Buying my first property: Was I too young?

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I bought my first property at the age of twenty-one even though some of my friends thought I was too young and crazy. I loved to work hard and equally play hard afterwards. It would have been comparable if I were to buy my first condo here in Canada or flat for those of a British background.

I wanted to buy vs rent because with my down-payment I knew that my mortgage would be less than rent. My parents already had a few homes on the go and were renting them out so the mortgage would pay for themselves. It was the best decision they ever made, investing in real estate. They are still enjoying the benefits today of those mortgage-free homes and rental income. Somehow I wanted in on the action early so off I went and I found my first home fresh out of University.

How much do you need to buy a home? More than I bargained for and many people suffer because they fail to plan. I was almost one of those people.

Living pay to pay

Contrary to popular belief, I know what waiting for the next chunk of hard-earned money is like so I can pay the bills. Living pay to pay is not a place anyone wants to be in but for many that is a reality. There are jobs out there but seeing jobs on the job bank is one thing, having the required skills and education is another. Then when you do you are competing for top spot with those fresh out of University, those already working in the field and those still looking for work so it’s a tough world out there.

So, I was a single homeowner, fresh out of school barely with wings and working a full-time job for just above minimum pay to start. It got to the point where I had to really make sacrifices to make ends meet and only because I didn’t plan for the unexpected like I should have. My parents warned me about it so I knew it was bound to creep up on me.

It was probably the first time in my life that I started to feel the congestion of living pay to pay and I didn’t like it very much. I don’t even remember what the minimum hourly rate was but back then and still today we can’t be picky, a job is a job.

Bachelor cooking

Although I loved to cook, grocery shopping wasn’t my top priority and eating consisted of the pretty much the same menu plan for the first year. I was so busy that eating the same, quick, frugal meals seemed like the way to go. Let’s just say the tortellini and I were good friends in the kitchen. I later learned how much I enjoyed cooking through my travels around the world which I carried back into my kitchen.

Less than rent

I put a nice down-payment on the one bedroom one bath property which left me paying less monthly mortgage than I was if I rented in that area of the UK. In a way sometimes I feel like I had tunnel vision yet I was mature enough to say, hey I want to own my own home.

My parents were my money guides growing up and it carried me through into University. I was very aware and watched everything they did and I listened. My parents like many had to struggle to get where they are today but they are living the good life, but it came with sweat and a vehemence to succeed.

After University

Like many other students I thought that after school I would find a high-paying job and life would be towering, especially since I had no school loans to pay back. As you can imagine those pipe dreams did not happen and after University I had to settle for any job that I could find. The market was saturated and competition was fierce for jobs.

I later learned that it wasn’t my calling so I went on to take various jobs, some of which I stayed in for many years and progressed through the company into management roles. You learn a lot about yourself as you move up in a company, especially how much harder it is when you have one foot on the ground and your hands reaching for the stars.

Asking for a raise

It was clear that I needed to cut back on some expenses to make sure that I was saving money and that surfaced shortly after moving into my flat. No, I didn’t have an actual budget like we do today, the thought never crossed my mind as odd as that may be.

Like many other first time home owners we don’t always think of all the “needs” of a home year after year. Home maintenance wasn’t given high enough supremacy in the mathematical process of purchasing the home and that’s why when my wife and I bought our home things were different.

The thought of inquiring for a raise entered my mind, alternatively I needed to make more money or get a second job. How do I ask for a pay raise though? Not everyone is comfortable saying that they feel they deserve a raise in income. Sometimes we have to do what we have to do just to make ends meet but when more money is needed the same applies.

I decided to ask for a raise by setting up a meeting with my boss and simply asking for more cash but professionally. I prepared a pay raise letter at home and then I pretended I was talking to my boss to impel myself to get in and get what I felt I had earned. Sometimes it doesn’t work out, but if you don’t try then you are no better off than when you didn’t ask.

First I went over my accomplishments, my long and short-term goals for the company and why I deserve a raise. He must have liked my presentation because I received a raise and a promotion shortly after. I learned that having fear in our lives sets us back but remembering that we are only here once sometimes gives me the acceleration I need to move forward. I guess it’s just my way of being a positive guy, along with smiling and being friendly. Miserable is not me.

Living on one income

When you are living on one income as a single person everything matters and somehow you learn to make time to earn extra money. I gave high priority to making extra money on the side whether it was landscaping, cutting lawns, watching the kids for my siblings or working for my parents. I was always on the go but I also made time for myself to chill out and relax. When you know you have to rely on yourself you do what you can to keep the kingdom operative.  You also know that you have to take care of your health because there is only you, and no one else.

Emergency savings

It took some time but little by little I kept stashing away a few bucks here and there to build up what I like to think was a comfortable emergency savings. I had used all of my money to put a down-payment on my first home so I needed some sort of cushion just in case something were to happen. I had a credit card with a high limit but I was never one for paying by credit. If I couldn’t afford to pay cash I never purchased the item.

To be realistic I knew I needed some money in the bank though, just in case. Even though I may have only added in a fiver one week and more the next over time the bank account grew. That was the positive reinforcement I needed just like when I was a child with my paper route. I loved watching my savings grow and it transferred into an adulthood expedition towards my achieving my dreams.

Buying a house what to do- Investigate

Don’t be in such a surge when buying a home whether you are young like I was or if you are well into your career and ready to make the step into home ownership. Investigate all avenues related to home buying and talk to those that are living it.

Tips for buying a home when you are young

  • Save as much as you can for a healthy down-payment
  • Do your research
  • Plan for the unexpected
  • Save for the unexpected
  • Be open to making extra money
  • Don’t be shy to ask for a raise
  • Do maintain your home consistently
  • Be realistic and set goals

What did I learn from owning my first flat at such a young age? 

I learned that although we have these ideals about where we want to go, what we want and how fast we want to get there, we must plan. If we don’t do our legwork before we jump into big investments the joy it brings us when we make the purchase can be the demise of our happiness. If we aren’t properly educated on what we need to keep the motor running, we may lapse under money pressures if and when they arise.

When I sold my first property and bought my second home a few years later plus a few years wiser things were much different for me as a homeowner. Buying my first house so young may have come with challenges but I overcame them with pursuance.

Was I crazy to buy my first property at 21? Na, I’d do it again if I could because the best lessons in life are the one’s we create and learn from on our own. I’m still young, so if taking risk means I’m young and crazy I guess you can call me bonkers!

How old were you when you bought your first home?

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Bank Sales In Canada ….. Not The Same As Bank Foreclosures In The U.S.A

House1 with Yardsign

Since the economy took a turn for the worst, I have been inundated with requests for “bank sale” properties. A common misconception seems to exist where people assume that banks are basically giving away properties that are being foreclosed on, much like we see with the fire sale of properties in the U.S.

So, what is a “Bank Sale”? Basically when someone cannot meet their obligation to the bank/lender, the institution that they have financed their home through will begin a process to take the home away from the owner. This can be a fairly lengthy process and in some cases will ultimately end up with the bank or lender selling the home to try and recoup their losses.

While it is always possible to find a good deal in today’s housing market, it isn’t common for it to be a bank owned property. The rules and regulations that govern the Canadian banking system are far more stringent than the U.S equivalents (I use that term loosely, as they barely had any rules or regulations).

Obviously if someone defaults on their home financing (mortgage, line of credit) the bank would like to get that bad debt off of their books. If they recoup that money, they can in turn lend it to someone else! However, in Canada, regardless of how the lender goes about selling the property or what is owed on the property, under the Canadian Securities Act, a lender is mandated to achieve fair market value.

Fair market value is established in conjunction with local realtors. They provide the bank with local market data and recommend a fair list price. Every so often they may reduce the price but this reduction also has to be justified with relevant market data. The bank will keep extensive records of the sale process, just in case they end up in court.

So, for everyone watching American real estate shows and dreaming of the fortune you can make from buying and selling bank owned, I am afraid that it just isn’t realistic. That’s not to say there aren’t some great real estate opportunities for either a long-term investment strategy or to help you find that dream home.

Here are two such strategies that have proven very successful for our clients.

Alternative Option 1 – Power of Attorney instead of Power of Sale

Refocusing your search for Power of Attorney homes may be a great alternative to “bank sale” homes.

With an aging population, more and more seniors are moving on to retirement residences, senior’s communities, one floor condos or apartments. This opens up an entire market place of beautiful old homes in mature neighbourhoods. Do they need some reno’s? Sure they do but the end result can be magnificent and if you can buy at the right price you will end up with a lot of equity in your home.

A perfect example of this would be the Hunt Club area of London. A beautiful mature neighborhood that takes its name from the very exclusive golf course which part of the neighbourhood backs onto. Power of Attorney homes have been known to sell for as little as $300,000 and once renovated can be worth $399,000 or more.

A Realtor in your town will be able to not only find these listings for you but let you know what areas to look in.

Before

kitchen  - before picture

After

kitchen - after picture

Alternative Option 2 – Student Property

In London, Ontario, where I work, we are lucky to have two established further education establishments, Western University (formerly UWO) and Fanshawe College. Both of these institutions are growing at rapid rates making the need for housing ever-present.

Here is a case study that we completed for a client. The unit was a condo on the main bus route to UWO (5 min bus ride). We advised our client that paying condo fees in this instance is a good idea, because you are guaranteed that the outside of the property is taken care of, along with some large ticket items like the roof and windows (this varies from condo complex to condo complex).

House for sale

Purchase Details

Purchase Price – $189,000

Down-payment(20%) -  $37,800

Mortgage Rate (as of May/2012) – 5 Yr Variable @ 2.8%

Land Transfer Tax (1 time payment) -  $1,615

Legal Fees & Disbursements – $ 2,000

Rent Received – 5 Bedrooms @ $425 per room = $2,125 ($1700 if your child lives rent free)

Monthly Costs

Mortgage Payment –   $620

Condo Fees – $177

Utilities – $250

Property Taxes – $180

Insurance – $55

Total Monthly Costs – $1,282

Rental Income – $2,125

Monthly Profit -  $ 843

Year 1

Gross Income – $10,116

Less 5% Vacancy Rate – $505.80

Less 5% Maintenance Reserve – $505.80

Less Legal Fees + Land Transfer Tax – $3,615  (Amounts paid on purchase of property)

Net Income – $5489.40

Year 2

Gross Income – $10,116

Less 5% Vacancy Rate – $430.80

Less 5% Maintenance Reserve – $430.80

Net Income$9104.40

So while “bank sales” may not be the best option in Canada, you can see that great opportunities still exist in our housing markets. You just need to know where to look.

Stewart Blair Realtor photo

Guest Post by: Stewart Blair is a Sales Representative for Prudential family Realty; brokerage. You can also find Stewart on Facebook and Twitter.

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