Math help Needed : GTA Property Questions

[frugalamber]

We are at a stage where we are looking for another real estate investment as part of our portfolio. Some details:
Our RRSP, RESP and TFSA contribution rooms are full along with Taxable savings. We have a house with a market value (based on neighboring comps) is $700k. The mortgage on the same is around $250k. We are in the house for 6 years and love the location and neighborhood.

This market has been pretty crazy last 5-6 years. last year onwards, there was a up of 17% and going up. The spring market was super-hot.

With all this background, my question is (couple of options):
1. Going for new property for $800 k with possession around 2018 +:
 Some friends who have done a similar thing, of buying a new property in Jan 2015, have already seen an appreciation of $150K even before possession in this July 2016. So even without moving into the house, their return have been huge. So in there initial investment of approx $10,000 the return is huge. To be fair this house is close to 1 million CAD.

2. Buying an old Investment property of $700k-$800k in or near Toronto:
Toronto market is moving very fast and most basic of the houses are going for 30+ bids and almost $200k on top of asking price. As per hubby, this will need approx. $140k investment from us (have this cash ready), and we can re-sell in 2-3 years with this market and may end up with $100k profit in few years.

3. Moving into the new or investment house and rent the current one:
We are looking into a rent of approx $2000 plus utilities and our mortgage plus property tax per month is: $1800. hence very slight positive without taking into account that the house may sit empty a bit between tenants.

Other details:
Our Income :  $175k yearly + bonus (approx. $25k) - Gross
Our Expenses (all in) : $80k
Saving: Everything else

Can one of the property gurus's help us with the pros and cons. Did i miss something obvious? Does the math work for any of the above options?

[Eggman111]

Past performance does not guarantee future results. I would be wary of getting into the real estate market in cities like Toronto and Vancouver that are going up that quickly. Eventually, something will give. When, is anyone's guess, but do you want to be holding the bag when it does?

There is a tax advantage to moving into a house and fixing it up, then selling it after at least a year, but that's a difficult lifestyle. It sounds like you have things going well anyway, and if you want more investments, why not keep adding to your taxable savings?

In terms of numbers adding up, buying a house as an investment depends heavily on the appreciation in this case, which could easily go negative in the near future. If price to rent ratios were lower and you could get cash flow, then that would help with the risk, but it doesn't look like that's the case.

Also, always remember the opportunity cost of the money sitting in the property. That could be working hard giving you interest, dividends, and appreciating in a balanced portfolio.

Sent from my Nexus 5 using Tapatalk

[Gerard]

3. Moving into the new or investment house and rent the current one:
We are looking into a rent of approx $2000 plus utilities and our mortgage plus property tax per month is: $1800. hence very slight positive without taking into account that the house may sit empty a bit between tenants.

Including repairs and insurance in your calculations, you're looking at a monthly loss, even with 100% occupancy. All while your personal living expenses go up, thanks to the big mortgage on the new place.

And I think this approach leads to a messy tax situation if/when you sell the old house, as it's unclear when it stops being your principal residence (talk to a tax lawyer and/or accountant about deemed disposals). Also, you would only be able to claim the teeny mortgage interest on your old house against your rental income, while you'd be paying much more mortgage interest on the new house you were living in, with no tax benefit.

If you're sold on real estate and convinced prices can only go up, might you be better off staying in your current house, using it to get a big-ass HELOC, and using that for a big down payment (and repair/renovation fund) on an investment property?