You’re Doing It Wrong, Part II

Our guest blogger Jason was very kind to continue his story about home ownership (and toilets!). Enjoy the rest

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So back in 2011 while on vacation in Berlin Germany, I had the brilliant idea of bringing a toilet back home to Ottawa with me in my checked luggage.

And the best part – actually verifying if my bragging were in any way accurate or truthful turned out to be very difficult. Well, it would have been difficult had I not blogged about every single aspect of the project in nauseating detail. And if you’d read my posts, you would have realized that I didn’t really save any money at all – and if you included the amount of time I invested, the project was actually a huge loss.

And so are all the stories you hear about people who bought low and sold high. Don’t get seduced by claims of “I bought for $400K and I sold for $500K – I made a cool hundred grand, tax free.” It’s important to understand that you almost never hear about the failures – the ones who were forced to sell at a loss. People usually talk up their wins and downplay their losses. On top of that, there are so many variables it’s almost impossible for any homeowner to know how much of a profit or loss they actually made. This is problem.

However you look at homeownership – as purely an investment, a means of forced savings, a retirement plan, a place to crash / IKEA nest / raise a family – it’s imperative that you get yourself into a position where you actually KNOW (not think you know) how much you stand to gain or lose in the transaction.

Here’s a useful exercise. See if you can compile a list of all the variables / factors that you would need to take into account when deciding to buy a house. Start with the easy ones – your income, expenses, downpayment, mortgage rate, etc, and then work up to the harder ones – cost of selling at year N, how much you would have made (at year N) had you invested your downpayment in the markets, etc.

You don’t have to build a spreadsheet around them, just see if you can get them all. It’s actually quite difficult.

See you again in 2017!