Recently I've been receiving e-mails asking for advice on specific situations related to home buying and selling. I'm very reluctant to comment on these, I'm not a pro, have very little in the way of "real world" buying and selling experience, and I'm not a financial professional either. To put it bluntly, you should immediately dismiss anything with the appearance of advice on this blog as biased, unprofessional and unsolicited.
But it's fun to play with scenarios, no?
So let's do some of that now. Here's the situation:
Condo owner (family, 1 school-age child) with no mortgage and a current market value nearing $300K.
Pros: paid off, very convenient location to work and school
Cons: Getting small for family, want to be in a house, see the market falling soon
The question: should we sell our condo and rent our next home while waiting for the market to correct and then buy a house?
This is the classic sell high, buy low strategy question.
My initial thoughts were sure, why not? Put your money where your "mouth" is and act according to your beliefs/convictions about the market. But that is terrible advice. We need to crunch some numbers, right?
Now it gets really complicated. Where to rent, what to rent, how much to pay, for how long - these factors all eat into the sell high, buy low "profit."
The owners mentioned they'd be OK with renting a townhouse. I've made some assumptions here: namely that renting a 3 bedroom townhouse will cost about $1700/month, the owners would prefer to maintain their location or move to a neighbourhood where they maintain similar proximity to work/school and that if they are OK with renting a townhouse for a couple or three years, they will be OK with owning and living in it for 7 or 10.
There are a few townhouses for rent in Victoria right now. Not many, but I suspect the new demand isn't high for these kinds of rentals. There are also a few townhouses for sale in Victoria right now. Again not many, but enough to know that these folks won't likely get caught having to spend more than they'd want on one. I capped my search at $400K.
I'm assuming that the owned condo sells in the next 30 days and nets the family a minimum $250K after all fees etc are paid.
In the interest of brevity, let's say the family's options are:
- Sell the condo and rent a townhouse ($1700/month) while waiting for a buyer's market (let's say 20% price correction in median SFH home price $561K - 20% = $448K)
- Sell the condo and buy the townhouse (let's say $400K purchase price, $150K mortgage at 3.8% 5-year fixed 25 year amortization = $782 + $200 strata + $125 ppt = rounded up to $1200 to get an even number and include some maintenance $)
- Stay in the condo, wait until they feel the market has dropped far enough then sell the condo and buy their house [25% condo price drop ($210K), 20% SFH price drop ($448K) new mortgage of $225K]
When we get specific, we see exactly why there isn't a flood of listings by sellers looking to cash out at the peak and waiting to buy in the next trough. Personally, I'd be thinking about cashing out and moving to a city with a median house price of $250K so that I could pay cash for my "forever home." But that's just me. What would you do in this situation?