How We’re Saving $100,000 For A Down-Payment (P.S. I’m engaged!)

Greetings readers! I have some big news: My boyfriend proposed on September 21 and we’re engaged! He proposed after a 4km hike in the rocky mountains — and I used the car ride home to snapchat shots of the ring to all my cousins and call my parents.

me & my husband-to-be at my cousin's wedding this past July

me & my husband-to-be at my cousin’s wedding this past July

I’m still not used to saying “fiancé” but “my betrothed” confuses people and takes up too many characters on twitter.

We’re still deciding what kind of wedding we want — both of us have the same financial values, so it’s hard to think of spending tens of thousands of dollars on a single day. On the other hand, it’s hard for me to turn down the opportunity to throw a really big party ;) We haven’t set a date, but we’re thinking Fall 2015. Right now I’m in a rush to find a decent venue for that time. Many I’ve called area already booked for Sept/Oct next year, and I’m hesitant to go later because there will be snow on the ground.

I don’t know how much I’ll be blogging about wedding planning.

Firstly, because I know enough about the wedding industry to be an unwilling participant in much of the nonsense beyond a decent dinner and an open bar. I don’t care. I just don’t freaking care about bridesmaids and wedding colors and centrepieces and having a Say-Yes-To-The-Dress moment. This isn’t new: I’ve been singing this tune since 2011.

Secondly, because I’m so sick of reading “frugal wedding” posts (sorry recently married PF blog friends!) that I can’t justify contributing to the collection. There are hundreds, possibly thousands, of personal finance blogs that have done excellent posts on how to save money on your wedding. You don’t need me here, kids.

That said, I do have a lot to say about getting married, so I’ll be blogging about that soon.

We’ve been sharing finances since we moved in together, but now that we’ve committed to sharing a life together, we’re now sharing major financial goals. The first?

We’re saving six-figures for a down-payment on a home.

If you think that number is totally ridic, I don’t blame you. But I recently blogged about real estate prices where we live, and $100,000 is an appropriate sum to ensure we’re putting over 20% down. It’s important to pay for at least 20% of your home’s value in the down-payment to avoid insurance fees. By putting 20% down (or more, depending on the final purchase price), we’re ensuring a lower monthly payment, a more affordable mortgage, and starting with a strong equity stake in our first property.

How are we going to save such a large sum in 2-3 years?

The most obvious way is there’s two of us contributing, which means we each need to save $50,000. $50,000 is still a big number, but it’s not nearly as intimidating as $100K. Both my fiancé (god, still so weird to say that) and I are savers, so we’re not starting from scratch, and there are some tools to help us:

Each of us can withdraw up to $25,000 from our RRSPs under the first-time homebuyers plan to be used as a down-payment, giving us $50,000 together. I’ve set a personal goal to get my RRSPs to $100,000 by age 33, which means withdrawing $25,000 (that I have to pay back within 15 years) will not eviscerate my retirement accounts. Options like this are available all over the world, such as the Homestart first home buyers grant Perth, so it’s worthwhile to see what’s available where you live. It is very important to me NOT to have all my funds in one place, and that includes a home. Since I’ve already saved a significant amount of money in my RRSPs, my goal right now is rebalancing so I don’t have to sell more profitable investments, such as stocks, when I make the withdrawal under the first-time homebuyers plan. I’m hoping my RRSP withdrawal under the HBP will be primarily cash and a low-cost mutual fund, with the bulk of my retirement savings remaining in stocks and ETFs. I recently bought a 2-year GIC RRSP to plan for this.

This leaves only $25,000 each to save up outside of our RRSPs. Now, don’t get me wrong, $25,000 is not petty change, but with a 2 or 3 year timeframe it’s very manageable — mostly, again, because we’re not starting from zero. The TFSA contribution limit is currently at $31,000 with another $5,500 to be added for 2016. Since I withdrew a ton of money out of my TFSA over the past 1.5 years to go back to school for my MBA, I’m actually not sure if I’ll be able to max out my TFSA in the next 2-3 years since now I have to catch up and save up to the new contribution limits, but at least I can get over $25,000. Again, I am hesitant to sell profitable investments like stocks and ETFs or wipe out my Emergency Fund which I also keep in my TFSA, but it’s still the best account tax-wise for saving, so it’s better to put my down-payment fund money here than anywhere else.

When we buy a house and how much we put down will depend on a lot more than just saving up $100,000 — such as market fluctuations, interest rate changes, and even what city we live in (I think we’ll stay in Calgary, but I’d be open to moving to another major Canadian city if our jobs took us there). In the meantime, saving now means being prepared to take advantage of opportunities later.

What are your thoughts on our $100,000 down-payment? How much did you save for your first home? What are your strategies for putting money away?

The Calgary Real Estate Market

The Calgary housing market is one of the hottest in Canada, struggling to keep up with the city’s economy. The vacancy rate is less than 2% and rents are raised at every opportunity. Housing prices are high, with the average price for a single-family detached home at $556,402. What follows is a brief overview of what you can buy with how much.

It must be strange for American personal finance bloggers to see what the house prices are in Canada (bloggers that don’t live in expensive American cities, that is) because in the US PF world, home ownership is one of the single best shortcuts to wealth building. Up north, it’s a much bigger pain in the ass, and if not approached with caution and executed correctly, the damage to your net worth might take decades to fix.

photo

cheery advertisement in a local Calgary magazine. 2 bedrooms for less than $400,000?? WHAT A STEAL

When I searched Calgary on the MLS.ca website, it returned 4,679 listings. At first glance, that might seem like a decent number, but for a city with population of 1.2 million and ever-growing, it’s insufficient — especially when you consider what the first few listings are:

$0 to $250,000

Cheapest: $10,000. 

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No, seriously. For $10K you can buy a delightful little home & garage.. but you have to remove it from the lot (at your own cost). This is a mobile home you need to pick up & move, because you can’t have the land its on.

The first non-trailer is priced at $119,000 for a one-bedroom apartment in the middle of nowhere. It’s a little bit shady,

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FYI: I had to click through to $160,000+ just to get out of the trailers and mobile homes.

Top of the price range $249,900 will get you a 1 bedroom condo near the centre of the city or a 2 bedroom townhouse in suburbia, your choice.

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623 sq ft for 1 bedroom, 1 bath NOT on the ground floor in Sunnyside, a nice neighbourhood accessible by train and where you’re unlikely to be murdered. Not too shabby. And you only pay $387/mo in condo fees. Woohoo!

$500,000 – $750,000

$500,000 will buy you this gorgeous 990 sq ft 19th floor condo in Calgary’s downtown

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…or this terribly boring 1,477 sq ft beige outfit in suburbia:

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For $750,000 you can buy a 1.5 storey 1,600 sq ft “character home” in Sunalta

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While I love what they’ve done with the kitchen you’ll probably have to replace those front steps!

$1,000,000

For a cool million you can get this uber modern house of glass inside the city:

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1,824 sq ft four bedroom and 4 bathrooms. Spacious and gorgeous, but a little too pristine for my tastes.

While the Calgary housing market isn’t as terrifying as that of Toronto or Vancouver, it’s not exactly welcoming. Finding an affordable home that isn’t in total disrepair and still reasonably within city limits is a challenge. However, while we all balk at the high housing prices here, most people earn enough money to make purchasing houses at these high prices a reality.

The median household income in Calgary is the highest in the country at $98,300this means essentially half of the city’s households gross six-figures.

This is almost $25,000 higher than the national average and $40,000 higher than the median household income in the USA

Calgarians are rich.

I didn’t find any surprises in my real estate search, except maybe that trailer parks are a real thing…

REAL ESTATE COMPARISON IN OTHER CITIES

CANADA

U.S.A.

NEW ZEALAND

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.