January 16th 2023
Purchasing your first home. It’s an exciting time and a moment you’ll never forget. But it’s also a tremendously challenging time with the price of houses these days. Even with the downward slide in prices, residential real estate has doubled in price over the past six to seven years. And with the rapid increase in mortgage interest rates of late, carrying costs are significant.
One of the things I always encourage the young investor just starting out is to consider buying a multi-family property. A duplex perhaps or even a triplex. Live in one unit and let the rent revenue from the other unit(s) subsidize the mortgage. Often the cost of acquiring a good multi-family home isn’t all that much more than you would pay for a single-family home, and the added rental income will make a huge difference.
In some instances, I get pushback when I suggest this idea. Young people just starting out want to buy the same type of property they enjoyed while living at home. They want to begin where their parents left off. Never mind the fact that their parents’ first home no doubt was a lot more modest than the one they live in today. Perhaps a ‘wartime’ home. And I’ve had young couples tell me “I’d rather keep renting than live in a property that has apartments. I want my own house.” I try to explain that if they are renting an apartment now, they can continue with that same type of arrangement, but instead of just paying rent, and losing it, they need to look at it that they are paying rent to themselves, and building up equity at the same time. And here is the critical point they need to get. When they are eventually in a position to move into their ‘forever’ single-family dream home, they don’t sell the ‘starter’ duplex or triplex. They refinance it to release some equity for the purchase of their new home if necessary but keep that first property as an income-producing asset. The start of their investment portfolio.
And here’s a key. Even if the first property they purchased is a ‘starter’ single-family home if at all possible, keep it as a rental property 
when they decide to move up. Chances are by then the home will have appreciated in value. They always do overtime, and monthly payments will have whittled away at the mortgage. There is equity that can be released for the new purchase without selling that property. Oh, it may be tight financially at first, both with that first purchase and with the move up, but as equity grows over time, it gets progressively easier to make subsequent purchases.
One last thought and that involves the down payment. Always the most challenging part of the whole process of buying that first property. And there is no getting around the fact that it will involve some belt-tightening and sacrificial saving. The good news is that if the property being acquired is a duplex and one unit will be owner-occupied, the minimum down payment is 5%, the same as a single-family dwelling. A triplex will require a 10% down payment as a minimum. There is also provisions for borrowing from your RRSP if you have one and are a first-time buyer.
It can be a challenge getting into that first home. But once you’ve cleared the hurdles, you’ll be so glad you did. And if you elect to make that first acquisition a multi-family home, you’ll be miles ahead in the long run.
Wayne Quirk, Author, “THE MONEY MACHINE”, wayneq@remax-gc.co