To Sell or Not to Sell

[Millions]

Hey Everyone,

Im pretty sure I know the answer anyhow but I love hearing other ideas on this awesome board.

I bought a suited house on a R2 Lot in Cambrian heights. Had an agreement for sale for a year or so but eventually Bought for 518K in September last year (agreement on price was from March 2008.)

Obviously the price went down but with a current mortgage of 2.25% variable, it cash flows $700/mth and has a paydown of $750/mth.

It`s a 35 year mortgage. Now although everything is sweet right now, I feel I am a little overleveraged at 25 years old.

I decided to list it just for kicks at 550K since that would break me even (due to 15K cmhc and $10+k in realtor fees) as an assumable with qualify.

I do have someone very interested at around 545K which would roughly break me even.

What do you think? Im loving it now with the cash flow but to think of it at higher rates, It would be tough on me.

Better to keep and just weather the storm for a few years as it hopefully appreciates? (my guess is its worth 500-510K now)

Or sell, get my money back and start over?

Thanks!

 

[GaryMcGowan]

QUOTE (Millions @ Mar 18 2010, 06:10 PM) Hey Everyone,

Im pretty sure I know the answer anyhow but I love hearing other ideas on this awesome board.

I bought a suited house on a R2 Lot in Cambrian heights. Had an agreement for sale for a year or so but eventually Bought for 218K in September last year (agreement on price was from March 2008.)

Obviously the price went down but with a current mortgage of 2.25% variable, it cash flows $700/mth and has a paydown of $750/mth.

It`s a 35 year mortgage. Now although everything is sweet right now, I feel I am a little overleveraged at 25 years old.

I decided to list it just for kicks at 550K since that would break me even (due to 15K cmhc and $10+k in realtor fees) as an assumable with qualify.

I do have someone very interested at around 545K which would roughly break me even.

What do you think? Im loving it now with the cash flow but to think of it at higher rates, It would be tough on me.

Better to keep and just weather the storm for a few years as it hopefully appreciates? (my guess is its worth 500-510K now)

Or sell, get my money back and start over?

Thanks!

Maybe I`m missing something,
You mentioned that you bought it at 218k, FMV is 510k but if you sell at 545k you break even... ? Where is the over leverage?
You have some great cash flow...
On the upside, There is some great news for the future for Alberta according to Kieran Trass. In his words "In the 20 years of analyzing markets and following real estate cycles. I have never seen anything like what the information from Alberta is telling us" Meaning there could be some great years ahead.

 

[Millions]

QUOTE (GaryMcGowan @ Mar 18 2010, 04:38 PM) Maybe I`m missing something,
You mentioned that you bought it at 218k, FMV is 510k but if you sell at 545k you break even... ? Where is the over leverage?
You have some great cash flow...
On the upside, There is some great news for the future for Alberta according to Kieran Trass. In his words "In the 20 years of analyzing markets and following real estate cycles. I have never seen anything like what the information from Alberta is telling us" Meaning there could be some great years ahead.


Wooops, sorry. I bought for 518K...not 218K.

Talk to you soon!

Matt

 

[JimWhitelaw]

If I`m understanding it correctly, you`ve got ~ $25K - $50K in the property that`s returning you a cash flow of $700 + $750 paydown each month. That`s a pretty decent return. I`m not seeing the incentive to sell. Looks like your biggest risk is an unexpected repair more than interest rate increase. You should be able to absorb some rate increase.

 

[housingrental]

From info in your other post, I`d sell
You`ve said you want freedom, not a highly leveraged business to run, correct?

 

[gwasser]

QUOTE (housingrental @ Mar 19 2010, 09:45 AM) From info in your other post, I`d sell
You`ve said you want freedom, not a highly leveraged business to run, correct?

Regardless what you said before, look at this from an un-emotional point of view.
Listing it just for kicks is emo!

So look at your investment. Do you have to move? Are you incapable of managing it and do you not cash flow with a manager?

Sounds like all those questions can be answered with "NO"

If you sold now would you find a clearly better deal? Don`t forget with a break even price you still have to pay realtor commissions and legal fees and mortgage payout penalties. Oh... and in Ontario don`t you have that loverly Transfer Tax?

You probably do not find a much better deal when you sock away nearly $1450 in positive cash flow and mortgage reduction! Wow, you know, unless you got this honking big repair coming up, why would you sell?

Sit on it and time will take care of appreciation, your tenant will take care of the mortgage and you receive inflation adjusted 700 pops per month. Sell? Sound to me you are nuts to do so.

Hope this helps,

 

[housingrental]

Hi Godfried,

His rental provides a low non leveraged return. It`s profitable because he`s currently able to finance it at 2.25%.
Although this could last, there is a big risk it doesn`t. And if he ends up with 5% interest rates in a few years with similar rents he`s in trouble. When a major repair comes he`ll be in bigger trouble. When he moves out of the area soon he`ll be spending more on management along with over time potentially having this as a money losing burden to subsidize while globe trotting... not an ideal situation...

If I were him I`d sell out and buy my own personal residence in a few years when your staying in an area for awhile...


QUOTE (gwasser @ Mar 19 2010, 06:42 PM) Regardless what you said before, look at this from an un-emotional point of view.
Listing it just for kicks is emo!

So look at your investment. Do you have to move? Are you incapable of managing it and do you not cash flow with a manager?

Sounds like all those questions can be answered with "NO"

If you sold now would you find a clearly better deal? Don`t forget with a break even price you still have to pay realtor commissions and legal fees and mortgage payout penalties. Oh... and in Ontario don`t you have that loverly Transfer Tax?

You probably do not find a much better deal when you sock away nearly $1450 in positive cash flow and mortgage reduction! Wow, you know, unless you got this honking big repair coming up, why would you sell?

Sit on it and time will take care of appreciation, your tenant will take care of the mortgage and you receive inflation adjusted 700 pops per month. Sell? Sound to me you are nuts to do so.

Hope this helps,

 

[invst4profit]

Also, although no one else has pointed it out, there are no real numbers to support his cash flow figures. In reality, holding long term, I predict negative cash flow due to expenses let alone rising interest rates.

Should we even ask for rental rate and estimate on expenses that cash flow is based on?

Sell before reality hits home.

 

[Millions]

QUOTE (invst4profit @ Mar 25 2010, 09:54 AM) Also, although no one else has pointed it out, there are no real numbers to support his cash flow figures. In reality, holding long term, I predict negative cash flow due to expenses let alone rising interest rates.

Should we even ask for rental rate and estimate on expenses that cash flow is based on?

Sell before reality hits home.

thanks for the replies. If. Helps

mortgage 475,000
month payments $1640 @ 2.25%
tax $200
insurace $75

rent upstairs 3 bedrooms at $500 each plus utils
basement suite $875 plus utils
garage $250

been lucky with repairs but judging from age probly $1-200 month

I manage right now so no fees

I`m thinking like the last 2 posts. When rates rise trouble

if I lock in at 3.7%. It cashflows $300. Not very good wiu that low of a rate is it.

 

[Thomas Beyer]

QUOTE (Millions @ Mar 18 2010, 04:10 PM) ..

I do have someone very interested at around 545K which would roughly break me even...
a single family house, even suited, over 300,000 is VERY HIGH RISK and should not be considered a revenue property / long-term hold. It may be a good flip if bought cheap enough !

Try to stay under $250,000 for houses !!!!! (and yes, that eliminates many cities)

 

[invst4profit]

Here is how I would view your investment.

You presently have a $475000 mortgage on a $518000 property. Including closing costs you have approximately $50,000 in cash invested earning a return of 2.25% (your savings at your present mortgage rate). Not a very good return.

Rental income is $2625/month
Mortgage payments presently at $1640/month
Mortgage payments of $2010/month at 3.7% interest
Estimated expenses on average income properties range between 30% and 50% per month long term.

With your present mortgage and expenses at 30% your positive cash flow would be $257/month
same mortgage with expenses at 40% would produce cash flow of -$65/month

With a mortgage at 3.7% your cash flow will be reduced to -$172 and -$263 (30% and 40% expenses)

In a perfect world your repairs will remain at $100-$200/ month.
That perfect world does not exist and statistics will come back to haunt you.

Based on your rental income your property has, as Thomas has pointed out, cost twice what it is worth income wise.

You should seriously consider selling unless you have deep enough pockets to ride out the approaching storm on your horizon.

 

[housingrental]

You should sell re my posts for the last month
This can bring you down
Rent to costs is too high
You`ll likelyl burn through money over the long term

 

[Millions]

QUOTE (ThomasBeyer @ Mar 27 2010, 07:55 PM) a single family house, even suited, over 300,000 is VERY HIGH RISK and should not be considered a revenue property / long-term hold. It may be a good flip if bought cheap enough !

Try to stay under $250,000 for houses !!!!! (and yes, that eliminates many cities)


Hey Thomas, Just out of curiousity so I dont make the same mistake next time haha, why for houses should you stay under $250K. What would the difference be between a house and a 4plex in that matter?

 

[invst4profit]

Because you can not charge a high enough rent to cover the expenses and in the case of a vacancy you lose 100% of your income with a SFH.
Going bankrupt slowly, or suddenly for that matter, is not a good business plan.

 

[Goodstuff]

Remember, too, that you`ll have to pay tax on any appreciation in the price of the house since you bought it, as it`s a rental property and not your principal residence.

If it hasn`t changed much in price this is not an issue.

 

[Millions]

QUOTE (invst4profit @ Mar 31 2010, 04:02 PM) Because you can not charge a high enough rent to cover the expenses and in the case of a vacancy you lose 100% of your income with a SFH.
Going bankrupt slowly, or suddenly for that matter, is not a good business plan.

Makes sense but don`t most Rein members invest in Suited homes? Is it just because they have got so expensive lately? It seemed most people I met had 10-30 suited homes. Is it best to stick to 4plex and up?

 

[gwasser]

QUOTE (Millions @ Apr 5 2010, 03:48 PM) Makes sense but don`t most Rein members invest in Suited homes? Is it just because they have got so expensive lately? It seemed most people I met had 10-30 suited homes. Is it best to stick to 4plex and up?

Hi Matthew,

You are active in the Calgary market and you have a house with suite in Cambrian Heights. Have you checked what the current value of your property is right now?

Many properties have been going up in value lately. Also, cap rates in Calgary are always low. Still you make currently close to $1400 per month not counting appreciation. So what is the real reason you want to sell?

What is your total rent right now and would that rent not go up over the coming year(s) with the economy improving?
Also, what is your earnings capability, would you be able to handle a significant repair financially?

Greg and Adam are not used to the numbers in the Calgary market, nor are they familiar with your financial strength and the significant value recovery recently made in Calgary. Before making a sell or hold decision, you really have to check the numbers for yourself within the context of your financial circumstance.

It would truly be disappointing if you sold your property to find out that it was not that bad afterall. If you need help, I can sit down with you or help you with a CMA for your property. Do you have someone else with whom you could discuss what to do - a true sounding board whom you can trust and who understands your situation?

Hope this helps,

 

[Thomas Beyer]

QUOTE (Millions @ Mar 31 2010, 10:37 AM) Hey Thomas, Just out of curiousity so I dont make the same mistake next time haha, why for houses should you stay under $250K. What would the difference be between a house and a 4plex in that matter?
three reasons:
a) cashflow .... hard to get if you pay over $250,000 as now rent has to be $1500 or higher .. which is hard to get
b) damage to property: imagine a $500,000 house .. rented well for 2 years then some water or tenant damge .. easily $40,000
c) vacancies: if your house rents for over $1400 or so you will compete with home buyers thus you will have higher vacancies compared to a cheap home

 

[Millions]

Hey Godfried,

I Would need your email as I cant send a message to you via Rein. My main decisions around this now and after the posts from everyone is housing may go up a little over the next few years but the price im getting now is already over the value by probably 30K. Side by sides near here (hunterview) are expiring at 500K. It is a great cash flow right now and if it could remain, I would hold it because its so amazing. but it only breaks even at 4- 4.5% rates. And thats with the garage rented out as well and fully maxxed. This doesnt include mgmt fees including my own if I stay and manage it. Any money for repairs would come from a LOC which is what is currently used for the Down payment and losing interest.

But I`ll wait for your reply and maybe we can talk soon!

Matt


QUOTE (gwasser @ Apr 5 2010, 06:08 PM) Hi Matthew,

You are active in the Calgary market and you have a house with suite in Cambrian Heights. Have you checked what the current value of your property is right now?

Many properties have been going up in value lately. Also, cap rates in Calgary are always low. Still you make currently close to $1400 per month not counting appreciation. So what is the real reason you want to sell?

What is your total rent right now and would that rent not go up over the coming year(s) with the economy improving?
Also, what is your earnings capability, would you be able to handle a significant repair financially?

Greg and Adam are not used to the numbers in the Calgary market, nor are they familiar with your financial strength and the significant value recovery recently made in Calgary. Before making a sell or hold decision, you really have to check the numbers for yourself within the context of your financial circumstance.

It would truly be disappointing if you sold your property to find out that it was not that bad afterall. If you need help, I can sit down with you or help you with a CMA for your property. Do you have someone else with whom you could discuss what to do - a true sounding board whom you can trust and who understands your situation?

Hope this helps,

 

[gwasser]

QUOTE (Millions @ Apr 6 2010, 09:24 PM) Hey Godfried,

I Would need your email as I cant send a message to you via Rein. My main decisions around this now and after the posts from everyone is housing may go up a little over the next few years but the price im getting now is already over the value by probably 30K. Side by sides near here (hunterview) are expiring at 500K. It is a great cash flow right now and if it could remain, I would hold it because its so amazing. but it only breaks even at 4- 4.5% rates. And thats with the garage rented out as well and fully maxxed. This doesnt include mgmt fees including my own if I stay and manage it. Any money for repairs would come from a LOC which is what is currently used for the Down payment and losing interest.

But I`ll wait for your reply and maybe we can talk soon!

Matt

Hi Matt,

My e-mail is: [email protected]