I was speaking with some friends this past weekend about the ability to own real estate and how people perceive those who own real estate versus those who don’t. It brought up a very polarizing point that I think most Torontonians have at least thought about or discussed with someone else. It’s causing a fairly large divide with Torontonians. The main divide is that it’s becoming increasingly difficult for those who don’t have real estate to actually buy their first property. For those who have already bought their first property, their equity gives them the flexibility to keep buying and to build up a larger portfolio. There are even talks of rent-shaming people who cannot own. It’s an unfortunate divide that keeps getting bigger and bigger in Toronto.
Two Sides of the Coin – I don’t want to get into a deep dive on why it’s getting more difficult to own and why there are no issues with renting because I’ve been on both sides before. Growing up, my parents didn’t have much, so we always rented. Since immigrating to Canada when I was 5 years old, my parents and I moved a total of 12 times, hopping from one rental property to the next. When I made the plunge into home ownership, it was difficult but it wasn’t nearly as difficult as it is right now that’s for sure. Furthermore, I always talk about how you can roll equity from one property into the next as long as you get your first one. So that’s why getting your first property is so important – get into the market as soon as you can! I hear the arguments from both sides of the coin and the struggles of trying to bridge that divide of not owning a property.
Behind the Curtains, Here it is! All I can say is to do your best to bridge that divide because after the first property, it gets easier. Another point that often gets brought up and is blown out of proportion is the talk of foreign investment. So I’ve decided that today, I’ll peel back the curtain and give a breakdown of how my clients (who buy real estate) look financially. I’ll break this comparison into 7 category groupings that should give you a good idea of my client portfolio, but obviously without giving away their identity. These categories are:
- First Time Home Buyer
- Down Payment Gifted
- Second+ Property
- Business Owner
- Works for a Company
- Income over $100,000
- Lives in the GTA
Oh Canada! The first point that I’ll address is the “Lives in GTA” category. Despite the large number of people who think our market is dominated by foreign investment coming into Toronto and disrupting the market, it’s actually not that much. Based on my client portfolio, 94% of my clients live in the GTA and are citizens here. I was even quite liberal with the percentage because I added people who were Canadian but didn’t live in Canada for more than 6 months of the year. You may think that sounds weird but, it actually isn’t. A lot of my Chinese/Hong Kong clients are Canadians who don’t fully live in Canada, but they still pay taxes here. The reason for that is because they want their kids to have a better western education and being Canadian allows them to accomplish that. Plus, everyone complains about winter. It’s also a lot easier to get into Universities in North America than it is in Asian countries. Plus, getting into great public schools is as easy as buying a home in the school district, which I talked about in last week’s Insight Article. I will say one thing that is mostly true – the first-generation immigrants from Hong Kong and China who are entering Canada are coming with money. I’ve said this before and I’ll say it again – if 1% of the population of China is “rich”, then that’s already more people than all of Canada combined. So that’s just some perspective, and trust me they love Canada!
Cash Gifts – The second point that I’ll address is the first time home buyers. Approximately half of these first time home buyers receive their down payment in the form of a gift. This gift normally comes from the parent’s equity in their home or direct savings. Whether that’s the full down payment or partial, I’ve included it in my stats. This should be a good indicator for you to understand that getting the down payment is super difficult with the escalating prices. Furthermore, most of my first time home buyers are making over $100,000 income.
Bringing in the Dough – So that brings me to my third point, which is that over 64% of my clients make $100,000 or more. This is not to say that I only have “wealthy” clients. It’s actually just a metric and reality; you need almost $100,000 to buy real estate with the stress test, new mortgage restrictions and the rising price of real estate. I would argue that the percentage is even higher than 64% because sometimes I don’t interact with the spouse/partner. The total household income is probably well over $100,000 in those instances.
Doubling Up and More – Now let’s take a look at those who have a second property or more. To hammer the point home again – if you own real estate and hold it for a long time, it gives you options. Many of my clients are rolling their first property into the next two, three, four or even more. Incomes can’t catch how fast real estate prices are growing, but real estate itself can! Whether you’re buying a property for your kids or investment property to secure your retirement, the second property is much easier if you leverage your first. That’s why it’s imperative for anyone who has home ownership dreams to get into the market ASAP.
Leverage Your Pay! The last point that I’ll make with these stats is that business owners tend to have higher incomes but what they report on their year-end tax returns could be less, which makes qualifying for mortgages a lot harder. I’ve noticed that clients with professional jobs in IT, accounting, engineering, finance, legal and medical are all able to qualify for mortgages very easily. Plus, they qualify for the next few properties even easier as their income is consistent. If you’re in one of these high paying careers, do leverage it as much as possible to get as many investment properties as possible.
