Why I can’t buy a house yet

I’ll admit I’m kind of getting the homebuyer’s itch. Now that I’ve settled into a grown-up job and have lived in more or less the same neighbourhood for the past five years, I’d really like to have a home to call my own. Mostly because I want to go all Young House Love on my own digs (I can’t even paint the eggshell white walls in my rented apartment), but also because some neighbours of mine smoke and it seeps into my place so I’m basically facing a serious health risk everyday (secondhand smoke = lung cancer, you know). Also I would LOVE to have ensuite laundry and a dishwasher, and more counter space. Oh and underground heated parking to keep my future Mini Cooper.

Sometimes when I’m feeling particularly motivated to buy, I peek at listings to see what’s out there. I fell in love with a condo listed for $214,000.

It ended up selling for $209,000. I was so devastated. I would have paid $210,000 for sure! I should’ve taken a shot!

Anyway, as much as I may be headed towards home ownership, I can’t get there yet for a number of reasons:

1) I’m still on my probationary period at work. This is what happens when you write posts ahead of time then procrastinate publishing them. My 6-month probationary period at my job has actually just ended. I’m part of a union now! HA! Job security tastes so sweet.

2) I’m in a lease at my current apartment that won’t run up until August. Not sure what the consequences are of breaking this lease early, but I doubt it would be wholly hassle-free.

3) I have monster student debt. Hello, $17,000 owing! (seriously though, how glad am I that that number is no longer $20,580?)

4) I don’t have a 20% down payment. I could scare up a few thousand dollars but not enough to make the purchase justifiable yet. I really want to put as much down as I can, so the more months I save, the better.

5) I don’t have a big emergency fund. It’s at $2,100 which isn’t enough when you’re a homeowner. What if my fridge breaks (this actually happened to me 2 weeks ago) or there’s some other catastrophe? Big purchases can mean big maintenance fees.

6) I don’t have an established income history. See point #1 – I’m still new at this career thing. From what I understand, to apply for a mortgage you have to submit income tax statements for the past 2 years. Last year I was a starving grad student that took an entire month off in Europe only to return and work part-time for two months.

Anyway, my DayZero goal amount is to save $40,000 for a down-payment on a home. I don’t know if this is realistic or not because I don’t really have a time frame yet. I have some mutual funds I’d earmarked as a car/house fund and there’s a little money in my RRSP that could be used under the First Time Homebuyer’s Plan, so at least I’m not starting from zero, but saving for my first home will be something I’m going to start seriously focusing on after my vacation this summer.

Sometimes I feel like I’m juggling a lot of financial goals, but they’re all tied together so working on one helps all the others!

I wish it made sense to buy instead of rent

After spending a month on my own in Paris, in the smallest but most stylish studio apartment I’ve ever been in in my whole life, I decided that I would really love to live in a studio apartment. Permanently. In Edmonton.

What I want is a small, maybe 500 ft2 space that forces me to be creative, live without a lot of stuff, and takes the least amount to clean. What I can get in Edmonton, however, is 800-1000 ft2 of luxury, look-at-me, please-put-your-leather-couch-and-matching-ottoman-here.

Sigh.

Nevertheless, I did fall in love with one centrally located loft that boasts exposed brick walls and wood-beam ceilings. It’s on the smaller end at 800 ft2, and I was in the mood to compromise so I decided that the extra room was just fine. I quickly began to stitch together an awesome fantasy life where I am a super trendy twenty-something in an upscale loft downtown. I could put art on the walls and have my friends over for cocktails at my bar table and I could live into my thirties like the down-to-earth, minimalist-but-still-fashionable missing character from Sex & the City.

It was going to be AWESOME.

So, committed to being single and sexy for at least the next 5 years, I decided maybe I would like to buy this loft. What did I need my grandmother’s 4 bedroom house for? I’m going to be a jet-setting professional that can only call a place home if it is within 10 metres of at least 5 different restaurants.

Of course this glorious dream came to a screeching halt when I was reminded that I live in EDMONTON, city of unjustifiablyexpensivehomes. Only here would a loft — yes, 800 ft, no distinct bedrooms, one bathroom, four-walled-thing — cost $300,000.

Should I even begin to point out the problems with this? After my dreams of home ownership were crushed, I decided I could probably console myself by renting one of the lofts instead of purchasing it. Except rent is about $1,000/mo, which I thought was interesting since it really shows the difference between owning and renting — namely why renting is better. Now, many of my friends hate when I say that, but it’s because they were duped into the ridiculous idea that buying a house is always an “investment” and renting is always “throwing money away”. STFUDF, renting for me is awesome because when compared to home ownership of the $300K loft, it looks like this:

Ok, so I have a pretty good deal not having to pay utilities or internet, but $650/mo is NOT the cheapest rent in my city — it’s completely reasonable to find a room that costs as much as $200 less than that if you wanted!

So, I did my math assuming a 20% down-payment on the loft of $60,000 plus an additional $6,000 in closing costs. The condo fees are $400/mo and the property taxes are $1513 per year as written on the sales listing. By renting instead of owning, I have $871 extra to play with each month. Now, imagine I saved up that 20% down-payment + closing costs, and instead of buying the loft, invested the cash and contributed my extra $871 each month. After 5 years, even a simple savings account at 2% produces a better return than what I would build up in equity in the home. Because many would argue the case for homes appreciating in value (as if a downtown loft has any appreciation value.. HA!), I re-did the calculation assuming an annual appreciation of 3%, and it’s still less than investing at 2%. Would I ever allow so much money earn 2% though? Of course not. I’d dump all that cash in riskier investments, and here assuming a very conservative return of only 5% was see that after 5 years renting KILLS owning:

For me, renting is not throwing money away — it’s an easy way to make $20,000.

Now I understand the main problem here is I want a $300,000 home. Maybe if I set my sights on some dumb townhouse in suburbia the numbers would flip, but for now renting is the best decision if I want to stay downtown… which is terrible, because I really want that loft.