The Smart Home Buyer’s Guide: how to trade up at every stage of life

By Matthew Hague | Portraits by Norman Wong

Whether buying a starter home, a bigger house or a condo for retirement, every real estate investment comes with a host of unique concerns—not to mention the universal fear shared by all prospective buyers of sinking savings into the wrong property. The ordeal can be harrowing, especially without the right resources. Here, a round-up of case studies, expert tips and neighbourhood recommendations to help you choose wisely, whether you’re a first-timer or an empty-nester looking to downsize. It’s everything the anxious buyer needs to know before making an offer.

Everything the real estate virgin needs to know about setting up a starter home

A renter trades his long-time lease for home equity

Daniel Berkal, a 34-year-old partner with the Palmerston Group, a market research company.

Berkal had been a renter for 15 years and liked his apartment—the top two floors of a house near Bloor and Christie with a deck and Jacuzzi—but resented shelling out $2,200 per month without building any equity. In September 2012, he started looking for something of his own. He decided on a condo instead of a house, figuring the low maintenance would go with his frequent-flyer lifestyle—he spends up to six months per year on the road for work—and assembled a wish list: two bedrooms, two baths, a downtown location and proximity to good restaurants. He homed in on the east end and set a budget of $500,000.

A 1,100-square-foot penthouse in the Riverside Lofts, a four-storey building at Queen and Broadview. It was originally listed at $499,000, but Berkal figured it was overvalued. The price dropped two weeks after the condo went on the market, and he snagged it for $449,000 in November 2012. There’s only one bedroom and bath, but the place came furnished with a parking spot.

Berkal made a down payment of $100,000 and took out a 25-year mortgage on the balance, with a five-year fixed rate of 2.89 per cent. That sets his payments at $2,200—the same amount he was paying in rent at the old place. Plus, he’s only paying $440 in monthly condo fees, which shakes out to 40 cents per square foot—well below the usual 50 to 70 per cent range.

When he first started looking for a place, Berkal knew nothing about the process—he was more interested in finding a cool living room than in resale value or amenities. His first choice was a factory conversion at Queen and Carlaw: a giant, brick-walled room with a semi-exposed sleeping area on a raised platform. It reminded him of a place he’d lived in during his 20s. His real estate agent refused to let him make an offer—she’d seen similar places go stagnant on the market. Ultimately, Berkal is glad he kept looking. His loft has a bit of an industrial edge, but it also has new doors and fittings and upgraded finishes. It’s in a small building in a safe and gentrifying neighbourhood, so Berkal’s confident he’ll be able to find a buyer when he’s ready to leave—and hopefully turn a profit.

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The inside dirt on debt loads, maintenance fees, resale considerations and more

The Canada Mortgage and Housing Corporation recommends that mortgage payments, property taxes and utility costs amount to no more than 32 per cent of a household’s gross monthly income. The total debt load—mortgage commitments plus other loans, lines of credit or credit card payments—shouldn’t exceed 40 per cent.

An acceptable condo fee in the city should fall between 50 and 70 cents per square foot (or $400 to $560 per month for an 800-square-foot unit). If the fees are much lower, especially in pre-construction situations, beware: some buildings lure buyers with low fees only to increase them to cover maintenance costs that stack up as the building ages.

Before buying a condo, it’s worth asking about the owner-occupancy ratio. Buildings with more renters than owners aren’t as desirable because renters are less invested in keeping common property pristine, and absentee landlords aren’t necessarily keen on expending time and money to maintain units.

It’s important to consider the long-term value of your condo—you won’t be living there forever. Things like TTC access, a strong reserve fund and parking are all factors that could make or break a sale when you eventually put your place on the market.

There’s a difference between pre-qualification and pre-approval. The former refers to the lender telling you how much you can afford; the latter means they’ve actually secured that financing for you. Make sure you get pre-approved for your mortgage early in the house-hunting process—you won’t be able to make an offer without it.

Many first-time buyers can’t save the minimum five per cent down payment required for a mortgage. Most banks will accept a gift from the parents, provided the parents sign a declaration stating that they don’t expect repayment. Family loans, however, are a bad idea: they increase the buyer’s debt, and most banks won’t accept them.

First-time buyers can borrow up to $25,000 from an RRSP for a down payment. The money must be returned within 15 years, so it’s essential to factor a repayment plan into your monthly budget. (Almost half of RRSP borrowers underpaid their yearly instalments in 2011.)

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Over 6,000 new condos are being built here in preparation for the 2015 Pan Am Games; they’re selling in the $400,000s.

Picturesque homes in this waterfront Scarborough neighbourhood sell in the $400,000–$500,000 range.

One of the last stretches of Bloor where you can still get a house or condo for under $600,000.

How to go bigger and better without going bankrupt

A young family makes the most of two mortgages

Erinn Meloche, a 29-year-old market research analyst, and her partner, Glenn Attridge, a 34-year-old software developer.

In February 2012, after Meloche and Attridge found out they were expecting their first child, they decided to swap their lakeshore condo for something bigger with a yard. After researching neighbourhoods, they chose Riverdale for its leafy streets, family-friendly community and proximity to Withrow Avenue Junior Public School, and set their budget at $870,000.

A 1,532-square-foot, three-bedroom Riverdale semi. This was the 20th house Meloche and Attridge saw. They liked it, but suspected the seller had listed it low ($760,000) to trigger a bidding war. A couple weeks later, it was relisted for $815,000. The price eventually dropped, and they got it for $778,000—almost $100,000 under budget. Then came the hitch: they couldn’t sell their condo, even after lowering the price from $564,500 to $509,000. The couple panicked: they couldn’t afford to carry two mortgages, but they didn’t want to undersell their condo because of a temporary blip in the market. They decided to keep the unit and rent it out for $2,250 a month, which covered their mortgage payments.

Meloche and Attridge took out a home equity line of credit against the value of the apartment for a down payment, then secured a $622,000 mortgage. They got a five-year fixed rate of 2.99 per cent on a 30-year amortization schedule, setting their monthly payments at $2,800. They welcomed their first child, Spencer, in August 2012 and moved into their new house three months later. They don’t plan to leave for a very long time.

Sometimes it’s okay to take a risk. At the beginning of their search, Meloche and Attridge ruled out the idea of keeping their condo and renting it out. They didn’t want to take care of two properties, nor did they want to carry two mortgages. But when they couldn’t sell their condo, they realized the benefits of the situation. By building up equity in two properties at once, they may be setting themselves up for a lucrative payout, especially if the condo market heats up and the housing market continues to appreciate.

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Catchment zones, home inspections, property taxes and more

Open houses present an excellent opportunity to snoop around. Many streets in Toronto were built up at once, often by the same builder, so a quick chat with a neighbour can reveal how the area’s housing stock is holding up and how many people are undertaking major repairs.

In a situation with multiple bidders, many sellers will simply ignore conditional offers, even if that means saying no to the highest bid. It’s essential to be organized: see if you can have the home inspection done before you make your bid and always have your financing pre-approved.

It’s a good idea to commission your own home inspection—the seller’s is, by definition, not an independent one. If problems crop up, the onus rests on the home buyers to identify any problems pre-sale. A good home inspector will examine the property’s heating, cooking, plumbing and electrical systems. The inspection will usually run you about $400 to $600. The Ontario Association of Home Inspectors offers a list of reputable names.

Any school zone–obsessed buyer (like those Wanless, Allenby and Brown dreamers) should verify the address of their prospective house on the Toronto District School Board’s website—and not just take a real estate agent’s word for it. Catchment boundaries are irregular and quirky.

Buyers who plan to make substantial renos could get hit with a big property tax increase if the city figures out that the market value of the property is higher (and it eventually will). It’s common for the city to bill you for the higher rate and tack on a retroactive charge for the revenue they lost before catching on.

The CMHC recommends devoting a maximum of 32 per cent of your monthly income to mortgage payments. Families with kids should aim even lower—if you only spend 25 per cent of your income on housing costs, you can squirrel away more money for retirement, tuition or a contingency plan in case of a layoff or illness.

In some of the city’s most sought-after areas, like the Junction or Bloor West Village, investing in a duplex is an affordable way to buy in, with the owner occupying one half and renting out the other. Duplexes trigger fewer bidding wars than single-family homes, and the added income will help subsidize the mortgage.

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The large homes (around $900,000) and lush greenery make the Etobicoke pocket an ideal area in which to raise kids.

An $800,000 price tag will buy access to Bedford Park and John Wanless, two of the city’s top-ranked public schools.

Houses are selling in the $800,000–$900,000 range in this rapidly gentrifying east end ’hood.

How to ditch the mortgage, ditch the clutter and live the high life

A pair of empty nesters finds happiness in the sky

Jennifer Spencer, a 57-year-old public relations executive, and her husband, Marek Warunkiewicz, a 58-year-old graphic designer and entrepreneur.

When Spencer and Warunkiewicz started texting each other from opposite ends of their 2,800-square-foot Annex house, they realized it was too big and that it was time to downsize. Neither wanted to shovel the driveway or rake the yard anymore, so they decided to look for a condo with extra bedrooms for when their grown daughters come to visit. The couple had a hefty mortgage and car loan, both of which they hoped to erase by selling their house. Looking forward to retirement, they also wanted to free up more cash and keep less equity tied up in a home. In January 2012, they set a strict budget of $370,000. It priced them out of the core, but they were more concerned with finding a great place than with being close to downtown.

A three-bedroom, 1,800-square-foot condo in Etobicoke’s Humbervale neighbourhood. They loved the condo from the start: despite being on the 19th floor of a 20-storey building, the unit was large and bright, with lots of wall space for their art collection and a great view of the Humber Valley and river. It felt more like a woodsy bungalow than a high-rise apartment. The place was listed at $379,900; Spencer and Warunkiewicz bid $373,00 in March 2012. The offer—their first and only bid—was quickly accepted. After that, it took only 10 days to sell their Annex home.

They netted $1.4 million from the house sale, paid for the condo with cash and used the rest to clear their debts. In the end, living in the suburbs turned out to be perfect for the couple—and it cuts 40 minutes from the drive to their Muskoka cottage.

The couple didn’t expect the number of condo rules they’d have to follow. They almost lost a bargain on new hardwood floors because the board had to approve the installation first, and there were similar setbacks when they wanted to widen a doorway. They would have been better off familiarizing themselves with the building: getting to know the board members, reading the regulations, and getting an early jump on approvals for any anticipated renovations.

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Mortgage payoffs, condo renovations, subdividing your house and more

After they’ve sold their homes, downsizers often debate whether to use their newfound equity to go mortgage free or top up their RRSPs. For imminent retirees, it’s best to stay conservative, which means paying off the mortgage. The money saved on interest—even if it’s only 3.5 per cent—will probably amount to what you’d reap from your RRSP.

If you can’t lose the mortgage, a shorter amortization period of 10 or 15 years can free up cash and still keep the owner on track to retire in the clear. A short amortization doesn’t necessarily mean a lower rate—just less interest paid over the life of the loan.

Apartment buildings or townhouse complexes often have strict reno regulations. Check with the management board before ripping out the walls, rearranging the floor plan or getting a new front door. Any work done without the board’s consent may have to be reversed. Many condos prohibit renovations that will impact the building as a whole, like extensive reflooring, moving the bathroom or kitchen or changing the unit’s exterior.

Many condo buildings have policies prohibiting short-term tenants. That means snowbirds might have to forget their plans of escaping for the winter and leasing out their place.

Homeowners are often hesitant to downsize because they don’t want to give up extra guest rooms for visiting kids and extended family. Many new condo buildings now have furnished guest suites, which means that big Thanksgiving dinner is still possible in your small apartment.

For empty nesters on a fixed income, leasing a condo might actually be a safer option than purchasing. That means that even if fees spike or there’s a special assessment, you won’t suddenly be paying more in monthly maintenance. In the short term, renting is often a good way to suss out whether you’re ready to go smaller before selling your house.

If you love your home but don’t need all that space, splitting the house into a ground-floor retirement suite and a separate upstairs rental space can be a smart way to downsize without having to move. The extra income will help pay off the remaining mortgage, and being a landlord entitles you to deduct certain expenses (like property taxes and repairs) from your income.

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Apartment buildings in the area’s northern reaches offer Yorkville luxury for around $1.2 million.

The condo boom, with units selling for around $400,000, has transformed the Market into boomer central.

The former fishing village in Oakville has retained its rustic charm. Waterfront condos go for around $700,000.