Help - Low Income vs. Sell, Buy Better and Pay Down Debt

[Brent Byers]

Hi - i have a big Choice, my single family property in Hamilton Ontario was purchased in 2001 for $194K and has appreciated in Value to around $400K(~12%/yr). The property gives a small NOI (after Mort and all costs) of $150/mth.

I am wondering if it would be better to SELL, take the money - 1) can the Cap Gains be protected and kept for future Property Purchases and not Taxed?

if i sell, it will allow me to pay down some investment debt (at 3.5%) and have enough to buy another 3-4plex with better NOI (~$500/mth);

 2) or should i - Keep the property and enjoy continuing getting ~12% appreciation value and a small passive income;  

The typical return i am seeing with 3-4plex units is NOI of $5-700/mth.

Please make suggestions or comments on things that might help me in making a educated decision, i am confident there are some things i have missed or not considering.  

Thanks,

Brent Byers - Byers Advantage!

[Thomas S.]

First I would say that if your property has increased from a value of $194 to $400 it is very unlikely your are positive cash flow if you properly do your analysis. Honestly a $400000 SFH is a terrible choice as a rental property unless you are catering to high end tenants willing to pay $3500-$4000/month.

At a value of $400000 with a interest rate of conservative 3.5% your return on equity needs to be $14,000 per year. If you still have a mortgage you also add to that your monthly principal payment. If you consider normal long term expenses being 50% 0n a SFH then you need to be collecting rent monthly north of $2500/ month to break even. If you are great if not I would sell the place and reap the profits. Use the money as a down payment on several multi plex units.

Do not pay down any debts at 3.5%, that is practically free money. You can get a better return leveraging more properties. 

You should be able to turn the equity in that property into 2- 3 multi plex units producing far greater positive cash flow that what I see as a negative cash flow property.

Don't hold on to a property simply because you have it, if a property is not a good, or at best a mediocre investment, unload it and move on to better returns.

Speculating on appreciation has bankrupted more investors than you can count.