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Members of Generation Y see the value of getting into the market as early as they can, experts say. (Fred Lum//The Globe and Mail)
Members of Generation Y see the value of getting into the market as early as they can, experts say. (Fred Lum//The Globe and Mail)

Mortgages

Is home ownership a financial priority for millennials? Add to ...

At 22 years of age, Victor Godinho has become a homeowner. He purchased a two-bedroom, 750-square-foot unit at Ten88, a new townhouse condominium under construction in Toronto.

While others his age were spending their disposable income on nights out on the town or at the mall, Mr. Godinho was watching his spending, living in his parents’ home and saving for a down payment. He’s not alone – for many millennials, also known as Generation Y, those born between 1980 and 1995, home ownership is a priority.

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Last year, the Canada Mortgage and Housing Corp. held seminars that identified this age group as a growing opportunity for the Ontario housing market. While millennials accounted for 15 per cent of home ownership demand in Ontario in 2012, by 2016 they will own about 35 per cent of the province’s homes. Toronto is a hotbed of millennials, who account for about half of the downtown population.

“Many millennials definitely want to own their own home and are very averse to renting,” says Mark Savel, a Toronto real estate agent with Sage Real Estate.

“They’ll stay at their parents’ homes and save up a down payment. Many want to put 20 per cent down and not pay the CMHC mortgage insurance fee [required if a down payment is less than 20 per cent of the purchase price]. A lot of it has to do with their upbringing. Their parents own a home and they want to as well.”

Mr. Godinho’s father started taking his son to real estate investment seminars at a young age. “My dad believes when you invest in something tangible, you have security in your investments. With a portfolio of stocks, your money is at risk. He always stressed how important real estate is.”

After high school, the younger Godinho became a licensed real estate agent, not to buy or sell homes but to add to his knowledge of the market. Now he’s a financial planner and mortgage agent; his company, VTAG Financial Group, caters to young professionals and self-employed business owners.

Mr. Godinho previously worked in management positions with a major drugstore chain and furniture chain, and saved up to 70 per cent of his take-home pay. He used the online discount site Groupon.com to save on entertainment and dining out.

He chose to buy in the Scarborough area of Toronto. He believed the neighbourhood was up and coming, and he liked that the project didn’t have a lot of costly amenities, so condo fees would be low.

Condos are the logical housing entry point for millennials, Mr. Savel says, given their lower prices. Many start with a $350,000 condo of 550 to 750 square feet with one bedroom or one bedroom and a den.

“They see the value of getting in the market as early as they can,” Mr. Godinho says. “Even if the market goes down temporarily, they are young and they can hold onto a property and it will come back up again.”

Most young people also want to live close to where they work, Mr. Savel says. Many will forego buying a car (and an expensive parking spot) so they can put more money toward a mortgage.

Mr. Savel was 24 when he purchased a preconstruction condo in 2010. He will move into his suite in Toronto’s Dufferin and Lawrence neighbourhood when the building is finished in September. But he says resale condos are a better option for many young buyers.

“When you buy resale, you see what you are getting and what the finishes are and your expectations are. When you are buying off a plan, you hope you will get what the developer is promising,” he says.

Mr. Savel says about 90 per cent of his clients want to move into a home three to six months after signing a sales agreement, not wait years for a unit to be built. With a good credit rating, they may be able to buy resale with as little as 5 per cent down, while preconstruction condos usually require a minimum deposit of 15 per cent (though it can be paid in staggered terms) as developers require the capital to start building.

While Mr. Godinho plans to move into his townhouse when it’s finished, he likes that he has the option to rent it out.

He also kept an “exit strategy” in mind. “I looked at where the property was, if it could be rented out and if it would be in an area that people would buy in if I sold it. I’m definitely reaping the rewards already. The project sold out and my townhouse is now worth more than when I bought it [for $270,000].”

He also plans to keep investing in real estate: “My goal is to buy one condo every year.”

Many of his friends are like-minded, he says. “My predominant clientele is young professionals, and I’ve recently helped four clients purchase their own homes. My group of friends understands the value in real estate.”

Tips for young buyers

  • Make a three- to four-year plan to save for a down payment. Put aside a percentage of each paycheque and reduce unnecessary spending.
  • Take advantage of tax-free savings accounts and RRSP tax rebates to save even more.
  • When you buy, take emotion out of the deal. Is the property a good investment in terms of location, rental demand and future resale?
  • For a condo sale, find a lawyer who specializes in real estate law to look at your purchase agreement within the 10-day cooling off period.

Source: Victor Godinho, financial planner and young condo owner.

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