Too costly to sell my property

[Goodstuff]

I was thinking about selling my condo, but after running the numbers, I feel I`m trapped.

Here`s my situation:

I bought a condo about 5 years back for $124,000.
It is now worth $230,000 (at least I hope).

Here is what will happen if I sell it:

Commission: $13,500
Lawyer fees: $800

Then along comes Revenue Canada looking for their share. Even though I took all the risk, and would get nothing from them if it went down in value, was destroyed by tenants, lost money through non-payment of rents, etc. they want their share for doing essentially nothing.

Rev Can: Sell price $230,000 minus costs ($14,300) = $215,700
Minus original price ($124,000) = $91,700.
Capital gains tax on $91,700 = X marginal tax rate (39%) X 50% = $17,881.

Result: I end up with $73,819.

Problem is, I refinanced after a few years and now have a mortgage of $187,000.

Thus, I end up with $10,819.

Oh, almost forgot... the penalty for breaking the mortgage because I sold... about $3,500.

Now I end up with $7,319.

Yes, yes, I know, I should be thankful that I made money and if I hadn`t refinanced I`d have a bit more.

But it`s of no value to me to sell at this point. I`ll end up with practically nothing.

Most of us believe that refinancing is a key strategy in getting the down payment for a further property and so on, so I believe it was the right thing to do. But I was taken aback when I found out how little I was going to end up with after the sale.

Not sure what the point of this rant is.

I think it`s to drill into the newbies` heads how important it is to buy at a very low price and make sure it cashflows from day one, because when you decide you want to sell you may not have the profit you thought you did.

 

[Thomas Beyer]

you took a HEALTHY profit when you re-financed .. WHERE IS THE PROBLEM ???

 

[MonteDobson]

What did you do with the "tax free" money that you received from the re-finance?? If this were re-invested you would be much farther ahead right now.

 

[Nir]

Goodstuff, Are you serious ?

The amount you end up with now after tax is very small and not significant compared to the tax free money you received when you refinanced - more than 60K! You should look at both amounts to better understand how much money you really made on this condo.

I think the lesson from your example is "refinancing is a great tool to make money today instead of when you sell" even
more than "buy at a very low price and make sure it cash flows".

PS. 5% RE fee on 230k is $11,500, not $13,500

 

[ChrisDavies]

And what about cash flow, if any?

 

[JohnS]

QUOTE (Goodstuff @ Jun 17 2009, 06:45 PM) I was thinking about selling my condo, but after running the numbers, I feel I`m trapped.


Then along comes Revenue Canada looking for their share. Even though I took all the risk, and would get nothing from them if it went down in value, was destroyed by tenants, lost money through non-payment of rents, etc. they want their share for doing essentially nothing.


Sorry, Goodstuff. I have a feeling you`re not quite getting the sympathy you were (subconsciously?) looking for. Three things jumped out at me, though, from your post. The major one (the one about your already getting over $60 000 tax-free to use earlier) has already been dealt with adequately by people smarter than I am.

The second one was where you said, "I feel I`m trapped." The thing is, feeling trapped is very different from being trapped. If you`re cashflowing positively, you don`t need to sell, at least not for any financial reasons you`ve shared. So, you can wait a bit more and then sell it once it`s appreciated again. Or if you do need to see it for whatever reason (it`s negatively cashflowing, for example), at least you won`t be in the whole, and will have made a bit more on top of what you already took out. With those two simple options, you`re not really trapped at all, even if you feel it.

The last was that your taxes went for nothing. Without even thinking about it, I came up with a short list that I`m sure you can add on to: 1) building and maintaining the roads so that your tenants can travel to and from the house, 2) building, staffing, and maintaining the hospitals for when your tenants got sick, 3) training and maintaining the armed forces so that we`re not overtaken by anyone wanting the natural resources we`re blessed with, 4) educating your tenants so that they can get better paying jobs (so you can charge them more), 5) providing the police so that your tenants can feel safe and secure in their homes 6) supporting different arts and culture events, which increases the liveability of your city, thereby enticing major employers to set up shop there......etc, etc, etc.

I know that myself, and I`d hazard a guess most of the REIN members, want to pay as little tax as possible...and we still want that number to be in the hundreds of thousands, as that means we`ll have made even more.

Anyway, just a few things to mull over....

Have a good one!

JohnS

 

[Goodstuff]

Wow!
Pretty tough to pull the wool over anyone`s eyes on this forum.

You`re all correct. I don`t need any pity, as I did already pull $60,000 out tax free. I didn`t really consider the "tax free" aspect of it, which made it all the more enjoyable.

I guess I was just a bit surprised after I did my calculation.

And you guys are also right about the taxes. Much better to have to pay taxes than not to, as that would mean I didn`t make a profit at all.

I must admit, though, that it never cash flowed until I refinanced using a 35 yr amortization. Being new at it I didn`t quite buy right.
But reading this forum has taught me a lot about buying properly for cashflow.

Anyway, thanks everyone for the responses. Nice to see that I`m really not so hard done by when you point out all the flaws in my rant.

Thanks again!

 

[Alvaro Sanchez]

Sell your property directly... save on comission (no-brainer).