Long Range Housing Plans

Following on from yesterday's comments, I am going to start working on a gradual retirement plan. I intend to write this plan in several parts. I want to talk about future expenses, timing, income from work during phased retirement, income from real estate holdings, housing/mortgage, income from investments, income from government sources, taxation, RRSP's, my corporation and more. I would like to come back to the topic of Monte Carlo simulation for testing the resilience of the plan, but for now I will do simple spreadsheet mathematics to make it run.

Today's topic is going to be housing. For as long as I am alive, I will require some manner of housing so it's a critical foundation for being able to retire. Currently, I have a $262,000 mortgage on a $466,000 house. My monthly payments are $1600, property taxes are $210, utility costs are about $350 in the winter, so I expect about $200 in the summer for a monthly average cost of $280. On the plus side, I have $1000 in income from my basement suite. The overall cost of housing for me right now is therefore $1090 per month or $13,080 per year.

I have about 4.5 years left on my current mortgage term, and for that time I anticipate maintaining the same living arrangements. After that, it gets trickier.

In the long term I don't want to be living with tenants under me. So I would like to be able to buy a second place for me and keep this one as a rental. This house has great potential for cash flow, but the problem is buying the other place and when I can afford to do that. And real estate is very pricey where I live, so I will need quite a bit of savings to make this work.

I would like to a find a smaller place, maybe even an apartment, and I would hope to spend about 25% less than what my current house is worth (the market should remain internally consistent even though I can't predict the actual prices). If rents remain strong, it is possible that I would be able to remortgage this place and withdraw enough for a down payment on another place while staying cash flow positive here. The problem that I see is that my personal costs may rise substantially under that scenario.

One solution that I am thinking of is to buy a second place as soon as I possibly can so that I can lock in at today's prices and rent it out to cover the mortgage. But even that is tricky with house prices so high - you need both a large down payment and high rents. (I wish I had been able to keep my old house when I bought this one... but that's another story.) Additionally, there is more work involved in managing a second property and I want to tread carefully there after my experiences with this one.

Hmmm...This planning stuff is tricky! I can see where I want to go, but I can't see the path to get there yet. I think that I will need to ruminate on this more tomorrow....

Today's billable hours: 4.5
Today's contracted hours: 3.0