A single girl’s first venture into real estate investment

by Helen

My dearly beloved mother has an unshakable motto: the family home must be detached.  The detached bungalow where we lived in the last 15 years was over 80 something year old and needed a lot of up-keep. While I tried to keep it up, I really couldn’t do it on my own. Canadian winter was very unkind to me and I broke my back from shovelling snow during winter. In summer, the gardening took up most of my weekend. Well, digging up holes and dumping plants into said holes was a lot of hard work. It also didn’t help that I always got skin rash from gardening. Change was needed urgently because my back couldn’t bear the blunt of Canadian “snow shovelling extreme sport” and the summer rash was killing me and my social life. Drastic actions were needed. So, I sat Karen down and we looked at all options available to us

  1. Rebuild the bungalow. Love to, but I couldn’t afford to spend $500,000 renovation cost on a single girl income. Unaffordable! And I still had to shovel snow. NEXT!
  2. Purchase a newer house. Would be nice, but an average bungalow where I live is $700,000 to $900,000 depending on location. Again, affordability strikes me down
  3. Affordable option because the price of a 2 bedrooms condo is from $500,000 to $700,000. But, my mom hates condo living and loathes maintenance fee violently. On average a 2 bedrooms condo could run up to $600 in maintenance fee

The upside of condo living was maintenance free (at a cost of course, maintenance fees) and for a single girl who work long hours a low to no maintenance property was a huge upside. Yet, my mom persisted: “put me in a housing home if you must (she declared), I won’t live in a condo”. My prospect was gloomy with these options till one day I went for night stroll with my sister. It was one of our summer night rituals which we strolled around our neighborhood and talked endlessly about variety of subjects. Then, we saw a sign that shined with hope…well…my hopelessness. It was a developer proposal sign placed in front of a commercial building right in the heart of our neighbourhood. It was a sign from above. The developer proposed to build 70 townhouse units on this pot of land. We immediately took down the information, gathered the facts and reviewed our option. Well, the upside:

  • Reasonable price in an upcoming neighbourhood
  • The proposed maintenance cost for this new townhouse was low in comparison to similar development. Also, it was less likely to escalate substantially since townhouse required less structure upkeep compared to condo
  • The proposed townhouse had underground parking which was a major plus. My mom drove but shovelling our driveway was my job. My bad back literally felt lighter with this option
  • The proposed townhouse located very close to my sister’s house. It was 5 minutes’ walk which means my little niece (aka Grandma’s one true love) would be a bit closer to dotting grandma

The choice was clear. This new townhouse was a good option for our lifestyle and budget. Only one obstacle left: my mother.  She agreed to move to the new townhouse after intense debate and we shamelessly used her precious grand daughter as a bargaining chip. We did what we must. Reluctantly, my mom agreed and immediately, my bad back felt a lot lighter.

Next, we contacted the builder. Well, Karen sort of stalked them until they put her on the waiting list and we were the first people that the builder contacted for viewing and purchase option.  I would also advise that you research on the builder before making the purchase because you will pay a lot of money for our property, so you want to make sure the builder has good reputation and doesn’t have any legal trouble. I researched the builder on the internet and Karen reached out to her friend in the trade to see if she could get the skinny on them. The builder had good reputation and we were confident with out choice.

On the viewing date, the builder showed us the different condos designs and prices.  We choose a model within our price range (which was priced at $394,000) and it was 1,000 sq. ft. It turned out, Karen stalking the builder was a useful because we got the first dip. Since we were among the first group of purchasers, the builder gave us an upgrade package valued at $15,000 free of charge. A huge discount for us. Who knew that stalking could be so beneficial! We signed the contract.  All this was done within 2 hours, without “seeing” the property!

Being a banker that she was, Karen insisted in a financing condition clause in our purchase agreement because we didn’t have a mortgage approval yet. The sale woman gave Karen the dirty look, but she didn’t budge. Then, we immediately called Karen’s personal banker and got our mortgage application in place. Once we got the mortgage approved by the bank, Karen ensured that the bank tracked it as a builder mortgage. By putting it as a builder mortgage, we got the bank’s commitment of rate guarantee for the next 3 years regardless of rate fluctuation. I am sure that Karen will love to tell you all about all kinds of mortgages and loans. She loves those stuffs.

After signing the contract, I waited for the property to be built. During this time, everyday I would walk by the complex to see the “progress”. I was very excited. Though Karen as the co-owner of the house with me, it would be my house. It would be my little space where I could put my personal traveling gypsy touches.

Then one day, I got an email asking me to come into the builder’s office to pick-out interior design. So, of I went to the builder designer. With her help, I picked the counter top, floors, paint colour, cabinet for my unit. Just to be considerate, I took my mom to the appointment. Well, that was a mistake that I won’t repeat again. For builder house, you would typically present with pre-selected interior packages. For us, the choices were: Regular (no additional cost), Gold and Platinum (both had additional costs).  Within each package, there were three different options with each item/category. I gotta say, the builder was decent and the options they presented were tasteful and classic. I was fine with the Regular package, but dear momma wanted the countertop in the Gold package.  It didn’t stop there, we added other upgrades such as stainless-steel kitchen sink, kitchen faucets, water line for fridge because my mom wanted a fridge with ice tray. Ice tray, seriously?  All in all, we spend an additional $10,000 on the interior upgrades on top of the $15,000 free of charge upgrade that the builder gave us.  With the upgraded, the condo was priced at $410,000. Lesson to self, don’t go house shopping décor with mom.

I also bought a new fridge.  All builder house typically come with basic appliances, so if you want something else you will have to pay to upgrade.  My mom wanted a converted fridge where the freezer was at bottom with an ice-tray. Why? I didn’t want to know. The builder had a preferred appliance supplier and we purchased the fridge from them. Darn, another $1,500 more! The price kept on going up. I think Upgrade is a biggest money trap for new builder house/condo. I started with a $394,000 purchase price and ended up with an upgraded price tag of $405,500. A friend of our stared with a $800,000 purchase price on a detached builder house and ended up with a $987,500 price tag because he kept upgrading!

Finally, the time had come!  We got a notice from our lawyer that the townhouse was ready for occupancy. I could move in now! YEAH! I did a little happy dance. Karen and I took the morning off to go to his office and completing the paper works. Occupancy is interim period for the builder to register the property because they have to meet all the requirements set by municipal government before they can register the property. During this time, the property will be given a “lot/parcel” number which the builder can transfer to me (aka, the real owner) at the closing time.   During this occupancy time, I would be paying rent to the builder.  The monthly payment that I would be making to the builder was literally rent and would not go toward my mortgage. Gee! It is endless stuffs that I had to learn.

Finally, the closing time came! This meant the builder was able to registered the unit with the municipal government and my bank could release the mortgage funding. Hallelujah!  I was officially the owner. Well, Karen too. So off we went to the lawyer and did the final round of paper work and that was when I got he shock of my life.  My closing cost was $60,000. Just to put this into context, the average and typical closing cost for builder house is around 10-15% of purchase price.   Yes, that was a lot and lot more than what I planned.  Luckily, I had Karen and she had savings but a lot of my neighbour and fellow purchasers were devastated and livid about the absurd cost. There was talk about a lawsuit against the builder. I realized that the builder could increase the closing cost with things like “landscaping development” (by which they meant the dead shrubs around the compound) or other developments. My lawyer was shocked too. Let’s just say it is a still on-going saga between builder and purchasers.

It turned out that the housing price in the city was rocketing in the last 3 years and the project had a lot of days causing the builder big bucks. So, in an attempt to claw back some of their losses, they increased the development cost. This was another big lesson for me. I did the research and planned well but things could still go wrong.

My $410,000 townhouse became $470,000 just liked that.  I spent a few days kicking myself and cursing the developer (yeah, I know, it was very mature).  Then, I regrouped. During this time, my mom also decided to move into Karen’s new built home to be next to her true love, her grand daughter/my niece.  Hum…why am I living in a place that is too big for me to take care off and draining my bank account?

Other things also popped up in my life causing me to re-assess my life direction and priorities. So, I ended up making a drastic decision: I moved in with my family. That is another long story.

Now, getting back to my real estate venture. While I was still reeling from my decision, a real estate agent approached me with $570,000 offer on my townhouse. Wow! I would get a $100,000 gain, sounded good! Where do I sign? After I calmed down from my excitement, I took a more critical look at the offer and the potential of my townhouse and the neighbour. Fortunately, my neighborhood has been revitalized. In the last 3 years, we saw 49% average increase in property value thanked to rebuilding and expansion activities in the neighbour. Moreover, the property located in a convenient location and accessible to public school, library, restaurants, grocery and highways. I was quite confident that I could get higher sell price in couple of years. In the meantime, I would rent it out. Lady luck was finally on myside because there has been a shortage of rental properties in the city and I was able to rent my townhouse within 10 days of posting. Now, I made a tiny surplus of from the rental income each month with the possibility of higher gain when I decide to sell. Not too bad!

A lot of real estate experts agree that detached house is best investment because it usually has higher return on investment compared to another house structure such as condo, semi-detached or townhouse.  This may be true, but I chose townhouse because it suited my needs the most and I have no regret.  In any investment you want to venture in, there is always a trade-off and you are the only one can decide what work best for you. My advice is: do your research and know what you are willing to trade off. Return on investment is important but so is your health (or backache in my case). Make the decision that would give you a reasonable return but also make you happy with it. Also, it helped if you have some savings aside for the unexpected such as unscrupulous builder increasing the development cost.  How is your first real estate investment experience? Share with us!

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