Real Estate Agent · North ONT, Ontario · Member since 2016 · 43 posts · 12 votes
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.
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.
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
10y
Originally posted by @Account Closed:
Hi all, all really great answers mentioned above. If I may I would like to ask a question since we are touching on this topic. Is it possible to refinance a property and pull straight equity out instead on just increasing a HELOC and barrowing against that? In my current portfolio I have always used HELOC for my initial down payments on my properties and then paid them off.
Yes, it is possible to pull equity out of a property when refinancing it. In fact, if you have an immediate use for the money, this may be preferable than using a secured Line of Credit as the associated note will have a better rate.
Using the secured line of credit give you the flexibility of being able to draw down only as you need the funds. In exchange, you will pay a higher interest rate on the money borrowed.
Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
10y
Let me say this on the record. In my neck of the woods, which is Minneapolis and the surrounding suburbs, prices are getting out of control. There will be a correction soon. Might be one year or two years. Now is a good of tme to sell in my market, not buy. I'm saving money to buy when things crash again.
Let me say this on the record. In my neck of the woods, which is Minneapolis and the surrounding suburbs, prices are getting out of control. There will be a correction soon. Might be one year or two years. Now is a good of tme to sell in my market, not buy. I'm saving money to buy when things crash again.
Marcus:
Prices in parts of Canada have been out of control for almost a generation ... they have slowed to catch their breath a couple of times, but not for long. There's a cadre of homeowners, and more than a few "investors" who are convinced this is the new norm as they do not recall the last real retraction in valuations.