Planning To Move: Buying Now or Upon Retirement?
One of the main factors affecting people’s decisions about moving houses is their place of employment. More specifically, many people decide to wait until they retire given the distance that they must travel to work. For instance, a person who lives in Mississauga but must drive to his job in Brampton still accepts it as a reasonable commute. However, if that same person wishes to purchase a home in Burlington, it is unlikely that the distance to work that will needed to be traveled daily is one that he can still accept. As a result, the decision to move to St. Catherines will be put off until retirement. However, if an individual still has 10 years until retirement, then waiting that long to purchase a home can prove to be quite costly . I had recently been working with clients from Mississauga that were trying to purchase a home in Wasaga Beach. A typical price range for the older bungalows in the Wasaga area are between $310,000 and $450,000 – which is considerably lower than the prices in GTA. These clients were planning to move right after selling their home in Mississauga for over $700,000 into the house they have bought for close to $400,000. The profit that they would have made from this transaction would then be allocated elsewhere, such as the investment in a second home that they could rent for an additional monthly income. Currently, the average price of rent even in small cities is between $1,600 and $2,500 a month – this is greater than the average amount people tend to get from their retirement plans while, at the same time, the house continues to grow in its value.
As I have mentioned before, imagine that an individual still has 10 years remaining until retirement. Assuming that the houses in Wasaga increase in their value at a rate of about 4% annually, after 10 years a home that is currently worth $400,000 will cost over 40% higher, which works out to be around $560,000. Herein lies the question – is it better to buy the house now or wait 10 years until retirement before making the purchase? The answer is rather clear. It is also worth noting that the house that the person owns in Toronto is also increasing in price. The average rate of annual increase in Metro is around 6%, so a house that is worth $700,000 will be worth 60% more within the next 10 years, which is equivalent to about $1,120,000. Assuming that the Toronto home is paid off, the difference between “typical downsizing”, which is when the house is bought right upon retirement, and “advanced downsizing”, which is when the house is bought 10 years earlier, is substantial. In this example, it is over $160,000, but it can be a lot more. A great advantage of this strategy is the fact that the house is being bought now when the price is considerably cheaper than it will be 10 years from now. This allows people to guarantee themselves a better purchasing price as well as a head start to when they move onto retirement. The second home, if it rented out, will be at least paid off in half by this time.
Why is it so important that we do not put off the decision to purchase a house? This is because prices of homes are increasing very fast, and this holds true for areas around Toronto. The prices in Brampton, for instance, experienced an annual increase of 20%. The same applies to Acton, Waterdown, and Erin. In fact, it may be shocking to believe but currently there are almost no homes below half a million dollars that can be found for sale that are worthy of any interest in these areas. As a result, prices are also beginning to grow abruptly in places such as Guelph, Waterloo, and Stoney Creek. Waiting to make the decision to buy a house really works at the disadvantage of homeowners and may prove to be a costly financial mistake.
If somebody has enough money to buy a second home, the person has 2 options:
1) The home can be rented out and thereby serve as an additional monthly income. This extra money can then be put towards other uses (such as vacations).
2) The home can also be bought in certain areas, such as Wasaga Beach, so that they can then serve as a family cottage but also be partly rented out to tourists during their visits.
From this arises another question: how can a person finance a second home? What about obtaining the second mortgage when not everybody has a large income? The solution to this problem is actually the simplest, under the condition that you have a good credit (over 600 beacon scores) as well as 20% down payment. Many banks have special programs for investors who are buying a second house. A individual’s personal “income” does not even have to be taken under consideration. If you buy a home now using the programs that I have mentioned, then there is a large chance that the house can already be payed off after 10-15 years, while at the same time be worth significantly more.
Therefore, if you are planning on moving or purchasing a second home, do not hesitate. The financial benefits are substantial and can greatly improve your quality of life now, as well as improve your standard of living upon retirement.