Housing: To Buy or Not To Buy - Property Investment Advice To Newcomers

When Tendai and Melody Mabaya came to Canada from their native Zimbabwe intending to study and work then go back to their country, they brought with them $15,000 in savings. They decided to use it as down payment for a house.

They approached a realtor in Toronto. After they told her their intention, she shocked them by suggesting that they should rent instead.

"You plan to be in Canada for not more than 10 years, that is not long enough for you to cash in on the house when you leave," she advised.

Not understanding the ins and outs of the real estate business, they left feeling cheated. They told me their story and I promised to help seek a second opinion for them. I got hold of Frank Modirmassihai, a real estate agent with Century 21, a leading property broker in the GTA.

Mr. Modirmassihai said prospective buyers must realize their limits on repayment of mortgage and take into factor the fluctuations in the interest rate and its effects on their monthly payments.

He said real estate is not for those whose goal is to make a quick buck, like the Mabayas.

"If you are new to Toronto and may not know if you are staying here permanently, renting may be a good option until you get familiar with different areas and their offerings."

The Mabayas would best be advised to invest their $15,000 in other areas where growth is guaranteed and use whatever they are earning here to rent accommodation.

"Buying a house is, naturally, one of the best investment options for anyone, but one has to consider that mortgage payments against appreciation of the property might not strike the right balance, especially if one has to struggle to keep up with marketable values," Modirmassihai said in an interview.

In fact, renting, particularly in Toronto, may turn out to be a smart move. According to recent studies by property watchers, including the Canada Mortgage and Housing Corp, vacancy and availability rates in the GTA average at three and five percent respectively. That means rentals would remain at their most affordable, making renting a better option.

Be that as it may, buying property, whether for business or accommodation, remains among the most practical long term investment options. It is most important to work with a realtor who not only knows the market and the business but one who can produce a proven track record of integrity and client satisfaction.

"Toronto and GTA have experienced a steady rate of growth of anywhere from 5 to 14 percent annually in the last 5 years, thus investing has in most cases paid off, but one must be cautious with where and how is he investing his money," said Modirmassihai. He added that in so far as returns are concerned, a lot depended on the down payment, mortgage qualification and the obvious risk factors as to investing in any other field with comparable rates.

With that kind of information, the Mabayas determined that they would be better off renting modest accommodation in the North York area for $1,800 a month, power and utilities included.

"Its hard to pay the rent as it is, but at least we do not worry about mortgage, insurance, interest rates and improvements of the property, somebody else does," said Melody, who has a full-time job while Tendai does part-time stints in-between his studies at the University of Toronto.

Meanwhile, they invested their $15,000 elsewhere and its already earning interest.

"We were lucky to have a realtor who is not just after another sale. If we decide to settle here permanently, we will take out our money and go back to her to help us buy the best house in town," said Tendai.