How to Buy Real Estate On A Budget

Toronto is quickly growing into a world-class destination, catching up to the awe-inspiring innovation of famous areas like New York City, London, and San Francisco. Needless to say, most experts believe that Toronto’s real estate market is only getting started, and has a massive potential for growth. For first time home buyers, this can feel intimidating and out of reach, but it doesn’t have to be. Momentum in the market is the perfect reason to start investing, your path to a new home or investment property might be a lot easier than you think.

So how do you break into real estate on a budget in the GTA? Where do you begin investing?

5% Down

For most first time home buyers, finding a way to invest in real estate with little money to start with is essential to long-term success. You want to maximize the return on your investment but aren’t able to save as fast as the market is growing! Trying to reach that 20% down payment can feel like one step forward and two steps back. However, as of right now, most buyers actually only need 5% down to get into the market! This provides a lot of potential to come out ahead when you factor in appreciation! 

According to recent market research, Toronto condo prices rose 8.4% in 2018. Imagine purchasing a $550,000 condo with 5% down ($27,000). At a rate of 8.4% appreciation, and not paying rent on the property, you would have made your down payment back within one year! 

Also, as an owner, a portion of your monthly payments is going back into your own pocket in the form of equity, rather than 100% of your monthly rent payment going to your landlord. Invest in yourself instead!

Qualified Co-Signers

Of course, not everybody will qualify for the property they have their eye on, even with 5% down. Bad credit or not meeting other requirements can hold you back from that dream home. But don’t give up just yet!

Did you know that your parent can co-sign? As a co-borrower, you’re adding the support of another person’s credit history and income to your application. You may be worried about 50/50 ownership, but while a co-signer will be considered equally responsible by lenders for the mortgage, they do not have to be 50% owners of the property. Co-signers can own as little as 1% of the property making you, the primary owner, entitled to 99% of the First Time Home Buyers Rebate.

The first time home buyers rebate can save you up to 50% of your land transfer tax. For more information regarding the first time home buyers rebate click here. 

When it comes to getting into Toronto real estate on a budget, some of us can use all the help we can get!

New “First Time Home Buyer Incentive”

Having trouble finding a co-signer? Another option to consider is Canada’s new “First Time Home Buyer Incentive”, which can be utilized with home purchases made on or after November 1st, 2019. 

Canada Mortgage and Housing Corp. (CMHC) is implementing a program which helps new buyers pay to make the initial purchase of a property in exchange for an equity stake. This means, that while they won’t help out with the laundry like mom and dad might have, they can get your foot in the door without a co-signer. When you sell your property, the CMHC will take their cut of the profits. Click here to read the “First Time Home Buyers” incentive program.

A Little Patience Pays Off

See yourself leaving the city in 3-4 years? Don’t let that stop you! Right now there are exciting new Pre-construction projects popping up outside of Toronto that can get you in the market. Projects like these are perfect for a buyer on a budget because rather than paying your down payment all at once, with a pre-construction project your down payment is paid over a longer period of time, sometimes as much as 3-4 years (see where we are going with this?). 

With pre-con projects, you get all of the benefits of an appreciating property value now, without having to pay a mortgage and other carrying costs. In some of these condo projects, a first-time buyer only needs 5-10% right away (within 90 days of purchasing), and the remaining 5- 10% doesn’t get paid until a couple years later.  Not only do you get to spread out those payments, but you also don’t have to worry about closing costs and setting up your mortgage until the building or home is complete. 

If you decide to leave town when the project is completed and you finally take ownership, you can sell the property at the new, appreciated value and turn a profit! Your patience can earn you some serious buying power to get into something you actually love. At the end of the day, you will be happy you made the investment instead of spinning your wheels and watching property prices rise.