I didn’t come up with the title, it was the subject line of an email I got from Jenny.  Jenny is in a very common situation, she’s just about the graduate school, currently has some income, and is looking to purchase a house in the very near future.

I’m 24 years old and really concerned about my financial future, I come from rather meager upbringings and I want to be sure that I’ll be able to live/ retire comfortably.

  • I’m currently a full time student and full time employee making about 32,000 a year and am living on my own with bills to pay.
  • I currently have about 9,000 in savings (plus a small RSP savings account with Scotia Bank that pays less than 2% interest)
  • I would like to make sure that I’m on the right track, and would like to own a condo/ apartment within the next couple years, but worry that with such low funds and only 1 credit card in the way of credit I’m not going to have much luck!!
  • I’m living in BC approximately an hour outside downtown Vancouver and figure that I’ll be paying about 250,000 for a condo in my suburb.
  • As for graduation the details get a little foggy there, right now I’m fairly content with my job but am getting my bachelors degree just as an insurance policy so to speak. I figure that by the time I graduate (probably in 3 years or so) I’ll either be ready to try my hand at a new career unrelated to my education (but be able to earn a higher salary since I have it), or will have been led certain way by the courses I’m interested in/ skilled at.
  • Absolutely no debt and am not yet married.

To start, I’ve said this before, but I’m not a financial advisor so anything I say should be taken with a grain of salt.  With that out of the way, looking at the details indicated, it seems that Jenny is far from clueless.  As a young person still in school, it’s commendable to be debt free and have some savings put away even if working full time.  Lets take a look at some of the financial goals

Rent vs. Buy

Jenny’s first goal is to purchase a $250,000 condo.  Assuming a 5.5% fixed interest rate, and 5% down, the payments would be $1,450/month + property tax + condo fees.  Assuming 1%/yr property tax and $250/month in condo fees, the total housing cost of approximately $1,900/month not including utilities.  To rent in the same area, according to Jenny, it would cost around $1,200/month for a 2 bedroom apartment.

The initial problem with purchasing is qualifying for the mortgage at her current salary.  Purchasing the condo would result in a month housing expenses of at least $2,000/month with utilities.  The maximum a lender will give is a gross debt servicing (GDS) and total debt servicing (TDS) of 32% and 40% respectively.

In Jenny’s case, even if $32,000/year would result in a GDS of 75% which is way outside the qualification range.  Even if her salary got boosted to $50,000 in a couple years, it would still result in a GDS of 48%.  Jenny’s (or family) income would need to increase to $75,000/year to qualify for a mortgage on this home.  The point being is that unless Jenny’s income (or down payment) increases significantly, then purchasing a home at this price may not be an option.

The alternative, not that it’s a bad one, is renting.  Renting has always gotten a bad rap as they say that you’re paying someone elses mortgage.  While this may be true, paying lower housing costs and investing the difference between renting and mortgage payments, can put you ahead over the long term as home ownership is historically known to only keep up with inflation.  If home ownership is something that you want for yourself, then I would suggest to rent first (as cheaply as possible), save as much as possible, then consider buying when the income levels are high enough to support the housing costs after a large down payment.

In conclusion, I think that Jenny is already on the right track.  She should keep up her savings habits even while her salary increases, index her portfolio for the long term, and wait for the right time to purchase a home.

How would you improve Jenny’s financial situation?

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For any additional savings, it may not be worthwhile for Jenny to use RRSPs. With her education credits, she probably pays little taxes as it is and it might be better to set aside funds outside RRSP and save the room for later.

My wife is a saver and she socked away relatively large percentages of her income in RRSPs through high school and university, but got little or no advantage from doing so since she was really only making a small total income. In hindsight, it would have been nice to have those funds outside an RRSP now and transfer them in to get a tax break when we needed it more.

Hi Jenny,

Definitely rent, and find a roomate. The rule of thumb is 3x gross income is the max you should pay for a property. With $32K annual income you shouldn’t be spending more than $100K.

Aside from the financial aspects, there is also your personal situation. Once you complete your bachelors degree there is a good chance you’ll be switching jobs (I know you said you’re content with your job, but higher salaries will be in your future hopefully.) Why tie yourself down with a mortgage when mobility could be important?

I mentionned getting a roomate. This is simply a suggestion to lower costs and increase savings. Don’t apply this logic to buying. The last thing you want to do is have your financial future hitched to someone you can’t 100% rely on.

Hope this helps.

PS. I followed my own advice when I was younger. I rented for my first 8 years after completing university and had a large down payment for my first house.

I agree with the Rev about the rrsp contributions – either use the TFSA or contribute to RRSP but save the contributions for future years.

Al beat to my main point – don’t tie yourself down with a house at a young age – especially when you haven’t even started your career. A lot of people (used to?) think that house owning = prosperity, whereas renting = poverty. It’s not that clear cut – your financial habits will determine your financial success, owning a house or not is secondary.

I wouldn’t buy a condo or a townhouse, even if it’s cheaper. Why? Because it could be more difficult to sell it in a tough market compared to “regular” houses in similar neighbourhoods.

By the way I disagree with this statement FT “home ownership is historically known to only keep up with inflation”. I think that this is a correct statement, however I think that you are ignoring the fact that paying a mortgage is just like dollar cost averaging into a mutual fund at fixed prices. True houses do tend to rise only by the rate of inflation, but you also have to look at the total returns here, which includes savings on rent for example…

I think $9000 in savings is pretty impressive! I agree that she should rent as well. Keep saving that money and stay out of debt.

Good luck Jenny!

Rent, rent, rent! In 2 years that 250K condo has a much better chance of being 200K than it does 300K.


Rent and continue to save. The price of condo’s(and real estate as a whole) will nosedive in the Greater Vancouver area over the next few years. I’m a bit more bearish than the person above me…. in a few years that 250k condo could very well drop to 150k or less ^_^-b.

You are in a fantastic situation imo(similar to me, but I’m 27 and with more savings *roar* hehe). Save, be patient, rent, and when the price makes sense, buy.

I’ll suggest a step further on the rental, and see if about entering into a rental arrangement where the benefits are greater. House sitting for traveling retirees, doing some exterior maintenance (moving, snow clearing) for an older landlord, might see an even better rent.

Once Jenny graduates, there may be many opportunities available outside her current community. If so, the ready ability to move from an apartment may have great value at that time.


Jenny you are doing just fine, don’t rush to get you self into loans and mortgage. It’s once again about this rule spend when you are ready not when is everyone spending. In general I agree that in your situation it make sense to rent for a while. However I would like make sure you have more information about your options. As a seasoned real estate buyer I have a lot of experience with properties purchase aspects. So let’s start with mortgage – it’s not necessarily you have to take mortgage at the bank there are plenty private funds available for the purpose. You may want to find local mortgage broker to learn about it more. The downside is that interest rate probably will be higher than in the bank. Second thing you want to consider local real estate market growth. For instance it looks like real estate is positioned for a growth in BC in a near future please see http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2008/10/bc-immigration.html
So basically it’s a simple math, let’s take 10 years period of time for analysis example
Mortgage interest amount for 10 years + (condo fee + utilities)*10 years = 10 years property cost
Future condo’s value – Today’s condo value = Profit (in a case of condo sale)
So if you subtract property cost from Profit and you get positive number it’s worth it to buy. Please keep in mind it’s high level estimation /analysis there are many other aspects should be taken in account.

As a first-time homebuyer, doesn’t Jenny get to take out up to $20k from her RRSP without penalty, as long as she pays it back within 15 years? Obviously, she doesn’t have that amount in there now, but maximizing her contributions over the next few years would result in tax refunds on top of that that could be put into at least a tax-free savings account. Right there is potentially a few thousand extra dollars to put towards a down payment, lowering her mortgage and therefore monthly payments.

I also think that 5% is a ridiculously low amount to have as a down payment. CMHC comes largely into play at that level, increasing her costs even more.

As for what to buy – that depends on the area. I live in a condo in downtown Toronto, and have no fears about it being a poorer investment than a house. But condos in suburbs, where actual houses are common, might be a poorer decision in the long run. Also, if you purchase a house, you can rent out a basement apartment (if you don’t want an actual roommate) and cover a good portion of your monthly costs, making purchasing more appealing than renting.

But, if you don’t like the idea of being a landlord, renting for a few years while saving up for a REAL downpayment is probably the better way to go. Especially with the housing market in its current state.

Friends of mine who bought with smaller down payments often spent years regretting the high monthly bills, while those who had more reasonable mortgages couldn’t be happier. Those that couldn’t afford a large downpayment and were smart about it are now renting and saving every penny they can so their mortgages are minimized.

I also recommend renting for now, regardless quite frankly of financial considerations. 24 is too young to make a major life decision and buying property ties you down, in many ways. Sure today you’re happy in your job but you might get a dream job offer in Europe tommorow; or meet a partner who just took a new job in Toronto; this things happen in your 20s. Combine this with a murky real estate market in BC and murky financial goingons, and its a no brainer. And congratulations on saving and thinking for the future! As disclosure, I bought my first condo at 27 but my salary was much higher and my condo cost only $150K – and still it was hard to make ends meet (dishwashers, maintenance costs get raised on you, walls need repainting). Just keep doing what your doing, saving and waiting and you’ll do great.

Astin, while you are correct that you can pull out the $20,000 from your rrsp for your first house without canada revenue penalty, you are still basically selling your rrsp investments at less than ideal returns at the moment; it may be better to wait longer depending on the particular rrsp asset mix. And I think it actually works out to about 17 years to repay the balance because of the timing to file returns (otherwise you have to declare 1/15th of the amount you took out as income).

Jenny is doing quite well savings wise. She obviously is driven and has the work ethic (full time student and full time job!).
Buying in greater vancouver area is not a good idea. You can rent for so much cheaper. Invest the savings and you’ll be so much further ahead. And that’s not even considering the fact that house prices in GVA is set to plummet.

Borrowing the 20K from the RRSP under the home buyers plan is a moot point since she doesn’t qualify for the mortgage.

Anywhere from 10-30 years ago it would have been unthinkable for a single, 24 yr old to be able to buy a condo. In this past golden (or hellish) age of easy credit that is crumbling as we speak, it turned in to an entitlement. And now young people and families are stretching themselves to the brink just to get a piece of paper that says you are the legal owner.

First of all, kudos to you, Jenny! Socking away $9000 (+ the RRSP amount) while living in an area with one of the highest costs of living in Canada, AND going to school full-time, on only $32,000/yr income is an impressive achievement! Way to go – and keep it up!

I agree with everyone, rent for now till you’re really in a good position to buy, and know what you want – for all the reasons already mentioned. The need for mobility was one of those, and I would like to add to that, that you may find your career takes you outside the Vancouver area (where the cost of living, by the way, can be much lower). So I strongly agree, don’t tie yourself down right now.

A couple of other thoughts on the RRSP & savings issue – you may not benefit from the tax deductions on RRSP contributions right now, but you can defer taking those deductions for several years. So you may want to keep making contributions and save the deductions for when you’re in a higher tax bracket. I would also want to get your RRSP into a higher-yielding investment, such as a no-load, low-cost mutual fund. You may want to wait a few months till the markets & global economy settle down, but on the whole, this is a good time to be buying in.

Do you have a high-interest savings account? If not I strongly recommend opening one. Since you’re in the Vancouver area, I suggest you look at Citizens Bank of Canada. It’s an online bank with great service, no fees and a high-interest savings account that pays significantly better than the big banks and even ING. I am a very satisfied long-term Citizens Bank customer (they didn’t pay me to say this!) Check them out at http://www.citizensbank.ca.

I’d also recommend you get some professional advice from a fee-for-service financial advisor. That person can really help you with the “big picture”. Check out the Women’s Financial Learning Centre in Vancouver, their website is http://www.womensfinanciallearning.ca. I haven’t dealt with them personally but they offer wide range of services, from individual financial planning to on-site or online courses on a variety of topics. They might be just what you need.

Good luck!

As someone in a position similar to Jenny (I’m 25, in Toronto, currently renting, and making more in salary but with fewer savings), this advice has made me feel a whole lot better about my situation. I just finished paying off my student loans, and I’m saving for a down payment to hopefully buy in 2-3 years.

This is an issue concerning almost every American nowadays. If you want some old school advice, read “A Mortgage Tale” at


Everyone has different advice when it comes to renting vs buying, prepayment vs deferring payment. This just offers one of many perspectives.

Dang, I’m late to the party, but I guess FT but it pretty well.

As others have stated, Home Ownership = Increased Risk.

I also want to note the Jenny and Chris Clarke that “owning a home in TO or Vancouver” is quite different from just “owning a home”. These two cities are “international caliber” cities and command a much higher price.

Here’s some data on median incomes: 200k in Winnipeg or Saskatoon gets a lot more house than 200k in TO or Vancouver, yet median salaries are almost identical. I don’t want to crush dreams, but buying a home in Vancouver is simply not for everyone.

If it’s any consolation, I live in Kansas City (median home price of 175k) as a recent export from Edmonton. I’m 28, make 75k / year, have more money in the bank and I still rent.

It’s not a credit thing (I could by a new car with my Credit Card), it’s a risk thing. I work in a volatile industry (IT). My next job could be anywhere. My wife is 24 and studying. Maybe the school she wants to attend isn’t in KC. Maybe we want to have kids and raise them near family, but be “vagabonds” until then.

Right now, buying a house simply carries a lot of risk. I’m not sure where I’ll be in 12 months let alone 12 years. And buying a house is like a 5 year sentence. There are almost no scenarios where buying and selling a house in a 5-year span is going to beat renting.

Just keep trucking, you’re doing the right thing.

I agree with most of the comments above. Renting is the answer at this moment. I don’t know the area but in general the prices will stay flat or slightly go down in the next few years.
Just stay out of a big mortgage at the moment.

Great advice here…and nice to hear that not everyone believes that everyone has to buy a house or they’ll be poor….and the 3x income rule does not work in Vancouver…sorry…I rent just because it is so much cheaper to do so in Vancouver

So Jenny just keep saving and enjoy your twenties….buy when you hit thirty and have a nice chunk of change for a downpayment….

A comment on just the philosophy behind the Rent vs. Buy theory/ideal: I think it’s mostly a modern and Western dilemma. Wasn’t it the US government that ushered in the new millennium of “ownership” for each and every citizen (NINJA mortgages anyone!) ? And look how that turned out so far.

Take a look at the BILLIONS of people around the globe who live their entire lives without ever owning their residence, life long renters. They accept that and are fine with it and get on with their lives.

But somehow we Westerns, perhaps via our Heritage of Conquest (Manhattan for $5 worth of beads!) and mass availability of wide open spaces, are almost culturally hardwired to seek out “ownership”, even if it’s not the best option. We all want to be King or Queen of some kind of castle. It takes a lot to go against that grain.

It’s all kind of weird really, because 1) by Law of Nature, we are ALL renters of everything we “own”, and 2) by Law of Man, our stuff can be seized by the government, especially land (try NOT paying your land rent, I mean tax). So we never really own anything 100%.

Stick with the numbers. If it’s cheaper to rent than to pay even the lowest mortgage (and all the lovely accessory payments that accompany ownership), then keep renting until such time the ratio reverses.

This may be off topic.

Does anyone know of a stock and options trading brokerage account that can be used with TFSA savings account funds?

I did a lot of thinking recently about buying/renting in the next couple of years and decided that I will probably be renting for the foreseeable future.

I’m 24 and live with my girlfriend in Toronto. We have amassed a fair amount of savings (~35k, although a large chunk is reserved as emergency funds) and have a good income for new grads (80k combined).

In the end the interest we would pay + condo fees + utilities versus our current rent just doesn’t make sense. Ownership would probably cost us 700-800 more a month. We’re more than happy to keep our downpayment and bank, what we consider to be, considerably savings.

Renting also allows us to live in a convenient area (close to subway, groceries, etc. = no car) that is quite expensive to own in.

Renting and amassing a larger downpayment and possibly joining forces with a SO in the future is the best play, IMO.

My advice is to rent initially until till you are comfortable putting down a down payment on a house. With the supressed housing markets, buying prices are low, the hard part is selling, but that is not your concern.

With the right guidance, women are eliminating debt, investing for the future, and becoming successful entrepreneurs. They’re a growing segment of today’s financial decision makers — in their homes and communities — and they understand how important it is for women to know how money works.


I agree with a lot of the comments about renting vs buying. But I have a question.

What if the scenerio changed whereby there was no costs associated with buying and selling a house, ie: no legal fees, land transfer tax, or commissions.

As well, if the house actually lost value the employer would cover the costs up to $15K.

Would all of your answers still be the same? (Rent) Your Thoughts.

I am in the same boat as yourself, and currently live in London, ON. I was humoring a job off in Vancouver, but it is the real estate situation that turned me off. It is my personal opinion that the Vancouver market is artifically high currently due to the upcoming olympics (There are ads listing houses for rent for the olympic week for $25,000).

If I was in your position, I would wait until after the olympics when *hopefully* prices will correct themselves. Until then I would save for a sizeable downpayment for either a duplex, or a readily convertible duplex.

If your income doesn’t increase, a duplpex is the only probable way to afford a “stand alone” house as banks/cmhc appraise income producing properties different than single family homes. Hence you may be better off.

I have several friends in Toronto who are single and makign 60k+ but are unable to afford a single family residence unless they rent out the basement.

hi Jenny

The best way is to compare both scenarios: renting and buying. One of them will end up with more saving, that will be the one for you should go for.

for example
expense for renting: 20k a year
expense for buying: 30k a year

it is clearly renting will make you 5k richer

@James: to answer your thought, I’ll paraphrase @Scott: If it’s cheaper to rent than to pay even the lowest mortgage… then keep renting until such time the ratio reverses.

I’m not always a fan of simple rules, but whenever I crunch the numbers, the theoretical rent vs. buy curve centers around this point.

If you look at both of your clauses, neither of these situations would solve Jenny’s problem of the home simply being too expensive.

Even outside of Jenny’s situation, legal fees, closing costs, etc. are just small portion of the equation. There are also moving costs and moving time. Inevitable repairs both to sell your old house and move into a new one. You have to blow a bunch of time packing boxes and bunch more time filing paperwork as you update your address in 20 different places.

And the clause on lost home value would be quite dicey because a house is worth what it actually sells for. How would such a clause even be enforced? If I bought at $225k and my neighbour’s sold for $200k the next day do I get the money? Do I have to sell for $210k to get the money? Why am I selling? Just b/c the house dropped in value? Am I selling b/c the company closed up shop? What are the odds they honor the promise?

Point is given the details on the clauses you gave it’s impossible to really provide a much of answer. Which is why I defer to my original quote from Scott. Unless you can find a way to make the mortgage less than the rent, it’s going to be tough to justify a financial decision to purchase a home. (if you just really want one, go ahead, no sympathies if it sucks :)

James is also speaking of a very rare situation where an employer expects staff to move on a regular basis (eg. RCMP), and addresses some of these costs to ease the movement of staff to ensure coverage throughout the country. It does not address the issue of staff who move from an area where prices have not risen at the same rate as elsewhere.


Congrats Jenny,

I am also in the lower mainland and can relate to your position. Even married with no kids and two full time jobs earning >$100K combined we are still renting. But I am completing my education as well and so it is not a good time to buy. Throw some kids in there and only one income will service the debt. Not a good idea with current prices if you still want to max RRSP and have a little bit in savings.

Good luck and keep saving for that down payment.

Rent rent rent. All data points to a demand-destruction-driven global deflationary depression over the next few years. The fact that this is even a possibly implies the prudent thing to do is to NOT go into debt right now. In deflation, cash is king, debt is a killer.

My advice to Jenny, rent for the next 2 years, by then it will be very clear how this economic mess is playing out, and you can make a more informed decision whether to buy a house at the bottom or continue renting. But we’re not at the bottom yet, we’re just now at the end of the beginning.

I would make tracks to the school bursar’s office and demand a full refund. You obviously didn’t learn a damn thing and, considering that money was exchanged for this “education”, they have perpetrated a fraud. Take the bastards to court. They deserve far worse that the hassle of defending themselves.

Rent! Here’s a gratuitous link to my own blog, where I explain my own decision on this.

Keep renting for now. Condo prices in Vancouver will go at least 20-25% lower based on forecasts and the current climate. Consider sub-letting your condo during the Olympics (if you’re allowed) to make a substantial amount of rent during that time. Put $5k of your 9k into a Tax Free Savings account. I’d buy a redeemable GIC (nothing locked in) at this point as there’s a good chance you may need to dip into the funds in the short term. Screw the RRSP. At your income level/current situation it’s much wiser to carry the unused portions forward to future higher income years. Best of luck to you!

so it’s been a year since this post, how is the real estate market? interest rates have dropped, should we still wait before buying or is this a buyer’s market now

@AK: this is a great question, but it’s highly dependent on where you are and how you want to live. Instead of a direct answer, let me give you some links and reasonable quotes:
NYT: Median Home Prices vs Median Income
These are for major US cities, but the variation is pretty staggering. Canadian cities will be no different. If you look at the relatively flat periods, you’ll notice how even in 1979, cities like NY, LA & SF all carried premiums. Trading at 3.5x to 4x the median income. Expect TO and Vancouver to have a similar premium.

What you’ll notice is that the multiple hangs around 2x in periods of reasonable stability. To me, it seems clear from the charts that prices will continue to fall in many of these regions. A thought echoed by others. That last link also has a reasonable quote:
The simple truth is that median income should not exceed 3 to 5 times your bring home income (and that’s being generous).

I’m sure that many on this blog would argue that even the 3x to 5x should be one person’s income not both. 5x on two incomes is a very large financial burden.

So why am I answering your question with all of these numbers?

B/c this multiple is probably going to be the gauge of how “relatively” expensive housing is going to be. Here’s a chart for Housing Affordabiliy that lists 3x and under as the “affordable” number. The PDF report has a city-level breakdown of this multiple from Q3 2008. The report includes Canada (which is rare).

Take a look at the PDF, check out the Median Family Incomes by Province and you’ll get an idea of how expensive housing currently is. And if you’re in Canada, check out the Canadian stats as housing “boom/recession” is very different in nature than the US crisis. (and I say this as a Canadian living in the US)

What I can tell you overall is that much of Canada is still quite expensive. Even with recent drops in places like Edmonton / Calgary, the average home price is well out of reach of the average family. My personal rule of thumb is the “two-professional family”. If two late twenty-somethings with professional careers (engineer, nurse, teacher, etc.) cannot afford a house, then prices are way too expensive. If they can’t afford a home who can?

In Western Canada, that’s quite true. In fact, if you look at the previous PDF, the major Canadian city with the lowest multiple is Winnipeg (at 3.0). Regina and Saskatoon were both higher. Of course, if you start including property taxes, Winnipeg moves out of the “affordable” range. Average prop taxes are $3,600 / year which is double that of other Western cities. But Winnipeg has to pay for lots of snow removal and road work, just the way it is.

Anecdotally, I know lots of western Canadian 20-somethings who simply can’t afford a home.

So to your original question should we still wait before buying or is this a buyer’s market now.

Please take a look at the stats. In some places it may truly be a buyer’s market. And most places are suffering falling home prices so it may feel like a “buyer’s market every where”. But historically, it really isn’t. If you go over the charts, most of Canada is still above historic norms. It can feel low, but remember that we’re in a 15-year housing bubble. Most people just can’t remember what a house cost in 1993, nor can can they adequately adjust for 15 years of inflation.

Remember, it’s not like we have some type of “Canadian Space Shortage”. Winnipeg still has miles of gravel road inside its own perimeter. What we do have is an aging population that will likely want to “down-size” in the next 10 years and nowhere near enough people to fill up these old houses (here’s a population chart).

If you need a house now, they you need one now. But based on sheer numbers, I can’t believe that we’re anywhere near the rational bottom.