THE 5 YEAR RULE FOR BUYING A HOUSE

Typically, a new buyer will enter the market and buy a one-bedroom condo because that is what they can afford and they are still single. However, as they get into relationships and their family grows, they start considering upgrading to a bigger unit. This itch to upgrade tends to come around the 3-year mark. Many also assume that buying is ALWAYS the right thing to do instead of renting, but that’s not always the case.  With this three-year itch in mind, I will cover how you lose money when you get this itch!

So, the 5-year rule means you should intend to stay in your purchased property for at least five years. Here is why:

1. CLOSING COSTS (E.g. legal fees, disbursements)
• You would also do an adjustment and a lawyer or notary would handle the discharge from your name on your title.
• These charges can go up to a few thousand dollars $$$.
2. MORTGAGE COSTS
• When people take out a mortgage, the longer you term, the better your rate will be. If you have a 5-year mortgage, you may have signed the contract without reading the fine print that says breaking the mortgage before a five-year term results in a 3-month penalty. 
• So, when you decide to move after 3 years, you have to pay this penalty. Though your mortgage decreases interest over the years as you stay longer in the property, the interest penalty is quite a big chunk of money nonetheless.

HOW TO DEFEAT THE 5 YEAR RULE

1. Usually a mortgage broker will give you the top end of what you can afford, but that does not mean you should buy in the top end of your range. If possible, in your current market environment, buy in the lower range! That way, you can save more money, and use that saved money to make extra payments on your mortgage. So, if you sell in three years, you can come out a little more ahead, and defeat the 5-year rule!
2. Turn the property into a rental! Some buy and intend to stay, but then circumstances change and they cannot stay a full five years anymore. So, if you’re buying a condo, make sure that the condo is rentable (check rules, regulations, and strata bylaws), and if you’re buying a house, make sure you have a good neighborhood and can get rent pay high enough to cover a good chunk of your mortgage rate.

HERE IS A GO-TO FORMULA TO DECIDE IF YOU SHOULD RENT OR BUY

Let's pretend you already own a property. Now, add up the following: 

• the commission

• the purchase price

• any maintenance you’ve done on the property

• any interest on the mortgage you have already paid

• the investment gain on the down payment

• any property taxes

• closing costs

Finally, subtract the selling price. You should now have either a positive or negative number.

If its lower than what you would have paid for rent, go for it! BUY! But if you end up spending more for buying than renting, and you’re only there for three years, just rent!

On the flipside, sometimes people do plan to live there for five years, but circumstances change and they have to sell quick! So here is...

HOW TO SELL FAST

1. Get an Appraisal
• It's not just getting a realtor to come out and give an appraisal, there are actual appraisal companies that banks use to appraise properties. Realtors use market evaluation, and that’s based on market statistics ONLY. Appraisers tend to go more in detail and are more conservative with their appraisals. You may ask, why would you want to be conservative? WELL, you want to...
2. Sell BELOW Market Value 
• In short, to sell quick, you need an attractive price, which means a lower price.
3. Declutter 
• We have some pretty small condos in Vancouver. Make sure to show someone the potential of the rooms, by making it look airy and clean. No cluttering!
4. Pick an Experienced Agent
• Especially if you are anxious to sell in our difficult real estate market. People sometimes pick agents with similar listings to yours. DO NOT DO THIS! It is very difficult for an agent to push people to look specifically at your listing when they have another five identical listings! Pick an agent that will treat your property like the unique property it is! 
5. Give the Agent More Commission
• When we’re in a tough market, its supernatural to start holding back and wanting to save money. DON’T DO IT! Your property is your biggest asset, you want to make as much as you can! So make sure to invest and further incentivize the person marketing it with commission (note that the average commission is 5-6%)!