Buying A House In A High Cost City

We’ve been calling Toronto our hometown for over a decade (two decades for My Whymances to be precise). Ask anyone in our country, they’ll say real estate prices in this city are banana’s. Period. It’s the one thing we can all agree on. And that’s saying something; good luck getting any consensus on rent vs buy, city vs suburbs vs country, housing crash, etc.

We’re not a house horny couple. Buying a home is not THE DREAM. Renting is not a waste of money. Owning real estate is NOT AN INVESTMENT. So with all of that, and crazy housing prices, how exactly did we conclude that buying another a bigger house was a goal?

Sharing 500 Square Feet With A Partner

I’m declaring it, so far this has been our greatest relationship success! We’ve lived 3+ years in a 500 square foot bachelor condo. If you want private space at home, you’re headed for a shower or locking yourself up in the tiny laundry room. Having a smaller home is often a reality associated with living in an urban area. We’re cool with that. It was a conscious decision we made.

In spite of a few challenges, it’s worked out great. All except one thing: we both have hobbies that take space: painting and leather working. To be fair, painting isn’t merely a hobby for my partner, in his words he’s built a career out of drawing pretty pictures.

We’ve tried our best to adapt this part of our lives to a small space. We’ve even looked at renting studio space. In the end, there’s a few simple facts that that have led to this decision:

  • Though we love taking advantage of culture in the city, for most nights, our tendency is to stay home and be creative.
  • Renting studio space would add to our travel time. We work full time and this would only further diminish the time we’d have.
  • For number of opportunities and quality of jobs, we need a big city for our particular careers.
  • We have zero interest in commuting 1.5+ hrs each way to live in the suburbs and have more space for less money. Space is useless without time.

Financial Reality Of Buying Real Estate In Our Home Town

Real estate prices have been going nuts here, like many other places in the past decade. Right now, the average condo price is $543K, semi-detached $712K and detached $1.2 million. What. The What?! It’s taken a good part of two years for to get my head around this reality. We’ve talked at length about other options. And we keep coming back to this seeming impossible one.

I feel like this goes without saying but, ideally you want the lowest mortgage amount and shortest timespan to pay it back.  For me, beyond that, it breaks down to three key items:

  • We have clearly articulated monthly savings goals that we want to maintain. That means all monthly expenses must remain within a certain amount.
  • Purchase price doesn’t matter. Monthly mortgage amount matters; this will be what impacts our monthly expenses.
  • Two backup plan for loss of employment. We can carry our current mortgage on one salary. That will likely no longer be the case. So in addition to an emergency fund, we need a replacement backup plan.

Moving Costs

We must pay for the pleasure of taking on a larger mortgage amount. Figuring out what we’re okay paying for going forward on a monthly basis is one item, we’ve also researched closing costs. All in all, we’ll be paying out $42K – $48K simply for the act of moving.

Here’s a breakdown of those costs:

New Property Purchase Price $550K $600K $650K $700k
Existing Property Sale Price $450K $450K $450K $450K
Home Inspection $450 $450 $450 $450
Legal $3,000 $3,000 $3,000 $3,000
Title transfer $250 $250 $250 $250
Land Transfer Tax $14,950 $16,950 $18,950 $20,950
Moving $1,000 $1,000 $1,000 $1,000
Realtor Commission (5%) $22,500 $22,500 $22,500 $22,500
Total Moving Costs $42,150 $44,150 $46,150 $48,150

They’re self explanatory but wanted to add a few notes:

  • There’s two variable costs: realtor commission and land transfer tax. That is all based on sale price.
  • Property sale price is a conservative estimate. We’re told it would be higher but when calculating affordability, I’d rather not risk over-estimating.
  • Other potential costs not included: deposit for utilities, home repair and staging costs, etc.

When The Numbers Don’t Add Up

If those numbers aren’t sobering, I don’t know what is. In most real estate purchase articles I read, it discusses on evaluating when you should buy vs rent or when the numbers make sense to buy a property to live in or rent out. I haven’t done the math, but I’m willing to bet when all costs considered, any property purchased likely wouldn’t meet that criteria. Generally speaking, money invested in index funds appreciate better than real estate.

So while looking only the numbers may not support this decision, when I look at the whole picture, the conclusion shifts. The combination of our careers, location of employment opportunity, preferred lifestyle, a strong desire for space to be creative at home, ensuring sufficient savings for long term financial health and ultimate goal isn’t to become FI as soon as possible, this is, so far, the preferred approach.

Of course, we’ve only gotten started. This has led us to consider buying a larger home and look at real estate. An opportunity still needs to present itself where the numbers make sense to us (within what we want to spend and save monthly), meet some combination of criteria that led us to consider buying (space for a studio, accessible to transit, reduce Mr Whymances commute to less than an hour). It’s not clear whether it’ll work out but at least we have a framework to try.

Personal Finance Shaming

Personally, it took a lot for me to come to this conclusion. Wrapping my head around the numbers and making deciding this may be the right fit for me was hard enough. An equally big part of my struggle has been reconciling feelings of shame and guilt.

My decision goes against what many articles in personal finance community, especially financial independence section, recommend. It’s not that I disagree with them, if I look only at the numbers. Holistic view though, that’s where the gap begins and what makes sense starts to look different. There are some non negotiable details of course. It needs to be in line with your personal goals, have ability to save for retirement and of course, ability to afford all the expenses that come with it.

I’m still working out feeling like this decision makes me a fake in personal finance. Like I’ve somehow broken a golden rule. I don’t know, I’ve seen the community be supportive, yet I’ve hesitated for a long time in sharing these debates and new goals we now have. But I’ve taken a deep breathe and put it out there…

 

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