If there is one topic of conversation that seems to be popular with pretty much everyone, it’s real estate. Depending on what’s going on in the market, the tone of the conversation is different.
One thing that’s constant is the conversation always turning to the cost of real estate and how expensive it is to buy and sell homes.
In addition to the cost of the actual property, people will talk about land transfer taxes, legal fees, bank charges and realtor commissions.
Here’s a take on that topic that you may not have heard before.
With the growth in sales prices in the GTA being what it is, it’s pretty expensive to not buy a home.
You’ve probably heard that you need to stay at a property for at least five years before the property appreciation is such that you recover from the costs of buying and selling.
If you leave before five years, the conventional wisdom is that you’ll end up losing money. The costs of buying and selling will exceed what ever gain you realize from selling at a higher price than you bought.
So, does it still take five years to recover the costs of buying and selling?
Not even close.
The length of time ranges from between over five months to just over a year.
You read that right.
With sale price growth at what’s it been, it could take as little as 176 days to recover the costs of buying and selling. If you wait a couple of years, you should be laughing all the way to the bank.
Let’s break down the numbers for you.
Below are three tables that show the cost to buy, sell and recover those costs based on the average sale prices for the 4 main housing types in the GTA. We use the most recent year over year percentage change and apply that moving forward to see how long it takes to recover those costs.
The Costs of Buying
Above is the average sale price in the GTA as of June, 2016, for each type of the four major home types. For each type of home, we calculated the Ontario and Toronto land transfer taxes (LLT). If the home was not in the City of Toronto but somewhere in the 905 area code then the cost would be less. We plugged in an average cost for legal and bank fees and that gave us a total cost to buy.
The Costs of Selling
For this chart we use a sale price assuming that the year over year percentage change for each house type continues for the next year. It’s always a guess as to what will happen but we need to use a number and we are assuming the current trend continues. We calculated the commission for the listing brokerage and the buying brokerage at 2.5% for each and plugged in an average cost for legal and bank fees. This gave us a cost to sell for each home type.
Time to Sell?
This final chart takes the buying and selling costs and looks at how long it would take for each housing type to have appreciated enough to cover those costs. We use the same year over year percentage change and then compared the total costs from buying and selling we need to recover against the dollar growth on average. Divide those two and we get the number of days or months before the property appreciation covers the transaction costs.
While it was pretty clear that the rate the market was appreciating meant people could sell quicker and still make money, it was surprising at how quickly you can recover the transaction costs in this market.
With the highest average price and highest average price increase, detached homes are the quickest to recover their costs, with less than half a year needed.
Semi-detached homes aren’t far behind at about 7 months and townhouses are also quick to recover the costs at about 7 ½ months.
The much maligned condo apartments takes the longest to recover those costs but even then it is only a bit past a year before it happens.
We should point out that costs such as moving companies, home inspections and CMHC fees are not included in this analysis. They vary tremendously and aren’t always applicable to each situation. We also don’t include the principal repayment or conversely the interest paid in the analysis as again it varies for each home owner.
If you are pleasantly surprised at the information that you could sell sooner than you thought and still make money on the sale, then get in touch!
