# Sit tight or trade up?



## Munns (Aug 2, 2010)

Hi,

I'm constantly grappling with a real estate debate and would welcome any input.

-I live in Montreal, neighbourhood in transition. Mortgage of $330K remaining on a property valued somewhere around $750K in the current market. Property is a duplex, my family in a 2 story townhouse-type dwelling, tenant paying $1250 for a 2 bedroom flat.

We have 2 young kids, preschoolers. Love the upscale neighbourhood nearby with great amenities, proximity to downtown and a bit more peace & quiet than our current area, which is quite densely populated with some real 'characters' for lack of a better term. The type of single family dwelling we would like runs about $850K, with property taxes around double what we currently pay.

Question: Is it worth it to trade up (for quality of life), or are we better enjoying the lower housing cost and take in the nicer neighbourhood at a distance?


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## Four Pillars (Apr 5, 2009)

No clue.

In financial terms, you will likely net $700k for your current house which implies an eventual mortgage of $480k, which of course means a larger mortgage payment.

As you mention, the taxes are higher. Will the new $850k house need money? How will all this fit in your budget? 

If it will be a strain, then your net benefit of moving will probably not be very high and perhaps negative.

If you can afford the move fairly easily, then it might warrant more consideration.


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## andrewf (Mar 1, 2010)

The main consideration is the transaction costs. Ideally you give as little money as possible to RE agents.


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## MoneyGal (Apr 24, 2009)

andrewf said:


> The main consideration is the transaction costs. Ideally you give as little money as possible to RE agents.


Well, and also the PV of the higher taxes. Over a lifetime of ownership, it's worth comparing the cost of the taxes in your current house with the cost of taxes in the new house - a doubling of taxes is a pretty high new cost.


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## andrewf (Mar 1, 2010)

I see that as a consumption decision. OP didn't say how much taxes were, so it is hard to put a doubling in cost in perspective. On the other hand, moving will cost the OP ~$40,000.


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## NotMe (Jan 10, 2011)

I think this is a good example of where math and logic meet real life. We don't know income, or capacity for this type of mortgage - ie if the mortgage + new taxes + the costs of renovating (there's always renovating) is going to be a strain or not.

Personally, and I'm a father, I'd rather live in a nice area than a not so nice area while my children are young and impressionable, and not move when they're 17. However, that said, I'd rather not live in a nice area that I can't afford either as I don't think this serves them well either. 

What I would not try to do, personally, is try to time the market. But that's just me.


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## Plugging Along (Jan 3, 2011)

This is only partially a numbers decision, and primarily a lifestyle decision. If your sole goal is to maximize networth (which I have a feeling it isn’t), then it’s not really a finance calculation. I would guess that in the long run after you’ve paid out everything, you would have been further ahead financially by staying. The numbers come into play to determine if you can afford the larger mortgage, transactions cost, additional cost of a larger place rather than as an investment. The question really depends on can you afford the extra cost, and what you gain by moving to another neighbour is it worth the additional costs.


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## the-royal-mail (Dec 11, 2009)

Densely populated with some real characters? What does that mean exactly? Criminals? Party animals? University students covered in tattoos? Panhandlers?


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## humble_pie (Jun 7, 2009)

taking a guess here, but i believe i have an inkling where you're living now & where you want to live. If it's the area i'm thinking of, the juxtaposition between an affluent muni & a neighbourhood full of drugs, prostitution, transients, crime & other problems located right on its border is most unusual.

the answer is far more than dollars & cents. You can't "enjoy" the life of the affluent neighbourhood by making sporadic visits.

it'll be your childrens' lives. Who they'll go to school with. Who they'll play with on the street. Which neighbourhood kids will run in & out of your house, all day long, year round. Who they'll see every day in the parks, in the sports teams after school, in the library. How they'll grow up.

a key part of the decision could be whether the children will attend public school or private school. If private school, that is where they will make their friends, so staying where you are right now could become more attractive on the weighing scale. There are plenty of children from all over montreal who commute to the private schools by public transit every day.

another key aspect will be the loss of the 1250/month rental income which you presently receive from renting the apartment in your duplex. You mention you'd purchase a single family dwelling, so that rental income will vanish. Coupled with the increased real estate taxes in the other neighbourhood, the financial burden could be heavy.


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## Munns (Aug 2, 2010)

Thanks for your replies everyone, I appreciate the input.

We could afford the increased mortgage payments and property taxes, but would definitely feel the squeeze, which leads me to lean towards staying put (in addition to the headache of selling/moving/transfer & moving costs). The loss of the rental income is also hard to say goodbye to. We are in the nicest section of the neighbourhood in question, and enjoy easy access to public transportation, good restaurants and other urban amenities all within easy walking distance. The eldest has just started school and we did opt for private and are happy with our choice.

We don't live in the thick of the sketchiness (panhandlers, crack houses etc...), but nevertheless are reminded of its proximity on a regular basis. The population density and the heavy traffic are also a minus. The kids are still small, but I think ahead to an age where thy will ride bikes and want to walk to a friend's house or go to the corner store on their own and am not convinced that I could let them do so with confidence. This is a big source of my interest/motivation in trading up. 

I'm pragmatic/frugal by nature and have a hard time 'paying for convenience' or 'investing in a lifestyle', but now that kids are in the picture, I am more inclined to see it as an enhancement of their quality of life, which makes seems like a worthwhile investment.


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## the-royal-mail (Dec 11, 2009)

Thanks for clarifying. Yes, quality of living is HUGE. In fact, that's the #1 thing I look for when choosing where to live. It must be a good neighborhood where I can feel safe and meets my many other criteria. And these criteria change regularly. It's hard to go wrong when moving to improve the quality of life for you and your family. As long as you can afford it, that is.

Let us know what you decide to do?


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## Plugging Along (Jan 3, 2011)

Another option I’m not sure if you’ve considered or if it’s been mentioned is to see if you can find a less expensive house in the nicer area. You would still get all the benefits of living in the area, without as much of a financial burden on having the larger house. I’ve always been told it’s always better to have the smallest house on the street vs the bigger in terms of resale value.


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## K-133 (Apr 30, 2010)

I'd create a weighted analysis. Very simple, and quite effective.

-1- List the attributes of a home that are most important to you (neighbourhood 'feel', safety, size, yard, price, carrying costs, etc...)

-2- Count them all up, multiply that number by 10 and then distribute those 'points' among each of the attributes.

-3- Rate on a scale of 1 to 10 each of your attributes for the property/ies you are looking at. In your case, I'd rate your current home, your trade-up and I'd find another less expensive option to grade as well.

-4- For each property multiply your rating by point value you applied to each attribute for a weighted rating of each attribute against each property.

-5- Sum up the total weighted attribute for each property and you have a numerical representation of you feel overall about each option taking many factors into consideration.

The highest rank won't necessarily be your number one choice, but your number one choice will be fairly clear when looking at it all.


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## balk (Dec 6, 2010)

As a fellow Montrealer, I am curious which neighbourhoods you are talking about. I just bought a condo in NDG over other areas (Verdun, Pointe-St-Charles, St-Henri) because the schools are much better here and the neighbourhood is more family oriented. However, I would have been happy in the other areas before a child was in the picture.


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## humble_pie (Jun 7, 2009)

assuming i've guessed accurately at the 2 communities, perhaps a stay-put for the time being while doing more research into the impossible-to-quantify, ie the quality of life, would be in order ? you're in a nice section of the home neighbourhood, with sketchiness at a certain distance, so time is on your side.

i think that sending children to private school does liberate a family from having to urgently choose a residential neighbourhood. Such a family has got the luxury of choosing at their leisure.

through your eldest child's school, you will get to know families who already live in the affluent community. You probably already know such families. How are these doing. You'll probably find, for example, that many don't allow their kids to walk very far in the AC, even though it might be safer than your own.

can you take your youngsters to the children's library in the AC (if it's the one i'm thinking of), take note of the many events for children that are held there such as parties, clown visits, theatrical events, contests, etc, as well as taking them to play in the parks.

as for bikes, i do know families everywhere, in all the core urban neighbourhoods, that won't allow their young children to bike in the streets. Because far too many drivers, everywhere, are dangerous.

meanwhile, in your home neighbourhood, how are parents of older kids managing. Are the children able to play outside in the street, field hockey, soccer, skateboard, for example, if the street is quiet enough. Are the teens able to go out on their own in the evenings, when it's dark, by walking to the nearest public transit stops. Are they safe enough coming home (for that matter, are you, the parents, safe enough coming home via public transport late in the evening.)

lastly, if it's the affluent community i'm thinking of, there are actually duplexes in it, on the lower levels. It might take time to find one you like, but these properties do exist & they do turn up for sale from time to time. There are even properties with rentable residential coachhouses in the back, along the laneways, although the legality of these is questionable.


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