What to Look For When House-Hunting for Your First Property
Just because it’s your first property doesn’t mean that you can’t think of it as an investment!
So, you’ve just toured “the one” and can already picture yourself living there. The upcoming offer date is scheduled in your calendar. Given your budget and the market conditions, your Realtor agrees that you have a good shot at getting into the market with this property.
Not so fast.
We have a wild proposition: Just because it’s your first property doesn’t mean that you can’t think of it as an investment! Read on for the 13 tips that inspired our latest HGTV article. They’ll help you think like an investor, and look beyond that pretty backsplash or the nice hardwood floors to the things that people miss when considering their first property.
Focus on Gentrification
Properties located in areas that are experiencing gentrification will grow faster than ones in stagnant neighbourhoods, resulting in a higher capital appreciation rate. This means that even though this is your starter home, you will build equity faster, and you will have more flexibility when purchasing your step-up home, a future investment property, or if you choose to refinance this property to draw out equity. It also makes it more desirable for tenants down the road, should you choose to keep this property when you (eventually?) move out.
Distance to Transit
An easy way to create a shortlist of gentrifying neighbourhoods is to follow transit. Subways, LRTs, and dedicated streetcar lines are key elements to an up-and-coming neighbourhood, and finding properties within a 10 minute walk of a transit stop gives a 15-20% boost in property values over similar neighbourhoods without transit access. Even better is if you can get into a neighbourhood where a transit stop is slated to be opened in the future… but don’t count your chickens until shovels actually hit the ground!
The world is reverting back to becoming more local again… hyper-local, in some cases. Communities in which residents can work, live, and play all in the same area are becoming increasingly desirable, especially for Millennials and young families. Having local shops and restaurants that are close by creates a sense of community and belonging. Things to look for are Walkscore, Transit Score and Bike Score.
Can the Home Grow With Your Changing Needs?
Most young homeowners get into the market with a starter home, but it’s important to note whether your new home can accommodate your needs should your family grow from a partner to possible future children. Are there flexible spaces that can be used for a home office, guest room, or home gym? Is the neighborhood appropriate for families? Are there other similarly-aged kids on the street? Are the kids going to need separate bedrooms? Being forward-thinking may change your criteria, even for your first home. Needing to sell your first home to upgrade to a larger second home incurs significant Realtor costs (and hassle), so perhaps it makes sense to future-proof now if possible.
Speaking of being forward-thinking, one of the biggest criteria for young parents to consider is school catchment districts. Good school zones can actually boost property values, especially if parents don’t feel the need to send their children to private schools. Fraser Institute scores are what parents usually refer to, but keep in mind that those rankings are only based off of a standardized test for reading, writing, and math, and not necessarily an accurate reflection of whether it is a “good” school. Speaking to other parents about the level of involvement of the teachers, how active the PTA is, extra-curriculars & programming offered by the school, etc. and aligning that to your families’ values will give you an indication of whether that school is right for you and your children.
Do I Stay Within My Budget? Or Should I Buy More Than What I Need?
A mortgage is the single biggest expense for most families every month. While it’s often important to stay within your budget, maybe it’s prudent to “buy more than what you currently need” so that it can accommodate your growing family, or maybe because you can eventually turn it into a viable investment property down the road. One way to do this is employ a “House-Hacking” strategy, in which you turn your biggest liability (your own primary residence) into something that generates income for you. This could help justify buying something larger and more expensive than what you currently need right now because it may actually leave you in a much more enviable financial state in the future than if you bought something smaller & more “affordable”.
“House-Hacking” – Rent Out Rooms or the Basement
As previously mentioned, “House-Hacking” provides extra income which helps with the bills and the mortgage. There are various ways to do this: you could buy a 2bdrm condo and rent out the other room, you could buy a house and have roommates, you can live in one unit in a house and rent out the other units. This strategy could “open the door” of home ownership into a larger house, better neighbourhood, higher paying tenants, and as a result, more gentrification and more equity growth.
Don’t Work with Uncle Joe
Professional Realtors have the wisdom and experience to shortlist the best properties to meet your needs now & into the future, and ensure you’re making the right financial decision in choosing the right property. This is a big decision, so working with an expert can make for a smooth and seamless transaction. In addition, Volition has a team of Investor Realtors, who not only have regular Realtor experience, but also provide an expert investor perspective, which is invaluable given that your home is likely the biggest investment you’ll ever make, and can even be your path to a more secure financial future.
Should I Buy a Condo?
Condos apartments and condo townhouses are often the starting point for most young people entering the housing market, for good reason: they are cheaper than houses, maintenance and repairs are included in the condo fees, and they are often in super-desirable walkable locations. You just need to ask yourself whether the tradeoffs are worth it vs buying a house. (Expert tip: Find out what is included in your condo fees and specifically what you are responsible for and what the condo corp is responsible for!)
Should I Buy a House?
While some people love condos for their convenience and simplicity, others see them as a stepping stone to owning their own house. Houses offer more autonomy and flexibility, and often houses appreciate at a faster rate than condos (Expert tip: it’s the land that is valuable that grows in value, not necessarily the house sitting on top of the land). You can also more easily “House-Hack” a house than a condo, and you can often do more extensive renovations to create “forced appreciation”, whereas you are more limited in a condo. Again, you don’t get something for nothing, so for all of these benefits, there are additional headaches that are solved by condo ownership!
Good Basement Ceiling Height
Higher ceilings automatically help a room feel larger and more open, which is particularly important if you are planning to use your basement for additional living space. Perhaps even more interesting is having the appropriate ceiling height so that you can create a separate legal basement unit! Each province and municipality has their own by-laws as to the minimum requirements for basement unit ceiling heights: for example, in Toronto, generally you need 1950mm (~6’5”) for a duplex, and 2150mm (~7’) for a triplex, but there are a bunch of stipulations around this (NOTE: you always need to verify your specific situation with an architect or a trained professional). Volition has helped many homeowners create basement suites; make sure you consult with a local expert before embarking on this journey.
Due to kids living at home longer (and boomeranging back even after they initially leave!), homeowners deciding to age-in-place, and moving in ones’ parents as they need additional care, multi-generational living is becoming very common. Thinking ahead to the extra space that will be required to accommodate privacy and separation under one roof may actually change a) what you decide to buy now or b) how you decide to renovate your house. Having the ability to build a Laneway or Garden Suite adds extremely valuable living space to your property. All of these options can also be great mortgage helpers (if you choose to rent out the space) and allow you to build forced equity into your home.
Get a HELOC
No matter what the situation, it’s always advantageous to get a Home Equity Line Of Credit (HELOC) in addition to your mortgage. When paired together, it is known as a Re-advanceable Mortgage. What this means is that for every dollar paid into the principal portion of your mortgage, it automatically increases the credit limit of your HELOC. Over time, as you pay $1,000, or $10,000, or $100,000 down on your mortgage, you will now have a $1,000, or $10,000, or $100,000 Line of Credit available to you at the lowest possible interest rates (since it is secured against your home). This is advantageous if (rather when) you need to repair your leaky roof, replace your furnace in the middle of winter, or if your tenants don’t pay rent for a month. This can also be key in employing advanced wealth strategies such as the Smith Maneuver to make your interest mortgage payments tax deductible, if you want to use the equity in your home to invest in a future property, etc.
Ready to take the next step? Book a complimentary Advisory Session with the Volition team to get started.