Flexibility is key to first home
Despite pitfalls, getting on the ladder as a young buyer is possible
Molly McGrath, 25, and Jonathan Palmer, 27, began their house hunt in early January. “We had just gotten engaged,” she says. “And a gift from my grandfather made it possible for us.” But the couple’s introduction to the Toronto housing market was like a bucket of cold water over the head.
They’d been looking for about two weeks when a house came up for sale in their chosen area – the west end downtown. It met every requirement on their wish list and then some. “This house was gigantic,” recalls McGrath. It had three storeys, was located near the subway, and even had a finished rentable basement apartment to help pay the mortgage. They put in an offer at just above the list price.
“We expected it to go for over asking,” says McGrath. “But it went for $230,000 over asking.” The couple was one of 18 bidders. “The thing with the market right now is that the asking price means nothing,” she says. “Houses are priced low to get multiple offers and every house is going for $100 grand or more over asking.”
It’s an experience that those lucky millennials who are in a position to buy a home can relate to. “You have to be open and flexible,” says McGrath. “But then that’s something you very quickly learn when you start looking. The wish list that you have will very quickly change from, ‘I need this!’ to ‘We-l-l-l, as long as it has a bathroom.’ ”
McGrath and Palmer ultimately found a house that met their needs, as well as their budget. It has only one tiny bathroom and an unfinished basement, and it’s in the east end of the city, not in the west end as they would have preferred. But on the plus side, it has three bedrooms, parking and a big back yard and it doesn’t need extensive renovations. “Compared to our 600-squarefoot apartment, it feels like plenty of space,” says McGrath. “We just figured now is the time. I’ve always wanted to live in Toronto and I know that the market is only continuing to go up.”
Toronto real estate agent Collette Skelly encourages millennials to get into the market any way they can. She believes purchasing a home tends to ground young people, teaching them to curtail their spending as they pay off a mortgage. “It’s really forced savings,” she says.
Skelly bought her first home many years ago at the age of 23, sharing it with several roommates to help pay the bills. “It wasn’t in a great area,” she says. “But it got me into the market.” Millennials, she suggests, can be overly concerned with outward appearances when it comes to home-buying.
“But even if a house isn’t perfect,” she says, “you can often add value by fixing it up a bit.
You get a bunch of your friends out on a Sunday to paint or build a fence.” And if you’re willing to be flexible about location, you may have more options. “You can get a decent house in Hamilton for $220,000 where it would cost you double that in Toronto for anything even close.”
One of the biggest stumbling blocks for millennials, according to Skelly, is coming up with a down payment. With interest rates so low, the carrying cost of a house isn’t much different for millennials than it was for the boomers. “But now you need $100,000 down,” she says. Some of her younger clients move in with their parents for a while to scrape that money together, while others get gifts or loans from family members. “Parents are usually more willing to make a contribution if that young person has already saved some money themselves,” she says.
For those who don’t have parental support, Skelly suggests getting together with a friend to buy a house. “In a few years, you can sell it and you may well have enough to put down on a house of your own,” she says. The caveat: she suggests living in a house for at least five years before upgrading in order to justify the expense of closing costs and ensure you’ve actually made a dent in the principle. Victor Godinho, a 23-yearold financial planner with V-TAG Financial Group Inc., recently bought a condo of his own largely by living with his parents and putting every spare penny away in savings. He has a client base made up largely of business owners and young professionals, not all of whom are as motivated as he was to save.
Godinho tends to put them on a three to five-year budget plan to help them accumulate a down payment. “The majority of them are coming out of school with debt,” he says. And they also want to spend some money now that the lean years of being a student are over. Godinho looks at their net income after taxes and necessary expenses. “Whatever is left after those expenses I divvy up percentage-wise,” he says. “I recommend they save a minimum of 10 per cent and that they set up automatic withdrawals.” He also gives them pointed advice about reinvesting their RRSP refund into savings, keeping the partying to one night a week instead of every Thursday, Friday and Saturday night, and checking out Groupon and discount websites before going out to dinner. Some of his clients have found other ways to save, including taking a second job as a weekend bartender; commuting as opposed to driving; and living at home with their parents. “They want to buy real estate now before the prices get so high that they can’t afford it,” Godinho says.