Gabriela has saved a ton of money living with her parents. Is the time right to buy or rent?

The 27-year-old teacher has saved up a lot of money and wants to take the next step, but doesn’t know whether she should rent or buy property.

“I want to move out ideally to my own purchased home or rent without a roommate,” Gabriela says. “But my goal is to purchase a home — or more likely a condo — in the next couple of years and I want to live in Parklawn/Mimico area. Somewhere near the lake.”

Gabriela makes $73,800 annually and an additional $5,700 for teaching summer school. She has maxed out her RRSP and TFSA and is close paying off the remaining $3,300 of her student debt.

Gabriela is good at saving where she can. She mostly eats at home, making sure to cook breakfast and lunch and rarely eats out during the day. On the weekend, she likes to drive to Toronto and go out for drinks and dinner once or twice with friends.

“I would like to know how to best allocate my money,” Gabriela says. “Should I take my money out of a TFSA to max out the First Home Savings Account (FHSA) when it becomes available at my bank?”

“Also, how much should I be saving each month for a down payment?” she wonders.

We asked Gabriela to track two weeks of spending to see what she can do.

Gabriela has maxed out her RRSP and her TFSA and has almost finished paying off her student debt. She lives at home rent-free and is saving a lot each month.

She hopes to move out and buy a condo or maybe just rent with a roommate. There is a big difference financially between those two choices though. I think anyone living at home with their parents should consider the cost of renting to quantify the benefit of living rent-free. A quick search of studio apartments in the Parkdale area where she is hoping to move start at about $1,650 plus utilities and 2-bedrooms she could share with a roommate start at $2,700.

So, she is probably saving at least $1,500 a month by living at home. That is close to $20,000 a year. She would need to earn more than $30,000 pre-tax to have $20,000 left over. So, though living at home may not be ideal for a lot of 20-something-year-olds, in Gabriela’s case, it is more than a $30,000 a year side hustle. Is it worth it?

Based on Gabriela’s income and down payment, she may be able to buy a place for up to $450,000 but then she would have no savings. Her mortgage payments could be about $2,000 a month plus condo fees, property taxes, insurance, and utilities on top of that. The challenge could be finding something for $450,000 in Parkdale. It is pretty unlikely right now.

So, I think she needs to keep on saving, and though she could afford to move out and rent, if she can hang on a bit longer in her parents’ house, she can save up that much more before moving out.

She mentions the potential of using her TFSA to fund contributions to a First Home Savings Account (FHSA). I think it is a good idea. She has no debt and she has a lot of savings and good cash flow. She can probably commit to funding the annual $8,000 maximum for the next 5 years to max out her FHSA’s lifetime contribution limit of $40,000. She will then have 15 years to buy a home to use the FHSA funds. In the meantime, they will grow tax free and her contributions will also save about 30 per cent tax at her level of income.

Gabriella is doing all the right things. She eats at home mostly, she spends modestly when she does go out with friends, and she has no debt. She lives below her means and is able to save each month. These are all things to strive for before moving out because if you cannot save $2,000 a month living at home with parents, you are probably going to be drawing down savings or going into debt once you move out.

“It is definitely useful to have those numbers written out to confirm that moving out in a couple of years will put me in a much better financial position than if I were to do it now,” she says.

Gabriela says she will max out her FHSA and continue saving until she has a larger down payment.

“I wasn’t sure if I could move TFSA funds to the FHSA so that is a huge benefit for saving money on taxes this year.”