Canadians across the country are pretty disillusioned with the current housing market. It’s clear why. Canada continues to be one of the worst places to live in terms of housing costs. Many Canadians are, in fact, just giving up on the dream of homeownership altogether.
But if this isn’t a path you want to take, there are certainly options. There may have to be some considerations and compromises made to get there.
Renting isn’t evil
First, however, I want to be clear: renting a place to live is not a bad thing. In fact, the homeownership “ideal” is mainly from our ancestors — those who came here and in the United States for the dream of owning their own parcel of land.
But everywhere else in the world, renting is the norm — even well into adulthood. That being said, it’s not as if renting costs are much cheaper, and that’s the key here. If you’re going to end up paying around the same to rent as you would to own, owning a home is definitely a better option.
Not only are you putting your roots down and allowed to do whatever you please without needing permission, you’re making an investment. Every home eventually comes up for sale, and that means home ownership is an investment. Renting simply just isn’t.
How to achieve it
It’s important to note that Canadian homes are actually at a 14-year low, according to the Canada Real Estate Association (CREA). Home sales continue to drop as well, so now really is a good time to consider buying a home. Or you could wait until more homes are built, which could take a decade or more.
The average home in Canada costs about $612,000 as of writing. If you were to put down a 20% down payment to avoid charges by the Canadian Mortgage and Housing Corporation (CMHC), that’s $122,400 you’ll need to pay. That is certainly not small, so how to get there?
Depending on how soon you want a home, you need to make some pretty serious cuts for savings. It could also mean moving altogether to a more affordable place to live. The average house costs $1.15 million in Toronto and $467,000 in Sudbury, Ontario, for example.
For other cuts, consider downsizing your current rental, selling your car to buy a cheaper version, and just tightening your budget in general. Those, of course, are serious decisions not to be made lightly. So, you need to meet with your financial advisor.
Then there’s creating income and investing it
Canadians serious about wanting a home should also try to create more income and treat payments towards a down payment like a payment towards a bill. After all, that’s what you’re going to have to get used to in the years to come with mortgage and property tax payments.
A great way to do this is to create passive income through renting what you already have. That could be something as small as your tool kit to as large as a parking space or storage unit.
Then you need a solid investment to create passive income and reinvest it. A great option is Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY), which offers a 4.43% dividend yield. Shares are down 8% in the last year but up 54% in the last decade, providing you with a nice recovery.
To make that $122,400 down payment, here’s what you would have to do.
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Shares Owned | Year End Stock Price | New Balance |
|---|---|---|---|---|---|---|---|---|
| 1 | 675.00 | $1.87 | $1,261.29 | $29,758.71 | $6,500.00 | 851.63 | $44.09 | $37,545.63 |
| 2 | 851.63 | $2.15 | $1,830.04 | $39,417.11 | $6,500.00 | 1033.31 | $46.08 | $47,614.17 |
| 3 | 1033.31 | $2.47 | $2,553.51 | $50,231.39 | $6,500.00 | 1222.61 | $48.16 | $58,883.55 |
| 4 | 1222.61 | $2.84 | $3,474.51 | $62,453.58 | $6,500.00 | 1422.66 | $50.34 | $71,615.12 |
| 5 | 1422.66 | $3.27 | $4,649.46 | $76,405.45 | $6,500.00 | 1637.24 | $52.61 | $86,142.45 |
| 6 | 1637.24 | $3.76 | $6,153.37 | $92,501.34 | $6,500.00 | 1871.07 | $54.99 | $102,894.98 |
| 7 | 1871.07 | $4.32 | $8,087.02 | $111,279.77 | $6,500.00 | 2130.04 | $57.48 | $122,430.62 |
It would therefore take seven years, starting with an investment in 675 shares. This would cost $28,437.75 as of writing, with an addition of $6,500 per year. By then, you’ll be set to live out your household dreams — if not sooner!
