As real estate prices keep rising, more and more home buyers are finding it difficult to purchase their first property. The government has introduced a few savings programs, but is it enough?
James and Denny go over the four main programs the government has offered to first-time home buyers and discuss the pros and cons of each one.
This episode will cover the First Time Home Buyers’ Program, the Home Buyers’ Plan, The First-Time Home Buyer Incentive, and the new First Home Savings Account and how to get the most out of each program.
Read the Transcript Here
Hi everyone, I’m James Garbutt. And I’m Denny Dumas. And this is the Garbutt Dumas Real Estate Podcast.
James: Denny, first time homebuyers are really affected by our prices in this market. Let’s, let’s let’s, let’s use the next five to 30 minutes, depending how long this goes, to share our thoughts on how we can help first time homebuyers buy their next home. Because I think any advantage that is available they should be aware of. And so the whole purpose here, listeners, is to make sure you are aware of what you have available to you to help you buy your next home.
Denny: Before we get into that I think it’d be interesting to share what our first property was. How much we paid for it, and what that would be worth today.
Because I’m thinking, you mentioned it’s difficult for first time buyers, it absolutely is. We’ve seen prices more than maybe just about double since I bought my first property in New West. That was 2012, It was a one bedroom condo in Victoria Hill. It was brand new at the time, paid $272,000 for it. And now that would be worth about $450K probably. Maybe $450K to $475K just shy of $500K.
James: We sold a one bedroom and a wood frame Victoria Hill earlier this year for $510K.
Denny: But you’re a phenomenal realtor.
James: That’s true. It’s true. Probably $475K. No, I think, I mean I don’t think, it’s probably five, but let’s go with $500K.
James: So $500K, 272 Carlisle?
James: Hmm, what was the unit number?
James: I bet you know what mine was a few years before. Like I can’t even remember the unit number but I want to say it was unit 1306 at 4178 Dawson. Tandem. Burnaby North and I bought it as a pre sale and I believe it was 2000, geez, 2003? I think it was 2003. Maybe it was 2004. I bought it as a pre sale 2003/2004 for somewhere around there. And it closed at $196.9K or something like that it was $196,900. And I think today that unit is probably worth like $550K would be my guess. Maybe $600K I haven’t looked at the latest sales at Tandem in Burnaby. But my guess is it’s probably around $900 a square foot and that would put it in the high fives.
James: Yeah. Many moons ago Denny and I probably should have held it back. I think I rented that place for $1,300 a month and I think today’s rents for something like that might be in the neighborhood of $2,600 to $2,800 a month. How times change.
Denny: It’s wild. Rents are crazy right now.
James: And if I bought, I remember at the time that I bought that condo, I could buy a house either, as either, the house on Rumble in Burnaby South it was $350K. So, different time, different era.
Denny: Yikes. Man, $350.
James: But let’s stop this, you know, let’s stop talking about how cheap things were and start helping people save up for the expensive things today.
So I want to talk about, there’s like four items that first time homebuyers have available to them. And some of them are more new and more impactful than others but so I’m going to breeze over this one.
So first time homebuyers get a property transfer tax exemption for purchases up to $500,000 and if it’s between 505-25 they get a partial exemption. So I mean, I wouldn’t buy a property that just meets it for that reason, but it is helpful to save on property transfer tax, which is, what is it, 1% of the first $200,000, 2% of the balance thereafter. So if you’re buying a $500,000 place that’s $10,000 worth of property transfer tax savings that you have as a first time homebuyer.
Denny: And the big stipulation with this exemption is it has to be a principal residence for 12 months.
James: Yep. The, we have the homebuyers plan, which is when you can withdraw your RRSPs up to $35,000 tax free, but you have to pay it back within 15 years.
Denny: 15 years.
James: That’s been available to you. So great. If you don’t have RRSPs. RRSPs make sure you get them you want to take advantage of that. And then there’s also the first time homebuyers incentive which is where the government will match five to 10% of your purchase price to a down payment in, and in return, you repay the government, 5% to 10% of the market value or when you sell.
I will say that if it appreciates when you sell, they do have a cap to gain at 8%. So that I think that was implemented after they announced it then they changed it. So I guess that’s good upside and you know, I think there’s when you when you combine some of these incentives, unless they restrict that, it can really help someone get in the market that wouldn’t be able to get in before. I mean if you have, if you don’t have the downpayment, this is a great option to get your foot in the door.
And right now, condos in some areas haven’t really seen a big gain in five years. You know, I mean, not everyone’s a first time buyers not necessarily buying a Yaletown condo, but that would be an example. When you look back at the prices they were going for even six years ago in 2017 to today. It’s not a huge gain and when I look at the next six years, I think there’s an argument to say there might be some gain there. So they’re using this for the right buyer that doesn’t, that this is the difference between owning and not owning something worth considering.
I don’t know anyone that’s taken advantage of this plan.
Denny: I don’t know anyone that’s done it either, that was gonna be my question is, is how many people are actually using this plan where the government is giving them money and taking a percentage?
James: Probably some data on that. And that was not Googled before this episode. So it clearly is a very small percentage. I think one thing that we see a lot of with first time buyers is gifted money to qualify. There’s, I think there’s an absurd, a large portion of first time homebuyers in BC and Vancouver that specifically, that get gifted money from family members to qualify for a mortgage. And it makes sense.
I mean, our prices are high, there’s no question about it, you’d have to have, I mean, most would have to have help of some sort. But I think that that gift of money can be a little bit more pre planned nowadays with what I think is probably one of the best new incentives or one of the best new policies to help first time homebuyers and that’s the first home savings account that they announced.
So, first home savings account is basically you can save, you can contribute upwards of $40,000 on a tax free basis to a savings account and invest that money in stocks or GICs or mutual funds and use it towards purchasing a home. It’s like an RSP in that your contributions are tax deductible. So you can contribute up to $8,000 a year. And so, if you earn $50,000 a year and you contribute $8,000 in that year your taxed income is $42,000.
So there’s savings of paid income tax, and the cap is $8,000 a year. So it takes you in theory, and I think it came into effect April 1 of this year 2023. But in theory, it’s going to take you five years to save up that full amount. When you, like a TFSA, when you withdraw the money to buy a home, it’s tax free. So it’s got the benefits of an RRSP that it can reduce your annual income tax and it’s got the benefits of a TFSA where you’re not paying taxes on the gain. And to me that makes this program an absolute no brainer.
It’s available to anyone 18 years or older. So parents: if you’re listening to this right now and you have an 18 year old, 19 year old, 20 year old, I mean even if they’re 35. $8,000 a year, no brainer. It’s like, it makes a lot of sense and I think this is one of the greatest tools. Instead of gifting your child money when they’re buying a home $8,000 a year for five years in this first home savings account. Do it. Do it tomorrow. Sorry Denny, I got too passionate there.
Denny: You’re really fired up. Jamie was lined up at the bank on April 1 in the morning to set up three accounts for his kids.
James: You know, I’m not a first time homebuyer, my kids are too young for this.
Denny: No, fair enough. You got to be 18?
James: Yeah, 18 years old. Okay, so just there is a time for I guess one, like let’s talk about some differences. So, you know, today, you’re not going to get a lot of gain from this first home savings account like you’re, because he can contribute $8,000. This is more like planning for five years from now.
So in theory, if you’re a high income individual, you would probably get more advantage from having a large RRSP contribution. Like, I think an example is if you make north of $170,000 a year you can contribute in your RRSPs let’s say. Say you made $180 grand, you can contribute to your RRSPs $30,000 and you can pull that out for you basically it’s a larger contribution. There’s less of a cap annually for higher income earners. Whereas it’s a straight $8,000 cap across the board. And you know TFSAs makes sense. This is, this is a home version of it ,with with tax deductible contributions.
Denny: It’s kinda like a combination of those two accounts, right, a TFSA or an RRSP.
A TFSA, the disadvantage is you’re putting taxed income into it. And you’re, when you do pull money out of it, you’re pulling out money tax free so everything you’ve invested in mutual funds and anything inside of your umbrella TFSA is not taxed when you pull it out but it goes in as taxed income.
An RSP goes in as non taxed income. Comes out as a first time buyer not taxed, but you have to pay it back in 15 years. On this account, this homebuyer savings account, the negative is the cap and the timeframe I think. Like in five years from now, how much more expensive is that one bedroom condo that now is let’s say to qualify for the first time buyer PTT exemption. Let’s say you’re paying $500,000. How much more expensive is that one bedroom condo in five years from now? Does that forego or even, is that way above the savings of this account going in?
James: Vancouver, probably.
James: It’s a moving target but like, better than nothing. I mean, for people that don’t have enough to buy a home and they’re just starting saving, it’s it’s a great option. And it can be transferred from, you can transfer funds from your first home savings account to your RRSPs without tax implications. So if you say you don’t use it, and you want to transfer it, you can do so.I don’t know if it goes…
Denny: I don’t think you’d want to because when you, let’s say you don’t use this money for a first time purchase, when you’re pulling it out of an RRSP you’re gonna get taxed on it correct?
James: Correct. But…
Denny: And is this first time homebuyer savings account, is it solely for a purchase? Is that the only time you’re allowed to take money out of it?
James: It’s solely for a purchase for a first time homebuyer that is occupying the property for the primary residence within 12 months of buying.
Denny: Okay. So if after five years, you do not buy a property. You have the option to just transfer to your RRSP?
James: Yeah, yeah, that’s what I understand. Now there might be some fine print. Don’t sue me if I got that wrong. I’m not your tax, not your accountant. But that’s, that’s what I read. That’s what I listened. That’s how I heard it. Yeah.
So I mean, great program to get started with the savings. You still might be frustrated with Vancouver real estate prices but I’d like to think that areas like Kamloops or Vancouver Island will still have affordable options. But if you don’t want to live there, this program only for those that move into the property.
Denny:I think it’s a really good option for young people who are maybe going through University, have a part time job, have some extra cash to that don’t know what to do with it. I think investing through this type of account and hopefully buying a property in a few years from now is a really good option.
James: If you combined five years of savings with a first home savings account and you might not have enough to get that full down payment. But maybe you marry it up with the first time homebuyers incentives where the government contributes five to 10% of your purchase price for downpayment. I mean those two combined could help someone be a homeowner that never imagined they would be a homeowner.
Denny, if you’re a first time buyer, if you just don’t know where to start and what to do, who do you call?
Denny: Real estate is funny, we, I mean our team, we work with everyone from like 19-20 year olds buying their very first property who have obviously never done this before and know very little about Greater Vancouver real estate, two very savvy investors and, you know, high income earners who are upsizing to multimillion dollar properties.
And the first time homebuyers are always very fun. There’s like this different level of excitement around the first time homebuyer and there’s, a there’s a lot of pride in the education factor for the Realtors, like our team helps first time homebuyers all the time.
So, if you’re a first time homebuyer, want some more information about these accounts, we can direct you to some good tax people, because that’s not us. But we can definitely assist you in some cool properties around Greater Vancouver.
James: I mean the best part when it comes to first time homebuyers is when you help, when you see it 5-10 years later, when they sell and you see how much equity they gained. That’s a rewarding experience. In some markets had some good runs and there’s been some clients that have made some great gaines.
Also we do a lot of work in Port Moody and New Westminster which are prominent like they have a lot of condos in those markets, specifically in New West. And if you are looking for a lower price point condos, Burnaby, New West, Coquitlam, Port Moody those are markets we do a lot of work in and and I’d say particularly Coquitlam and New Westminster have some of the most affordable condos out there.
And if you’re wanting to go as far as Port Coquitlam, that Shaughnessy strip has a lot of wood frame post 2000 built apartments that are some of the most, like the most in-expensive rain-screened condos that you’ll find in the Lower Mainland.
Denny: That’s often a comment with younger people who maybe rent in Vancouver or live Downtown is well, what can you even get for 500k? And if you look outside of Vancouver, inside Vancouver proper, it’s very difficult. Here we kind of talked before we jumped on the podcast
James: A liability. I’m joking.
Denny: Exactly, you’re purchasing a liability. You’re buying a one bedroom condo in a 1990’s building that potentially needs some exterior work and a new roof in the next few years. And that’s exhausting and stressful to consider. But outside of Vancouver proper, New West has some great options under $500,000. Port Moody they’re few and far between today but there’s some right around that 500k mark. But PoCo has fantastic options and you can get basically a new condo built in the last five years, that looks very pretty. That is a lot bigger than what you get in Vancouver and you’re across the street from a park and walking to some cool amenities. Poco just keeps getting better and better every year. And that’s not going to slow down.
James: Let’s leave it at that. First time homebuyers. Good luck.
Denny: Let’s do it.
James: I hope you got some value out of this.