With the price of a house becoming increasingly unaffordable, more and more young people are shifting their focus to owning a condo instead as their starter home. But is it really a good choice? Many young people buy a condo knowing they will most likely stay for about 5 years, before they begin to outgrow it, when they find a partner or start a family and will want a bigger place. In these cases, renting will be a better choice. Selling a condo and buying a house will cost you a lot of money – between real estate fees and land transfer taxes, transactions costs will be about 9% of the average price of the condo you are selling and the house you are buying.
Let’s say for example: you’re selling your condo for $400,000 and wanting to buy a townhouse for $700,000. The transaction costs are approximately $49,500. Even if your condo went up in value every year, the transaction costs alone would eat into a lot of the gains and depending on where you bought your condo, it may not leave you with any profits, and this can be a surprise if you intended to use the gains from the sale to use towards the down payment o a house.
A one bedroom condo in Toronto can rent for approximately $1,600. Let’s say a similar condo would cost about $350,000. Assuming you put down 5%, or $17,500, and interest is at 2.7%, the monthly mortgage payment would be about $1,578, monthly condo fees of about $400 and real estate taxes at $204 a month, for a total of $2,182, an extra $582 a month to own.
Alternatively, you can set aside the $582 a month into a high interest savings account, earning 1.25%. You would end up with about $36,000, which give a 5% down payment on a $600,000 property.
So what do you think? Would you buy a condo as a starter home?