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In Need of Advice: Buying a House and Selling Ours to a Friend?

You know how it’s easy to look at another person’s situation and be emotionally removed from the decision making? I face that regularly as a financial coach. Money isn’t always about the numbers. There are strong psychological pulls that sometimes make it difficult when it comes to making our own financial decisions. While I can emotionally remove myself from someone else’s decision, I can’t always do that with my own. I suppose that’s also why lawyers don’t do their own wills and doctors go see someone else when they’re sick.

I’m also prone to over analyzing things and not one to make a big decision on the spur of the moment. I love helping other people process their financial decisions. When it comes to making my own, I occasionally get stuck.

This is a two part issue.

Part 1: Should we buy a house if we’re only going to live there for 5 years?

I live in a beautiful small town. I love it here. I’ve got friends and family nearby. My parents live close by and help out with baby-sitting. We live in a beautiful small house in a great neighborhood and the kids, one of whom has some special needs, are in a great school. If it were up to me I’d retire here.

Brian is in the last year of a PhD. I’ll be doing a happy dance when that’s over! He has been offered a 5 year contract in another city. It’s a great starting position and one from which he would like to transfer out of and into something different after the 5 years are over. The contract is in the Toronto area and frankly housing is WAY out of our price range for what he’d be making on a starting salary and I’m going to have to find a new job.

Our only hope would be to find a small townhouse in Pickering or Ajax and commute in from there. Neither one of us wants to live there long term. No offense to anyone who calls that area home. We just prefer smaller cities.

Renting a 3 bedroom place in the GTA is astronomical. Should we:

  1. Rent and live off the equity from selling our house?
  2. Buy a small townhouse outside the city limits at about the same price we could sell our house for?
  3. Stay here and have Brian rent a room in a house during the week and commute home on weekends?
  4. Other ideas you might have?

Part Two: If we did sell our house, should we sell it to a friend?

I’ve been doing some research on the pros and cons of using a real estate agent or selling privately. Just when I thought for our case we’d use an agent, because we want to sell quickly and it’s a ‘starter home’ my best friend approached us as asked if we’d consider selling privately to her.

There goes all the disadvantages to selling privately.

  • takes longer to sell
  • harder to advertise
  • can’t have it on www.mls.ca which is the #1 way Canadians find a new home
  • hosting your own open houses
  • negotiating yourself
  • difficult when selling a ‘starter home’. The seller pays all the real estate fees there there are few advantages to a first time buyer not using an agent.

Suddenly, if she can get the financing, we have a buyer without any of the hard work involved in selling our own home. We can split the savings on the real estate fees we didn’t pay, and both save money in the process.

Is selling to a friend or family member a good idea? Money and friends don’t usually mix but if we get the offer approved through lawyers and we’re both happy with the price, is it a wise move to make? Are there potential pitfalls we should be concerned about?

So, what are your thoughts, should we move and if we do, should we sell privately to a close friend?

Kathryn works in public relations and training for a non profit. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Her passions include personal finance and adult education. Kathryn, along with her husband and two children live in Ontario.

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About the author: Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

{ 68 comments… add one }
  • FrugalTrader FrugalTrader August 13, 2009, 9:17 am

    Kathryn, do you plan on returning to your town after the 5 year contract? If so, would you consider renting out your house instead of selling?

  • Kathryn August 13, 2009, 9:44 am

    FT: Good question. No, after his 5 year terms is up he is planning to apply for work elsewhere and we’d give preference to a city we liked but we won’t be moving back here afterwards. (There is nothing in his line of work here).

  • scrotzy August 13, 2009, 11:05 am

    Kathryn:
    Being in the business of real estate in the east end of the GTA I can tell you that I 100% recommend buying the property. Inventory of homes for sale is the lowest it has been in a handful of years and we are seeing the prices beginning to recover. Where I am the home prices are just cresting where they were in 2007 and there is nothing numbers wise that is looking to slow that. I am currently starving for more listings as everything is being sold in the first 2 weeks if it is priced right.

    Just my 2 cents!! Houses/ interest rates are cheap right now and both are on the rise!

  • DividendMan August 13, 2009, 11:07 am

    I would rent. But that’s me! It depends on what you value. I like renting not because I can’t buy a house, but because I don’t like the commitment of a house. I like the fact that I can pick up and leave if I get a better opportunity elsewhere.

    That being said, if you know you’re going to stay *for sure* in Toronto for 5 years, I would consider buying.

    Also, I’m not sure where you’re going in Toronto from Pickering, but traffic is brutal, so renting close to work could be better.

    As for selling to a friend, I don’t think there should be a problem so long as the buyer realizes you’re not going to do any more than a stranger seller after the close.

  • scrotzy August 13, 2009, 11:09 am

    Also if the buyer falls in your lap which we do see happen take advantage of it. Just make sure the price is 100% market value. Have some appraisals done because thats where the problem starts when someone gets the short end of the stick.

  • Mark Wolfinger August 13, 2009, 11:11 am

    My friend bought our house then and only then found out he could not get a loan. We trusted him to know if he was eligible. He didn’t even apologize. We had spent more than a year and several thousand dollars (not to mention the realtor’s time) searching diligently and all he could say was ‘cannot do it.’

    Long story short, we lost the home we bought when the deal to sell ours fell through.

    Sure there are advantages, but you may be receiving complains for the rest of your life on things that aren’t perfect with your former home. Tread warily.

    Mark

  • Sampson August 13, 2009, 11:17 am

    Being the over analyzing type, have you crunched the numbers and determined if there is a significant difference between renting and buying in the GTA area? I’m guessing lower property taxes in the outskirts will offset the increased commuting costs, but how do the house pricing vs. rental rates compare?

    One potential downside to selling to a friend is if they feel they’ve been deceived. You might think there’s absolutely nothing wrong with your home, but others opinions may differ and if they discover something they feel you didn’t disclose, for such a big purchase, there could be more than just hurt feelings.

  • Four Pillars August 13, 2009, 11:22 am

    Tough call on whether to buy/rent in TO. Personally I would say rent. Houses are much more expensive when you own them because you’ll want to paint, fix things up etc.

    What kind of rents have you seen in TO?

  • Gerry August 13, 2009, 11:28 am

    If you’re sure you’re only staying for 5 years, rent. Nevermind the advice of east-end realtor (how do they get paid anyway….?). The market will not appreciate significantly in 5 years, it’s way over-priced now. While “scrotzy” is right, interest rates will be rising soon, prices certainly won’t when the cost of a mortgage goes up.

    If you want to keep your friend, don’t sell them your house. Either sell it to someone else or think about trying to rent it out for a while. Your friend might be a candidate for renting (but it could end up worse than selling it to them). Mixing significant money (> $100) and friends rarely ends well.

  • scrotzy August 13, 2009, 11:42 am

    GERRY

  • scrotzy August 13, 2009, 11:50 am

    GERRY,

    Housing prices and the demand for housing is easily tracked with the listing vs. sale ratio which is best it has been. The fact that I get paid to sell houses in no way changes my opinion. When interest rate go down it brings down the prices of condo because of there main. fees. So what do you think happens when interest rate go up?

    Renting for 5 years is most likely going to cost $90,000 min. $1500 x 5 years.

    If i was going spend $90k to live for the next 5 years i would like to have some of that invested in some sort of vehicle even if it is my house.

  • Novice August 13, 2009, 11:53 am

    As a homeowner in Toronto proper (who’s father in law thinks we paid $200,000 too much for our house as a home in Ajax or Pickering would have been half of what we paid) I can’t tell you how important it is to take into account traffic. If you’ve lived most of your life in a small town, it may be difficult to factor just how exhausting a 3 hour daily commute is (1.5 hours each way – which is about right if you live in Pickering and commute to downtown TO, and that’s in summer. In Winter, add an hour. That’s 12 – 15 hours a week eaten up in a fairly stressful environment.

    My advice is simply rent something closer, if only for the fact that you don’t know the area. Then once you know the area, then you can make an informed choice. Traffic on weekends is very different from traffic on Mondays when the kids are back in school. You also don’t have to ‘rent’ for 5 years either. Rent for a year, see how it is and then go out and look. I don’t believe in timing the market, I believe in timing yourself and out of towners simply don’t understand Toronto the way you do when you live here.

    The other advice I can give is that Toronto is one large city but it’s better individual communities have a great sense of community and ‘smalltownness’ that might surprise you. One neighbour dropped cookies off on our second day, and in the winter another neighbour pulled my sportscar out of the snow with his truck.

    Seconded the advice above that when money and friends mix, usually you lose both.

  • Alexandra August 13, 2009, 12:07 pm

    I live in downtown Toronto, and I think you are right – homes are still outrageously overpriced here, and the recent market downturn has really not affected it much, especially when we are talking about 3 bedroom + homes right in the city.

    But I don’t think the rent prices are all that outrageous. You can probably rent something in the city for WAY less than if you bought something in the burbs. Just look for older homes (where the owners are not trying to cover the costs of buying an overpriced house). They do exist.

    The traffic in and out of the city each day is just brutal and it is well worth paying the monthly premium to rent something in the city. The difference in commute time can be as much as an hour (or more) each way in a car vs. 20 minutes or so using public transport. Your husband’s time is well worth the extra money you would save. And you could switch to a one-car or no-car situation (I don’t know what your car situation is like right now though). Living downtown enabled us to become a one-car family and the savings are pretty great. If your husband works at one of the Universities, public transportation would be a breeze.

    I would not have your husband live apart from the family and commute home every weekend…you can always make more money later but you can never get back the time you would lose as a family during the week when he is away.

    In the end, I guess the decision comes down to what you value most…time spent together as a family, or money.

  • Mike August 13, 2009, 12:10 pm

    Selling to a friend shouldn’t be a problem. Look at it this way, even if you went through an agent, your friend could still end up buying your house. Any emotional problems (hurt feelings, etc.) could still happen. In this way you’d end up losing thousands paying for the agent and your friend would still have the house.
    Like you mentioned, as long as you go through a lawyer for all the legal mumbo jumbo (which you would anyways with an agent), there shouldn’t be any surprises. You could probably find the offer documents that MLS uses (or find something similar) online and just make sure you have the financing condition in it.

    My two pennies.

  • Amit Kalia August 13, 2009, 12:13 pm

    Gerry, everyone; including realtors, have their opinion of markets. One should respects others opinion. You don’t have to agree with someone because you think differently. That’s why we come here and contribute our opinions.

    Below is my opinion about Kathryn’s situation:

    It might not make a financial sense to sell a home in a small town and buy a similar sized Toronto home or a home that is almost 65% more in price. Prices are at their peak, thanks to artificially adjusted interest rates by our banks. On top of that the shortage of listings (imbalance) is putting an upward pressure on prices. Once the interest rates start going up, you might see a reversal in prices or at least prices increase will coming to a halt.

    If you are planning to sell in the next five years, then not buying a house is a no brainer. Your buying cost can be approx. 2% and the selling cost is approx. 5%. You will end up spending at least 5% in the home improvements in next five years. Add all this and you will need 12% to breakeven. This means your property should appreciate at least 12.5% in the next five years.

    I will rent in a nice luxury condo building and keep $2,500 for my housing expenses and save on the interest portion of mortgage, property taxes, maintainence, utility costs etc.

    As far as selling a friend, it makes all the sense in the world. Have a meet lawyer draft a conditional agreement on home inspection and financing. Treat eachother as you will treat anyother buyer or seller in your situation. Save money.

    I am a westend Realtor.

    Have a nice day!

  • Alexandra August 13, 2009, 12:16 pm

    Novice – I second everything you said.

    scrotzy – I agree that it is hard to fathom paying $90,000 in five years to pay down someone else’s mortgage. But if Kathryn is wise (and I suspect she has a great head on her shoulders), she will take the difference between what she would pay in rent and what she would pay in a mortgage and all her other home costs, and invest that difference. In five years time she will have grown that money. If she bought, she would then have the headache of having to sell that house. It is VERY hard to make a profit off a house in just five years – property values just don’t appreciate quickly enough, and she will likely not have enough equity built up in the home to make it worth her while.

  • nobleea August 13, 2009, 12:48 pm

    scrotzy:
    “Inventory of homes for sale is the lowest it has been in a handful of years”
    Why would you recommend buying if inventory is at its lowest? That’s not terribly smart. Plus your rent numbers are off, but I would expect nothing less from a RE agent.

    Kathryn;

    I wouldn’t sell to a friend. Sell it on the market. Maybe rent it out until next spring, when pricing is seasonally strongest.
    I wouldn’t have a problem buying for 5 years. It’s a long time to spend in a rental if you’re not allowed to do anything to the place.

  • Kal August 13, 2009, 1:32 pm

    As for selling your home to a friend, I would not be too concerned about it. I would however, sit down with that friend and inform her how much you value your friendship. As such, inform her of any problems or issues with the home that you are aware of. I would also insist that she have a home inspection done. And, I would make it clear to her that once the sale has gone through that you do not want to hear about future problems with the house that my poke their nasty heads after the sale.

    I would not make any rash decisions about buying in the Toronto area as you do not know the area or the market. Therefore, I feel you would be wise to start out renting and invest your money from the sale of the home. You can always buy later – take your time and do your research once you’ve made the move. However, having said that, I am not a strong believer in long-term renting – I would eventually buy and start building equity. Although at this time your plan is to stay in the area for only 5-years, that plan may change and you could end up staying a lot longer.

  • Kathryn August 13, 2009, 1:45 pm

    Great replies so far. Thanks everyone for your input. I’ll send the link both to my friend for her thoughts and read over the comments with Brian.

    Other information:
    He’d be commuting to North York.
    We paid $188,000 for our house in 2004
    We owe $139,000
    We had our house valued at $245,000 which seems to be what this model goes for around here.
    We’d sell it to our friend for $240,000 if we sold privately because we’d be saving on the real estate fees.

    Paying $90,000 over 5 years to rent scares the daylights out of me. I hate the thought of a long commute and worry a bit with unemployment being at 10%, it may be more difficult for me to find work there.

    We’re going out for the day and won’t be back until tomorrow afternoon but I’ll check back when we get back and read every comment.

  • Alexandra August 13, 2009, 1:46 pm

    Kathryn, below is a link to a calculator that works out whether it is better to buy or rent. It is a US calculator, so you have to use the advanced options to remove the tax benefits they have for mortgages there.

    Anyways, having fooled around with it a bit myself, it becomes very clear that it takes quite a while for home ownership to be better financially than renting – definitely longer than just 5 years in almost any reasonable scenario I tried.

    Hope it helps!

    http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

  • Sarlock August 13, 2009, 1:58 pm

    Rent. Ignore the real estate pumpers, they are trying to keep an over-inflated real estate market alive before its inevitable crash.

    Real estate prices are more a function of interest rates than intrinsic value. Interest rates go down, prices go up. Likewise, interest rates go up, prices go down. Look at our interest rates today: does it look like there is much room for them to go down? How about up?

    GTA unemployment is around 10% range, the average Canadian is mired up to his neck in debt and yet real estate is at an all-time high? It doesn’t compute. It is only where it is because super cheap interest rates have staved off a real estate price collapse for a little bit longer… but it is coming and it is going to be a whopper. Do not be naive and think that what is happening across the border to the south will not happen here.

    What are the chances of GTA house prices going up anoter 20-30%? Almost nil. What are the chances of house prices dropping 20-30% (or more)? Much greater. Is renting for 5 years worth the security of knowing that you won’t lose a couple of hundred thousand dollars in equity if the real estate market does collapse (and I truly believe we are on the edge of the cliff). It could be 10-15 years before we see prices even return to where they are now.

    But don’t take it from me… have a read through what Garth Turner has to say about Canadian real estate:

    http://www.greaterfool.ca/

  • Sarlock August 13, 2009, 2:02 pm

    “Paying $90,000 over 5 years to rent scares the daylights out of me.”

    How about the thought of paying that much in interest to the bank and losing equity in your house as well?

    Don’t think of renting as throwing money away… housing costs money, whether it’s to a landlord, to the bank or just opportunity cost of having your equity locked up in your house. We’ve been through such an incredible run-up of real estate prices in the past decade that we have lost sight of what happened in the early 80’s when the last real estate bubble popped (and that one wasn’t nearly as big as this one is). Do you think the odds are high that we’re in for a crash in the next 5 years?

  • Gordon McCallum August 13, 2009, 2:15 pm

    Kathryn,

    One of the major disadvantages of selling privately, especially at the moment, is that many lenders have discontinued financing private sales. This is in response to the real estate and mortgage market challenges and a lot of fraud on private sales – especially those that don’t go through a private sale service like ComFree or Property Guys.

    Be prepared for your friend to have some challenges getting financing.

  • Alexandra August 13, 2009, 2:20 pm

    Kathryn says: “Paying $90,000 over 5 years to rent scares the daylights out of me”

    In the first five years of paying a mortgage, your payments will consist of about 98% interest to the bank and 2% principal. Whether you buy or rent, the truth of the matter is that in your situation, you are going to be paying living costs for someone else. To me it’s 6 of one or a half dozen of the other.

    Where the difference lies is in opportunity costs. If you tie up all your money in buying a home, you have little left over to invest with. You are taking a big risk in NOT diversifying by putting all your eggs in the “buy a home” basket, and praying that in five years the home will appreciate enough to cover the costs of buying it, insuring it, decorating and maintaining it, and then selling it again. Ouch. Not likely.

    If you rent, you can take the money you had in your home and invest it. You can also take the difference you save each month renting a home instead of owning one, and invest that too. Yes, there are risks here too – maybe the market will crash again. But if it does, the same aspects will affect the ability for you to sell your home at a profit, so I think this route is much safer in that you can mitigate some of the risk by allocating some of your purchases to bonds, and diversify as much as you can. If you want real estate exposure, buy some REITs.

  • Alexandra August 13, 2009, 2:22 pm

    22. Sarlock

    I swear I was writing my response before your got posted – you read my mind exactly!

  • Rob M August 13, 2009, 2:26 pm

    Rent for 6 months to a year, that will allow you to determine where you really want to live (ie. is the commute ok, neighbourhood right etc), you can’t really tell by visiting for a day or two when looking for a place.

    After that I would be looking at buying. By definition a landlord is looking to make a profit, and that profit comes from you. So your rent = MRTG + Prop Taxes + utilities(unless excluded from the rent) + maintenance costs + profit in the long run. While renting may seem cheaper when looked at simplistically, to get the same house in the same location it (in theory) will end up costing you more to rent.

    But if you are dead set on renting, and one of my units was in the TO area (which they aren’t) I’d be more than happy to make a profit renting to you.

  • radekrybs August 13, 2009, 2:36 pm

    Kathryn

    I have created a spreadsheet that tries to answer the BUY vs RENT question by comparing costs. I originally created it as part of a financial planning seminar series to educate new engineers at my work (I am a new engineer in training as well). You can email me at radekrybs@hotmail.com if you like and I will forward it to you.

    Cheers

  • Margarita August 13, 2009, 2:47 pm

    That’s an interesting dilemma you have about the house. I personally have never owned a house and wouldn’t be of much help. However if you buy a house for 5 years, the value might go up and you might actually be able to make some money off it. And if your planning on coming back to the wonderful neighborhood you live in now, selling or Renting the house to a friend would be a good option. My parents left a house in Israel when we came to the US and rented it out with the hoped of one day retiring there.

    Hope everything works out for you.

  • Four Pillars August 13, 2009, 2:57 pm

    Paying $90,000 over 5 years to rent scares the daylights out of me.

    Any cost accrued over a long time is a big scary number.

    How much interest will you pay over 5 years? How much property tax? House fixups, maintenance? How much will your buying (lawyer) costs and selling costs (realtor, lawyer) be?

    Add it up and you might find that the $90k number isn’t the only scary number.

    In my opinion it’s about risk as well as reward – what if the house you buy ends up being a lemon and needs a lot of work? Don’t think an inspection will turn up much. What if the market goes down? It wouldn’t take much of a downturn to lose a big chunk of your equity. It’s not unlike the stock market – investing for a short time period is risky although it can go either way for you.

    From your numbers it looks like you will put about $100k down on the new house – if you buy a house for $400k then your monthly payments (@4%) are $1572 (more or less). Total interest paid in the first 5 years = $55,000. Taxes will probably be $3000 per year (a guess) which is another $15000. If you sell the house through a realtor at 5% (plus GST) then that is another $21k (assuming no price change). Add another $2k for legal fees on both ends.

    Total so far? $93,000 and not a penny of that is going towards the principal.

    I’m not counting any kind of maintenance or improvements or fixes to the house.

    As was mentioned before – you need the market to go up about 10% to break even on the deal – you might do better than that…or you might not.

  • Alexandra August 13, 2009, 3:02 pm

    26. Rob M

    You are ignoring a key factor.

    Of course landlords are trying to make a profit.

    But any landlord who bought their property over 6 years ago payed SIGNIFICANTLY less then one who bought one later on. Their monthly costs are relatively small compared to the costs of buying a home now, and therefore, they don’t need to inflate their rents to cover the costs. They just need to offer the place at rents dictated by the markets, and they do just fine. I know, my husband and I own a rental property. Our rents are reasonable, and we are enjoying the monthly profits we make. The biggest factor that affects the profits a landlord can make is the purchase price of the home. It is unrealistic and misleading to assume that all purchase prices were inflated – quite a lot of landlords in Toronto exist who purchased their rental properties at reasonable prices and are seeing huge returns without having to resort to charging oversized rents.

    Kathryn has two choices – buy at what she knows are inflated prices, or rent and pay a more fair monthly rental fee. She does not have to rent a place if she thinks the rents are too much. There are plenty of rentals to choose from.

  • guinness416 August 13, 2009, 3:05 pm

    Others are more informed on the real estate thing than I am, but I’d vehemently argue against the long distance thing. We did that for a year when I moved from NYC ahead of my husband and it was brutal (and more expensive than you might think). Never again. Plus, he’ll be moving where the work is five years later anyway, and your kids will be five years more settled & less likely to want to leave – that’s why my cousins still live in Saskatchewan many years after their parents moved to NL!

    Also Novice above is right to mention the “city of neighbourhoods” thing. I was totally skeptical of that boast when I moved here, but it’s definitely true. If I were you I wouldn’t even be considering Pickering and the other burbs versus a few years getting to know Toronto as a family and living close to work.

  • cannon_fodder August 13, 2009, 4:29 pm

    Novice’ points were all good.

    I know from personal experience what it is like to by a home in the GTA East area (Markham) that had that nice smaller community feel. Sold it 5 years later for less than we paid for it even though we bought it when prices were going down.

    Commuting is difficult – a nightmare in the winter. I’d be looking to move where you are going to be close to the GO Train or public transit of that type. GO Trains are fantastic – I don’t know if you could move north of the GTA and get on a mainline then your husband hops on a subway or bus to work. It is a very stress free way to arrive and keeps your costs down.

    There are so many uncertainties even with your plan that I’d encourage you to get your head around the idea of “throwing away money” by renting. You are paying for shelter and likely paying more for shelter if you buy a home rather than renting. While everyone has mentioned the various financing and legal costs, there is also the fact that most people tend to want to own something nicer (and thus more expensive) than something they rent.

    Another option if you feel more secure with owning is to find a house with basement rental opportunities. If you are near one of the main arteries of the GO train or near a university you probably won’t have to work too hard to find a tenant. (And a university Masters or PhD student is probably more reliable than an undergrad.)

    There are some advantages to living in a big city – but it’s not for every one.

  • PaperChaser August 13, 2009, 6:32 pm

    Hey,
    I would say dont ever sell anything to your friend, cousin or family member. I sold a car to my friend once and it was the worst experience I ever had. He didnt have any knowledge about cars at all and he pretty much f*cked the car so bad that he could not pay for it so he was blaming me for selling him a crapy car. (excuse my language here) Now if we are talking about houses its a even bigger deal since people are going to live and sleep there. I would suggest not to sell it to a friend but if you are really 110% honest to him it might work. Good Luck my friends!
    Best Regards,
    Thomas

  • Gerry August 13, 2009, 6:34 pm

    Kathryn. If your friend is afraid of paying $90,000 in rent, how do they feel about paying up $70,000 to rent the money to buy the house? This assumes taking the current TD 5 year closed rate (5.85%), 25 year ammort on $250,000. Taking the current VRM rate (2.85%) results in about $30,000 in interest, but only if the VRM stays at 2.85%. It probably won’t

    Add to that $3,000 or so in property tax every year and other maintenance that will come up and they will spend no less than $45,000 on that house in the next 5 years (Interest, tax, maint.). Possibly more than $85,000. And then she’ll only be ahead if housing prices keep rising in the face of rising interest rates, continued unemployment, and higher taxes. Planning to sell the house in 5 years is, almost certainly, a losing proposition.

    I’m a home owner, free and clear. It took us a little over 10 years to pay for our house. Over that time the price rose from $290 to about $450k, but when we add up the interest, property tax, and maintenance we’ve done, we’re only ahead about $60,000. A good portion of that $60k would be burned up in commissions, fees, and taxes if we had to sell the house and move right now.

  • abc August 13, 2009, 7:02 pm

    I have lived in Toronto for over 20 years. I am not clear exactly where in Toronto your husband will be working but I do not recommend buying a house in Ajax or Pickering and commuting. It will cost you in some many ways:
    – time with your family
    – mileage on your car, maintenance
    – gas
    – health(!)

    Your 8 hour day can easily become 11hr or more. A number of studies attest to the issues above. We live in central Toronto and my husband works just inside Mississauga and it regularly takes him 1.5 hour to get home. Every road/highway is congested everyday, in every direction. Don’t think, oh, I’m going against the traffic so it won’t be too bad…there is no such thing anymore in Toronto.

    Not sure how many kids you have but is a 2-bedroom condo an option? My co-worker recently sold hers. They bought during a hot market (<2 yrs ago) and sold during the worst of this recession and still managed to make a small profit (my guess is $10k after you deduct every thing). It's not the 649 but they got their downpayment back +$10k.

    As for your second problem, don't sell to a friend unless you don't want to be friends anymore. Lots of things could happen to the house that is no fault of your own and your friend may logically know it is not your fault but in their heart, will resent you.

  • Sarlock August 13, 2009, 7:10 pm

    Does it seem wise to make a short term (5 years or less), leveraged investment in an asset that has been appreciating at an insane rate over the past 10 years? If someone asked me if they should borrow a huge sum and invest in the stock market for only a 5 year horizon, I’d tell them to give their head a shake and that they should go to the casino instead to make that kind of gamble. I’d say the risk of losing money is far greater than making money when looking at only a 5 year horizon. You have to count on a continued appreciation of real estate prices just to break even after all of the expenses involved. If prices stay static, which I think is a best case scenario, you will lose out compared to renting.

    We must remember: A home is a DEPRECIATING asset. The land it is built on may appreciate over time due to increased demand from a growing city, but the house itself is basically worthless after 75-100 years. Eliminate some of the demand (weak economy, higher interest rates, etc) and house prices plummet very quickly.

  • Saga August 13, 2009, 7:58 pm

    Hi Kathryn,

    You should look at all your options including purchasing an condo or townhouse or renting a townhouse or an apartment.

    Also if your husband is working in the north end of North York then it may be good idea to purchase home (semi) in southern Vaughn. It may be more expensive than Pickering but definitely better in every sense than (quality of the city and commuting time in your case). But make sure you’ve accessible public transit in your location, if your buying it in the burbs.

  • jesse August 14, 2009, 12:20 am

    If you do sell to a friend be sure to give them full disclosure about its condition and ensure the price paid is based upon comparable sales. You both save on Realtor commissions so I’d go for it in a heartbeat.

  • jesse August 14, 2009, 12:24 am

    Sarlock 36: I agree with you 100%. 5 years is a short time frame for ownership at high leverage levels. A rise in interest rates will wipe out any equity you may have had and even put you in the red. If you bought a long time ago and are laterally moving I don’t think it matters much how much you pay, though there is significant money on the table if you prefer renting.

  • wasintoronto August 14, 2009, 4:27 am

    First things first, Part 1 option 3 is a terrible idea. Do not even consider it. Unless it involves obscene amounts of money, this is a decision you will regret for the rest of your lives. Spending less time with your kids, especially when they are young, just to save a little money is a terrible idea.

    Anyways, I was in a similar situation to you. Moving to a new city, considering renting vs buying – except I did not need a mortgage. I was intent on purchasing, but I changed my mind after receiving some advice.

    Some things to consider

    -Contracts can be terminated. I do not mean this in a negative way, but that was a contributing reason why I choose not to buy property.

    -Do you know where you will work? Then you might have two commutes to worry about.

    -Pickering and Ajax are nice! But how well do you know the neighborhood you are moving into? How do you know you will want to live in that neighborhood for the next five years?

    Is renting for a year and then purchasing later on once you are more familiar with your day to day life an option? There might be a debate on which way real estate prices in the GTA area are headed, but absolutely no one thinks they will jump anytime soon.

    I have been renting my current place for six months now, and theres a good chance I may end up buying some property here. Sure I might have been building my equity during this time, I am very happy with my decision and have no doubt I made the right one for me.

  • Jane August 14, 2009, 6:07 am

    I don’t think it is advisable and wise decision to buy a house when you’re not staying there for a long period of time. Renting a place would be a wiser choice as of now. Thanks for sharing this.

  • Geoff August 14, 2009, 10:33 am

    Thanks Kathryn and all who responded for such an interesting and informative discussion! I’ve learned a great deal in 20 minutes of reading.

    I hail from a small, east coast city but purposefully chose to spend 5 years living in Toronto. Now back in my hometown, I am preparing to purchase my very first home (so, just learning about real estate) and may do so privately within my family, if the timing and numbers work out (it just makes good sense in my case). So – I’m no expert here, but have some thoughts that may prove relevant:

    1. Toronto is a fabulous city: full of life and vibrant communities. I am glad that I chose to see past the stigma and get to know it better. Aside from the air quality and overall busy-ness of it all, there is much to miss.

    My advice – get right into the heart of it and rent in a neighbourhood that suits your family lifestyle (schools, parks, etc.) and allows for easy access to public transit for your husband. You may even find a job where you could cycle to work (I actually sold my car and opted for bike/transit my entire time there). And, make sure to take advantage of the endless possibilities a city like Toronto has to offer for you and your kids – programs, community groups, events, facilities, etc.

    Bottom line: anything can happen after you make a leap like that, so why commit to a mortgage right away? Try it before you buy it. After all, you really need to be in Toronto for a little while before you know where you really want to be in Toronto.

    2. Regarding selling between friends, I am dismayed that so many have had (or would expect to have) terrible experiences. I guess it comes down to who your friends are and how well you honour and respect each other. I would hope (albeit, naively) that anyone selling their house to anyone else would be open, honest and respectful to the buyer, and the same in return.

    If you do an open, honest deal for mutual benefit, is that not the best possible route? If your friend were to come back and resent you for any shortcomings of the property that were beyond your knowing… is that the kind of friend you’d like to have anyway? Be fair. Be honest. Save some money.

    Most of all, good luck, and enjoy the journey! Sounds exciting and you’ve got it well thought out.

  • Alexandra August 14, 2009, 10:45 am

    Kathryn, would you consider renting instead of owning and in the five year interim invest in a ladder of investment-gauranteed GIC’s? This way your money is gauranteed to make a (small) profit, and becomes available to you as you need it to pay your rent. You pull everything out at the end of the five years to make it available if you want to buy somewhere for your husband’s next job.

    No risk to you, and even a small amount of extra interest on a good chunk of cash can become a pretty nice sum by the end of five years.

    But don’t be shocked if he gets an offer right here in Toronto – one of the advantages of a big city with three universities is that chances are, with the contacts he makes during his five-year term, he will have a job offer here at the end of the contract.

  • Novice August 14, 2009, 10:50 am

    One thing to note in these helpful comments is there’s a lot of local bias. What I mean by that is those who live in Toronto proper (like me) say live here. Those in Vaughan say live there. Those in Pickering who like it say live there. Just something to keep in mind. The great thing about the Toronto and the GTA is that there are lots of great places to live. But I think until you actually try out a few flavours and see which one you agree with best – renting gives you that flexibility.

    Note for outsiders: The GO Train has its disadvantages too — in winter it’s not super reliable, you are on a set schedule (my coworkers can’t leave a minute after 5pm to make their trains) if they don’t work at union station there’s a ttc pass to buy on top of the go train tickets, and the go train itself is not that cheap.

  • Novice August 14, 2009, 10:55 am

    Oh and I’d be very doubtful about taking any advice from Garth Turner. His prediction history is spotty, at best. Anyone making predictions is bound to be wrong to be fair, but he’s not exactly the Warren Buffet of predicting market behavior.

  • Rena August 14, 2009, 11:50 am

    My BIL teaches at a post secondary institution in Toronto and his family lives here in the Ottawa area. He has been able to arrange his schedule to have his courses all within a 3 day time frame (ie, one year it was Mon to Wed, another, tues to thurs). He takes the train down early in the morning or the night before. He only brings the car if there is something he needs to do. Since you are off usually most of the summer, he feels that he has the best of both. he works on the train and finds that during his time in TO he can work in a concentrated mode. He has 4 children (one left for University the other year) and that was a serious consideration in his decision to leave the family where it is. His wife was able to continue her parttime job and it has worked out well for the entire family. Perhaps later they will move but for the moment they are all happy with the way things are. This has allowed them all to continue in their schools, church and friends and also for the grandparents to continue to see them on a regular basis.

  • Four Pillars August 14, 2009, 12:12 pm

    Novice – I don’t think anybody is recommending T.O. because of local bias. She mentioned in the article that her husband’s job was in Toronto. Living anywhere else would imply a lengthy commute.

    She updated to say the job was in North York so maybe she can start her search near the job site and go outwards from there?

  • DAvid August 14, 2009, 12:22 pm

    Geoff touched on a point echoing my recollection of Toronto: in many ways it more a collection of villages than a big city. It is possible to live in Toronto as if in a small town, venturing forth to the big city things as you wish. Relatives of mine live in Weston, and have made most of their lives there. Their kids have spread a bit further, but most of their circle of friends, and the activities in which they engage are in and around Weston.

    I lived in two neighbourhoods in the city; the west end of Cabbagetown, and at King & Bathurst. We watched the Skydome being built as we walked around the neighbourhood, and the Queen St entertainment district was a few blocks away. The toughest part was walking past the two brewpubs on my way home each day!

    So, my advice would be to rent a place in the city until such time as you settle down. As stated elsewhere, any number of options could present themselves to you in the 5 years of your husband’s contract. You might even move to one of the small towns in Toronto!

    DAvid

  • rick August 14, 2009, 12:30 pm

    I would rent in Toronto. With historically low interest rates their prices are currently at all time highs. I believe the real estate bubble in Toronto has re-inflated and multiple bids resulting in prices over asking are happening despite the record job losses in southern Ontario. All of the goverment debt being incurred to finance stimulus money can only result in higher interest rates which will deflate the bubble over the next five years. If you buy in Toronto you will be buying near the peak. Check out greaterfool.ca for a bearish perspective on real estate that I think makes sense. In terms of selling to a friend I would only do that if I explained my own reasons why I thought housing prices are heading down and if they still want to buy I would tell them that I would be willing to sell at the appraised value.

  • Novice August 14, 2009, 12:46 pm

    Four pillars – my comment about local bias was based on the comments of fellow posters who preferred their corner of the GTA, not the originating question.

    Rick – I think multiple perspectives are very useful so do read greaterfool. However, it must be said that the central prediction Garth made — that Summer of 2009 real estate market will be the time of the crash — has instead turned out wrong. (Use the date function on his site to read his postings for August 2008). That’s not to say it might not happen in 2010, or 2011 or 2014 when the 5 year lockins are over, but Garth has managed to gloss entirely over that. For me, for a prediction to be useful, both the event and the ‘when’ have to be right. It’s not hard to predict that eventually house prices will fall, the timing has to be right too. After all, the sun will explode one day and all property will be worthless too…. ;)

  • Kathryn August 14, 2009, 4:42 pm

    This is a lot to think about. Thanks for posting your thoughts!

    More info: When we move our kids will be boy (age 12) and girl (age 10) so we are really looking at 3 bedroom places.

    I don’t know where I’d be working yet.

    So far the consensus seems to be ‘Don’t even think about living separately unless he can get his workweek down to 3 longer days” and “seriously consider renting if you are there for 5 years or less”.

  • Kathryn August 14, 2009, 4:48 pm

    P.S. Where do I look for rentals in Toronto? The newspaper? Is there a good website to look at for condo rentals?

  • Novice August 14, 2009, 5:02 pm

    Kathryn — the first thing to do is decide on a neighbourhood / location. Then probably a realtor may be a better option to find a lease, especailly since you’ll probably be on a time limit (I’m a dad, I know how it is). But if you’re looking at places in Ajax in the morning, Don Mills in the afternoon and Downtown in the evening, you’ll exhuast yourself.

  • Alexandra August 14, 2009, 5:09 pm

    Where do I look for rentals in Toronto? The newspaper? Is there a good website to look at for condo rentals?

    I would consider using a rental agent to look for you. Many get paid by the owner (I think the usual cost is a month’s rent), so the service would be free to you, and since you are out of town this could be a real time saver. You give them your requirements and they do all the leg work. There are too many rental units out there that are terrible, or the ads are misleading, etc.

    For the money and sheer square footage, I would also suggest that renting a home, not a condo, would be much better in your situation. Some of the newer condos are unbelievably small. Houses (especially the older ones) have the advantage of having way more space, perhaps a backyard, and you don’t have to worry about inflated rent prices to cover the condo maintainance fees (which are considerable in many cases).

  • Ms Save Money August 14, 2009, 7:49 pm

    Alexandra, – Why don’t you look at Craigslist.com?

    There should be plenty of posts on rentals.

    Good Luck!

  • Sarlock August 15, 2009, 1:28 am

    A rental agent is a great way to go. Rent a nice 3 bedroom home: If you’re going to rent for a good period of time, make it a place that you’ll call home and feel comfortable in. Explain what you want to your agent and he/she will help find the right fit for you and your family. We went with an agent (in Vancouver, BC) and found a nice, well-maintained 3 bedroom home for rent and were very happy there.

  • Rebecca August 15, 2009, 10:38 am

    Be careful of rental agencies. Make sure you understand the service that they provide. I went to one where i paid money only to get access to a phone number that just have automated recordings of various rental listing. I wasn’t as lucky to work with rental agencies like those in the posting above. Needless to say, I didn’t end up using it.

  • Kathryn August 15, 2009, 11:01 am

    Wow, Rebecca, that’s scary.

    Anyone know any reputable rental agents in the GTA who are paid by owners looking for tenants?

  • qmanrei August 15, 2009, 11:43 pm

    Funny enough – I rent out townhouses in Pickering, Ajax and Whitby. So if you are looking to rent feel free to contact me. I have a 3 Bedroom 1.5 Bathroom available for Sept. 1 across from the Pickering Town Centre – located off the 401 at Liverpool, and right by the Pickering Go Station. :)

    I’m biased towards purchasing Real Estate as you can tell. At the same time, I don’t believe buying Real Estate is for everyone at every time in a person’s life.

    I could give you many reasons why you should buy. I guess the big question is – are you looking for an investment or a place to call home. They may not be the same thing. Happy to help you out if you need some support.

  • Sarlock August 16, 2009, 2:16 am

    The good agents will expect a commission after finding you a place, not before. I paid $400 for mine only after we signed the rental agreement with the landlord.

  • Germack August 16, 2009, 12:24 pm

    Paying $90,000 over 5 years to rent scares the daylights out of me.

    I know it sounds scary, however a house of 400K would cost you much more in the long-term:

    Interest/Opportunity costs: 20K (~5%)
    Property tax: 4K
    Utilities: 3K
    Maintenance:3K
    Total: 30K per year or 150K in 5 years.

  • Alexandra August 17, 2009, 10:25 am

    Kristy Wellwood – kristywellwood@royallepage.ca. She helped several of my friends find rentals, and she is wonderful to work with.

  • Nathalie August 17, 2009, 4:40 pm

    Cost of rental: $1500/month + heat and hydro and water, phone etc
    Total cost of rental with water: $1600/month + heat/hydro phone etc.

    Cost of buying the house:
    (assuming house costs $250k and you put 90k down)
    Mortgage payment: $860/month (at five year fixed rate of 4.1%)
    Property Taxes: $300/month ($3600/year)
    Water: $100/month ($1200/year)
    Maintenance: $166/month ($2000/year)
    Insurance: $60/month ($720/year)

    Total cost per month: $1486/month + heat, hydro, phone etc..

    Looks like owning the house is slightly cheaper, most times when you rent an entire house you have to pay the water bill as well.

    I guess it depends on whether you think the market will go up or down over the next 5 years. Personally I would buy, you’re staying long enough to want to paint, make changes in the house etc and there are plenty of nice townhouses in your price range in the North York area. I would live close to husband’s work so he doesn’t miss your kids growing up also.

  • Novice August 17, 2009, 5:41 pm

    I think the numbers can be worked any way to show that any one decision is better financially then the other (rent or buy). To me, the biggest issue is that the poster doesn’t know the neighbourhoods, or what they want. Renting gives a way to taste the neighbourhood without fully committing and is really the most logical.

    Nathalie — where are you looking? Houses in my part of North York (Don mills) detached 3 bedroom start around $400K. Even a semi would be more than the 250 you have above, unless it’s North york as in Jane/Finch and even then, maybe not. You’re also ignoring all the home improvement costs, which the various housing bears are sure to mention. To me, it’s not about the numbers, i’ts about being able to make an informed choice and the poster doesn’t have enough information to make a truly informed choice yet.

  • Nathalie August 17, 2009, 5:57 pm

    I was looking at attached townhouses on mls.ca and found quite a few. (select the townhouse option, freehold so you get no condo fees, 3+ bedrooms)

    I had 2000/year for maintenance which is what we spent in our 40 year old home/year, now we live in a new home and it’s about 400/year only.

    Home improvements are optional so I didn’t include them, you can also spend more money on rentals if you want.. If you buy a house make sure it matches your needs so you don’t spend 20k on a new kitchen etc right away in my opinion.

  • Nathalie August 17, 2009, 6:07 pm

    Novice, never mind, I didn’t select freehold in my previous search, you are right there are much fewer freehold properties so you’d have to also include the condo fees making the owning of the townhouse about the same price as renting. But if you select house instead of townhouse there are some as well.

  • TheAutomatedMoneyMachine August 19, 2009, 12:04 pm

    I suggest to buy a house in Oct 09 to Mar. 09. That’s when there’s going to have distress in the housing market as the Stock market crashed again like last year. People will be in a depress mode that they are probably going to sell their homes in low value.

    The banks will have more incentive as the market will froze. So you locked in a low interest mortgage fix for a few years and sell it when the market improves in a few years.

  • Bruixa September 28, 2009, 1:38 pm

    I haven’t seen anyone take into account that if you move to be closer to your work, you can deduct all your moving expenses in your tax return, even the sales agent fee.
    Also, I have friends that live in Ajax and work downtown, take the GO and it only takes them 30 minutes, so I would buy there, something that you can put a big downpayment on and sell the house. With prices at a low level, there’s no where to go but up. Interest rates are very low, your husband is just starting out, so chances are his income will increase and you will be able to make lump sum payments on your mortgage. Buy something that’s not too old and have it inspected!

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