The topic of conversation at the local restaurant this week was the hot real estate market. One fella was trying to convince a few of his friends to buy a bigger, better residence. His pitch was just how easy it was to keep their modest residence and rent it out, draw equity against it to put as a down payment, and finance the new residence for the balance. He was saying that the tenant was paying for his mortgage on the old residence and he got to write-off the mortgage payments as a real estate venture. In a few years, with interest rates as low as they are, he would have accumulated equity from the principal pay down on both his houses. If he stays where he is, he will never be able to write off anything.

There are a few flaws in actual fact and his way of thinking . If you decide to rent out your present house, any equity you draw from the rental house to add as down payment on your new house is not tax deductible! The rent payment is fully taxable. You may write-off the interest on the old mortgage, but none of the principal. You may also write off the cost of property management, up-keep, insurance, water, etc. You are fully responsible for mortgages you may have on that unit, and on the new unit. How much expertise do you possess in dealing with tenants? There are also some qualifying glitches. On your new mortgage application, you should declare the other house costs, and of course the rental income. Most lending institutions will take the rental income, discount it by up to half, then add that income to your gross income then only allow for 40% of that amount for carrying on the two houses, heat, light, insurance, water, etc., any other loans outstanding, and repayment on credit cards as if your had run them up to the limit. Very few people can qualify under those constraints.

So if we don’t rent out our present unit, what should we do? Ideally, you should sell your present unit, take the cash equity and place it all as a down payment on the new unit. Pundits ponder over the old "chicken or the egg syndrome." If we sell our place in a month or two, then we have a very short time to buy a new place, but if we haven’t sold our present place, we can’t go shopping for a new place. What a quandary!

If you are really looking at moving up, there exists a whole market looking at moving down. Some empty nesters (kids grown up and gone) are indeed looking to move to smaller premises, with less upkeep, less taxes, less mortgage payments! Would it not be wonderful to meet up with these people and introduce them to one another and kill two birds with one stone. Well, maybe you can. You can eliminate the guesswork on selling before you buy or vice versa by selling and buying at the same time. Let’s pretend for the sake of argument that I want to sell my condo to move up to a newer, bigger unit. What is the problem with asking the Vendor of the newer, bigger unit to trade houses with you. If you buy his/her house at $150,000, will he/she buy your condo from you for $75,000. I know if I were to attempt to sell my house, I would gladly buy the purchaser’s cheaper unit, if it enabled me to sell my bigger house faster. If I did not want the smaller unit, after I bought it, I certainly could turn around & sell it quickly, seeing as there are more people that would qualify for the lower priced unit than the higher priced unit. Larger market share should mean quicker results. Real Estate Agents may work harder finding you a bigger unit, if they know ahead of time that they’ll get a new listing (your old unit) and a quick sale (if they sell to the Vendor of the new unit). For the Consumer, it probably means a reduced tariff or commission for the Agent, since it was all a package deal.