Are you holding off buying a property because you can't afford what you want? Toronto and GTA real estate can feel unreachable. But does that mean resigning yourself to being a renter forever?
Nope.
There's a smart strategy first-time buyers are using to eventually get into the home they want: they're buying whatever they can afford right now (even if it doesn’t check all their boxes), living in it or renting it out, and building the equity they need to buy something better down the line.
“In this market, the chances of a first-timer buying their dream home right off the bat is pretty low,” says Todd Armstrong, Property.ca Inc. broker, and West GTA Branch Manager. “Unless you're independently wealthy or you're getting a boost from the bank of mom and dad, trying to come up with the down payment for your ‘forever home” isn’t the best strategy.”
Here's the problem with trying to save a giant down payment. You may save enough for a certain price point, but then prices go up, so you have to save more. And then prices go up again. You'll never stop playing catch-up.
Instead, buy what you can now with the down payment you’ve got – wherever you can find it. It probably won't be in the downtown core or have a fantastic view or be newly renovated, but if you can afford it, that’s the most important part. Buy it.
You don't actually have to live there
The most interesting part of this strategy is that you can stay where you are and rent out the new place to someone else.
Wait, what?
Hear us out. Let's say you buy a small one-bedroom in Hamilton, Burlington, or Barrie. If it's too small for you or too far from the city, rent it out to someone else. As long as the rent covers your costs, your mortgage will get paid, you'll be building equity, and the property will appreciate over time. Then after a couple of years, you can sell it, extract the value you've built up – and use it to buy something else.
Still don't have enough for your dream home after selling your rental? Do it all again – and maybe even again after that. You'll eventually have enough cash to buy what you want, in the area you want to live in.
“Remember, though – this is a strategy that takes patience,” says Todd. “You have to keep your eyes on the prize. But I've seen a good number of buyers get into the market this way, and I've had clients tell me they wished they had thought of this strategy when they were first-timers – they could have bought sooner and paid their homes off faster.”
How about a fixer-upper?
Look for places that need work: they’ll probably be a better deal. A variation on this strategy is to buy what you can afford – and do the work yourself to bring up its value. You don’t have to be super handy or spend a ton of cash to make high-value improvements. Give the place a new coat of paint, DIY some new flooring, change out the countertops, and update the lighting.
“There are buyers out there who want a turn-key, move-in-ready place and will pay handsomely for your efforts,” says Todd. “You can buy something that's a little bit bruised, polish it, sell it – and you’ve just increased your down payment for the next property.”
Ultimately, if you want to get on the property ladder, but your perfect home is 10 rungs up, it’s okay to start at the bottom. Sure, you can wait for prices to come down (unlikely) or your income to go up – or you can bootstrap your homeownership by starting small and building up to what you want.