Chapter 6

Understanding Your Housing Options

Types of Homes

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.

Detached, semi-detached and row houses

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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.

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Benefits
of single-family housing

  • Plenty of privacy
  • Your own yard and outdoor space
  • Room to grow your family
  • No shared walls or floors (in detached homes)
  • Freedom to landscape or renovate as you please
  • Can be more resistant to down markets, protecting your investment
  • No monthly maintenance fees or special assessments
  • In some cases, a garage for vehicles, workshop or storage

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Drawbacks
of single-family housing

  • Yard maintenance and landscaping costs
  • Exterior home maintenance, from snow removal to gutter cleaning
  • Costly repairs and renovations are your responsibility
  • Significantly more expensive than shared housing

Condominiums and lofts

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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.

Toronto Properties

Benefits
of condominium housing

  • Affordable housing (compared to houses)
  • Typically close to urban amenities like restaurants and entertainment
  • Some buildings include common spaces – such as shared entertainment or party rooms – that owners can book
  • Some buildings also offer visitor accommodations for when family and friends come to town
  • Many have in-house gyms, and some even offer pool facilities
  • You don’t have to worry about doing landscaping, lawn maintenance or snow removal
  • Buildings are typically well-maintained, with many interior maintenance chores covered by monthly maintenance fees
  • Smaller units require less cleaning and interior maintenance
  • Some units come with underground parking, lockers and/or bike storage
  • Some buildings offer security and concierge services
  • Fantastic city views from units on higher floors
  • Some buildings have a strong sense of shared community

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Drawbacks
of condominium housing

  • Monthly maintenance fees and possible special assessments
  • Rules and regulations are set by the condominium board
  • Building may not allow cats, dogs or other pets – at a minimum there may be restrictions on the size, number and type of pets allowed
  • Smaller units can leave little room for growing families
  • Shared walls and floors may mean hearing your neighbour’s noise or smelling their cooking

Homes with a rental suite

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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.

Is it legal or illegal?

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.

Building a rental suite

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:

Toronto Properties

Benefits
of a home with a rental suite

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Drawbacks
of a home with a rental suite

  • Reduced privacy
  • Increased responsibilities of being a landlord, including regulatory issues and maintenance
  • Loud, unclean or otherwise disruptive tenants can undermine your enjoyment of your home (and can be hard to evict)
  • Late payment, non-payment or rental vacancies can cause financial problems if you rely on the income to pay mortgage or bills

New construction

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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.

Hire a buyer’s agent even if the builder says you don’t need one

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.

Keep a close eye on your bottom line

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.

Be prepared for uncertainty

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.

Toronto Properties

Benefits
of a home with a rental suite

  • Developers often let you spread out your down payment over a period of one year
  • Freedom to choose the cabinets, flooring and finishings you love
  • New buildings are less likely to require significant repair or to trigger special assessments
  • There is a legislated 10-day “cooling off” period during which you can cancel your purchase contract

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Drawbacks
of a home with a rental suite

  • Significant uncertainty around construction costs, values and occupancy dates
  • Uncertainty around condo board regulations, property taxes and maintenance fees
  • You could potentially face the builder’s high-pressure sales tactics and unfavourable contract terms

Co-ops

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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.

What is a co-op?

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.

Toronto Properties

Benefits
of a home with a rental suite

  • Lower cost to purchase
  • Typically a tight-knit, co-operative-style community lifestyle
  • New owners must be approved by the board before they can buy in the co-op
  • Existing owners must gain the approval of the board before they can rent their unit or sell their shares
  • Usually close to downtown entertainment and restaurant options
  • Some buildings include entertainment rooms, visitor accommodations, gyms and pools
  • You don’t have to worry about doing landscaping, lawn maintenance, snow removal or the building’s interior maintenance chores
  • Smaller units require less maintenance and cleaning
  • Some units come with lockers, bike storage and underground parking
  • Some buildings provide concierge and security services

Toronto Properties

Drawbacks
of a home with a rental suite

  • Most co-ops require a 30 percent down payment, sometimes up to 40 percent
  • Most lenders will not offer mortgage financing for co-op buildings
  • Some co-ops have long wait lists for occupancy
  • You must be approved by the board before you can buy in a co-op
  • You must gain the approval of the board before you can rent your unit or sell your shares

A note on language

Under the Ontario Real Estate Business Broker’s Act, an agency relationship exists between yourself and the real estate company of your choice, otherwise known as the brokerage. The individual you choose to represent your interests in the purchase of your first home could be either a broker or sales representative acting on behalf of the brokerage they are registered with. For the purposes of this guide, we’re going to refer to these people as real estate agents, because that’s the term most people use. But remember: Legally, your agent is the brokerage, not the person.