Quote:
Originally Posted by Alex Mackinnon
So you have about $15,000 on hand and can save about $14,000 per year for the next two years? If you can't show the income it's going to be hard to get a mortgage.
So you wait 2 years, and sign on for a $184,000+ mortage. Rates will be higher then, no questions. I have no idea how much higher, but lets say 5%.
That's $9000/yr of your $14,000/yr expendable income. Assuming you're in a low tax bracket, you keep about $10,000/yr in rent, you have $15,000 per year to put against the principle minus all other expenses. Subtract some money for maintenance, strata, potential occupancy etc...
Also, any losses that the property takes will be felt 4x more since you're only 20% down. So a 3% loss in price means a 12% loss of your principle. That's a lot of risk considering that lots of people could swear we're in a bubble and that the federal government is try to cool the housing market.
By 2024, assuming a flat market you end up with somewhere near $170,000 in equity, minus agent fees, transfer taxes, etc...
My Alternative
You put $15,000 in your TFSA today, $14,000 in next year, $7500 in year two, and $5500 for every year until 2024. Use it as a trading account. An average yield of 6% would give you $110,000 in your TFSA and another $66,000 in your pocket account that you didn't spend on mortgage payments in 2024. All with no leverage and no additional taxes.
The best part you can get your money back whenever for maybe $50 to $100 in trading fees and a few minutes on a website. If you want to be leveraged for greater returns then you can, and you get the interest deducted off your income when tax times rolls around. That's something you can't do with a mortgage in Canada.
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This all makes sense, and if you feel like you are missing out on the opportunities Real Estate provides, invest your TFSA into REITS.
This gives you reliable monthly cash-flow, professionally managed properties, fantastic liquidity, ability to own properties you typically wouldn't have a chance to, and any growth including dividends is tax free.
It sounds like your primary motivator behind purchasing is investment purpose, I think the case for a condo investment in the Lower Mainland is shaky at best.
With an investment the picture is black and white - is your capital better of in RE or invested elsewhere? Right now the yields on condos are very poor - you are speculating on future price appreciation. Given our overall weak population growth, and recent condo boom I don't see a rush to dive into the condo market.
Odds are in favour that a better opportunity will arise by the end of the decade - of course a constant review of conditions is important. Things do change, higher immigration, loosening of lending standards, cheaper credit, etc can lead to another bull market. What are the odds of this?
If you intend this unit to become your principal residence upon completion, the picture is different. And the questions become different.