My First Time Home Buying Experience – Losing 100K within weeks of getting the keys!

Steven Ho Buyer

After I bought my first house at the peak in 2017, I watched the price drop by $100k within weeks of getting the keys. Buying real estate can be a stressful time, it’s a lot of money, a huge investment, if you’re like me, all of your life savings. The market can change on a dime and that can cause a lot of anxiety.

Mistake 1: FOMO started kicking in.

It was in April of 2017 when I bought my first house.

This was my 7th year in real estate and I finally saved enough to buy a property. Being self-employed, I have to plan for my own retirement as I don’t have any health benefits nor pension.

My plan was to buy this for my retirement, keeping it as a rental property until the mortgage is paid off and by the time I retire, I will have built some passive income for retirement.

Leading up to that, the real estate market was going nuts. It started in January. Prices were climbing, going up 22%, 27% in February, 33% in March year over year. I felt like if I don’t buy now, I might never be able to afford to buy anything or get into the market.

Mistake 2: Looking further out of the city.

My budget was around 600k and I was debating on where I should buy. Do I get a condo in Mississauga to be close? Or do I go further and get something without a maintenance fee? I didn’t really want to pay a maintenance fee because that will eat into my monthly cash flow.

So I started looking further out. I saw that I could get a freehold townhouse in Stoney creek.

There were a few options and I found a 10 year old end unit 3 bed 3 bath freehold townhome with a decent sized fully fenced back and side yard, close to the highway, close to shopping, theatre, hiking trails and schools. It had a long driveway to park 2 cars plus a garage with an Unfinished basement. Perfect for most young families looking to raise their family. Resale value…Check.

There was 10 offers on the house and I went in hard into the paint, had the deposit cheque in hand, no conditions, wrote a letter to the seller, showed up in person to the offer, did the whole dog and pony show, I used every trick I knew in the book and I ended up winning the bid.

Got it for 603k. I was freaking out. One second I’m ecstatic, finally a home owner! The next second I’m panicking on how I’m officially broke and I have no money, no rainy day fund. The next second I’m so proud that I am adulting and taking one step closer in preparing for my future. The next second I’m second guessing my purchase and I over paid. All the fears and questions started pouring in. What if I don’t find a tenant, what if I can’t afford to keep the house, what if… I had to keep my emotions in check and just stick to the plan.

Closing was in middle of May and now I got the keys, next step, find a tenant. Rental rates seemed pretty good for the area and the numbers worked for the most part, it was a couple hundred dollars negative cash flow per month. In fact, taking a loss was better for my income tax. I just told myself, I don’t need the cash flow now, I need it when I retire. I figured rental prices and property values will continue to go up for the next 20 years so I didn’t mind taking the hit until rental prices caught up to my monthly cost. Otherwise, I would have to go even further to find something with positive cash flow.

Mistake 3: Let emotion get in the way of my long term look.

I put it up on kijiji and found a tenant for June 1. Sweet. All is good and everything is going according to plan.

Here’s the timeline:

  1. I bought the house for 603K on April 18, 2017 and the announcement of the Ontario Fair housing plan came on April 20, 2017.
  2. And then the market reacted….. the introduction of the Ontario Fair housing plan caused the prices to drop almost 19% by July. I couldn’t help but check the current market values. Neighbours were now selling WITH finished basements for low $500k.

My house essentially dropped by 100k overnight. But this didn’t make sense to me because foreign buyers only accounted for at most 5% in the GTA. Much less than Vancouver’s 13%. Nonetheless, the market was spooked and many buyers took a break to “wait and see”. I had a knot in my stomach and felt like I lost 100k within 3 months.

I had to check myself before I wrecked myself. I reminded myself, this is my long term plan, for retirement. From the history of Canadian Real estate, home prices have gone up in the long term. I’m not planning to sell anytime soon, so I didn’t actually “lose” 100k. I don’t lose if I don’t sell. Tenants were doing fine, we’re still going according to plan.

Fast forward to 2021, 4 years later, homes on the street are now selling for $850k, at the peak of this market in 2022, the next door neighbour (not an end unit), sold for $950k. Now as the market has come back down, it’s worth around low 800k. I’m still up 200k. I wonder what it will be worth in 15 years.

Here’s what I learned through this process.

If I were to do it all again, I would:

  1. Location – get something closer to where I live just to make it easier to manage.
  2. Opportunities – buy based on the market instead of maintenance fees.
  3. FOMO – buy when and if the numbers work or if my needs changed.
  4. Expectation – budget for upcoming maintenance based on the age of the house. (I had to replace the roof, furnace and AC within the first 2 years)

Freehold still had a “maintenance fee”. However, it has definitely grown more than a condo would have. If I could have afforded to buy a freehold in Oakville or Milton at the time, it would have grown even more than Stoney Creek has. Shoulda, woulda, coulda. Well, I couldn’t afford it so, that doesn’t matter. The key point here is to have the long term plan.

Don’t treat real estate like day trading. Moral of the story, get into the market when you can, buy what you’re comfortable with and stick to your plan. Real estate is a long term investment vehicle. Any property would have grown more than no property.

Got questions about your real estate position or whether you should buy or sell right now? Book a free call with me at a time that works for you.

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