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<\/a><\/p>\nPhoto: James Bombales<\/em><\/p>\n Looking to buy a home? Your realtor, mortgage broker, financial planner, Uncle Jon, the grocery store clerk and their hamster all want to know: how long do you plan to live there? Like fine wine in the cellar, when you own a home, you\u2019ll build equity \u2014 so long as you live in it for a while. Selling too soon can hurt your equity, or even leave you at a loss, depending on how the market is performing at the time of sale.<\/p>\n \u201cI believe that real estate is a good investment. The longer you hold it, the better it is,\u201d explains Jeanette Brox, a Toronto-based certified financial planner. \u201cStatistically, over the long run, people always make money in real estate. Where I get concerned is when my clients are going to invest in a property for a short period of time. It\u2019s important to always go in with eyes wide open and know your numbers.\u201d<\/p>\n Livabl spoke to the finance pro and Sean Cooper, a mortgage broker and the author of Burn Your Mortgage<\/em><\/a>, to help you navigate this daunting question \u2014 without having to peer into a crystal ball.<\/p>\n Photo: Marco Verch\u00a0<\/a><\/em><\/p>\n \u201cWhen I’m speaking with clients, I want to have an understanding of how long they’re going to stay in the property because the mortgage product they get really depends on how long they’re going to stay put,\u201d explains Cooper.<\/p>\n Many Canadians default to a five-year fixed rate mortgage, but if there\u2019s a possibility you may be moving on before then, the penalty for breaking the term can get costly. \u201cGoing for a variable mortgage can be a better option because you’ll only pay a three-month interest penalty,” says Cooper.<\/p>\n Say you unexpectedly have to move across the country to be closer to family \u2014 can you take your mortgage with you? With a portable mortgage, you can, but you have to read the fine print because a lot of lenders make it \u2018portable upon approval.\u2019 Meaning, it\u2019s their house too, and if they don\u2019t like your new pad across the country, they can say no. \u201cIt\u2019s important to always have an exit strategy,\u201d says Cooper. Put in the time \u2014 literally \u2014 to choose a mortgage plan that is right for you.<\/p>\n \u201cGenerally speaking, I would recommend that if someone is moving into a house they should aim to live there for at least five years,\u201d says Cooper. \u201cThe main reason is because of the transactional costs of real estate, which many people forget.\u201d<\/p>\n Every time you buy and sell a house, you face closing costs like the land-transfer tax, real estate lawyer fees, your realtor\u2019s commission and more.<\/p>\n\n \u201cTypically, those closing costs end up being between four and five percent of the property value,\u201d says Cooper. \u201cIt’s certainly not a drop in the bucket, so it\u2019s really important to factor it in.\u201d Cooper\u2019s mother recently moved from one condo to another and got dinged with a land transfer tax. \u201cIt wiped out a lot of her retirement savings,\u201d says Cooper.<\/p>\n And then the sheer effort of moving your stuff from one place to the next can get costly. Photo: James Bombales\u00a0<\/em><\/p>\n It\u2019s unlikely your first home will check every box on your list \u2014 and you don\u2019t need to stay there for two decades to make it a worthwhile investment. Buying and selling can be a good strategy to help you climb the property ladder \u2014 just remember, during the first few years of your mortgage, you\u2019ll mainly be paying off interest, instead of making a dent on the principal loan.<\/p>\n \u201cMortgages are front-loaded but the advantage of getting a property sooner rather than later is that you can build up equity and hopefully your wages and income will go up, too. So if you choose to move in five years, you can continue to move up in the real estate market,\u201d says Cooper.<\/p>\n Trading up is right for some people, in some markets \u2014 but others not so much, which is why Brox avoids making sweeping statements: \u201cYou have to look at the individual. If a young couple is starting out from a small condo and they want to grow a family and move to a bigger place, then yes, maybe.\u201d<\/p>\n Photo: James Bombales<\/em><\/p>\n If your home is your principal residence for every year you\u2019ve owned it, you do not have to pay tax on any capital gains from the sale.<\/p>\n When property flipping \u2014 buying and reselling homes in a short period of time for a profit \u2014 you have to report the money you make on all real estate transactions. Any profits are generally considered to be fully taxable as business income.<\/p>\n It\u2019s important to include taxation in your investment strategy. \u201cIt can really affect your rate of return,\u201d says Cooper. \u201cWhen it comes to profits on real estate, you want to make sure you’re filing taxes appropriately. You don’t want the CRA to come after you and say that you owe them money because you didn’t file your taxes properly.\u201d<\/p>\n<\/a><\/p>\nBefore you choose a mortgage plan, put in the time.<\/h2>\n
\r\n SEE ALSO:<\/span>A first-time homebuyer\u2019s guide to finding the right mortgage term and amortization period<\/a><\/strong>\r\n <\/div>\nDon\u2019t forget those pesky closing costs<\/h2>\n
\n\u201cPeople really have to cost things out,\u201d says Brox. Anytime there\u2019s a U-Haul in the driveway, prepare for a hefty price tag.<\/p>\n<\/a><\/p>\nTrading up every five years can be a good move. Sometimes.<\/h2>\n
<\/a><\/p>\nFlipping properties? Beware of the tax man.<\/h2>\n
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