Is there a bigger wealth destroyer than selling and buying houses? The transaction costs will kill you every time. “You are depleting your wealth with every move,” says Vince Gaetano, a principal at Monster Mortgage.
Just to be clear, we are not talking about people who fix homes themselves, live in them and then flip them. That’s still the best deal in town and about the only way not to pay any tax on your labour because principal residences are exempt from capital gains taxes.
A 2010 survey by Toronto-Dominion Bank found 16% of Canadian repeat home buyers planned to move because they were “bored” with their home. The bank did the same survey again in 2011 and found 42% of respondents were moving sooner than they expected. The Canadian Association of Accredited Mortgage Professional estimates the average Canadian will own 4.5 to 5.5 homes in their lifetime.
My question is why? Part of it no doubt is the flawed thinking that the move is not costing them anything because the value of their home went up so they are still in money. Click here to view the full article.
Every time you sell your house and buy another, you incur huge transaction costs: selling commission (+HST), land transfer tax (Provincial + Toronto), legal fees and moving costs. If you move too soon, you can easily spend a very large fraction of the increase in value of the home since you bought it.
Certainly, it makes sense to move as infrequently as possible during your lifetime, so you can enjoy as much of the increase in equity over time as you can. For most people, though, that’s easier said than done. For example, most young couples just starting out are doing well if they can afford to buy a condo or a small house; and inevitably they will need more space as their family grows. The alternative is to save and save until they have enough to afford a larger home that they can grow into and keep for many years; the problem is that most cannot save fast enough to keep up with increasing house prices and so end up losing even more than if they bought twice during the same time period.
The answer is to recognize that a certain amount of serial moving is unavoidable (and in fact desirable), and to do the best you can on each purchase to buy a home that you can live in as long as possible.