It’s a popular question I get asked these days. How do I cash out and take advantage of today’s real estate market conditions? I think it takes a fundamental shift in the way you envision your living space. Ultimately, in order to sell your home today, you will need to downsize your living space in some capacity. Is that a smaller house? A large condo? A triplex?
Let’s examine the smaller house option. Unfortunately, given the market conditions, a small livable house in the city of Toronto will still cost in the $1.2 mill to $1.3 mill range. It’s only worth it to downsize if your house is worth $2 million or more. Given the cost of real estate in the city, there are many houses worth more than $2 million.
Let’s look at the large condo. Let’s quantify a large condo as one with over 1,200 sq ft. So far in central Toronto in 2017, there have been 455 sales out of 3,653 condos that were over 1200 sq ft, which represents 12% of the market. The average price of these condos was $830,000. Clearly, condos with over 1200 square ft are in short supply. With an average cost of $830,000, it only makes sense to downsize if you can get over $1.3 mill for your house.
Lastly, let’s look at the Triplex. A triplex is a house with at least 3 kitchens. Each unit can vary in size from a 1 or 2 bedroom suite. There have been 466 sales of triplexes this year out of 6,418 houses sold in central Toronto. A triplex building could cost anywhere from $800,000 to $2mill+ depending on the property. The advantage with the triplex is that it allows you to downsize to the size of condo but also provides you with 2 consistent revenue streams.
The one thing we know about Toronto’s high housing prices is that there will always be people looking for rentals. So the rental units act as a guaranteed revenue stream of anywhere $2,000-$4,000/month, which translates to $24,000-$48,000/yr in income. Yes, you will pay taxes on that income. However, you will also gain additional write-offs from any work or repairs you have done to the property and your money will stay invested in the real estate market so that you can benefit from the market appreciation over the years.
I believe the triplex represents the best option out there for those looking to rightsize. Now you just have to find a decent one for sale.