If you’re a young couple and you’re struggling to decide what to do in terms of your first home, believe me, you’re not alone. Next to planning for a potential wedding, the first home is usually the most stressful and exciting event looming on the horizon.
The first question is almost always the same — house versus condo. While each offers its various advantages and disadvantages, in a nutshell, if you choose to go the condo route you’re doing so for the lifestyle. Looking at the decision strictly from an investment perspective, the path of the condo, while more often travelled, is not necessarily the wisest trek.
The condo offers, among other things, convenience, proximity to work and entertainment, and other lifestyle benefits; your friends, for example, will have a terrific place to begin the night, end the night, or spend the night. Other luxuries can be afforded by the condo lifestyle such as a pool, a sauna, a quasi-workout facility and a party room.
A house, in all likelihood, will not offer the same convenience of living and lifestyle but will offer the better investment. Let’s take an example of a typical scenario. A downtown condo versus a new home in north Markham — one of the nicer and most suitable areas for a young couple actually considering a new house. Consider a condo in the downtown core with one bedroom, a den, two washrooms and, of course, parking, approximately 800 square feet. You’re looking at $330,000, in a better than average building. Your monthly carrying costs (utilities and maintenance) will amount to roughly $450.
When compared to a house, you would take that $450 and put it toward your mortgage payment, because that is an expense you wouldn’t incur if you were in a house. To give you a general idea, I know families of five living in 3,000-sq.-ft. homes spending $300 a month on all their utilities.
Let’s assume Brandon and Kelly’s carrying costs would be $200 a month, which is a generous figure. That extra $250, when applied to a mortgage, translates into a purchase price of $380,000, which would fetch you a semi-detached, even a few detached, between 1,500 and 2,000 sq.-ft., in an area that is appreciating favourably.
By the same token, if Brandon and Kelly were considering one of the fancier condos, with their fancy, higher, maintenance fees, the house purchase, strictly from an investment point of view, stands as an even better investment. Imagine if their carrying costs totalled $500 in a condo and $200 in a house. Over the course of one year, that’s a difference of $3,600. Over just three years, the difference amounts to $10,800. If you’re thinking I forgot to factor in property taxes you should know that $1,000 per year is likely the extra expense they’d pay, if they were living in a house. Also consider the fact that I haven’t factored in appreciation in three years, which historically has been more favourable in the house.
The point here isn’t to make the decision for Brandon and Kelly, but rather make it easier by laying out the truth. It’s important to make the right decision for the right reasons, and money isn’t always reason enough to do something.
The condo is like buying a convertible over an SUV. You know it doesn’t make as much sense, you know it’s not thinking long term, but hey … you’re young, so who cares? You’ll never be as young as you are right now, which means you’ll never have as much opportunity to make that money back, as you do right now.