Should I sell my rental property?

[West996]

Hello all,

I'm struggling with the decision to sell my rental property or not.

I bought the property 4 years ago (mortgage renewal about 15 months away). Property was purchased for about 200k, estimate for resale is 400-500k.

It is being rented for $1550 / month, utilities included. We cashflow about $200 a month.

Clearly the sale would out earn the rental cashflow, here are the things I am considering.

My wife and I currently rent a home in Toronto, this rental property is in a much different market (Chatham). Initially we considered this home a back up plan should it ever become unsustainable to live in Toronto. We can't move away yet though I would like to because we have to stay close to our daughter's Father. (I am her step-daughter). So our plan to move won't happen for at least 10 years.

Over that long of a time frame does anyone suspect that the housing market may change to an extent that I will regret not selling now when the market is crazy?

I don't have a great plan to invest this $300k profit, throw it into RRSP?

If I did decide to sell is it worth it from a tax perspective to ask the current tenants to leave and make this my principal residence for a year? I could live there every other week if I needed to. This would cost us $18,000 in lost rental income, but would potentially net positive in capital gains savings? This would also delay the sale a year.

One fear I have is that this locks me out of the housing market for good. Should I just hold on to this house for the next 10-15 years? What would you guys do?

[clifp]

Hello all,

I'm struggling with the decision to sell my rental property or not.

I bought the property 4 years ago (mortgage renewal about 15 months away). Property was purchased for about 200k, estimate for resale is 400-500k.

It is being rented for $1550 / month, utilities included. We cashflow about $200 a month.

Clearly the sale would out earn the rental cashflow, here are the things I am considering.



One fear I have is that this locks me out of the housing market for good. Should I just hold on to this house for the next 10-15 years? What would you guys do?

With the caveat that my only experience purchasing real estate in Toronto (a syndicate of medical buildings) has been a disaster, and I'm American and generally ignorant of Canadian markets, I'd hold.

Given that Canadian RE is still pretty hot, and your place has doubled in the last 4 years it is not clear that you'll make more money selling and sticking the money in RRSP. Can you even put $300K into an RRSP at once, I thought there were limits?

Both stocks and real estate are overvalued, IMO, and from what I can tell Canadian RE is even more overvalued than US West or East Coast properties. Which is going to appreciate more or depreciation less in the next 5 or 10 years is going to be anyone guess.  Still, diversification is your friend and owning both stocks and real estate is better than only owning one asset.

[West996]

Thank you, I appreciate the insight. I think it is a sudden burst of greed combined with FOMO in seeing how much RE is going for right now that is making me want to sell. I think between mine and my wives RRSP limit we could put most if not all of that sale after taxes in. But you're right, then all of our money is in stocks and also, I can't live in my stock portfolio if things go side ways.

[beee]

Would you sell a leveraged position in an individual stock that appreciated 100% in the last 4 years?
I don't know what is your leverage but it could be as high as 20x (5% downpayment).

This is your current situation. No diversification, tiny profit, all in the hopes that it'll climb more. This is greed. Past performance doesn't guarantee future performance, take advantage of all this craziness of covid and almost zero interest rates.

Consider this:
- $18,600 / $450,000 = around 4.1% return, gross, before property taxes, maintenance, possible vacancy, utilities, property management (even if you do it yourself). Add interest payments on top of it.
- You don't plan to move for another 10years. It's not a given that you'll want to move to your current rental. Life happens, you might have reasons to move somewhere else. If you decide to move at all.
- Interest rates are as low as they can possibly be, they're going up in March, and then several more times this year. The higher interest rates, the lower real estate prices (fewer people can afford higher mortgages).

I would sell now, pay taxes on it and max out TFSA/RRSP. If you put money in RRSP, then you might pay a really low amount in taxes. Absolutely no need to gamble the system.

You'll have diversification and flexibility. No greed, no risks, just common sense investing.

[West996]

Thank you also for your perspective. You make some really good points also. Looking at it from a pure investment perspective I would sell this position if it were a stock. I am going to really have to give this some thought.