Should You Sell Your Home and Buy a Condo?
Monday Mar 02nd, 2020
- It's time to downsize or rightsize from a senior's perspective
-Don’t need the space
-Kids have moved out
-Tired of the upkeep (housework) and responsibilities involved in home maintenance
-Overwhelmed by the empty space and memories
- It's time for a lifestyle change
-You want to travel more
-Want more flexibility to come and go
- It's time to cash out
–withdraw the money sitting in the home
- Health limitations
-Too many stairs
- Want a fresh start
- Social pressures
-Your friends are moving to condos and traveling
-You want to join them
- You want to move closer to family
- Worried about unexpected expenses
-Furnace, roof, health etc...
- Your neighbourhood has changed and you don’t fit anymore
-mostly young families now
- Need to be closer to health care, hospitals, and amenities
-want to move in town
- Too expensive to live in the area
-property taxes, amenities, transportation costs
Most common reasons:
12. Dealing with downsizing from a financial perspective -Feeling like you need the money.
Consider looking at it differently from: “You need the cash” to “You need the cash flow”.
But, how do you get a cash flow?
Fact: Homes in the GTA are a rapidly increasing asset if not the best asset you own. So, hold on to this asset as long as you can. Look for alternatives to creating cash flow instead of selling your home.
- Your home equity can be used to solve your cash flow needs. Otherwise known as Heloc (Home Equity Line of Credit).
-It is a good time to take advantage since interest rates are low. (when you can borrow money, at very low rates, to invest it at much higher rates).
-Helocs allow you to pay the monthly interest only or ~ 3.5% interest (not the principle)
-Having $1,000 per month extra per month to assist your lifestyle would provide you with the cash flow you need.
Ex: Take $1,000 out of your house (via HELOC) per month, tax free or $12,000 per year.
Withdrawing $12,000 per year would cost you ~$30 per month in interest. Looking at is differently you pay $30 in order to receive $1,000 of extra income (cash in your pocket).
You will incur debt over time (the principle amount). And, this debt will continue to grow.
After 10 years, the total amount of interest you will pay is $20,000 and you would owe $120,000 on your house.
During that 10-year period, your house is also increasing in value. Historically in the GTA, the average home price increases 6% per year, using a long-term average.
in 10 years
The increase in your home value more than pays for the $140,000 amount you withdrew for your monthly withdrawals. ($120,000 principal + $20,000 interest payment in 10 years)
Advantages of using a HELOC
-Keep the home as an appreciating asset
-No need to move
-Taking advantage of a low interest environment (right now)
- Rent a Condo But Keep Your House
-Rent out your house to a tenant
-Move into a condo
-You keep the home as an appreciating asset
-Enjoy your new lifestyle as a renter
-Can travel, move to a different city or country for a short period of time
-Can move back into your home if you decide condo living is not for you
Ex: The rental amount from your house is the same or more than your condo rental
Why rent the condo as opposed to buying?
-Your single-family dwelling will appreciate higher than a condo property will (when looking at appreciation rates, over time, houses do better than condos)
- Air BnB your extra rooms in your house.
-Separate a large house, or one room of your house and put it up as a rental for specific dates or ongoing.
Ex: rent a room for $100 per night for 10 nights of the month (can provide $1000 per month).
- Condo “ize” your house
-Employ a professional to do your maintenance; snow plow, cut grass, gardening
-You pay a bit more each month to have maintenance services provided for you, which reduces your stress level
-Consider upgrading your appliances now to have a stress free home for the next 10 years.
Podcast by Andrew la Fleur for True Condos