Are House Prices in Toronto Too High, Too Low or just right?
We must now all be asking ourselves "at what point should I sell my now overvalued home and take the money and run?". Leaving aside annoying details like children or quality of living how much money do we need to get to sell the house and live off the proceeds?
Number 1, all proceeds from the sale of your primary residence are completely tax-free. So the money, less over-inflated commissions is what you bank.
Number 2, what type of return can we expect on the proceeds once we have them and what degree of risk do we need to take?
Number 3, what stage in life are we at?
Number 4, where do we need to live/want to live?
Number 5, do we buy or rent and where?
Number 6, okay there are the kids to consider so that could mess all this up.
Number 7, could I sell to a rich Asian buyer and rent my own house back from them?
Some quick numbers. If you net $1m on your home after paying off your mortgage and earn 2% in a GIC that's $20,000 annually, fully taxable so not exactly a lottery win.
If you invest in solid dividend paying stocks you will pay less tax and perhaps earn as much as 4%, so $40,000 taxed at a better rate.
If you invest in certain corporate class mutual funds and earn a 4% yield you can actually pay very little tax because it's considered Return of Capital. This does dwindle down your Adjusted Cost Base but in the end you still only pay capital gains tax rates (after your dead too, so what do you care?!?). So this would provide about $40k a year, which in the GTA should cover a very nice rental property. You give up future gains on your home but you also will grow the investment as markets rise (long-term!!).
I'm still not completely convinced though. If the net total was $1.5m then suddenly we are talking $60k a year or $5000 per month in tax-efficient income to help cover the costs of rent. And don't forget now you've eliminated property taxes, up-keep, maybe maintenance and for sure worries about taking care of the house.
Oh yeah, but I still have two kids to worry about.
Just my opinion.