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When we meet with first time buyers, one of the most important conversations we have is around timeline and goals. How long do you expect to stay in your new home?
The answer to that question impacts so much. It affects:
- Where you buy – and whether or not things like proximity to schools and work matter
- Your budget – the longer your timeline, the more you can justify pushing your budget
- What you buy – your housing needs will undoubtedly change over time
I’m often surprised by how many people tell us they want their first home to be their forever home.
I get it! So many of us grew up watching our parents living in the same house for 30+ years and we yearn for that ‘family home’ that hosts a lifetime of holidays, friendships and events. But how realistic is that in today’s real estate and economic environment?
If you’re feeling pressure to make your first home purchase be your last, you’ll be relieved to know that most people don’t buy their forever home first. In fact, a 2015 study by the Canadian Association of Accredited Mortgage Professionals found that the average Canadian will own FIVE homes in their lifetime.
Why Your Starter Home Won’t Likely Be Your Forever Home
1. It’s expensive to get into the real estate market – especially in Toronto.
In August 2023, the average price of a home in Toronto was $1,082,496, with the average condo costing $725,000 and the average detached house costing $1,635,000. Most first- timers simply can’t afford to buy their dream home at the outset.
In Toronto, it’s not uncommon for someone to buy a condo first – they’re less expensive and there’s much less maintenance to worry about. People then graduate to a larger condo, townhouse or semi-detached house and eventually, a detached house. And when it’s time to downsize, it’s back to a condo or small bungalow. It’s the circle of real estate!
2. Compromises. You won’t get everything you want the first time.
Most first-time buyers have to make compromises in at least one, if not all, of the following:
If your dream home is 2,000 sqft with ample parking, a big backyard, a pool and located in one of the city’s best neighbourhoods, you aren’t likely to make this purchase as a first time buyer. But if you make strategic housing choices and commit to working your way up the property ladder, you’ll get more of what you want over time. We wrote a how-to blog about Climbing the Property Ladder in Toronto.
(Scroll down for our insider tips on making smart compromises.)
3. Your needs will change over time.
While you may have vision-boarded the next 30 years, life happens…and it doesn’t always turn out how you planned. People get married, they get divorced. They have babies, their kids move out, their kids move back in. Jobs change. Financial situations change. Health and mobility needs change. How much and what kind of space you need changes.
While having a plan and a timeline is an important part of buying your first home, don’t put too much pressure on yourself to have it all figured out. It’ll change. It almost always does.
Your first home is your STARTER home. It’s rarely your FOREVER home.
But if you’re smart, you may be able to buy your SECOND home first.
Should You Buy Your Second Home First?
The concept of ‘buying your second house first’ means skipping the traditional ‘starter house or condo’ and buying a bigger or better house or condo (the one you’d traditionally buy the second time) first. It might mean buying in a family neighbourhood before you have kids, or it might mean buying a home with better finishes than a first-time buyer usually buys.
Here’s why you might want to consider buying the bigger/better house FIRST:
1. Closing costs – it’s expensive to buy and sell a home.
There are legal fees (paid by both the buyer and the seller ), land transfer taxes (paid by the buyer), real estate commissions (paid by the seller) and moving costs (paid by both). And that’s before any of the fun renovating and decorating begins.
2. It’s not easy to leap to the next price range.
With interest rates higher than they’ve been for decades, any increase in mortgage means a much higher monthly payment. For example, moving from a $1 million house to a $1.5 million house will cost more than $3,000 extra a month (at a 5.95% interest rate). Does it make more sense to buy a bigger or more upgraded $1.25 million house first and simply keep it longer?
3. Historically, it takes 3-5 years to break-even on a property in Toronto.
As we’ve seen these last few years, the real estate market can be unpredictable – and buying a home that doesn’t suit your short-term needs (3-5 years) might make it impossible for you to quickly upgrade if your needs change. What do you expect your life to be like in 5 years? Marriage? Kids? More kids? Live-in nanny to take care of the kids? Mom or Dad moving in? If the property you’re thinking of buying won’t be right for what you expect your life to be like in the short-term, you may be better off buying your second home first.
4 – The gains on your primary home are tax-free.
When your home increases in value, you don’t have to pay capital gains on it – it’s one of the best tax strategies available to Canadians.
If you can comfortably afford it, wouldn’t you rather enjoy the tax benefits of a $1.5 million investment instead of a $1.2 million investment?
Related: All About Taxes in Real Estate
Whether or not you should buy your second home first depends on several factors:
- How much mortgage you can qualify for and comfortably afford
- How you expect your income to change over the next 5 years – will you get average salary increases, or are you at a point in your career where you’ll likely make some significant jumps in pay range?
- How you expect your lifestyle to change
Tips for Making Compromises When Buying Your First Home:
- Consider a semi-detached or row house instead of a detached house (they’re more affordable and there’s less competition from other buyers for them)
- Street Parking: Houses without parking are less expensive (just make sure there’s good street parking if you have a car)
- Look for a house with an unfinished basement (though don’t fool yourself; it’s EXPENSIVE to finish a basement)
- Most people want 2+ bathrooms, but if your marriage can survive it, the 1-bathroom house can be a real opportunity
- Busy streets aren’t as in-demand by families with young children
- Streets near the train tracks are also less expensive (and who doesn’t love a train?)
- If you don’t really need 3 bedrooms, consider getting a 2-bedroom house (bonus: the in-laws stay at a hotel!)
- Ugly houses that need some cosmetic updating are often overlooked by Toronto buyers. Ugly is good!
- Expand your neighbourhood criteria – this is often the compromise that yields you the best new options. Look for undiscovered neighbourhoods that are just starting to transition and areas further from the subway for the best bang for your buck.
- Don’t forget about townhouses! They can be an amazing alternative and come with way less maintenance
- Consider a condo. Don’t be fooled into thinking that you’ll spend less maintaining a house than condo maintenance fees will cost you. Buying a condo can be a great way of getting into the real estate market.[Related: Condo or House? Which One is Right for You?]
And, of course, you can always decide to compromise on budget…if you really do need that 3-bedroom home on a nice street, in a hot neighbourhood, with a finished basement, 2+ baths and a backyard…you may just need to increase your budget to get it.