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This pandemic has really done a number on the housing market. Busy metropolitan cities like New York, London, and Madrid that were previously red-hot became radioactive as the pandemic shut downtown cores down. The closing of amenities like cafes, restaurants, and gyms and the shift to remote work made thousands of people look around and ask “Why am I paying so much to live here?”
And it’s not just the pandemic messing things up. Here in Toronto, condo prices have historically been made artificially expensive by real estate speculator/investors who would snap up dozens of units at a time and then turn them into short term rentals. Entire buildings known as “ghost hotels” would be majority owned by these people and rented out on AirBnb for hundreds of dollars a night. These sky-high daily prices would justify the ridiculous unit prices and local residents would rage about being priced out of the market while these speculators would smirk and rake in the dough from their highly leveraged investments.
That’s also coming to an end as city councils declare war on AirBnbs. They finally decided to get serious this year and clamp down on this practice, with Toronto banning short-term leases. You can still AirBnb out a room in your primary residence, and you can still rent out units on a long term, month-by-month basis, but the practice of running an unlicensed hotel and charging a hundred bucks a day is coming to an end.
This forced a flood of these short-term lets onto the long-term rental market, which has predictably dropped rents like crazy. Toronto is looking at a 23% year-over-year drop in rents, something which has never happened in this city in living memory.
Toronto Rents Continue to Plummet as One-Bedrooms Reach Lowest Price in 4 YearsBlogto.com
And just to add insult to injury, Toronto then added in a vacant home tax at the end of last year. Too much competition? Can’t rent out the unit? Too bad! We’re going to bleed you dry anyway!
So after a year of this, these real estate investors are coming to a dire realization: Their entire business model of snarfing up condo units and AirBnb-ing them out doesn’t work anymore. So now they’re stampeding for the exit.
More Than Two Thirds of Condo Investors in Toronto Plan to Sell Due to new Vacant Home Tax51.ca
The funny thing is that article was sent to us by FIRECracker’s parents, who have been hounding us to buy real estate pretty much ever since we started working. When FIRECracker first told them she was a millionaire, her mom’s response “Who cares? You don’t even have a house.” So they are card-carrying zealots of the real estate cult.
And here they are sending us this article with the message “Don’t touch these condos!”
It’s not just them. The article is on a Chinese language site, so the comments are also in Mandarin. In case you can’t read them, here are a few things they’re saying.
Translation: CONDOs will drop. If the price between CONDO and a semi-detached is not that different, who would buy a CONDO?
Translation: Investing in condos is throwing 2000-3000 into the water every month, next year even more.
Yikes. The Chinese have, on occasion, been accused of behaving like swarms of real estate devouring locusts, and those accusations aren’t completely out of left field. Our culture is so obsessed with real estate that we will throw multiple generations of wealth into a single purchase. Which makes this reaction so unusual. When it comes to real estate, if you’ve lost the Chinese, you’re in big trouble.
Which got us thinking: Is it time to buy a condo?
Zig When Everyone Zags
I know, I know, we’re committed renters who gained notoriety for yelling at Home Boners. But that’s because we recognized that this insane herd mentality that many people had towards the housing market was causing people to make irrational, financial disastrous decisions. When everyone else was buying real estate, we deliberately did the opposite and rented because that’s where the value was.
That attitude has served us well this pandemic. As people fled the downtown core of Toronto for the safety of the surburbs, we’ve been hopping from downtown apartment to apartment, each time negotiating with the landlord to lower the rent. As a result, our spending in 2020 came in at an impressively low $34k out of our $40k budget. When everyone else is running one direction, we head in the opposite.
As Warren Buffett says, be fearful when others are greedy, and greedy when others are fearful.
And right now, condo investors are fearful. So is it time for us to get greedy?
The Buildings May Become Flophouses
We pitched the idea to J.L. “The Godfather of FI” Collins a few months ago and after he stopped laughing, he went through a point-by-point breakdown of why that’s a terrible idea.
Nowadays, J.L. Collins is known as the patron saint of index investing, but he reminded us that he only settled at index investing after trying every other possible option. He’s bought and sold individual stocks, he’s owned houses and apartment units, he’s tried his hand at landlording. You name it, he’s done it. So when he gives you advice, you know it’s coming from experience.
One of the more interesting points he raised is that if a significant amount of condo units in a building all sell, it would drop prices by a lot. This would cause other owners to go underwater on their mortgages, which may force them to sell as well. The downward cycle would continue until a bottom is hit, at which point most of the people at the building would have either lost money or been forced to leave.
If that happens, the building would likely fall into disrepair. Bankrupt condo boards don’t take good care of their facilities. So even if we managed to time that dip perfectly and get in at a really good price, the cost of maintaining the building (and repairing the damage of the inevitable neglect) would fall on fewer and fewer owners.
So, he argued, even if we got a unit at a super cheap price, our condo fees would likely skyrocket.
Honestly, I never would have thought of that, and is one of the reasons we enjoy talking to J.L. Collins. We always learn something from that guy. He ain’t The Godfather for nothing!
Do We Want To Stop Travelling?
Another factor weighing on us is that if we were to buy a condo in downtown Toronto, we actually have to live there. It’s not like we can buy it as an investment and rent it out on AirBnb. That’s the business model that no longer works.
So if we were to buy a condo (or, really, any real estate), that means we would have to essentially stop travelling.
I’m not sure we’re quite ready to do that yet. Right now our wings are clipped because of all the pandemic-related travel restrictions in place, but sometime this year once we get vaccinated, these travel restrictions should go away. And I don’t know about you, but a year spent not travelling has only made us realize how much we miss it.
If there’s anything the past 5 years has taught us, is that getting the “travel bug” out of our system didn’t work. Travel is part of our identity now. The world is calling to us, and once it opens up again we can’t wait to throw all our stuff into our two carry-on bags and hit the wide open road again.
So I’m not sure we’re quite ready to hang up our backpacks yet.
But Maybe At the Right Price…
Everybody has a price.
Usually that’s a line some mobster says before he buys off some corrupt police officer, and the context is “how high a price would it take to compromise your values?”
For us, it’s the opposite. How low would the price of a condo need to be to tempt us to jump on it?
There’s a few ways of calculating this price. One is the 150 rule, which we wrote about in our book. Basically, we take the monthly rent of an equivalent property and divide it by 1.5. That’s the monthly mortgage payment we’d comfortable paying, and by using a mortgage calculator with that number, we can figure out the equivalent purchase price.
So right now, our rent in downtown Toronto is $1700 a month all inclusive. By applying rule of 150, we’d be looking at a monthly mortgage payment of $1133, so that means a condo would need to be priced $330k or below to interest us. And since the average price of a condo is still sitting above $500k, it needs to crash a whole lot more to pique our interest.
But besides that, giving up travel is a much more difficult decision. How good of a deal does it need to be to entice us to hang up our backpack? How do you put a price on travel? How do you put a price on freedom?
What Would You Do?
And here’s where I’d love to hear from you! What would you do if you were our situation? If you were a lifelong renter who loves living nomadically, is there a price where you’d be tempted to trade it all in and become a home owner?
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101 thoughts on “Is It Time To Buy a Condo?”
Being a renter suits both of you given that travel remains the top of your priority.
My two cents worth of views.
Me, reading the headline: NOPE
Me, after reading the article: EXTRA NOPE
A good friend of ours owns a penthouse condo. Sounds fancy but the building is sixty years old and there are zero Airbnb units in it. She had already rented in that friendly walkable transit-accessible neighborhood for twelve years and has a super-stable government job from which she won’t retire for at least another twenty; her lifestyle perfectly suits.
A neighboring top-floor unit is on the market right now for $170k. If we FIRE’d and wanted to downsize from our SFH, we could buy that condo for two thirds of our existing equity and put the other third into VTSAX (to spin off 4% toward condo fees in perpetuity) and have a paid-off pied-à-terre to use for the half of the year we aren’t traveling…
Hmmm. Is it time to buy a condo?
Maybe I’ve been in Toronto too long when I’m starting to think “$330k isn’t too bad!” when you’re looking at units going for $170k. I gotta get out of this city soon…
It’s not even a mile from a DC metro station and surrounded by trees! Just gotta know where the gems are (hint: they ain’t the 20-story new construction monstrosities downtown between Capitol Hill and the ballpark).
In the same boat as you.
I had been living abroad for 18 months, and had another 2.5 years of travel lined up, when the pandemic hit and I decided to return ‘home’ to wait it out. Unlike you, I found the renting/constantly moving thing unpleasant. I thought about signing a longer term lease to cut down on moving, but ultimately found a unit to buy. Yes it cost me $500k. But I (deliberately) bought in a co-op building, which has stricter rules around rentals so the units are typically owner occupied – rentals are allowed but require Board approval – so not much chance of becoming a flop house/ghost hotel. Only 32 units so pro: I’ll know all my neighbours, con: less people to split maintenance bills with. However, the design is simple (no underground parking garage, pool, elevators etc) so not a lot of expensive maintenance/replacements to pay for. It’s also an older building so more generously sized (the units were meant for families) and if any panes of glass were going to fall off, they would have already done so. It’s not fancy but its sturdy and properly kept up.
Like you, I don’t feel like my travel days are over yet, but I decided to buy anyways. Not only that, I went and got a cat as well! I do slow travel so when I’m gone, it’s typically for months/up to a year at a time. If I decide to travel when things open up, I will rent out my place. I paid cash up front so I would only charge enough to cover the maintenance fee, hydro and internet. For that low rent, withing walking distance of a subway station, in mid-town Toronto, I have no doubt that I will find a quality tenant who will also look after the cat. It’s what I used to do when I owned a house (not in mid-town and no where near a subway station!) and it worked fine.
For the moment, I am taking a wait and see approach regarding future travel. After 9/11, air travel started up again but it wasn’t the same. And it wasn’t an improvement. I wonder what changes will be implemented post-pandemic, and whether I will still want to travel under those conditions.
For me, buying was the right approach. But IMHO there is no right answer, only the option that works best for you. But I just wanted to point out that owning real estate and traveling is possible.
One other thing, if you’re reading about a trend in a newspaper, then it’s already two late. I purchased this unit in December 2020 and it was a buyers market then. The listings, even for condos, seem to be moving more quickly now.
A cat is not a house plant.
We have rented a place that came with a cat, it worked great for us. If you don’t trust the tenants with a cat, maybe you don’t actually want to trust them with your place…
That wasn’t my main point. A cat bonds with its human, to be gone “up to a year at a time” is not fair to the cat. Maybe it’s just my perspective, where I live if you have a cat or dog, a city ordinance states you are their guardian, not their owner. If Veronica wanted a cat she should have investigated “foster kitten” programs that humane societies have.
@Karen : Thank you for saying it! I thought the same thing!
Glad that worked out for you. Why did you pick a co-op over a traditional condo?
I targeted co-op buildings for a number of reasons:
1. When I was studying at Waterloo, I ended up living in a co-op residence. It was a fantastic experience. It also means that I don’t have the typical reaction to a co-op building which seems to be “co-op building, gah, communist housing, gah, run away…”
2. What I enjoyed about it is the “sense of community”. That’s not to say that every co-op building has that community feel to it, but there is a higher chance that it will, due to the way co-op buildings are structured and their more ‘hands-on” approach.
3. Because they are structured differently, co-ops can get away with things that a traditional rental apartment or condo building can not. I looked at buildings that had no pets, no rentals – one even had a no kids rule! Try doing that in a condo or rental apartment!
Some people would hate that type of control, but it’s all in how you use it. For example, I like the fact that my building requires board approval in order to rent out the unit. It means that there is no chance of the place becoming a ghost hotel (even without the city AirBnB intervention).
4. And finally, they tend to be much lower priced. Most likely because it’s more difficult to finance a mortgage. The 1.5% mortgages being offered now – no way, not gonna happen for a co-op. When you buy a co-op apartment you are buying shares in a corporation, so you are borrowing against assets rather than real estate (same as if you were borrowing against your portfolio). The best interest rate I was quoted was 4%, which I left me feeling *meh*. So I just paid cash.
This means that the unit will be harder to sell in future (for the above reasons), but that’s okay – I accept that limitation. It was the price that I had to pay to live in my neighbourhood of choice. I ended up in Uptown, but I also looked at co-op buildings in the Beaches, Forest Hill, Rosedale ….. you’d be surprised where the co-op buildings hide.
Anyways, getting back to my original point, anything is possible. If you want to travel, not real estate, not children, not even pets (above criticism notwithstanding) will stop you – you will still keep traveling. But only buy (or have kids, or share your space with a pet) if it makes sense to you.
As always good clear writing – I love how you can break down even complex topics to simple relevant points.
I cannot comment on if I would buy a condo, I am a few years older than you and have a paid for house. Condo living was never an appeal to me – maybe when I am too old to care for a property it might make sense.
The question I would put back to you and would be curious to hear an answer to is what are your much longer term life plans? You are not done traveling now, but will the wanderlust (no pun intended!) eventually fade and you will want to live in one place? For a change or because you want kids, or other reasons? If so when would that be, 5-10 years?
So if you could see owning something in one place then two questions. Would it be in the GTA or even Canada? And do you feel that if that is a long term possibility you need to get in the real-estate market now or at some near term entry point to avoid being priced out long term or would your opinion be that is not something you need to worry about?
Some crystal ball gazing questions I know but always fun to debate!
Ha Wanderlust. That’s what FIRECracker has. *growl*
I’m not sure that our desire to travel will ever fade. Even with kids, we would want to travel with them on a permanent or semi-permanent basis. Only if some unexpected health issue comes up would we really consider settling down in one place for more than a year.
Despite your current animosity toward homeownership, I bet you two eventually will buy at least one house. 🙂
It’s inevitable, really. Once the novelty of the peripatetic life has worn out, as you become older, and once you’ve started a family, you will feel the urge to settle down.
It’s the natural progression of things.
You can fight it, but you can’t avoid it forever.
Are you quoting The Matrix? In the end, Neo destroys the bad guy. You know, the one who mentions inevitability.
Wow. Not everyone wants to own a house or have kids. Just because the majority of people do, doesn’t make it ‘inevitable’. My partner and I are never having kids and have never considered buying a place, despite easily being able to afford it. We value mobility and variety, even if we often stay put for years at a time. I don’t rule it out, but it’s most certainly not inevitable.
yeah friend, I had the same plan and now I’ve two kids and planning on buying a house. Almost kissing good bye my FIRE dream ! Life happens, never say never!
I think you CAN effectively say never to having kids if you’ve been snipped and are with a woman past menopause.
I mean, life is unpredictable, but at this point, there’s probably a better chance I’ll die on Mars than have a biological child.
Peripatetic. I learned a new word today!
And maybe one day that will happen, but I don’t see it happening anytime soon.
Is it possible to break down de 1,700? What are the items included? Based on the rent, with no condo fee, you can estimate an attractive price. In my opinion, 1,700 all inclusive rent is cheap for a 330,000 condo. I wouldn’t pay more than 250,000 for a condo with rental prices at this level. If you don’t know how the condo is managed, run away and don’t buy. You can’t, as an individual owner, do very much about the mess and you are attached to it until you sell the condo. It is a nightmare.
You’re right, I think the purchase price came out artifically high because interest rates are so low right now.
Interesting but here where I live (Atlanta, GA) house prices have almost doubled since I read your article about not buying a house in 2018 and decided not to buy.
The house I was looking to buy was selling for $240k and it was just sold again last month for $365k. Yeah, that’s how much I lost. Not blaming you, but it doesn’t always work as you think everywhere. A single rule doesn’t fit it all
Depends on the building and a lot of other variables. We own a condo in a modest (NON LUXURY) high rise in an equally modest neighborhood in VHCOL Honolulu, HI. The condo is a 3/2 and cost us $365k in 2015. HOA fees are now $700. Owner/occupancy is 70%, which is pretty good. So far, living there has been cost-effective compared to renting, and when we travel all summer to the mainland to see our families, we have no trouble renting out our place to acquaintances (no AirBnB necessary; we’ve always found friends-of-friends).
The nice thing about condos when it comes to travel is that you don’t have to think about upkeep or security, because the high HOA fees have that covered. The not-so-nice thing is that those fees are forever surrendered to the gods of maintenance and HOA boards.
If I wanted to be a perma-traveler, nope, probably wouldn’t bother with buying a condo. Too much hassle. Long distance landlording is for the birds. As a primary residence, though, we’ve had a good experience. Since we’re long-term Honolulu residents, it continues to have been a good financial decision to have bought the place, despite the Hawaii economy crapping the pandemic bed. It’s not a luxury building, so the occupants are all working-class owner/occupants and landlords who continue to pay the fees.
HOA $700/moth? That’s absurd and I’d rather rent something instead.
Well, yes, to the uninitiated, that seems like a lot. It’s Honolulu, though, so it’s actually about par for our market. With real estate, you have to take into account a lot of variables. Rent vs buy has us coming out ahead–rent for a similar condo in Honolulu would be ~$2300-$2600/month (despite the pandemic), so even with seemingly high fees, it’s better for us to own.
$700 is a lot for HOA fees. That’s almost half my rent right now!
This is why it’s so important to decide between a condo and a co-op. That $700 HOA fee can be either really good or really bad depending.
My parents live in a condo. Generally speaking, those HOA fees only cover the basics. Repairs, property/community upkeep, garbage and snow removal, and in their case, a large community pool and sports center. I think my dad said he pays about $250/month. But he also pays utilities and property taxes separately, same as any other homeowner.
I live in a co-op. EVERYTHING is covered by the building. Utilities, property tax, garbage/snow, the laundry facilities, and more. My HOA fee is $850/month. Way more than my dad’s HOA fee, but unlike him, I don’t have to pay a gas bill, a water bill, and an electric bill on top of that.
Different places will have different things covered in their HOA fees, but co-ops tend to be more all inclusive as you don’t technically own the property, but rather shares of the company that owns the building (that’s why we tend to be referred to as “shareholders”). So $700/month might sound pretty good for an HOA fee on a co-op, but not so much on a condo, based on what I know. Of course, one would have to know exactly what the fee covers to say whether that’s good or bad.
Word of advice to anyone looking to buy either, avoid any building that charges a large amount and covers little. Besides being a bad deal, it means the building is having serious financial trouble and is trying to shake its residents for every penny it can.
ARB—Angry Retail Banker
Are co-ops available in the US? I have not heard that term used, and how are they listed?
Why not meet in the middle and buy a pre-con condo outside of downtown Toronto? You can make flexible downpayments and when the condo is ready in 4-5 years, you can decide whether you’d like to live in it or simply sell the assignment.
I live in downtown Mississauga and it’s basically turning into TO2.0 (lots of new condos, retail, Square One, etc). You get both city vibes and quiet suburbs surrounding the area. I don’t think people will judge you guys if you set up a “home base” where you can come back to after extensive travelling. I at least, like having that peace of mind whenever my partner and I decide to travel long-term since we can work from our laptops.
Why not meet in the middle……..and buy!!! Buy! Buy! Buy!
I really enjoy reading the comments section and then commenting on the comments. Lol.
I really like how so many people want to force others to do stuff just because…….nothing. I’ve always thought live and let live. You wanna rent? Well, rent. You wanna buy? Well, buy.
You wanna write funky illogical comments in the comments. That’s where I throw live and let live through a window….and put on boxing gloves….because we’re gonna have a good time and have a great laugh.
The cult of real estate home boner buying is alive and well. Cause real estate is always a good decision, even when the math says it ain’t.
Thanks Kristy and Bryce. I always leave with a big smile and my belly hurting from how much I laugh.
Lol who’s forcing who?
Everyone knows you can’t travel the world forever, at least not consistently. Why not think ahead and buy into having a home “base”, especially as prices are creeping down, as they mentioned in the article. But if you’re comfortable living in a different place every year, that’s good on you, nothing wrong there.
Are prices in Canada stupidly high? Of course. But there are still plenty of smaller towns and cities where the bubbles haven’t been inflated… yet.
I hate debt as much as anyone here, but I’m willing to make financial plans to give myself peace of mind while having enough to travel and live comfortably. =)
Oh, HELL no! Buying a pre-con just means I get to pay now for something I can’t even see, and if it gets delayed or if it turns out shittier than what was promised, I have no recourse and have to take it up the ass. No, no, a thousand times no.
Mine was delayed by 4 months by the pandemic, but it also meant 4 less occupancy payments and got to close faster.
I understand the fear of paying for something unknown, but it’s a matter of due diligence and searching a developer’s previous projects and even visiting a rental at one of their buildings, if it’s nearby. They’ll also tend to use the same utilities and property management companies so it’s a good way to know what to expect to some extent.
Ultimately it’s trading a bit of the unknown for 5 years worth of potential price appreciation and flexible payments. Plus brand new condos will always have the lowest maintenance fees compared to anything 10-30+ years old.
Happy hunt? He said no. No means no. He doesn’t like taking it up the ass.
Once again: No means no!
Happy hunt to you too, Dave! =)
I guess your questions are:
1. Does it fit the lifestyle you want? If you want to travel, renting is better than owning. If you like living downtown and want to stay put, maybe the condo becomes affordable.
2. Is it priced appropriately?
3. If fewer tenants are in the building, condo fees will have to go up to maintain it even if there are no unexpected expenses.
4. Things go wrong with buildings. A roof leak repair could be an example of an unusual expense that all tenants might have to share in addition to paying regular condo fees. With fewer tenants to divide the emergency expenses, it could get expensive. Especially if a few units are taken over by banks that don’t have to pay regular or emergency fees.
Yeah, these are the arguments JL Collins made as well. As a lifelong renter, I guess I’m just not used to thinking about condo fees (or maintenance).
Personally I like owning. Of course I paid $108k for a big house 20 years ago and it’s worth $250k today (USD). No HOA, minimal operating costs really. “No rent” is great. Keeps the baseline spending nice and low.
So at some price, I’d say it makes sense for you to buy. Probably not there yet with the $500k condos!!
Maybe buy one in Florida or somewhere cheaper and warmer? Then just rent it out on Airbnb while you’re in TO (and use the $ to rent a place in TO when you stay there).
I dunno Justin, everything I hear about remotely managing an AirBnb suggests it isn’t nearly as easy as it seems. Plus, they could always ban AirBnb’s and then you’re SOL.
That is true! I don’t know much about it in practice, and we haven’t rented out our own house personally while we leave for months at a time over the summer. Just seems doable if you spend the time getting it set up and getting the right person(s) in place to clean, manage, etc.
We rent at 1.8K/mo in Calgary despite being able to easily afford this condo (350K?) with our high networth. Even though we’re expecting our first child, the flexibility of renting is too appealing. We don’t find moving that much of a hassle and we love the freedom to get up and move neighbourhoods if we change jobs/don’t like our neighbours/want a different layout/don’t like school system. The thought of purchasing somewhere we anticipate to stay for 10 years just feels too unrealistic!
I think one of the biggest non-monetary factors that people quote is how big of a hassle it is to move. It sounds like you’re pretty lightweight like us, so moving isn’t a big deal, so we value flexibility more than “settling down.” Interesting.
At $330,000 per unit a person like me would just buy all the units in building and convert its use to a conventional apartment building. Today the math would go something like this. Let’s assume it’s a 100 unit building. That’s $33,000,000 for all the units. Annual rent would be $2,040,000. Expenses would be roughly 40% of that. So we’d net $1,224,000. On $33,000,000 we’d need a downpayment of $4,950,000. We’d need about $1,500,000 for soft costs (CMHC insurance, legal fees, land transfer costs etc). Call it $6,500,000. Mortgage payments would be around $1,000,000 annually. A little less than half would be principal repayment. Let’s just call it $500,000 in principal repayments. So we’d net around $724,000 before income tax on our investment of $6,500,000. That’s about 11%.
There would be a feeding frenzy among the REITs to buy on those terms. That sets a price floor. So I wouldn’t be dreaming up apocalyptic strategies because that won’t happen.
As far as buying one unit goes, that’s a different matter. It wouldn’t be me doing it. Hey, I drank the coolaid long ago regarding real estate, but I’ve taken the cure. I still own my own home but I’ve done so for a very long time.
As I tell anyone who will listen, from a person who have been in the real estate industry for over 35 years, that home ownership is wildly overrated.
I’m going to echo a lot of the other commenters today; it depends on what you want to do.
One thing I would caution against is the following: Don’t be contrary JUST to be contrary. “Zig when others zag” is good advice, but it’s not meant to be followed blindly – it’s a reminder that there’s opportunity in crisis. Whether you take advantage of that opportunity is dependent on factors that only the two of you can actually evaluate, the most important of which being;
Are you done traveling the way you have for the last few years?
If the answer is “no,” then stop. Do not pass go, do not collect $200. You’ve already done the math on this and you have a system that works and makes you happy. The pandemic will eventually pass and you’ll be able to return to the type of travel that you’ve been doing.
If, for whatever reason, you don’t want to stay nomadic, then it’s time to consider buying property and I’m sure you’ll research the markets you’re looking at and math your shit up to decide if it’s financially worth it.
Whatever you both decide, I’m sure it’ll be an entertaining read and I look forward to it!
Yeah, you’re probably right. Still, it’s always a fun exercise to occasionally question all your core beliefs just to make sure they still apply…
I think it locks up too much capital / imposes mortgage payment obligations, but my spouse isn’t sure. I think it comes down to how much money it locks up. I’ve only partially mathed shit up about our current place in Waterloo and how much we could be making from it—I know how much we are collecting in rent and how much we are paying out for taxes and fees, but I haven’t computed how much we would make if there was a mortgage and we were investing the capital.
I like living in Wellington but there’s no way that I can imagine that buying a place here would be a sensible use of money (even if we weren’t legally barred from buying a place, as noncitizens).
Thanks for yet another great article. I agree with Adam “Nope. Extra Nope.” on this one… however, seeing folks pose the question back to you and thinking about your desire to travel and your comfort with living out of your backpacks, I am wondering if you might be able to find a happy medium doing some traveling around the Great White North in a tiny home on wheels? Putting it out there for consideration…and if you end up making a film about it… I would happily watch on Netflix. Cheers!
You know, the thought has crossed my mind. But talking to other RV camper-style travellers, I think that makes a lot more sense when/if we ever have kids.
I think this is totally a personal decision and as JL Collins states and I paraphrase “buying a home is a lifestyle decision but not necessarily a financial one”. In other words, sometimes doing the thing that works best for your lifestyle is not the best “on paper” financial move. My husband and I have been nomadic for over a year and decided by the end of month 7-8 that living in “inconsistent” AirBnbs around the globe was not what we had anticipated as “digital nomads”. There are only so many ill equipped kitchens and bad beds that one can stand before you really yearn for some creature comforts that seem to only be had at “home”. Truly this could be a rental or a purchase home and we have opted for both!! We have rented an apartment in Europe for 2 years and are buying a home base in North America. We took a play out of the Nomad Capitalist play book and want to eventually have 2-3 home bases and travel from their so we can fulfill our wanderlust but still have a nice comfortable place to come back to. We also have a dog and pets and the nomadic life is not the easiest thing…that’s definitely another big lesson we learned this year. At the end of the day NO plan or formula works for everyone…have flexibility, be realistic, and most importantly have fun out there!!
I’ve heard over and over again that the nomadic life becomes unsustainable for people with pets, even more often than couples with young kids. Are pets harder to travel with than kids? That doesn’t make any sense.
My line of thinking is similar to yours. Right now I pay affordable rent for a one bed unit in a owner occupied triplex. I’m in a nice midtown Toronto location, everything I need is a 5-15 min walk from my place. Every time I run the numbers, renting just makes more sense for now. I cant wrap my head around tripling my monthly housing costs in order to own a nice condo (one that has an actual kitchen, not an appliance wall where your couch faces your stove and sink). I was hoping condo prices might collapse during the pandemic but they haven’t fallen off the cliff like I really needed them to. Prices would have to drop to $400k-$450K for the cost benefit analysis to begin to look good. I do see attractively priced units from time to time but those tend to be in buildings with a lot of units on the market. To my mind, a large number of listings in a building signals future condo reserve funding issues so then I’m back to no affordable options to own.
I am a disciplined saver, I’ll continue to rent and invest the difference. In 15yrs, I’ll hit my FIRE number, in 23 yrs I’ll hit my fat FIRE number, enough to put future me in a comfortable long term care facility if/when the time comes. If it’s a choice between $3.5M in liquid assets or $3.0M in a house+$500k liquid assets, I’ll choose the former.
As someone who’s in the opposite position, I say DON’T DO IT! Where I live buying seems cheap relative to renting – my 300k condo rents for around 370/wk, that looks like an attractive return of 6.4% (tax free, since for owner occupiers it’s in the form of avoided rent). But my actual return has been much less because fees sky-rocketed after problem after problem was found with the building (and those problems were handled really badly by the managers). Considering fees, utilities normally paid by the landlord, and council rates, I’m only getting a 3.8% return, which isn’t terrible but also isn’t great given the risks involved – I’ve made a small capital gain (only enough to cover inflation) but people who bought at the top of the market have made a loss. I’d probably reach FI faster if I sold, but I’m emotionally attached to my home! (also, it wouldn’t make much of a difference at this stage, since I only have 4 years to go). I’ll sell once I get to FI though, the joys of nomadic living being enough to entice me to give up my home. I won’t rent it out instead – my parents are landlords, I know from their experience that that’s more trouble than it’s worth!
Oh interesting. Yeah, those soaring maintenance fees really do suck, I guess J.L. was right. Again. How annoying.
If I were you I would stay renting. Buying a house or condo doesn’t make sense. The freedom to travel is a much attractive option.
Did you notice that it may be your Mom’s way of apologizing for her outdated view of the world? Another good opportunity to close the old family feud. Sincerely thank her for the article and give her a tight hug.
As for buying/not buying a condo, I think it’s similar to stocks. There is never good/bad time, and it’s not ‘zig’ for ‘zag’. It’s only a matter whether it fits your current values & lifestyle. If you feel like settling down for a couple of years, math shit up, then buy/not. If you don’t buy now, there will be many good times to buy a condo with reasonable prices, healthier design, newer technology, …in beautiful and exciting locations all around the world.
Have you ever met FIRECracker’s mom? YOU give her a hug. Wear chain mail.
Another factor you might want to think about that I don’t see mentioned is, how do you feel about home repairs? Are you a DIY kind of person? Do you enjoy fixing up your space and/or dealing with plumbers etc? Because even in a condo where the common areas are taken care of communally, stuff will go wrong in your unit that you’ll be responsible for. If while you’re traveling, your bathroom sink decides to leak and inundates your neighbor’s unit, guess what: trip’s over. I own a condo in an otherwise nice building, with nice neighbors etc, but it’s still been one issue after another, always unpredictable and sometimes pricey. I’m planning to sell soon and can’t wait to rent again. YMMV
Yeah, that’s a good point. My home maintenance skills are limited to whatever’s currently on Youtube.
You want to own land not a condo. So many extra fees, monthly HOA and the every 10 year owner’s assessment for upkeep of the leaky windows and physical structure which could be $90-100K.
Especially Toronto and all those new condos with the glass. The glass panels might look nice new but after the yearly temperature extremes the glass adhesive and moulding will buckle and need replacement every 10 years.
Buy land out from the city center. Toronto is totally overrated anyway
Oh yeah, remember when those downtown condos kept having the floor-to-ceiling glass panels break off? Whatever happened to that?
A vacant home tax is the most interesting tax situation that I’ve ever heard of. If I were a digital nomad, I don’t think there’s any price that I would ever consider giving up parts of it to become a homeowner.
Real estate just doesn’t seem like a passive investment to me. It’s a highly active way to get passive income because you have to churn out tenants occasionally. The operational risk is not to be ignored!
It’s definitely not passive, that’s for sure.
Preach it. I’m 47 years old and have never owned real estate that I lived in in my life. Though I own pieces of several multi-family properties as investments. Got to keep the flexibility and ability to travel!
But how is owning multi-family properties flexible?
The multi-family stuff represents less than 10 percent of the portfolio. Just extra cash flow and slight diversification so as to not be over 95% equities. I don’t manage them. I’ve never even seen them in person. It’s totally passive. They are instead of owning bonds (though I admit they have a much higher risk profile than government bonds.) But you are right that illiquid investments are not for most, and I generally prefer owning equities (which are more than 80%) of my portfolio.
Interesting article! Obviously you haven’t heard of The Great Reset. LOL
Your rule of 150 would work in Calgary 😉 I know you obviously have ties to TO but if you ever wanted to settle down in Canada, consider AB. Low taxes, affordable housing, and mountains. For $300k you could get a 3/2 townhouse with a garage, yard, etc.
I dunno, my inbox is full of people getting creamed in the Calgary real estate market over the past few years. Though maybe that means there’s another opportunity there…
Despite being a die hard renter and stock investor. I defied my own stubborn beliefs and bought a new construction condo 2 years ago. This was due to a few reasons. 1) I knew the area I was buying into was developing fast. 2) I wanted to diversify my portfolio 3) I wanted to upgrade my lifestyle without increasing my rent 4) I wanted the freedom to leave for 6 months and travel without paying rent for 6 months while I was gone 5) I am using the smith manoeuvre for my mortgage which allows me to prevent the lockup of my money in the condo and continue investing with a very low borrowing rate that also offsets my income tax burden. 6) I also did by due diligence and heavily researched the developer.
I have doubled my investment since all I had to do was put down a 20% deposit 2 years ago. I am aiming to keep it for 5-8 years tops so that the maintenance fees don’t get too expensive. I still am not sure if I did the right thing but hey, it is what it is.
So you rent the place out 6 months of the year? How did you find your tenant?
It would be tougher for people who’ve early retired to secure a mortgage from a bank with no income. Most likely you’d have to do a full cash purchase at that point, though some banks can offer a more difficult to obtain asset based mortgage assessment that looks at your portfolio instead of income. IMO this is something that should be considered before pulling the trigger on early retirement.
You can buy and then retire, and still have the mortgage for years afterwards. More difficult to retire and then get a mortgage (if you wanted one)
I would probably do it as a cash deal, then HELOC 65% of the equity back out.
Having owned multiple condos, my advice is to buy a freehold property (usually a detached single family house). Why? Because it comes with a bundle of rights that you don’t have in a condo/ strata ownership situation. Rent it out, repair it when you like, have pets, tear it down and built something new- whatever you do don’t tie yourself to a group of other owners who might think differently and have different goals that you. Single family dwellings are also heavily subsidized from a municipal servicing level so that’s a win as well.
Sure, but there aren’t any free-hold deals in Toronto right now. Good point on the lack of property rights though.
Wow. Thought this was an April Fools day post but it seemed serious!! Interesting to hear your thoughts on it.
Like JL Collins’ thoughts on the building going into decline I’ve a few other thoughts as well. Like for eg, you never know in the future how the government property taxes could change. Or what if there was some natural disaster that pushed up insurance costs. Taxes on property in Canada is different to that on certain Europe countries. But potentially in the future what happens if its pushed up a lot, as is the condo fees, or as you said the vacant building tax that was just introduced. From what I learnt from you guys and JL Collins you can sell a stock easily but you can’t just take a few bricks from your house and sell a few of them. You got to get rid of the whole thing. And what if the dynamic of Canadian culture changed over the next 10 to 20 yrs and people became more avid renters rather than buyers like some central European countries. But because of remote workers more people rent in the country side rather than in cities. So in this case it might be hard to both sell or rent out your place. This pandemic has changed the world and could very well put things back to relative normal in a year or two but also could see the whole dynamic of the world change over the next 10 to 20 yrs. Maybe cities will become more derelict and run down like they were a generation or so ago as the suburban rush in the US was huge. Maybe cities become more dangerous and rough and maybe it will take a generation or two for this to be revived.
On the other hand, maybe the government sees this happening and decides to Grandfather some people in that use their condos for Airbnbs. So for eg not allow any more to be created but those that already exist be zoned in a certain way to allow this to keep happening. This could keep the tourists coming, keep people paying their mortgages.
But again all this is speculation. The main thing I learnt was you can’t take a few bricks from your building.
As you said Travel is part of your Identity. Like myself you like change and new places. And even though you are in Toronto right now, you mentioned you’ve moved a few times from Airbnb to Airbnb. If you were stuck in the same place would you feel differently. It could be a home but could you get sick of it after a few years.
Good article … it is a choice of course — I would go with cheaper South Western Ontario small cities or something like that … then you could still travel and have a home base … or could raise kids there if you chose to … maybe a garden …. get a dog etc … as Collins said it is a lifestyle choice …. the Florida idea sounds intriguing from a Canadian perspective …. if you can’t decide yet you can keep renting until you are sure what you want …. maybe test drive some smaller towns ….. Chatham Windsor St Thomas London — Point Edward …. Ontario stuff etc etc – Beijing, China 🙂
My fellow FIRE starters…
I am giving 2 rules to follow on your FIRE journey…
1. You must find time to settle down and build a family. Meaning, unless you have a medical condition that
preventing you from having children, you must relinquish some of your freedom and fulfill the “Species” responsibility.
2. Once your children are able to fend for themselves (18 to 25), you must FIGHT hard to regain the freedom
and live safely and freely as the animals in the wild.
Plan your FIRE journey accordingly!
I fulfill my ‘species’ responsibility by creating useful products for humanity, helping others, and leaving good ideas and values for others and future generations; which, in my opinion, better than creating little creatures that ravaciously consume our resources, and grow to annoy the inhabitants of our universe if they’re not raised well.
Chuck…I admired your mindset. However, you may not aware of a hardwired population statistic!
By the time the new generation crossed the puberty line, a clear separation between the tiny geniuses (1% or less) and the remaining population, the majority.
The majority of this new cohort will live an ordinary life, supporting the visions of the geniuses. They will not produce any earth shattering idea that changes the course of humanity.
Work hard, striving for usefulness with your own gift and diligently plan for an ordinary life (hopefully with the love of your life and children) with a chance of FI at the later age (40 – 50).
It is truly a journey not the destination.
Good luck Chuck!
Hmmm…fulfill species responsibility. 🙄
I’m all for it. Any volunteers who want to fulfill their species responsibility with me? I guarantee a lot of practical application.
Don’t be shy. Don’t put your hands all up at the same time. Lol.
Or I could just do whatever the bloody Hell I want. The species will be fine regardless of what I decide.
You have to really make a chart on the pros and cons of buying a house now. Also why you are buying, are you thinking of settling down and have kids? Do you need to stay in one place to have kids? Why cant they travel the world with you, learning different cultures and languages? If you are not thinking of kids, than maybe to take advantage of the low prices and buy low and sell high, making a bit of profit on the way? Do you need the extra money? As your portfolio is keeping up with inflation and housing markets do go up and down on a regular basis, if you not ready to hang up your travelling shoes, my recommendation is do not buy. And this is from someone who currently owns their own home.
That’s a good point. The only real reason I would consider buying a condo is to make money, and I already have all the money I need, so…hmm…
I have never been a fan of Condos. I prefer managing my own property and having control over what is done and who does the work. Condo fees can be expensive. And you can be hit with special assessments that cost 1000’s. A few other expenses To factor in are property taxes and hydro. Insurance is usually covered in the condo fee though it doesn’t cover belongings in your apartment. If you do buy, buy in a condo that has no amenities….cheaper condo fees. When you have aging parents as you well know, travelling the world may have to be in small spurts, to care for family responsibilities. Buying a condo or house comes with significant expense in furnishing it. Unless you have stored those things. When you rent an air b n b you are renting everything in it. I think the big question is, are your parents ok if you leave? If they are, go, do what you love and consider a purchase when you need to be near your parents.
Yeah, you raise a good point. Right now, all our parents are (somewhat) stable health-wise, so that might be a good enough reason on its own to keep travelling.
I think your next article should have the title “Should we have kids?”. After buying real estate, it appears to be the second most popular topic. How do I know that? I just read the comments above. LMAO!
True. Because we need to fill the empty space in our newly bought condo. It looks cheaper and more fun to fill it up with kids than with furnitures. No?
I was joking about that with FIRECracker but I realized it would turn out to be a bad article since we could only come with cons and no pros.
Wouldn’t you rather buy a condo in Portugal or Vietnam. Way cheaper, more fun and easier to get to other place around Europe and Asia! Canada is becoming insanely expensive! ( have you bought wine, food or car insurance lately?!) winter sucks as well. Just my opinion!
Totally agree. If you want to be in the same time zone as Canada, then just buy something in Mexico. Life is equally (if not more) beautiful down here.
Ugh, I so wish I was in Mexico right now. Travel restrictions = no bueno.
If you’re still planning to travel around different places, some more expensive than others, couldn’t the condo be in lieu of travel to the more expensive places? Yes your total housing expenses will be higher but you (hopefully) get a great deal on a condo and still able to travel – SE Asia etc.
That’s a good point. I’d still have to figure out what to do with it when we’re travelling, but if the price is right maybe the math will work out…
What mandates a purchase in Toronto? Why not a short distance near?
It comes down to accessibility. You mentioned the rule of 150. What about a property 30 miles outside that serves as a temporary residence on a permanent basis. There was a person a few years back. Purchased property where he wished to travel and then used it for parking an rv. It may not be glamorous, but does not impact the bottom line and when that medical emergency pops up provides options.
Like a condo in Markham? Ugh.
How about considering your Canadian residency situation? If you purchase property (house, condo), you increase your ties to Canada, which is considered by the Gov’t when you acquire non-residency status. I’m not aware of your personal situation, but if you have declared yourself a non-resident, think about this purchase carefully.
Also think – will you become a resident of Canada again? If so, maybe purchase the condo, pay your Canadian taxes, and view your taxes as a token contribution, that will help pay for the community/society/country you want it to be and become in the future. What drives me nuts is when people don’t see taxes as their contribution – who pays for the roads, health care, culture, education system etc. that have supported you in the past, and will likely support you when you are elderly?
The comments section is hilarious!
Personally I have never liked renting due to unnecessary interference from property owners and not being able to tailor my space as I want to. I was also shocked at one comment about needing to care for a cat if you are renting from them! I have nothing against cats, but it should definitely be my own decision, and not be grouped as a package deal with renting.
It also helps that I have more than achieved your rule of 150 – the mortgage payments are one-third of the rent this property will achieve. So it helps to save more and invest more in the accumulation phase.
Of course we have been very lucky in the last 10 years that mortgage rates are 2% while the market returns 10%+. So the maths has worked in our favour. It may or may not be the same logic for all decades in the future.
It will be interesting to know what we will do if we travel for months at a time (we currently travel for weeks at a time, but not months). Mathematically we would not need the rent money, so it would kind of be okay to just leave the place vacant while traveling. Having a vacancy tax is just tyranny, its okay if this tax kicks in 2 years into the property being vacant, but not 3 months into vacancy!
Never buy a big ticket item you’re so conflicted about. Every little hassle of owning that condo would drive you two crazy given your gut feelings about property ownership. Nothing more needs to be said on the topic.
From your past articles, “I love Home Boners. There’s just so bad at mathing shit up. ” And this article which asks whether you would have been better off if you bought a 622k house in TO in 2012…. Be good to do an update on that math.
I expect if you do you’d find your net worth would be substantially higher than now, especially if you had rented the place out while travelling. We rent out our homes long term when we don’t use them and on Airbnb where permitted – all from a distance. Works just fine. You just need to have some repair people lined up and reliable cleaners.
You totally missed the boat. Toronto condo prices have shot up like crazy in the last 2 months. I actually sold mine last week for $250k over what I paid in 2019. Had almost 100 showings in 6 days and an offer night with 15 offers. Best part is that it is all tax free. I am going to fire next year and travel, but I will always have a house to come back to. In Canada, there are very limited ways the little guy to get rich, home ownership plays a key part of a diversified portfolio.