?

Another aspect of the neighbourhood that you need to consider is the demographics. You certainly wouldn’t want to raise a family in a downtown condo or in a more dangerous side of town. Would you like to live in a community with a similar culture to yours or would you prefer a more diverse community?

How much work are you willing to put in?

I have friends that have picked up properties for low prices in hopes of making some serious upgrades. Some people enjoy fixing up their property. Others would like to purchase a property that is relatively low maintenance and already has major upgrades completed. Do you want the challenge of upgrading your own home or do you want the work to already be completed?

Property taxes.

You could save up some decent money with your partner to make a down payment on an expensive piece of real estate. However, will you be able to pay the property taxes? Property taxes can be a silent killer that eats away at your income before you even know it. This is why it’s important to always consider the property taxes in the specific area that you plan on moving to.

How steady is your income?

Yes I know that this isn’t directly related to your potential piece of real estate. It is very important when it comes to determining how you’ll pay your new found mortgage payments. I don’t want to be a downer, but a high salary today doesn’t necessarily mean that you’ll be earning a high salary down the road. You need to make a realistic assessment of the stability of your income before you decide to take on a mortgage.

Where do you guys stand as it relates to some of the questions thrown out in this post?

image source: splorp

I hope you guys don’t think that I’m against real estate. In my last post here, I wrote about some of the common real estate misconceptions. It’s not that I’m against real estate. I simply wanted to stress all of the factors that go into making this ultra important decision. Too often do 20-somethings take this decision extremely lightly. I’ll never tell you what to do, but I do want you guys to make educated decisions.

The irony of this topic is that I just moved into a new condo this summer. I personally feel that it was a great decision, considering all of the factors involved (to be discussed soon). Today I wanted to write about some of the positives when it comes to real estate.

Forced savings.

Many of us young people simply can’t save money. We just can’t do it. Having a mortgage to pay forces us to technically save money every month. For many people a home is their main investment/savings vehicle. The money that is paid towards a mortgage could be frivolously spent on random purchases. Instead this money is put towards the real estate property. I’m not say that this is good or bad, but it is what it is.

Of course the obvious caveat exists. Along with being forced to save money, you’ll also lose lots to money to the expenses that go along with real estate (interest, of course!). Please do keep this in mind.

Appreciation potential.

Your primary residence may not be the worlds greatest investment. However, there’s always the potential for an appreciation in value. The appreciation in value isn’t always the greatest and it won’t always offset the fees involved with selling a home. However, depending on the area it’s not rare for home owners to experience great appreciation gains.

It’s also imperative to note that, your property can appreciate due to two reasons:

• Internal factors. This involves all of the upgrades/work you do on your property. Whether you choose to finish the basement, upgrade your kitchen, or install a sprinkler system, these modifications have the potential to create a profit that will offset the expenses greatly.
• External factors. This appreciation is unrelated to the work that you do on your property. This involves the value of the whole area increasing. Depending on your risk tolerance and patience, you can purchase a piece of property in an up and coming area, in hopes of great appreciation in the future.

Instills responsibility.

This may seem superfluous at first, but it’s actually completely relevant. In my experiences, home ownership is a harsh reality slap across the face that some young professionals need. Our generation is generally fairly spoiled. We’ve all heard that 27 is the new 21. Often times we need to get out of our comfort zones. Whether it be through moving out or working abroad for a year, every situation varies on a case by case basis. Moving out can be the first slap of reality that we need to become truly responsible adults.

What are some of the positives of real estate/home ownership that I may have missed?

Just please remember to always conduct your own research when it comes to real estate. There’s thousands of dollars at risk here. This is also the most important decision that you’ll make in your life (aside from marriage & education), so please don’t take it lightly.

image source: robbruce1964

I could be a pompous punk and brag about my real estate investment I made in college—but I won’t. Why not? Because it wasn’t the greatest decision of my financial career. I’m proud of my decision to purchase a condo at a young age, but I wish I did just a little (okay, maybe lots!) more research. I hope that all of you aspiring real estate investors peruse this post before you transfer your hard earned savings to a mortgage down payment.

Many more costs than you will originally think of.

We all know that you have to put aside money for your mortgage down payment. Unfortunately for all of us, this is just the beginning of the plethora of costs! These are a few additional costs you need to consider with a real estate investment:

1. I.            Lawyer fees- You’re looking at least another $1,000.
2. II.            Closing costs- You don’t even want to know what’s included in this.
3. III.            Land transfer tax- This depends on where you live, but yes it’s another potential cost.
4. IV.            Maintenance fees- You will need to pay monthly maintenance fees for your condo investment. God bless you if the condo has a pool and a gym.
5. V.            Property tax- You may own the property, but the government will still charge you taxes.

Not the greatest investment.

Real estate isn’t really the greatest investment. Let me rephrase, real estate can a highly lucrative investment—but not always! There are many investment options out there. Let me share some other investment ideas with you guys that could be more beneficial than real estate:

1. Savings account. You can put your savings into a high interest savings account. You can sleep comfortably at night time knowing that your money is slowly growing. Not the sexiest investment option, but definitely the safest.
2. Startup Business. You can invest the money into your new side business. The thousands of dollars could be used to purchase equipment, register your business, market your services, or even to help you survive during the lean times. This could potentially be riskier than a real estate investment. Please do all of the necessary research before you decide to start a business.
3. Education. The money could be used to take evening courses at your local college. You can improve your current skills or possibly learn a whole new skill set. This investment isn’t the sexiest either, but you can’t go wrong investing in yourself.

Plenty of risk involved.

You really never know what’s going to happen. One bad shooting, one negative consumer housing report, or even a shift in social trends, and the area your property is located in decreases in value. Oh did I mention the potential of a housing bubble burst?

I took the risk of buying a condo that is just outside of downtown Toronto in an area that’s currently not in the greatest condition. I can live with this risk because I’m a young, single dude. Not everyone can handle this type of risk. Where does your risk tolerance stand? Can you handle losing some money upfront? Can you wait before you “cash out?”

I hope I didn’t scare anyone away from a potential real estate investment. Do any of you guys have stories you would like to share on the topic?

Author MD