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One bedroom or two? Is 740 square feet enough, or should I go for the gusto and buy 1,040 square feet? These are common questions I hear from condominium home buyers, and I have a clear answer: If you don't NEED it, don't buy it!
My reasoning can be summed up in one word, namely cost. I tell clients that for every additional and perhaps unnecessary square foot, you must pay to buy it, pay maintenance ("condo fees") on it, and pay tax on it. The one counter argument is investment value. My response is that investments should carry their own costs through revenue, not require you to carry the investment.
Let's look at an example and do some simple math. You're a first-time buyer considering a modest condo home adjacent to downtown Calgary. You could make do with the 740 sq.-ft. one-bedroom place, but it would be really nice to have its 1,040 sq.-ft. two-bedroom neighbor. The price difference is $25,000, which seems manageable. So how much more will that second bedroom, plus perhaps a two-piece bathroom, really cost?
First, unless you're buying entirely with cash (that's rare!), you'll be borrowing the $25,000, which at current rates will cost you about $7 per month per $1,000, if amortized over 25 years. So, $7 X 25 = $175 per month to carry the extra debt. Property tax on the additional value will likely be $200 per year, divided by 12 months, equals about $16.50 per month. Condominium expenses these days are pretty much the same for any home for basic operating expenses, namely 25 cents per month per square foot. So, 300 sq. ft. X .25 = $75 per month. Add those up, and the two-bedroom place will cost you $266.50 per month more (these are after income tax dollars) than the one-bedroom place.
Some buyers, of course, can afford that, and will gladly pay it for the convenience of accommodating Mom and Dad or sis when they come to visit. Others need the space for a home office. An excellent option is to rent the additional room to a friend who might gladly pay you $500 or $600 per month rent, although occasionally you'll end up washing their dishes to earn that income. Still, this way you get to buy the larger place, put up with sometimes unwanted company, but you'll have a few extra dollars every month in your pocket until you can afford to carry the larger place by yourself. Now that's investment value!
But what if you want to live alone? What if your income is limited, and $266.50 per month could leave you "house rich, but cash poor". For many first-time buyers, this is exactly the dilemma. Allow me to offer a few lessons that the Calgary real estate market has taught me in recent years:
1. The easier it is to buy, the easier it is to sell. Affordability is tremendously important to the buying public. For close-in properties, I find that good-quality one-bedroom places are in great demand. In fact, I myself have three investment condominiums-they're all one-bedroom places.
2. Raw space is not as important as location, quality of finishing, indoor parking, in-suite laundry, brightness and views. In other words, a smaller home, or a one-bedroom home, will have greater value foot-for-foot, than a larger home, if it wins in the other categories.
3. The less you pay, the better the rate or return from rent, should you need to lease your home, or move up in the market and retain it as a revenue property. Renters are on a budget like everyone else, so they only rent the space they really need.
So buy what you must, but buy what you can afford. If you can make do with less, crunch the numbers. Don't be afraid of smaller in our increasingly urbanized society and more dense inner-city locations. Consider the developer with a condo project proposal in Calgary's Mission neighborhood near downtown off 4th Street SW toward the Elbow River. That builder wants to put in 120 units-all of them one-bedrooms!
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