Should I purchase my primary residence in cash?

Question

I may move from canada in 3-5 years. I have about 700k in savings. I don't like renting in apt buildings or plexes where the noise level drives me insane. I am thinking of moving out of Toronto into the boonies somewhere like London and buy a house for about $250k max, live in it for 3-5 years then when ready to leave canada sell it, or turn it into a rental property. Only problem is I don't know if it takes like over a year to sell a house in those boonie areas compared to Toronto where you can sell a house in a day.

I don't know if I loose any tax benefits if I purchase the house all in cash or not. I have the cash to buy outright for 250k, but should I do it? since I never will have cash flow from  living in it as I am not going to rent out any of it while living in it, I want peace and quiet. So all I will loose is the property taxes and home insurance and utilities I presume and a bit of upkeep.

Then maybe in 3-5 years I can sell it for hopefully a small profit that may have equalled what I would have rented a house for instead minus a bit due to having to pay property tax and upkeep.

I don't like the idea of loosing money in interest when buying with a mortgage, but if it has tax or other benefits which would make the mortage interest basically nullified then I may consider getting a mortgage.

I would be a first time home buyer as well if that would make any difference when buying all in cash vs getting my first ever mortgage in Ontario.

Thanks

Lou Davis · Answer

Hi everyone, thanks for the ideas. I wasgoing over the basics of this to myself to seewhat the gains and losses might be say over3 years, buying for self use, renting for self usethen later renting out for self income. Please giveideas as I never did this kind of thing before.

Option 1) buying in cash for self use 3 year cost/gainGainsestimated 2% property value gain per year on $200,000 (cash cost of house) = $12000losseshouse insurance per year $1000 = $3000property tax $2000 = $6000heat and water = 700/year average = $2100 lossupkeep of house = $3000 (3 years)total loss =  -$2100 (3 years) ------------------------------------------------Option 2) renting an apt/house for self use 3 year costGains $150/m maybe on $200,000 bank interest gain = $5,400 (3 years)Losses$1000 per month = $12,000 = $36000 (3 years) (no heat and water costs, no home insurance, no property tax though)total loss =  - $31600 (3 years)-------------Option 3) investing to rent out house entirelyprice of home $200,000   gain $12,000 rent per year at $1000/m = $36,000$12,000 % increase per year value = $36,000(at estimated 2% value per year increase)

lossinsurance per year $1000 = $3000property tax $2000 = $6000 (3 years)

$150/m maybe on $200,000 bank interest gain = $5,400 (3 years)

heat and water = 700/year = $2100 loss (3 years)

upkeep of house = $3000  (3 years)

total potential gain $72,000 over 3 years - $19,500 losses Total gain =  +$52,500 (gain in 3 years)

--------------------------------------------------I never really realized there was such a difference. I have always beenlazy and liked the idea of renting from someone for the peace of mind tonot have to think about bills and idiotic year long leases which I absolutelydespise dealing with so I refuse and just rent from hotel like places insteadwho don't demand to know every detail about your private net worth whichI will to the death refuse to give publicly to anyone.Of course you wouldn't get all that $52,500 gain for renting out after income tax butstill, that is making me think of buying 2 now. Even if I buy only one and never rent out I am still not loosing anywhere near as if I rented just for the convenience of not having to do a few things a year like pay the property taxes, utilities, insurance, etc. I would notgo greedy with the rent, just something to be reasonable.  I was getting tired of my even 1.5% interest at the credit unionso I think this is a better option, to buy cheaper places and rentthem, it will give me a lot more than leaving it in the credit unionand is a whole lot less stressful than dealing with the stock marketwhich I was looking into for a long time but think it is too rigged for now. So I think my answer is that I will buy IN CASH outright. If I put iton a mortgage while still living in it it would make no point, I would loosemore than my $1000 in total per year on the mortgage interest rates. It only makes sense to mortgage if you have renters I am seeing sinceyou need a whole lot more cash flow to cover the mortgage interest ratesand if you are just living in a house without renting out at least part ofit you are always leeching cash.

Samuel Sedore · Answer

I have a colleague who is an investment realtor in London. London is not the boonies,,,, its a pretty big city, but property there if priced competitively will sell in less than 60 days.

Appreciation is about in line with the Canadian average at 2-3%, half of what you would see my or your current markets. But still better then most cities as the cheap home prices drive growth through affordability.

Claude Boiron · Answer

Hi @Lou Davis.

As long as you work from home, or don't mind the commute, then I like your plan.

Selling Real Estate is about two things: Time, and money. If you're pressed for time, you sell for a little less. If you have time, then you can hold out for a higher price. As long as you don't buy a clunker, you should be fine selling within a reasonably amount of time (assuming the market is not completely out of whack).

If you have your own business, you can write off a portion of your home ownership costs if you have a home office (and some mortgage interest too). Consultant an accountant for details.

As a first time home buyer, you'll benefit from a reduction in the Land Transfer Tax you have to pay, but that is irrespective of whether you're paying cash, or buying with a mortgage.

Brandon Williams · Answer

I would say Buy it out right. live in it until your ready to move. if your near western university then you will be able to rent it out easily after you move out. I think London is only being 1.5% to 2% appreciation not sure check with your realtor for exact numbers. hope that helped in any way.