If you live in Toronto, you already know that living in the city comes with some major expenses. The cost of living keeps rising and now it's gotten to a point where people living on minimum wage simply cannot afford how expensive Ontario's largest city really is.
Last month, Narcity wrote about how major cities in Canada, including Toronto, have the "missing middle" when it comes to property available in the city. Instead of townhouses or mid-rises, big cities tend to be overfilled with single-family homes and condo buildings.
When you consider the prices involved in purchasing a home in the city, you're still looking to spend an average of $550,000 just to buy a condo. Meanwhile, the average price of a detached home in the GTA is $1.2 million, while semi-detached homes are going for nearly $1 million.
Even the rental market is insane, with the average cost of a Toronto one-bedroom apartment skyrocketing to $2,200 this year. Not to mention the fact that numerous people are often trying to cover their huge rent cheques by getting thrifty, including renting out a closet for nearly $1,500 a month.
So with all these obstacles in the way, how can someone ever dream of affording property in Toronto? Narcity sat down with Sean Cooper, an independent mortgage broker and author of Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. Not only is Cooper well versed in the real estate field, but his own home buying experience also allowed him to purchase a home in Toronto back in 2012 at only 27-years old.
Cooper, in fact, went on to (literally) burn his mortgage only three years later at the age of 30. Now he helps other homebuyers make smart decisions to obtain a property in Toronto and create that long-term investment.
Here is how Sean Cooper was able to afford his house in full by age 30 and what it's really like out there in Toronto's real estate market:
Paint me a picture of what your life was like prior to dedicating yourself to owning a home. What led you to decide that this was your next step?
SC: Well growing up, I think my parents were role models for me because my family always owned a home. We never rented, not that there is anything wrong with that, but from when I was born all the way until when I moved away from home at age 27 when I bought my house my parents were always homeowners. So they definitely set a good example for me and showed that you know, sometimes you have to make those sacrifices, you can’t go on all those nice vacations necessarily.
It definitely showed the importance to be financially responsible and even though my parents split up. In a lot of cases, both partners cannot afford a house on their own but my parents were equally able to own a house on their own. My mother didn’t make a ton of money by any means but she was responsible with her money, saved her money, and made every penny count.
That was really my inspiration for becoming a homeowner one day. I mean, it wasn’t a question of if I would become a homeowner, I knew that I always wanted to be and I was going to be, whatever it took to become one. So once I got my first job I just started putting away, saving the money for when I was going to college or university. When I was in college and university, I also worked full time during the summers and worked like 3, 4 jobs during the school year, that way I was able to graduate not in debt and have like $70,000 in the bank. I didn’t have any student debt to deal with and I really kept up that pace, worked full time, and the side hustle took off, but my parents are definitely my biggest inspiration. I mean, I just think it’s important for growing up in that household and you know, I don’t think I would have achieved what I have achieved if they hadn’t set that great example for me.
Once you decided to purchase a house, what was your selection process and how did you go about finding the right house for you?
SC: So of course, before I went house hunting, I spoke with a mortgage broker and got pre-approved for a mortgage because if I didn’t do that then I would have no idea how much I would be able to spend. I definitely made sure I was looking at neighbourhoods at houses that were realistic for my budget because I didn’t want to waste the realtors time and I didn’t want to waste my time as well. I wanted to buy a property in a neighbourhood that I grew up in Toronto but unfortunately, I can’t really afford houses over a million dollars or two million dollars so I had to be realistic.
People think ‘Oh, I can’t buy a house in my ideal neighbourhood right away, so I give up.’ My mentality was that I may not be able to afford a house in my ideal area right now but if I buy a property, a house in a neighbourhood that’s maybe a neighbourhood or two away from the ideal area, I could start building up equity and get into the housing market. Then when I have enough equity, if I meet someone later on and there are two incomes, who wants to move in the future I can actually move in the future. That was kind of my mentality through looking at properties.
Why did you opt for a house when a condo would've been more affordable?
SC: When I was looking at properties, I wanted to buy a house instead of a condo because my realtor and I thought houses had a better long-term value. With condos, you can always build more but with houses, there is kind of a limited supply of them. That was the first reason but I also wanted to buy a house because there's more room to rent out than a condo. It’s not like you have a basement to rent out or live in the basement and rent out the upstairs. With a condo, you have to take a roommate I guess to rent it out and I didn’t really want to do that. I got a house for that reason there and I bought in a neighbourhood that I thought was a good long-term investment. I’m not planning on moving anytime soon because I bought in an area that I thought had the potential to go up in value in the future.
I was able to build up equity and just to tie this all together, I bought my house for $425,000, that was in August of 2012, and if I was going to sell it today, I could sell it for $800,000 and get all that equity that I built up. I’m not saying it’s normal for the housing market to go on that increase but certainly, if I had just put my money in a bank account and invested or saved, I don’t think I would have that much compared to $800,000. So I’m definitely happy that I didn’t give up in August of 2012 because the market was so competitive. I kept going and bought a house because I wouldn’t be in the good financial position I’m in today if I hadn’t.
You bought your house in 2012. Would you say that there are any major differences in the housing market today versus when you bought?
SC: I guess related to prices, even with people who have two incomes it is hard to afford a house. So I think a condo or a townhouse is really the only entry point for first-time homebuyers. It’s really tough, especially with the Mortgage Stress Test, to afford a detached or semi-detached house in Toronto. In terms of the difference between now and then, I would say that people like to speak about the Toronto housing market as a whole, but it’s very inept unless neighbourhood specific. Like certain neighbourhoods in Toronto are super hot and have tons of bidding wars, but other neighbourhoods are totally different.
I will say that in August 2012 it was more hectic then it is now just because of the Mortgage Stress Test and the fair housing plan that the Ontario Liberals brought in to help cool down the market. I’m not saying it’s not difficult to buy a house in Toronto, certainly now that I’m a mortgage broker I see it all the time. I work with clients who put in an offer for a house in the West End near Roncesvalles and the property got something like 15 offers. It’s not like the market is totally calmed down but I would say that it is slower than 2012 just because of the measures the government put in.
What would you say are the first steps people can take to eventually buy a home in Toronto or the GTA?
SC: I would say number one is goal setting. I have it in my book set yourself a smart goal, that means be specific about what’s obtainable. Don’t just say that you want to buy a house or a condo one day, actually figure out what dates you would like to buy the property and then reverse engineer the savings.
If you say ‘I need 10% down and the property is X amount of dollars, so how much money do I need to save from each paycheque to achieve that?” Set a smart goal and have money automatically put into a savings account, that way you know it’s your number one priority instead of making it your last priority to save. Being in a cashless society today I think it’s harder and harder to save, so make savings a priority.
The second tip I would say is, once you have that down payment, you have to figure out how much you can spend on a property. Before you look and look for a property definitely talk to a mortgage broker and get pre-approved for a mortgage. If you don’t know how much you can go out and spend on a property, then eventually you’re going to waste your own time as well as your realtor's time. It’s not only how much you can spend, but you will also have a rate that will be held for 120 days. So even if rates go up, you can still get a lower rate. You should get pre-approved for your mortgage specifically for that reason.
I would also say that when it comes time to start looking at properties, just be flexible in terms of the neighbourhood you want to buy in as well as property types. Like I said, a lot of people like to own houses like their parents, detached houses. But unfortunately, it’s not realistic for the vast majority of people at least as their first property. So be open-minded, don’t say “I only want to buy a detached house in this neighbourhood” because if hundreds of other people also want to buy in your neighbourhood, you’re just going to have to keep competing in bidding wars and it’s a frustrating process to be stuck in bidding wars over and over again.
So be open-minded because when I was first looking at houses, I was really only considering one neighbourhood. But when I expanded my horizons and looked at other neighbourhoods and considered other property types, I was able to find a house that was a great long-term investment. I would definitely say take advantage of all the benefits the government has, like the First Time Home Buyers Plan, and make sure you follow the rules when you take the money out.
Speaking to that, would you say that its a wiser choice to buy a property and then let that property grow equity before moving into another home instead of just going out and buying your dream house?
SC: To be honest, I don’t think people really have a choice these days because of the Mortgage Stress Test. It definitely comes down to, I mean a family of four is not going to live in a one bedroom condo, that’s crazy. It all comes down to what you can afford and what works for the family.
Certainly, when it comes to buying a property as a rule of thumb is that you don’t want to be moving more than once every five years. Just because of the transactional costs of real estate, like the closing costs, realtor fees, the land transfer tax, the list goes on and on. So you don’t want to be moving too often because the payments that come with moving. You also won’t see larger gains if you’re moving often, especially in Toronto, since we have two land transfer taxes here. I would say if you’re buying a property, there is nothing wrong with moving up in the market later. You don’t necessarily want to buy a forever property because when you buy a big property for a big family, and say that doesn’t happen, why are you paying all these property taxes for empty rooms? It doesn’t really make sense to have all your money tied up, either.
I mention in my book that, compared to 40 years ago, half the amount of Canadians are living in houses but houses are twice as big as they used to be - how does that make any sense? Talking about the younger generation, buy a house that's going to last for at least the next five years, since it’s a good rule of thumb. Then if you’re adding new family members then upsize.
People want to buy these big mansions filled with four bathrooms and five bedrooms, but like don’t buy a huge house like that unless you know people are going to be using all the space, because you’re just going to be spending a ton of money on property taxes and utilities. You’ll have to furnish the rooms because you won’t want to leave them empty and you’ll have to clean as well or have someone clean them. As long as you buy a house and stay for at least five years, you can upgrade when the time comes. But you might want to renovate your house instead of paying the land transfer tax. I would say that the five-year rule is a good rule of thumb when looking at properties.
If you're interested in buying a home or would like an unbiased second opinion on your mortgage, email SeanCooperWriter@gmail.
*Cover photo used for illustrative purposes only.