FSW WORLDWIDE

[Lord_Tony]

For a person/family, making 250K per year at an age of 28-35, I expect them to have some saving as well. If they are taking a mortgage, this should be minimum 200-300K downpayment. That leave them with a debt burden of 600K - 700K.

Now I will also expect them to take out a mortgage insurance and a buffer of about 75-100K for emergencies. Also, since this is going to be a Condo anyways, I expect them to look into the strata budget. If the strata has some large expense planned or some major issues that were found out during last engineering check of the building, They will mention how much special levy will come on to people living there.

Also, I expect them to try and pay the mortgage earlier by increasing their income --promotions and what not. That means bulk payments capped at 20% per year AND may be some more at the end of 5 years.

So lets do the numbers ... Yup!

125 K per partner is 87K post taxes and deductions. About 7.0 K per month per partner. Thats a good start.

At 700K, for 25 year mortgage at 5.7% for 5 years term is $4350, a fairly reasonable amount if other partner is generating an equal amount of 7.0K per month. I mean in a mess, one can manage with one income of $4350 and may be a bit of dipping into saving if needed but in dual income even with kids it will be workable. If the bad goes to worse, one can reschedule debt to 30 years and reduce mortgage burden.

Any bonus on top of this (stock award, or earlier stock award maturing) will go into paying off the debt. If one can FULLY use their 20% pre-payment limit given, all of debt will be gone in 4-5 years. If not then I expect it to be gone in 10-12 years.

125 or even 150k in GTA is a average pay in IT for a mid tier IT worker. I talk to people from other professions e.g. Bankers, non-IT white collar office goers most seem to make less than 70 k even in Greater Toronto. The most shocking I have seen is where my team is implementing Warehouse software for a F500 Manufacturer, the warehouse operators make like 50k generally, the senior most supervisor with 15+ years of experience makes 85k or so. These are all GTA pays, I was shocked to hear and learn of these jobs and people. I can't even imagine how they survive or pay their mortgages.

I can understand PRANIT01's dilemma and I was thinking last week where 'Windsor37' is getting his data from when he was talking about 500k Family income and 2.5M house prices.

 

[iSaidGoodDay]

900k this is what really scares me ,250k income hmm that is 125 k for each person in a couple ,it is not very easy to sustain 125k job for a period of 30 yrs not being pessimistic but being realistic. Yeah inflation can be advantageous for the debtor ,but still a risk especially with 5 yr fixed term max that is the main issue of canada 5 yr fixed term.

I know someone in your situation and they grinded their way through it. I'm talking specifically about Calgary. The person makes ~$50-60k/yr, got a condo(or apartment, I'm not 100% sure) for mid $200k. Rented the other two rooms for $1k each, now is living in the third room while paying minimal for the mortgage. It would cost him 2x less to have a primary suite with attached washroom than what it is costing you to rent right now. This person doesn't necessarily seem to be someone who'll ever grow into their career, so they are assuming their income to be $50-60k/yr for the foreseeable future. All what they will do is to save on renting, wait for property values to appreciate further. There's no guarantee that it will happen in 5 years, but in 10 years, it is very very likely to happen. This person will then move to another Tier 2 city that's cheap and find work there, buy a house using the savings they'll have by then+whatever they can get out of the sale and will stay worry free.

 

[iSaidGoodDay]

Calgary is good if you can own a house. My friend bought a place 1.5years ago. Already up 15-20% lol. Better returns than most stocks and ETF plus equity

I'll pay off my house in 2-3 years as well - which will make is super easy for me to move elsewhere without taking any large mortgage simply by selling this property. It has gone up in value significantly too. One thing about Calgary though, while houses are still affordable here. Most are fooled into buy way beyond their means. I know someone who moved from GTA to Calgary to buy an "affordable" house, who ended up buying a $700k house. The realtors hype everything up here whereas the market here is pretty seasonal and stagnates for an entire decade.

 

[seadrag0n]

For a person/family, making 250K per year at an age of 28-35, I expect them to have some saving as well. If they are taking a mortgage, this should be minimum 200-300K downpayment. That leave them with a debt burden of 600K - 700K.

Now I will also expect them to take out a mortgage insurance and a buffer of about 75-100K for emergencies. Also, since this is going to be a Condo anyways, I expect them to look into the strata budget. If the strata has some large expense planned or some major issues that were found out during last engineering check of the building, They will mention how much special levy will come on to people living there.

Also, I expect them to try and pay the mortgage earlier by increasing their income --promotions and what not. That means bulk payments capped at 20% per year AND may be some more at the end of 5 years.

So lets do the numbers ... Yup!

125 K per partner is 87K post taxes and deductions. About 7.0 K per month per partner. Thats a good start.

At 700K, for 25 year mortgage at 5.7% for 5 years term is $4350, a fairly reasonable amount if other partner is generating an equal amount of 7.0K per month. I mean in a mess, one can manage with one income of $4350 and may be a bit of dipping into saving if needed but in dual income even with kids it will be workable. If the bad goes to worse, one can reschedule debt to 30 years and reduce mortgage burden.

Any bonus on top of this (stock award, or earlier stock award maturing) will go into paying off the debt. If one can FULLY use their 20% pre-payment limit given, all of debt will be gone in 4-5 years. If not then I expect it to be gone in 10-12 years.

You didn't mention anything about what to do if anyone or both lose their jobs which is highly likely to happen in this recessionary time.

 

[Windsor37]

Good thing with Vancouver is that mobility is fairly high and predictable. So, if you are ready to compromise to townhouse (2/3 bedroom) or a condo, you can get place for 700-900K. Not insane if you are making 250K per year.

Plus, why will you like to live near downtown? Its noisey and dodgey.

For a condo, you can probably push for 500-700K, but a townhouse that is about an hour ride from downtown typically cost around $1.5M. At least that's what I'm seeing with all the flyers coming in my mailbox, the ads in the Skytrain, and when I look for new ones online. I don't like living in downtown as well, too crowded, but the price from the ad is from Port Coquitlam far from any sky train access, I imagine that living closer to downtown would exacerbate the cost.

You have to go all the way to Surrey, Maple Ridge or Abbotsford before you see housing fall down to six digits.

 

[Windsor37]

125 or even 150k in GTA is a average pay in IT for a mid tier IT worker. I talk to people from other professions e.g. Bankers, non-IT white collar office goers most seem to make less than 70 k even in Greater Toronto. The most shocking I have seen is where my team is implementing Warehouse software for a F500 Manufacturer, the warehouse operators make like 50k generally, the senior most supervisor with 15+ years of experience makes 85k or so. These are all GTA pays, I was shocked to hear and learn of these jobs and people. I can't even imagine how they survive or pay their mortgages.

I can understand PRANIT01's dilemma and I was thinking last week where 'Windsor37' is getting his data from when he was talking about 500k Family income and 2.5M house prices.

The 2.5M house price came from an ad in the flyer from the mail. The home next to where I live, was sold for ~$2.2M last year. The townhouse price of $1.5M is from the listings I see just a few blocks from the SkyTrain stations near my place. I live quite far from downtown so these prices are relatively tame compared to downtown Vancouver, Burnaby or even Richmond.

Assuming you just immigrated in Canada from a 3rd world country meaning you don't really have substantial savings to begin with at least not enough for a house downpayment, and you want to start saving up for that downpayment.

> The average price of a new home is $2.5M, and you want to make a 20% downpayment, then you should save up 500K first.
> If the couple is only making 250K (125K per person). Their total post-tax income is 90K x 2 = 180K per year or 15K per month, if 3K goes to rent and 2K/month on food, utilities, etc. then they can save 10K per month. This means the couple needs at least 50 months before they can put in a downpayment, and this assumes that the price of the house doesn't change in the next 4 years.
> But average house inflation is around 5-10% per year, at 5% and 4 years, the average price of a new home would have gone from 2.5M to 3M, and at that point they have to wait 5 years before they can even place a downpayment.

So it will take you on average 5 years to place a downpayment on a home if you are perfectly fine of placing all of your income to the downpayment. This means NO retirement saving, NO education plans for the kids, NO family vacations, NO emergency funds, etc. But what if you DO want to save some money for retirement, maybe saving 5K/month for a downpayment sounds reasonable, and 5K/month goes to retirement, etc.

At that point, 500K / 60K = 8.3 years, but because of the natural housing inflation the minimum downpayment would have increased from 500K to 750K, so roughly 12 years. If you started this when you're 35, then you'll be ready to place a downpayment by the time you're 47, and that assumes that we're only looking at an average price increase of 5%.

So that's my viewpoint on it, and that's the viewpoint of some of my co-workers who had been living here several decades before, and they themselves admit that Vancouver's housing market is crazy, they were even sharing that once their kids got out of college, they all looked to move out of Vancouver simply because of how bad housing is. My co-workers are just staying because they were very lucky to be able to buy a property here 10+ years ago, and they're pretty much settled here.

Sure you could go for a condo or a townhouse, or drive 1+ hr a day everyday to work (one-way) and settle in a place far enough that it's cheap, or just pour all your hard-earned money on that downpayment with no regard for retirement. But at that point, I feel you're just lowering your standard of living/quality of life, and to me it's just isn't worth.

Don't get me wrong, Vancouver is NOT bad a city at all, and I'll rather be here than in Manila, any day of the year including winters. If you're perfectly fine renting for life, and you have enough to get by, then it's awesome, spring is great, winters calm (compared to the rest of Canada), great nature views if you're into that. It has enough interesting things to offer in the city, though not as much as Toronto; but that's just it. Vancouver is a city good enough to get by, but if you want to truly settle, I feel you'll probably want to look somewhere else.

 

[Impatient Dankaroo]

The 2.5M house price came from an ad in the flyer from the mail. The home next to where I live, was sold for ~$2.2M last year. The townhouse price of $1.5M is from the listings I see just a few blocks from the SkyTrain stations near my place. I live quite far from downtown so these prices are relatively tame compared to downtown Vancouver, Burnaby or even Richmond.

Assuming you just immigrated in Canada from a 3rd world country meaning you don't really have substantial savings to begin with at least not enough for a house downpayment, and you want to start saving up for that downpayment.

> The average price of a new home is $2.5M, and you want to make a 20% downpayment, then you should save up 500K first.
> If the couple is only making 250K (125K per person). Their total post-tax income is 90K x 2 = 180K per year or 15K per month, if 3K goes to rent and 2K/month on food, utilities, etc. then they can save 10K per month. This means the couple needs at least 50 months before they can put in a downpayment, and this assumes that the price of the house doesn't change in the next 4 years.
> But average house inflation is around 5-10% per year, at 5% and 4 years, the average price of a new home would have gone from 2.5M to 3M, and at that point they have to wait 5 years before they can even place a downpayment.

So it will take you on average 5 years to place a downpayment on a home if you are perfectly fine of placing all of your income to the downpayment. This means NO retirement saving, NO education plans for the kids, NO family vacations, NO emergency funds, etc. But what if you DO want to save some money for retirement, maybe saving 5K/month for a downpayment sounds reasonable, and 5K/month goes to retirement, etc.

At that point, 500K / 60K = 8.3 years, but because of the natural housing inflation the minimum downpayment would have increased from 500K to 750K, so roughly 12 years. If you started this when you're 35, then you'll be ready to place a downpayment by the time your 47, and that assumes that we're only looking at an average price increase of 5%.

So that's my viewpoint on it, and that's the viewpoint of some of my co-workers who had been living here several decades before, and they themselves admit that Vancouver's housing market is crazy, they were even sharing that once their kids got out of college, they all looked to move out of Vancouver simply because of how bad housing is. My co-workers are just staying because they were very lucky to be able to buy a property here 10+ years ago, and they're pretty much settled here.

Sure you could go for a condo or a townhouse, or drive 1+ hr a day everyday to work (one-way) and settle in a place far enough that it's cheap, or just pour all your hard-earned money on that downpayment with no regard for retirement. But at that point, I feel you're just lowering your standard of living/quality of life, and to me it's just isn't worth.

Don't get me wrong, Vancouver is NOT bad a city at all, and I'll rather be here than in Manila, any day of the year including winters. If you're perfectly fine renting for life, and you have enough to get by, then it's awesome, spring is great, winters calm (compared to the rest of Canada), great nature views if you're into that. It has enough interesting things to offer in the city, though not as much as Toronto; but that's just it. Vancouver is a city good enough to get by, but if you want to truly settle, I feel you'll probably want to look somewhere else.

Toronto is fun for people in their 20s. Can’t imagine living here in mid 30s or if you have kids. Good for meeting people though

 

[Windsor37]

Toronto is fun for people in their 20s. Can’t imagine living here in mid 30s or if you have kids. Good for meeting people though

Exactly, same in Vancouver, if you just want to get by, have an activity from time to time, and live renting for the rest of your life..... like in your 20s, then Vancouver is fun. But once you're ready to settle, then it kinda gets tough.

 

[GandiBaat]

For a condo, you can probably push for 500-700K, but a townhouse that is about an hour ride from downtown typically cost around $1.5M. At least that's what I'm seeing with all the flyers coming in my mailbox, the ads in the Skytrain, and when I look for new ones online. I don't like living in downtown as well, too crowded, but the price from the ad is from Port Coquitlam far from any sky train access, I imagine that living closer to downtown would exacerbate the cost.

You have to go all the way to Surrey, Maple Ridge or Abbotsford before you see housing fall down to six digits.

Dont trust those flyers or ads. Those are all new constructions and builders are trying their level best to drag people into stupid deals.. You want real prices, look at realtor.ca. Also given the situation right now, there is a massive scope of some aggresive negotiation.

I purchased my place for a price even less than its 2019 assessment because I pushed them hard over a period of 2-3 months while they kept on doing open houses after open houses with no offer even after price drop.

It is note worthy that I failed in this tactic atleast 10-15 times before I succeeded. But then I was never going into the market to buy now. I wanted to buy at the best price I could get.

I dunno where your workplace is, but I assume it is in downtown, by choosing the right location, even port moody or coquitlam is less than 30-40 minutes journey in west coast express. Very reliable and very comfortable journey. Plus you have skytrain as back up as well. Coquitlam has some great schools to boot.

Even in vancouver proper, there are some decently priced places for that kind of income.
And you can also look at burnaby too.

https://www.realtor.ca/real-estate/26380371/58-6528-denbigh-avenue-burnaby#view=neighbourhood
https://www.realtor.ca/real-estate/26396845/130-6588-southoaks-crescent-burnaby
https://www.realtor.ca/real-estate/26085967/6-1263-w-8th-avenue-vancouver#view=neighbourhood
https://www.realtor.ca/real-estate/26382584/4795-slocan-street-vancouver#view=neighbourhood

https://www.realtor.ca/real-estate/26357487/186-james-road-port-moody
https://www.realtor.ca/real-estate/26396313/276-balmoral-place-port-moody

https://www.realtor.ca/real-estate/26155401/1-6391-cooney-road-richmond

 

[GandiBaat]

> The average price of a new home is $2.5M, and you want to make a 20% downpayment, then you should save up 500K first.
> If the couple is only making 250K (125K per person). Their total post-tax income is 90K x 2 = 180K per year or 15K per month, if 3K goes to rent and 2K/month on food, utilities, etc. then they can save 10K per month. This means the couple needs at least 50 months before they can put in a downpayment, and this assumes that the price of the house doesn't change in the next 4 years.
> But average house inflation is around 5-10% per year, at 5% and 4 years, the average price of a new home would have gone from 2.5M to 3M, and at that point they have to wait 5 years before they can even place a downpayment.

The typical tactic that is suggested is called "Climbing the housing ladder". You start with a 1 bedroom condo before marriage when you moved out of college in the job -- may be with some help from mom and dad. Then you find a partner, hopefully not a total bum and get married. For few years your 1 bedroom is enough. Then you move to townhouse by selling the 1 bedroom condo and using proceeds as downpayment for townhouse. Have a kid or two in next 4-5 years. Then sell townhouse and move into a house.

Anyhoo, I come from India and in Mumbai, the equivalent of Vancouver for India, families live in condos very typically and in small condos to boot. Famously, one of the highest paid cricketer in India grew up in a condo and I believe till some point used to live there even after getting rich. I heard same is in Tokyo. So in these costly places, condo life is very common.

 

[Windsor37]

Dont trust those flyers or ads. Those are all new constructions and builders are trying their level best to drag people into stupid deals.. You want real prices, look at realtor.ca. Also given the situation right now, there is a massive scope of some aggresive negotiation.

I purchased my place for a price even less than its 2019 assessment because I pushed them hard over a period of 2-3 months while they kept on doing open houses after open houses with no offer even after price drop.

It is note worthy that I failed in this tactic atleast 10-15 times before I succeeded. But then I was never going into the market to buy now. I wanted to buy at the best price I could get.

I dunno where your workplace is, but I assume it is in downtown, by choosing the right location, even port moody or coquitlam is less than 30-40 minutes journey in west coast express. Very reliable and very comfortable journey. Plus you have skytrain as back up as well. Coquitlam has some great schools to boot.

Even in vancouver proper, there are some decently priced places for that kind of income.
And you can also look at burnaby too.

https://www.realtor.ca/real-estate/26380371/58-6528-denbigh-avenue-burnaby#view=neighbourhood
https://www.realtor.ca/real-estate/26396845/130-6588-southoaks-crescent-burnaby
https://www.realtor.ca/real-estate/26085967/6-1263-w-8th-avenue-vancouver#view=neighbourhood
https://www.realtor.ca/real-estate/26382584/4795-slocan-street-vancouver#view=neighbourhood

https://www.realtor.ca/real-estate/26357487/186-james-road-port-moody
https://www.realtor.ca/real-estate/26396313/276-balmoral-place-port-moody

https://www.realtor.ca/real-estate/26155401/1-6391-cooney-road-richmond

I'm not in downtown, much closer to Burnaby. Those are townhouses, and I personally am looking at detached houses. I don't like being too close to neighbors, and I'm wary of townhouses/condos, I know someone who was prohibited to install air-conditioning during the summer due to some shared insurance issue. And yes, I am looking at brand new one, not interested in buying used. If I'm getting a house, it's because I plan to settle there long-term, and I'm not trying to flip it.

The typical tactic that is suggested is called "Climbing the housing ladder". You start with a 1 bedroom condo before marriage when you moved out of college in the job -- may be with some help from mom and dad. Then you find a partner, hopefully not a total bum and get married. For few years your 1 bedroom is enough. Then you move to townhouse by selling the 1 bedroom condo and using proceeds as downpayment for townhouse. Have a kid or two in next 4-5 years. Then sell townhouse and move into a house.

Anyhoo, I come from India and in Mumbai, the equivalent of Vancouver for India, families live in condos very typically and in small condos to boot. Famously, one of the highest paid cricketer in India grew up in a condo and I believe till some point used to live there even after getting rich. I heard same is in Tokyo. So in these costly places, condo life is very common.

Maybe it's just me, but I feel that's a more expensive way of doing it. If I get into a mortgage, then I'll be paying interest which is a net negative, wouldn't it be better to just stick to rentals and let the money grow in equities? Especially at these interest rates. Some of my co-workers, who accumulated multiple small properties are renting it out, while that would definitely generate income, it's starting to look more like a business than an investment. Other people I know, are simply moving further out like Maple Ridge, Pitt Meadows or Langley.

 

[GandiBaat]

You didn't mention anything about what to do if anyone or both lose their jobs which is highly likely to happen in this recessionary time.

I did. You buy insurance for that. Those pay some part of mortgage payment. There are more details to it. Secondly one should have a buffer of 75-100K as well. Lastly, depends upon your employer too. I will get about 10 months worth of salary as my severance package if I were laid off. After that I will also get EI payments too. Beyond all that I will have to start touching my savings.

 

[GandiBaat]

I'm not in downtown, much closer to Burnaby. Those are townhouses, and I personally am looking at detached houses. I don't like being too close to neighbors, and I'm wary of townhouses/condos, I know someone who was prohibited to install air-conditioning during the summer due to some shared insurance issue. And yes, I am looking at brand new one, not interested in buying used. If I'm getting a house, it's because I plan to settle there long-term, and I'm not trying to flip it.

In that case the issue is not the market or income of CDN 250K. The issue is mismatch of lifestyle desired and income to support it. If you wish to buy the most expensive segment, new builds + detached, you will pay the price for that segment.

 

[GandiBaat]

Maybe it's just me, but I feel that's a more expensive way of doing it. If I get into a mortgage, then I'll be paying interest which is a net negative, wouldn't it be better to just stick to rentals and let the money grow in equities? Especially at these interest rates. Some of my co-workers, who accumulated multiple small properties are renting it out, while that would definitely generate income, it's starting to look more like a business than an investment. Other people I know, are simply moving further out like Maple Ridge, Pitt Meadows or Langley.

There are tangibles and non-tangibles in this equation. Can renting for long term together with investment in equity produce better RoI? Absolutely! No doubt. But then you will need to adjust yourself to the long term renter mindset and life style, specially in a place like Vancouver.

What that means is be ready for your house owner to flip, hopefully occasionally. Or hunt down a purpose built rental units and all the things go with them. Be ready for reno-victions. And hostile negotiations over rent (inspite of law). Be ready to be interrupted in your life and entered upon by the owner for showing your place to prospective buyers whenever they want to flip. Most importantly, be ready for dealing with a lot of different kind of "owners". Some very amicable, some paranoid, some downright insane! Mine all were amicable, I was amicable with them too! I still send greeting cards during new years to my past property owners and get the same from them but YMMV.

At some point, you will have kids (hopefully?) and then you will NEED to stay in one place as much as possible. With rentals, you will have that sword hanging on your head perpetually. Even if you go with purpose built rental buildings. You can delay this transition by adjusting your life. I believe at one point or other you will need to make that call. I believe earlier is the better because it gives you chance to fix things if you mess up.

In the end, if you treat your lifestyle like business, sure you will get business like results over investment but then your life will also become business too. It will come down to some kind of constrained optimization, real world is always like that. But then, I am damn sure you knew that already, isnt it?

Lastly, be sure to compare apples to apples. If you want to live in a newly built dettached house, it will cost something like CDN 5500 or more per month in rent. This will leave a lot less for investment. If you are ready to compromize that in rental then may be buying a townhouse or condo is not a bad option too! You can always do the due deligence.

 

[Windsor37]

In that case the issue is not the market or income of CDN 250K. The issue is mismatch of lifestyle desired and income to support it. If you wish to buy the most expensive segment, new builds + detached, you will pay the price for that segment.

It's a bit of both,

On one hand, if you look fundamentally at the "cost" of housing, how much of it goes to the cost of land, materials, and labor, and the rest to profit? given that the market is inflated due to the lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits, and I don't blame them, I'd do the same - but at the same time for a buyer's perspective, most of my money goes not to the house, or the quality of home I'm getting, but to the seller's profits. Given that I don't see a house as an investment, but as a necessity. I find it difficult to justify paying extremely high profit margins.

On the other hand, yes it is a mismatch and I understand that by "lowering my standard" or desired "quality of life" I might be able to fit the budget, which is why I'm trying to do something about it.

At some point, you will have kids (hopefully?) and then you will NEED to stay in one place as much as possible. With rentals, you will have that sword hanging on your head perpetually. Even if you go with purpose built rental buildings. You can delay this transition by adjusting your life. I believe at one point or other you will need to make that call. I believe earlier is the better because it gives you chance to fix things if you mess up.

Precisely, though whether or not that place is Vancouver is yet to be seen. I'm exploring other options where the income meets the lifestyle.

In the end, if you treat your lifestyle like business, sure you will get business like results over investment but then your life will also become business too. It will come down to some kind of constrained optimization, real world is always like that. But then, I am damn sure you knew that already, isnt it?

Agreed.

Lastly, be sure to compare apples to apples. If you want to live in a newly built dettached house, it will cost something like CDN 5500 or more per month in rent. This will leave a lot less for investment. If you are ready to compromize that in rental then may be buying a townhouse or condo is not a bad option too! You can always do the due deligence.

But if that's the case then the quality of life isn't the same. If you're willing to buy a townhouse or a condo temporarily while you save up for a detached house, why not rent a townhouse or condo instead?