To Sell or Not to Sell

[invst4profit]

Based on projected expenses the reality is you do not actually have positive cash flow at all right now. You only think you do because the expenses have not yet happened. They will and that is the reason you should sell.

The market in your area is irrelevant in regards to selling or holding the only thing that really matters is you can not afford the expenses based on the income.

You are over leveraged and when things go bad you may not be in a position to get out from under quick enough. The buy and hold on for dear life tactic may work in theory but in reality you can get badly burned. It is easy for experienced investors to advise but keep in mind they may have the finances to weather the storms. You may not.

Can you survive an eviction and extended vacancy (6 months) or $10,000-$20,00 for major repairs. If the answer is yes then do as you please, if the answer is no and you are considering holding then I assume you are thinking it will never happen.

 

[julieCEO]

QUOTE (Goodstuff @ Apr 1 2010, 01:36 AM) 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.

What will be the rate of tax on appreciation?

 

[housingrental]

I second Greg`s post

 

[Thomas Beyer]

QUOTE (julieCEO @ Apr 11 2010, 03:57 AM) What will be the rate of tax on appreciation?
44% to 50% on taxable gain ... depending on province .. and the taxable gain, if a long term hold with rental income is 50% .. thus effective tax rate is 22 to 25% on gain after all expenses

 

[Millions]

QUOTE (ThomasBeyer @ Apr 11 2010, 10:38 AM) 44% to 50% on taxable gain ... depending on province .. and the taxable gain, if a long term hold with rental income is 50% .. thus effective tax rate is 22 to 25% on gain after all expenses

I don`t think I will have to worry about tax on appreciation. I am selling as an assumable for more than I paid but only due to the cmhc fees which are a write off I believe. Aside from that I just break even.

 

[Gen1GT]

QUOTE (ThomasBeyer @ Apr 11 2010, 12:38 PM) 44% to 50% on taxable gain ... depending on province .. and the taxable gain, if a long term hold with rental income is 50% .. thus effective tax rate is 22 to 25% on gain after all expenses

Thomas, can you explain this more in depth for me? What is the difference between tax rate and "taxable gain?" And what do you mean by tax rate on gain after all expenses? Thanks in advance,

 

[Thomas Beyer]

QUOTE (Gen1GT @ Apr 13 2010, 03:55 AM) Thomas, can you explain this more in depth for me? What is the difference between tax rate and "taxable gain?" And what do you mean by tax rate on gain after all expenses? Thanks in advance,
50% of the equity gain is not taxable in a long term hold asset with rental income, thus lowering the overall tax rate !

 

[bizaro86]

QUOTE (ThomasBeyer @ Apr 13 2010, 09:54 AM) 50% of the equity gain is not taxable in a long term hold asset with rental income, thus lowering the overall tax rate !

I think maybe an example would help here, so I`ll provide one.

Say you bought a rental property for 100,000, held it for some time, and sold it for 200,000.

So your capital gain on sale is: 200,000-100,000 = 100,000

But only 50% of that capital gain is counted into your income on your tax return.

Taxable amount = 100,000*0.5= 50,000

Now say your province/tax bracket means your marginal tax rate = 45%

The tax payable would be: 50,000*0.45=22,500

So in this case, your effective tax rate would be 22.5%, or 22,500/100,000*100%

Hope this helps,

Michael

 

[Gen1GT]

...and in Canada, we can`t differ the taxes if we use all the capital gain towards another property, like you can in the States, correct?