# looking for my home buying plan feedback



## sandroid (Feb 15, 2014)

Hi all,

My wife and I have been trying to come up with a way forward to get us into home ownership. We've been married about a year and a half, and I'm getting antsy about throwing all this money into rent (currently $1300/mnth) when I can start acumulating equity in a home. The problem is, the homes that are at the intersection of our two wants currently are all >600k (here in Montreal anyway).

We're not keen on the starter/fixer home idea. That leaves me with an option of a duplex. Neither of us dreamed our "home" being a duplex, though again, my desire to get into home ownership has me opening my mind to far more than in the past. My view on it though is as follows - and I'd like to have people's opinions here on whether or not this is a good idea.

We have about 60-75K (range depends on if we get some help from family) for a down payment (other fees covered by other savings), and while a bank pre-approved us for 500K, I think that's nuts, and I don't want to expose myself to more than about 450K. The duplexes I'm looking at all generate about 850-1200$/mnth in rental income, but I've calculated a more conservative 750 in my scenario building.

If we work with the idea of a 5 year plan, where at the end of the 5 years we either move out and collect two incomes, or sell the duplex to improve our capital for a new home, does that sound realistic? The goal isn't to make money by depending on selling it for more than I paid, it's more to make my housing cost decrease such that at least part will return to me. The amortization schedule shows that if nothing else, I'll have increased equity by nearly 70K in 5 years based on a 450k mortgage. Over and above that, the rental income will, using the 750/mnth number from above would mostly offset the increase in housing costs going from rental to ownership. This means we will be able to continue saving a little (and yes, we're disciplined ).

The conservative numbers I'm using, in 5 years:
Equity: ~60K + 60K initial down payment (disregarding additional cost as well as change in value of property)
Savings: 25K

With this plan (clearly I'm summarizing it here), the goal is to be able to put 140-150K down on my next home, if I sell the duplex,or only ~85K, but keep the duplex and have two rental incomes from it. If I'm lucky enough to turn a profit on the home, even better (though I'm not holding my breath for that).

Thoughts?


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## Just a Guy (Mar 27, 2012)

Your ignoring the costs associated with selling the property. Assuming no gain, you can assume to pay $19,250 in realtor fees, a couple grand in legal fees, maintenance, insurance, taxes for 5 years...all of which are covered by your rent. 

The other thing to factor in is that your 60-75k down payment isn't earning you any ROI, it's dead money insurance for your bank.

Most home owners ignore all these costs and assume they are making profits when, in reality, real estate usually only breaks even for the first 5-7 years if you sell.


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## rikk (May 28, 2012)

Fwiw ... you're not throwing away $1300 in rent ... my home costs me ~$1000/month taxes/hydro/water/gas/insurance ... just saying maybe renting and saving/investing/whatever towards that $600K home you want may not be as expensive a "plan" as you think ...


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## richard (Jun 20, 2013)

If you get a $450k mortgage you'll start out throwing away $1467/month in interest. Then you throw away another $350-700/month in property taxes, depending on your local rates. Add in $400-800/month for repairs and $100-200/month for insurance. Don't forget to get a plunger after you've flushed away all that money - plumbers can be expensive  Altogether you would need to put in an average of $3214 - $4064/month. It might be easier to save while renting.


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## PerfectElement (May 22, 2013)

Just a Guy said:


> ...you can assume to pay $19,250 in realtor fees...


Or you can buy/sell it without a realtor (comfree.com or similar), like I did. 

When I sold my house I realized that it would take me almost 2 months of work to make the 18k I would spend with a realtor. Which was completely unacceptable to me. It took me 1 week to do my homework and learn how to sell at a good price. I had 10+ realtors calling me every day, trying to convince me to hire them. Some of them said that I was asking too much and would not be able to sell it by myself. Well, after 2 weeks on the market I had 2 buyers bidding on it and got 100% of the asking price.


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## Just a Guy (Mar 27, 2012)

Yes, it's true you can sell without a realtor, I've done it myself as well...however, I know many more people who've tried it and wound up paying for comfree and a realtor after because it didn't work for them (so they lost their fees and time as well as the commission). Not everyone can sell. Also, your market is smaller, not as many people look on the comfree stuff as it's more work. As an investor, and he wanted to sell this as a rental property, I rarely look at comfree stuff as I find it overpriced and it's more work. No one I know who buys rentals looks at comfree or similar stuff very often. Then again I wouldn't buy a property for $450k that would generate only $1,500/month either as an investor, even at the high end prediction of $2,400 is doesn't have any appeal.

Also, I would point out that you probably sold at a lower price as the buyer would have some expectation on profiting from the commission free nature.

Anyway, my point was more real estate is a long term investment, not good for short term profits. Yes, there are exceptions, but generally you make your profits in the long term.


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## marina628 (Dec 14, 2010)

I would not recommend this action plan ,no point in buying soemthing you don't want and only plan to keep for 5 years.Keep renting and saving.


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## Cal (Jun 17, 2009)

The other thing to consider when 'throwing away money' on rent, is what does it cost to buy vs rent the same property. 

In some instances the monthly rent can be far less than the monthly costs to buy (especially when the lost growth of your down payment is factored in), so in those instances, continue to rent, and save/invest the difference and wait for a better buying opportunity.


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## balexis (Apr 4, 2009)

> Over and above that, the rental income will, using the 750/mnth number from above would mostly offset the increase in housing costs going from rental to ownership.


Don't forget that this is taxable income. Of course there are quite a few deductions that can offset part of this, but it won't ever be a net 750$ in your pockets every month.


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## Pluto (Sep 12, 2013)

sandroid said:


> Hi all,
> 
> My wife and I have been trying to come up with a way forward to get us into home ownership. We've been married about a year and a half, and I'm getting antsy about throwing all this money into rent (currently $1300/mnth) when I can start acumulating equity in a home. The problem is, the homes that are at the intersection of our two wants currently are all >600k (here in Montreal anyway).
> 
> ...


1. If you live in the house, and rent out less than 50%, you get a tax fee capital gain on any profit when you sell.
2. The % of the property you rent out is a tax deduction from income: for example, if you rent out 45% of the property, then 45% of the mortgage interest is a tax deductible expense, as well as 45% of other expenses. 

It is not necessarily a bad idea. You get in the housing market as an owner, you increase your income, and you get experience as a landlord, and homeowner. You can't put a price on experience. To me it is a good plan.


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## Arshes76 (Jul 5, 2013)

Pluto said:


> 1. If you live in the house, and rent out less than 50%, you get a tax fee capital gain on any profit when you sell.
> 2. The % of the property you rent out is a tax deduction from income: for example, if you rent out 45% of the property, then 45% of the mortgage interest is a tax deductible expense, as well as 45% of other expenses.
> 
> It is not necessarily a bad idea. You get in the housing market as an owner, you increase your income, and you get experience as a landlord, and homeowner. You can't put a price on experience. To me it is a good plan.


Wether or not u pay capital gains tax on the rental portion isn't dependant on the %, it's dependent on how separate and independent it is for from the primary. Renting out a room keeps your home the same. Purchasing a duplex, you essentially buying 2 properties one residence one rental. You'll have to pay capital gains tax on the sale of the rental, assuming there's growth. And I think that's a big if...


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