Dear Millennials,
First of all I hear you. Affordability is a real concern and if you’re feeling the pinch, it makes sense. I am here to tell you a few ways to think outside the box and be able to afford and own a home in Toronto. While it might seem out of reach for you at the moment, there are strategies you can use to work towards meeting your home ownership goals. Here is what I suggest:
Condos
Of course, the popular choice for young homeowners is always the condo. This is a good option because condo prices are much lower than house prices. To put things in perspective, here is a breakdown of average 416 home prices based on type:
- Detached: Close to $2.1 million
- Semi-detached: Close to $1.5 million
- Townhouse: $1.13 million
- Condo: $822K
As you can see, you can save yourself $1.3 million to $308K by choosing a condo. While it may not be where you envisioned staying long-term, most people aren’t purchasing their forever home out of the gate. Getting into the market and building your wealth at pace with market appreciation is what’s important. You can always upsize when the time is right.
Go 905
Be as flexible as possible, particularly on location. Maybe even consider a 905 area in the GTA. I know what you’re thinking: I said Toronto. But this is a very important consideration if the other options don’t work for you right now. This can help eventually get you closer to the Toronto goal. Here is a breakdown of 905 home prices based on type:
- Detached: $1.72 million
- Semi-detached: $1.28 million
- Townhouse: $1.11 million
- Condo: $756K
So, depending on your budget, you might find a house in a nice 905 area as opposed to a condo . You usually get a bigger backyard if this appeals to you, but in most cases you will sacrifice convenience and amenities.
Get Help from Family
First of all, I recognize this is a privilege and not an option for many folks. You might be surprised to learn that almost 30% of Toronto’s first-time home buyers had a little help from their family.
Having family support as a co-signer can also make a difference when it comes time to qualify for a mortgage, particularly if you are self-employed or having trouble securing ideal financing. While this isn’t an option for everyone, the trajectory of rising home prices is mirrored by a rise in cash gifts towards home purchases. In fact, family financial support rose 10% between 2015 and the days of the pandemic, with the amount given increasing from $52,000 to $82,000. Of those who received financial support, two-thirds said the money went towards their down payment. A big benefit of this option is that you can save on mortgage and interest payments by putting more money down.
Multigenerational Living
Another consideration is buying your home with your parents, a family member, and turning the home into two separate flats. You could also rent out the other unit and split the income and appreciation with your family member/investment partner. You can also look for homes with existing in-law suites. Although this is a good option, you do have to consider how happy you will be with this living arrangement. Despite separate living spaces, privacy and lifestyle can be greatly impacted both for you and your parents!
Co-buying With An Unrelated Party
If you like this idea but don’t have a good fit with a family member, you can consider a similar structure with a friend or acquaintance also looking to break into this fierce market. You’ll need to ensure that you have the proper legal framework and have carefully discussed all potential outcomes, how to resolve conflict, and plan for house maintenance. For more info on co-buying, check out this blog. And before investing with friends or family, check out this blog for some food for thought.
Multifamily Home Ownership
If you feel that your family or friends will cramp your style, you can go the multifamily route instead. This is the same idea where you create a set of flats or purchase a multi-unit home, and rent out to tenants. You can either renovate yourself, which does take some capital up front, or seek a home with an existing legal apartment included. Here is what you need to consider:
- Life as a landlord (the Rental Tenant Agreement is heavily in favour of tenant rights at the moment, so go into this with your eyes open)
- Your investment needs (determine if you need positive cash flow month-to-month to stay afloat, or are you comfortable relying more on market appreciation growth over time?)
- How much of your mortgage can be covered by rent (remember lenders will only look at 50% of your rental income when it comes to qualifying for a mortgage)
Set an equity target level that tells you when it makes sense to sell. The goal is to have a sizeable down payment from the sale of your home so you can live comfortably.
Before you give up, I can help you find a home ownership strategy that works for millennials in today’s market. Let’s chat.
Photo by Nadine Shaabana on Unsplash
