There are many housing options available in Toronto, each with its own benefits and drawbacks. This chapter is intended to introduce you to the most common housing options in Toronto, so you can make an informed decision about what type of dwelling to consider for your first home.
Many first-time home buyers dream of a small home on a residential lot, with a handful of bedrooms, a garage and perhaps even space in the backyard for a garden. In Toronto, the average price for this type of dwelling surpassed $898,000 in May 2017, with detached homes in the heart of the city cresting $1.5 million.
It has always been hard for first-time buyers to get onto the property ladder with a home like this, but it can be done. Smart buyers look for fixer-uppers in early transitional neighbourhoods, where they can invest some sweat equity and capture rising property values. Another good choice is to look for a home on the outskirts of the city, in bedroom communities( or suburbs). While this may come with a commute, it’s a good option.
Regardless of where you can afford to buy, single-family homes come with their own benefits and drawbacks, which you should consider before committing to this housing option.
Many first-time home buyers opt to purchase a condominium or a loft. In Toronto’s booming real estate market, these options remain relatively affordable. Condo prices vary depending on the location and size of the building, with prices ranging from under $300,000 for a small bachelor unit to well over $1.5 million for a luxury downtown pied à terre. The Toronto Real Estate Board reported that the average selling price for a condo in the first quarter of 2017 was just shy of $490,000, an increase of nearly 25 percent over the previous year.
First-time buyers looking to purchase a condominium will typically find themselves looking at smaller spaces closer to downtown. Here, in exchange for outdoor space, they get access to the parks, restaurants and entertainment options that are an integral part of urban life.
Before purchasing a condo, you (and your lawyer) should review the condominium documents, including the status certificate. Among other things, this status certificate will tell you how much is in the condominium’s reserve fund, which is the savings account containing money set aside for major building repairs. A healthy reserve fund insulates condo owners against a special assessment. When a condominium needs repairs and there’s not enough money in the reserve fund, the condo board can add a special assessment – a levy to help pay for the repair – to your suite’s existing maintenance fees. In most cases, these are reasonable, and add a few hundred dollars to your monthly maintenance fees. In rare cases they can be expensive, costing owners thousands of dollars in levies.
Like single-family detached homes, condominiums come with many pros and cons.
Smart first-time home buyers will certainly want to consider buying a single-family home with a rental suite. This is a popular choice, since 100 percent of the rental income from a legal suite can be included with your own income to help you qualify for a bigger mortgage. This can make owning a home more affordable.
Toronto buyers will typically find these small one-bedroom or bachelor suites in the basement of single-family homes. They are sometimes called “mortgage-helpers,” because they can help pay the mortgage in those early years when money is tight and many first-time buyers feel “house poor.” You’ll also find them advertised as granny flats, secondary suites, accessory apartments or in-law suites.
In early 2017, Toronto’s municipal leaders were also in the process of establishing policies around laneway homes, which – if allowed – will be built above or in place of garage structures at the back of city lots. These are also sometimes called coach homes and garage suites. We’ll update this guide when more information becomes available.
Most of the suites you encounter on your search will have been built without a permit and will not have been officially deemed “legal” by the authorities. This does not mean you cannot rent them out, but it does mean you won’t be able to use the rental income to increase your maximum mortgage.
Generally, in order to legalize a secondary suite you must ensure it complies with existing zoning rules and bylaws. The unit must also comply with city fire codes and electrical safety codes, and must be registered with the city. If your illegal suite is reported to authorities and deemed non-compliant, you may be required to have it dismantled or pay to have it brought up to code. You can also be fined or, in very rare situations, sent to jail.
It is also possible to buy a home with the intention of building a basement or other secondary suite. In this case, you’ll want to bring a contractor through the home before you purchase it, to ensure that the suite you have in mind can actually be built. The total cost of building a basement suite can vary tremendously depending on what needs to be done and the quality of finishings you select. But count on spending at least $20,000 and potentially more than $65,000 for especially complex or luxurious retrofits.
The following resources will give you more details about buying and owning a home with a secondary suite in Toronto:
Many first-time home buyers dream of buying a newly built home, so they can choose interior finishings they love, and not have to worry about deteriorating structures for many years. But buying new comes with many challenges as well, many of which are overlooked in the exciting rush to purchase.
Begin by finding a buyer’s agent to represent you (see Chapter 1 for to do this). In Toronto, you can find an agent who specializes in helping buyers interested in new construction. Some developers will only work with select, high-performing agents; in some cases, these agents have access to invitation-only pre-launch events where they can secure a hard-to-get new home. Toronto’s new construction market can be intensely competitive. Do your research before hiring your agent.
That said, it is absolutely critical that you secure your own real estate agent before shopping for a new construction home. One of the biggest mistakes that first-time home buyers make is walking into a builder’s showroom without an agent. Once you give the builder your name and information, you are locked to their in-house sales agents and cannot bring your own agent into the negotiation.
Make no mistake: the builder’s sales agents are working for the builder, not for you. This is true, regardless of what they say. You will be subject to their high-pressure sales tactics and will not have the benefit of an experienced agent to guide you through the fine print in your sales agreement. When you hire a buyer’s agent to work for you, the agent has a fiduciary duty to explain the positive and negative aspects of the deal; the builder’s agent has no such responsibility. Buying new construction is complex, with many pitfalls. Bring your own agent.
Be mindful that developers post the base price of the units to get you in the door, and most buyers then find themselves spending considerably more for the interior and exterior finishings of their choice. Parking spots and storage lockers also typically come at an additional cost. Many builders make their biggest profits on these kinds of upgrades.
Remember, too, that you will pay 13 percent HST on your new home, and up to five per cent in combined provincial and municipal land transfer taxes. As a first-time home buyer, you’ll be entitled to significant rebates (see Chapter 3 for more information on these and other rebates). Many new-construction contracts will require that you sign over these rebates to the developer. Typically, the developer’s price is already reduced by the estimated amount of the rebates, which can total well over $10,000 or even $20,000. When you’re estimating your costs, don’t count your rebates twice.
When you purchase an existing home or condominium, the previous owners will be able to estimate the property taxes and maintenance or condo fees. In a new development, both of these figures will be unknown until the building is complete. You will not know how much is in the condominium’s reserve fund, and other rules and regulations could change once the condo board is in place.
New construction often runs over budget, and occupancy dates are rarely guaranteed. Indeed, most contracts allow developers to change everything from floor plans to price at the stroke of a pen. You may be required to pay occupancy fees if your unit is complete before the paperwork is done. Again, be sure to have an experienced agent at your side to guide you through the fine print, and be prepared for uncertainty.
There are plenty of co-ops in Toronto, but they rarely come on the market. In most cases, prospective buyers add their names to a wait list and get first right of refusal when a unit becomes available. Still, co-ops are a popular option for a small subset of buyers who like the intimate community life of a co-op building, and who are patient enough to wait for an opening in the co-op of their choice.
On the outside, a co-op looks a lot like a condominium. However, the ownership structure is very different. In a condominium, you own a unit and hold the deed; in a co-op, you own a share of the building and hold a long-term lease or occupancy agreement. The building itself is owned by the co-op corporation.
While co-ops can be significantly less expensive than condominiums and lofts, they also typically require a down payment of over 30 percent, and most lenders won’t finance a co-op purchase at all. The rules are also very different: because you do not own your unit, you cannot rent or sell it without the permission of the board.