Next month I’ll be moving to a new home. It’s an exciting time for my family, but it comes with a lot of work, and of course, money.
The new house is a bit of an upgrade from my existing home. On this blog I’ve always preached trying to keep a low cost of living overhead, so what gives?
First off, Mrs. WBR and I may start a family down the road in the not so distant future. I can recall growing up in a safe neighbourhood with lots of room to play in the backyard. It would be extremely important for me to provide a similar experience for my kids. While I do think my existing place by no means would be unsafe or spacious enough for a child or two, the new one really fits this bill for us.
The housing market in my city has appreciated approximately 5%-7% in the last 10 years. Using the rule of 72, that means housing prices have almost doubled over the last decade. (I don’t know exactly what the figures would be Toronto or Vancouver, but I’m certain the rate is much higher). Given the developments where I live I would suspect housing prices will continue to rise, albeit probably not at the same rate. I got the feeling I would be kicking myself down the road if I waited to upgrade given the current market conditions.
I was chatting with my parents about their first few houses and moves (which they did over 5 times before I was born!) and they made a killing off of turning over these properties – all of which is TAX FREE! A lot of it had to do with good timing in respect to the markets but I don’t think this is a rare situation.
One of the main reasons they profited so well was their ability to sell their homes independently. The average commission on the sale of a house is approximately 5%, which eats in big time to any profit on the appreciation of a house. You would also have to factor in the cost of buying a new home to replace the one you sold, all of which reduces your profit.
For example, suppose you bought a place for $100,000 and over five years the house appreciated to $125,000 at which point you sold it (5% annual increase). After that, you turned around and bought a $200,000 home. Here’s roughly how the numbers would work out:
So what originally looked like a $25k profit is only actually around half of that after you factor everything in. (I haven’t considered mortgage interest and mortgage payout penalties into this to keep it simple). Just like any investment typically it’s the transaction fees that eat into profit.
Selling a home yourself is no easy feat, and there are agents out there that are worth every cent of their commission since they can often help you negotiate a higher selling price and gain your property market exposure.
Ultimately, the decision to move was a lifestyle choice, and we are looking forward to the new place!by