The A to Z in Investing in Property to be Your Own Landlord
If you are renting a home, it is probably a good idea to consider buying one. The disturbing fact is that renters help build the wealth of the landlord who owns the building. They get a place to stay by paying rent but do not create any long-term value for themselves.
Average Home Prices in Canada
CBC reports that the average price of a home in Canada is now CA$481,745. The good news for home-buyers is that this amount is almost two percent lower than the price last year.
The cost to build a custom home is CA$150 to CA$230 per square foot. At those prices, for CA$480,000 you can get a brand-new home of about 2,100 to 3,200 square feet. The size of the home that can be built for that price depends on the cost of the land, the amenities that it contains, and the quality of the building materials used for the construction.
Whether you buy or build a new home, you may be able to get one with about 2,500 square feet with two or more bedrooms, two baths, and a two-car garage for about CA$480,000.
Average Rents in Canada
The rent prices for a two-bedroom place in the cities of Canada range from a low of CA$890 per month in St. Johns to a high of $3,230 per month in Vancouver. The nationwide average monthly rent is CA$2,580. Rents are higher in the cities than in the countryside.
One trend, for those working in the cities and buying their first home, is not to buy in the metro areas, but instead to buy a home for a lower price in a more rural area.
Mortgage Rates in Canada
The best mortgage rates in Canada are for those with a decent credit history and sufficient income, who have a 20% down payment. This allows you to qualify for the best rates for conventional financing.
In Canada, ten-year mortgages are common. However, some lenders allow an extended amortization period of up to thirty years. Extending the amortization period allows the monthly mortgage payment to be lower, with a balloon payment due at the end of the term or the need to refinance the loan upon expiration.
The current interest rates that most Canadians can qualify for, if they have good credit and sufficient income? 3.44% (APR) for a ten-year loan term.
This is also good news for home-buyers because these rates are about one-half percentage point lower than the rates offered in May 2019.
Monthly Payment
When buying or building a home for CA$480,000, if you put down 20%, which is CA$96,000, the balance to be financed would be CA$384,000.
Here are the monthly payments for that borrowed amount at different amortization periods:
10-year loan with a 10-year amortization — monthly payment CA$3,786
10-year loan with a 25-year amortization — monthly payment CA$1,910
10-year loan with a 30-year amortization — monthly payment CA$1,712
This calculation is only for the mortgage payments needed to pay the loan payment and does not include the other expenses of owning a home such as insurance and property taxes.
Conclusion
The comparisons above are encouraging for those who want to buy or build a new custom home like the homes constructed by Headstrong Homes.
By extending the amortization period for the loan, it is possible to own a home for a lower monthly payment than what you might otherwise waste paying rent. And the price to build a custom home is about the same as buying an existing home, so you might as well get a brand-new home and then become your own landlord.