Looking for an outsider opinion

[muireach]

My fiance and I (both 29 yo) are in a bit of a tough situation right now. We are absolutely the definition of Analysis Paralysis right now. So any and all outsider opinions will be must appreciated (good or bad).

We have been looking for a house for over a year now in Calgary. I currently own my townhome and we were forced to renew for another 5 years since we could not find a home last year. We do desire to keep it long term as a rental property for long term investment but we are really struggling to find a home that we like in our budget. We were hoping to stay under 600K but it seems like the homes we like right now are going for 630K - 680K.

We plan to stay in Calgary and essentially buy a home as a casket (forever home lol). We are struggling with the idea of "relying" on rental income for a pre-approval. We are pre-approved the following (90K down payment): 625K or 725K with rental income at 2.69%. Here are the details about us:

1. Combined Taxable Income ~ 153K plus a taxable bonus of ~10K a year
2. My Fiance is contributing 6% of his earnings to an RSP with company matching - Total value ~ 45K
3. I am contributing 4% of my earnings to my company pension with company matching (7 years employed) - Total Value ~ 25K
4. Cars/Student Loans are paid in full - no other debt other than my mortgage
5. 55K in my fiance's TFSA (20K for downpayment)
6. 70K in savings (all for down payment)
7. Townhouse is worth 300K with ~50K in equity
8. 30K in stocks available through my Employee Purchase Plan (all available to pull at any time)
9. With the townhouse, we are able to still save minimum 4K a month when we are budgeting and inflation factored in.

The way our budget breaks down with paying both the townhouse and the new home, the most we can comfortably afford is 600K.

The rental market here seems to be pretty scarce right now so that is a plus for us - with other similar units (2 Master Beds + 2.5 Baths, Double Attached Garage, Updated) it is very clear we can rent out the townhouse for ~1800/month not including utilities with a yearly lease.

What the struggle is is that we feel like if we rely on rental income, we may be pushing ourselves to a limit that may become unmanageable for us IF something goes wrong. This feels like a HUGE financial risk for us since we are both very mindful about our finances and want to have flexibility for trips, emergencies, etc. I would like to go on mat leave in the next couple years. We also want to get married next summer (Budget is 15K or less). New factors that are still unknown:

1. Will need to pay a tenant insurance for the rental and pay home insurance for the new home
2. Utilities for a bigger home (approx 2200 sq ft is desired) should be about $600/mo
3. Upgrades that will need to be done to the townhouse over time
4. Cost for first child and second child in 2-3 years from now

We are by NO means complaining about what has been preapproved for us, we are very grateful to be able to buy a second property but are we being over cautious? With inflation and rising costs for housing in general, it's hard to justify being "reckless" or having a "we will figure it out" attitude.

ALL opinions are welcome.

TLDR: My fiancé and I want to get married, buy a house and have a kids in the next 1-3 years. We are both already starting to save for retirement and financially savvy. We want to buy a home for around 630-680K - own a townhome and want to keep it as a rental. We are preapproved for 625K or 725K with rental income included. We are reluctant on depending on rental income, despite the scarcity of rentals right now (plus for us). Are we being too cautious with finances at 29 yo?

 

[jesuslover20021234]

@muireach I don't understand with "relying on rental income" for preapproval. Maybe not answer to your question but I'll just add my thoughts:

Like Vancouver, Toronto, then Ottawa, Montreal and Calgary will be next for the housing price boom. Gas will eventually boom again. So keeping the townhouse as rental will be a long term investment and diversify your portfolio.

I wouldn't consider rental property income as a positive cash flow opportunity (at least before retirement). Rental property pays off the mortgage, builds equity (then you can borrow against for other uses or investment).

You will end up paying income tax from the rental, so may end up paying a bit extra out of pocket each year. but do consider it as your long term investment contribution.