Rent or buy?

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In Edmonton, the big thing the past few years has been condo conversions of apartment and townhouse complexes. Right now, the market is quite low, and I am not sure what direction the market is going at the moment, or what the story of interest rates will be. For the twelve months coming up, low still looks to be the story. At this point, it is quite possible we will see devalued currency (what happens in the US carries Canada along) and stagflation like interest rates as a follow up of all of our current festivities. Not an absolute, but absolutely a possibility. Mortgage interest rates on a variable are 2.69% at my bank; prime plus 0.40%. For a five year lock in rate, I have seen as low as 3.87%. I have seen a few townhouses in my price range and the cost of the mortgage plus site fees are similar are lower than rent. Of course, you are responsible for the yard, interior, etc. but you also have equity in the home. Everything would definitely be done on a five year horizon, then I would be at a stage in job/life/financial situation I would be in the detached home market. If the bottom falls out of the market, I probably wouldn't lose any more money than I would by renting three to five years. If interest rates go up, I could afford it, it would just kill some of the economics of my plan. If home prices stay the same I'll come out even keel, and if they go up, I win. Thoughts?
 
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You only have equity in the home if prices don't drop. If they do, you could well end up owing more on the house than it's worth. That has happened before, and it will happen again.
 

JHZR2

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Based upon how you state it, I do not necessarily see a huge downside, though being upside down could be a risk (depending upon how aggressively you pay it down - in a situation where the prices drop, you could still out-accelerate the drop... and if they are already depressed, how much further can they really go? A stagnant market is another thing, but being ready to move up isnt an issue in this situation, IMO). I would try to be sure to get something more fixed, in case the economics ultimately work out that you want to hold onto it as a rental or something like that...
 
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Sounds like a total win to buy. Obviously they are charging too much for rent! I bet your management company has lots of vacancies, call them up and demand a 25% cut! It sounds like the site fees cover all the maintenance, the big unknown in home ownership. Those can and do surge.
 
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Have you ever considered purchasing a home in which you can put some sweat equity? Our first home we purchased for $21,000 and sold it 5 years later for $93,000-most of the value was sweat equity (other area home prices rose around 10% in the same time period). When we purchased our second home we did the same thing (slightly more upscale and for substantially more equity). When we built our current home we only financed 30%-the balance was paid in cash out of the equity in our second home. It's nice walking into a brand new home only owing a fraction of the value. Doing the work myself was a great learning experience, not to mention having a very upscale country home that was easy to pay off in a few short years. I don't know the Canadian market, but around this area there are a lot of homes that need a little work at very reasonable prices. A savvy buyer can get a great deal, and by the time you're ready to move in 5 years the market will have turned around.
 
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 Originally Posted By: Pop_Rivit
H Our first home we purchased for $21,000 and sold it 5 years later for $93,000-most of the value was sweat equity (other area home prices rose around 10% in the same time period). When we purchased our second home we did the same thing (slightly more upscale and for substantially more equity).
i would rather just save $72000 in 5 years without having to put in all the elbow grease (but i am really lazy)
 

MGregoir

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A fixer upper in Alberta right now is $175,000 to $250,000. There has been a perfect storm of high demand, low interest, and a pace of housing starts that does not match the demand for housing. What were $150,000 homes about ten years ago now sell for $350,000 plus. It's completely unsustainable. Any house, even a two bedroom shack, is still $150,000 plus. I got more details on the deal and it's not quite as sweet as I thought it would be. This is for a three bed, 1.5 bath, 1100 square foot townhouse. Purchase Price - $134,900 Monthly: Mortgage Payment - $600 Condo Fee - $335 (heat/water/upkeep) Property Tax - $100 It'd be about $1035 a month versus $850 to rent a two bedroom apartment. It's not so much that it's a bad deal as it's on the limit of affordability. If I had a reliable person I could bring in as a roommate even at $300 a month it would make it worth it, but it's just a touch too high for maybe the next year. I could afford it a year or so down the road if things keep progressing the way they have but the first year I would be on a rice and beans kind of diet to make sure I'm not falling behind.
 
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 Originally Posted By: JHZR2
(depending upon how aggressively you pay it down - in a situation where the prices drop, you could still out-accelerate the drop... and if they are already depressed, how much further can they really go?
I know of houses that went for $350k that, after 3 years, were selling for $150k. Can you afford to pay an extra $100k a year on the principal?
 
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 Originally Posted By: MGregoir
What were $150,000 homes about ten years ago now sell for $350,000 plus. It's completely unsustainable.
That's the situation we had here, and it corrected itself. Hard, and painfully.
 

Patman

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 Originally Posted By: MGregoir
Purchase Price - $134,900 Monthly: Mortgage Payment - $600 Condo Fee - $335 (heat/water/upkeep) Property Tax - $100 It'd be about $1035 a month versus $850 to rent a two bedroom apartment. It's not so much that it's a bad deal as it's on the limit of affordability. If I had a reliable person I could bring in as a roommate even at $300 a month it would make it worth it, but it's just a touch too high for maybe the next year. I could afford it a year or so down the road if things keep progressing the way they have but the first year I would be on a rice and beans kind of diet to make sure I'm not falling behind.
The problem is, what happens a year from now when that $135k townhouse is now selling for $155k? So not only have you lost all that money you've spent on rent for a year, but now you have to come up with even more money to buy that house. I say jump in now! Mortgage rates aren't going to get any better and I think the price of homes here in Canada has bottomed out and will be on the rise from here on.
 

Win

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Around here, condominiums, even those that have some desirable characteristic, such as a waterfront, have a very limited market appeal. I would consider them the automobile of real estate, or, in other words, unless you are prepared and able to take a huge or complete loss on the item, I would not buy it. Conditions in your area may be different. At $134,900 for an 1100 sq ft home, you are paying almost $123 foot, and own no land. Around here, I can build commercial for about $100 / foot exclusive of land costs.
 

MGregoir

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Here to build residential is $180+ a foot minimum plus land costs. It's ridiculous. If I wanted to buy a ready-to-move, and put it on an unserviced two acre lot in the middle of nowhere, my total costs are over $250,000. I even looked at buying an old house pulled off the air force base, but they wanted $80,000 for what amounted to asbestos filled shacks. A 1050 square foot home is a $300,000 to $350,000 proposition. My parents 1978 built 1350 square foot bungalow with a half-finished basement that needs the bathrooms redone is worth $290,000. Condos are holding value as the entry point in the market, and this is as close to a bottom as I can see unless we continue to dive well into 2010. If I could buy a decent detached home that isn't a bulldoze and rebuild proposition for less than #200,000, I'd look at it, but at the moment I don't have the income to dive in any deeper than a $130,000 to $150,000 purchase.
 
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isn't it sad that the basic human right of having shelter has turned into having to slave away your life just to pay for it? or make someone else richer by renting theirs?
 
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