There comes the day when you wake up knowing it’s time to move on. Maybe your family got larger, or opportunities emerged elsewhere – either way, you grew your investment, circumstances changed and you want to act. Now what? There are a few solid options for owners (that don’t all involve selling – I know, crazy to hear from a Realtor, right?!) that should be taken seriously depending on your lifestyle, financial circumstances and long-term real estate goals.
We’ve outlined it all here.
Use your Money to Make More Money; Equity Investing
To start, depending on how long you’ve owned your home (and how much of the mortgage has been paid-off) you’ve likely built-up a considerable amount of equity, in addition to the increase in value. This money is accessible to you in most circumstances, and can be used however you like. That being said, the optimal use of equity would be in a way that provides a higher return than the cost of borrowing, for example to purchase another property or renovate rather than an opulent vacation or new wardrobe.
In the past few years, with low interest rates and more flexible banking terms, refinancing your home has been easy and worthwhile. That being said, we are starting to experience more rigid banking regulations and, as the cost of borrowing increases, the profitability of re-financing decreases unless you can find a higher-return investment. In other words, if you can take advantage – do it sooner rather than later as indicators are pointing towards a shifting market and we’re unsure how this will affect bank’s willingness to lend.
Become a Landlord
If you are in a position to upsize and keep your starter-property, becoming a landlord is a great way to create a passive income source or at least break-even while paying down your mortgage and enjoying the benefits of appreciation.
There is a massive demand for rental housing in Toronto. Vacancy rates hover around 1.1% and, specifically in the downtown loft and condo market – multiple offers for leasing is commonplace. Alternative options like airbnb/short-term rentals can further increase your profitability depending on building regulations. The great thing about renting out a condo or loft is it’s generally fairly hands-off and with the competitive nature of the market, a landlord at times is presented with multiple viable candidates to choose from.
That being said, the reality of our marketplace for buyers is keeping two properties isn’t always an option, unless you’ve got a co-investor or experienced a substantial raise. If market rent in the area is less than the cost of your mortgage, property tax, maintenance fees etc. you could be looking at negative cash-flow monthly, plus you won’t be able to take full-advantage of the strong appreciation we’ve experienced the past ten years that can be put to good use, getting you out of your starter-home and into a bigger, more long-term property.
The Opportunity to Upgrade
Selling is the third and generally most viable option for many. If you’ve paid down a considerable portion of your mortgage, in addition to having gained a solid increase in value, this means a tidy profit for you. If you require less space, you have the opportunity to buy a new home that’s better suited and pocket the difference, or if you’re going in the reverse direction – you need something bigger – the same applies, but that profit can go to a larger down payment. This is a spot many homeowners are finding themselves in lately, now that we’re well into years of a booming Toronto real estate market.
There are plenty of things to keep in mind when going down this route (especially if it’s your first-time) so let’s look at what it’s like to sell.
Do I sell my home First or Buy First?
This depends on what you’re going to do in the meantime – and the conditions of the market can have a huge influence as well. If you’re willing to stay with mom and dad for a little while, and the market is looking kind of cool, you may want to sell as soon as possible, so that you can turn around and buy a better priced home at your convenience. On the other hand, if the market is red hot, you’ll want to consider buying quickly to secure something, avoid the price going past your threshold, and hold on to your home to eek out a bit more points on the value.
The closing process can generally be as quick as two weeks or as long as 120-days. If you’re depending on the profit of your sale for your purchase, you’re either better-off selling first and taking out a ‘bridge loan’ if necessary (depending on the closing period) whereby the bank loans you the funds required to close-on your purchase until the profit come-in from your sale.
Ultimately, the choice is yours and there are no hard and fast rules. But time in a hotel between homes, or the conditions of the market, can cost you a lot so be mindful of how you’re approaching the transition. You’ll also likely feel pressure to sell or buy in a certain time window, and this could have long term consequences on your purchase – like maybe you settled on the home instead of getting exactly what you wanted. Don’t let it come to that – plan accordingly.
Each move-up situation is different and based on market conditions in your area, saleability of your property, personal circumstances etc. there’s no one-size-fits-all option. This is where a skilled realtor comes in to guide you through the process to ensure you’re maximizing profit and minimizing risk and stress.
What will it cost?
If you want to squeeze-out the maximum value of your home, investing in the sale will make sure you do. If you’ve taken fantastic care of your home, and it’s a recent construction or received nice renovations over the years, you might not need to do more than tidy up. But if you haven’t been living there, or it’s been neglected, or it’s just getting long in the tooth, there’s work to be done. The home should look fantastic if you expect someone to put their life-savings in it, or at least it should look good enough that you would want to buy it.
That could mean repainting or refinishing certain areas, and if your furniture and fixings are beat up or outdated, they’re going to need replacing or at least in the case of the furniture – staging. Then you’re going to need to get photos of the place for the online listing – where 99% of buyers will come through. An effective agent will know how to advertise your place to the right people, so that your interest isn’t just tire kickers, but without the right marketing, you’re fighting an uphill battle.
Your agent won’t cost you anything up front, because they’re taking a commission from the sale. Industry standard is 5% and can fluctuate based on the cost of some of these services, so it pays to be picky about the right representation.
Here is a list of all the services and fees you’ll either need to pay, or should be considering, if you want to get the maximum value for your home:
Pre-listing home inspection
This is key to get an idea of what you’ll need as far as renovations or major areas that need addressing before you get too far into the process and take a huge hit to the value of the home. This can cost around $500, but may be included with your Agent’s services. This is generally for houses/townhomes, more rare in the condo/loft market.
Realtors will often have very strong connections for this service, and know what works in the eyes of a consumer. The gist is – staging companies bring in furniture to your place to make it ready for showing. They’re going to get a measure of the space and pair with some tasteful furniture to complete it. The selection will be targeted at your price point to make sure your home looks like it’s worth every penny. If your own furniture, or lack thereof, does not speak to the real value and liveability of the home, then it is highly recommended you consider staging. Because the next step depends on it entirely. This can cost you a bit and it’s all about short-term costs for long-term gain and a well presented home photographs better, leading to more interest online and more people through the door to maximize the competition and ultimately the selling price.
This is key to getting the right clientele. A picture is worth a thousand words, and it may be worth a few thousand dollars if it gets the right eye. You will not believe the amount of beautiful, great priced homes that get completely overlooked because the photos the owners or agents posted were simply subpar. They’re dark, or poorly composed, or the finishings in the photo were boring, brokedown or dirty. It’s a bad look, and it will cost you. Thankfully, your agent will often cover this too. But whether they do or not, make sure nobody is skimping.
Applicable in the condo/loft market – this can be sourced from property management and can take up to 10 days to arrive. The buyer’s lawyer will want to see this, as it assures the buyer of key details of the home – legally and financially. It’s a certificate to guarantee that there are no skeletons in their new closet. This will cost you about $100-$200.
You’re also going to need a lawyer, and they’re going to be preparing paperwork, verifying and transferring title and making sure nothing gets forgotten, essentially making sure you’re not liable for any surprises down the road. Depending on who you’re talking too, this can cost around $1000 or more.
This is a surprise for a lot of people, but if you read the fine print in your mortgage, you should know how to navigate it. Essentially, a mortgage agreement may include a penalty for selling a home that is still being paid for. Consult your bank or mortgage broker for the cost of any potential penalty or similar charge.
Outstanding property taxes, utilities or condo fees
These are required to be paid by the seller, and if they come around during the selling process, you’ll have to pay the prorated amount for the time the home was still in your possession. So put a little extra aside for any of these fees in that closing window.
There are a few other things to consider: The Land Transfer Tax is quite substantial, but this is paid for by the buyer, not the seller. Capital Gains Tax is also going to hit you at tax time, so keep that in mind. With proper planning, your profit should well outstrip your spending. If not, due to renos or other surprises, this should have been determined much earlier with the Pre-Listing Home Inspection, so worry not. Get a good agent, and they will not lead you astray.
So what’s going to cost you – besides these fees and services?
A home’s value is decided by many qualities but the number one factor is the market – you’ve heard it before and you’re going to keep hearing it. Toronto right now is still growing, and at the pace we’ve been growing the last few years, you’re going to be making a tidy profit. We’re still expecting growth in the market this year, if we aren’t also hit with a recession (that banks are, unfortunately, forecasting). This sort of uncertainty – strong trends up, and huge predictors down – are a reality of the stock market, and also the real estate market. What does this mean for you? Well, it means you have to decide for yourself what the best bet is for you based on your personal circumstances.
If you’re feeling ready to make a move, right now we continue to see strong sales and high prices in the loft/condo market, so selling now, or soon, may be the best decision. Uncertainty in our economic future in addition to rising interest rates are indicators of a potentially different real estate market in the next few years. This is about as straight as the answer gets. That being said, only you can decide the right time to sell your home.
Same goes for what time of year to sell. Every year when spring comes listings hit the market en masse and people are shopping. Fall is also a big time of year, people are eager to get into a new home just before Christmas. It also means competition is heavy. During the winter and summer seasons, listings die down and there is generally less to choose from, that being said at times less competition. There’s always more to the story and you need to pay attention, plan and part of this is getting the support of a skilled agent that will take on the ‘heavy-lifting’ and guide you through the process, making it effective and efficient.
Written by: Sarah Miskelly – Lead Sales Representative