# In a bit of a dilemma....



## Busa (Jul 1, 2013)

Hello ladies and gentlemen, I have come seeking your advice.
What would you do RIGHT NOW if you were in my situation? Just looking for ideas to start heading in the right direction. 

Here's the short version...
My wife and I work full time and make about 140k combined. We owe 200k on our 42 year old house and we do not have a lot of equity in it but it was "cheap". A pair of car loans on slightly used vehicles, they were about 60% of their new price. Credit card and credit lines total about $15k owing. 

Recently we WON a $1.2 million dollar house, and we are now living in it. It's cheaper to live here than the old house for a few reasons, no mortgage, the new house is way more efficient even though its twice the size. It is just outside city limits so land taxes are the same between houses. 

We are trying to decide on what to do with our old house, rent it or sell it. The rental market here is HOT now with less than 1% vacancy. Although do I really want to deal with that again? Truthfully, I don't want to. The potential profit from the sale of the old house could pay off our cars and credit debt (and mortgage penalty) or at least get close to.

What would you do RIGHT NOW?


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## Synergy (Mar 18, 2013)

I wish I had your dilemma! Congradulations on your winnings.

If you plan on keeping the new house I'd sell the old house and pay off all your debts. Personally I'd be tempted to sell the 1.2 million dollar house and invest the proceeds.

Enjoy your new house!


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## MoneyGal (Apr 24, 2009)

Sell it. Most of the gain will be protected. Use the proceeds to pay down debt.


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## Nemo2 (Mar 1, 2012)

MoneyGal said:


> Sell it. Most of the gain will be protected. Use the proceeds to pay down debt.


+1


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## Islenska (May 4, 2011)

I've had some rentals in the past.

Tenants are a pain in the rear and renting over-all just ain't worth it, unless you maybe are the handyman type which I'm not.

Good time to sell and congrats on the big win!


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## 6811 (Jan 1, 2013)

Synergy said:


> I wish I had your dilemma! Congradulations on your winnings.
> 
> If you plan on keeping the new house I'd sell the old house and pay off all your debts. Personally I'd be tempted to sell the 1.2 million dollar house and invest the proceeds.
> 
> Enjoy your new house!


I agree with Synergy. In my mind the real question is which house to sell! 

Congratulations on your win.


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## kcowan (Jul 1, 2010)

You don't mention where you own. Is the 42 yo house under water on the mortgage?

Congratulations on your good fortune. How about a rent-to-own deal on it. You are in a position to afford that.


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## Eder (Feb 16, 2011)

Sell both houses...pay off all debt...go rent near your work...grats on binking a free house


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## youngdad3 (Jun 29, 2013)

Congrats on your win, the only thing I won in life was a 2500$ credit for vacations but the total trip finally was 6000$ so in the end I don't really consider it a win hehe.

If I was in your situation I would either
1- Sell the old house since you don't seem to like it much at first sight. You would be debt free and living in a nice trouble-free new house.
2- Sell both house and buy something in between, like 500-600k$, pay off all debts and keep the remaining on a journey to financial freedom.

It depends on your lifestyle and many other factors not mentioned here, like do you like your new neighbourhood? are you tagged as the "house winner who got it all too easy"? Are you able to afford the maintenance on the new house? In my area, 1.2M$ houses requires a weekly cleaning maid because of size + a perfect kentucky blue grass, etc which all adds up $$ at the end of the year. Maybe the costs are close to the same as you get on maintenance on a 42years old house though.
Do you have kids? If so, do you have more bedrooms for them in the new house or did you have enough in the old one?

In the end, YOU (and you wife) decides what suits best for your needs!


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## Cal (Jun 17, 2009)

Sell. If you don't want to be a LL, why even consider being one.


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## Belguy (May 24, 2010)

Give the new house to me!! You won't be out anything because you won it in the first place.:tongue-new::encouragement::highly_amused::biggrin-new:

One less thing to worry about!!!


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## Busa (Jul 1, 2013)

After looking at the numbers a little closer we will profit at least $10k after the bills are paid, including everyone I have mentioned, mortgage penalty, realtor fees, car loans, consumer debt. Ya we will put it on the market as soon as we can.


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## Oldroe (Sep 18, 2009)

I would sell both, then set up my life to never have 15k in cc.


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## the-royal-mail (Dec 11, 2009)

Well, you definitely don't need to keep carrying all those debts. I know it's not the advice you were looking for, but that signals a money management problem. This would be a good time to try and fix that.

Being a LL is indeed a pain. Don't do it.

Could you not just continue living in the old house, sell the mansion, pay off the debts, fix up the current property if needed (ie. roof or other mid-range repairs) and then invest the difference (no MFs!)? Of course, this only works if you can manage money. If you cannot, I fear you may spend it all on junk and in 5 years your winnings will be gone and you'll be where you were before you won the new house and a pile of ewaste to take to the dump.


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## NorthKC (Apr 1, 2013)

If you don't want to be a landlord, renting out your old house is the last thing you need. Do you need to live in that mansion? If not, sell it and downsize a little. You certainly have the funds for that one and invest the rest (after paying bills, of course).


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## Busa (Jul 1, 2013)

the-royal-mail said:


> Well, you definitely don't need to keep carrying all those debts. I know it's not the advice you were looking for, but that signals a money management problem. This would be a good time to try and fix that.
> 
> Being a LL is indeed a pain. Don't do it.
> 
> Could you not just continue living in the old house, sell the mansion, pay off the debts, fix up the current property if needed (ie. roof or other mid-range repairs) and then invest the difference (no MFs!)? Of course, this only works if you can manage money. If you cannot, I fear you may spend it all on junk and in 5 years your winnings will be gone and you'll be where you were before you won the new house and a pile of ewaste to take to the dump.


Thats funny you mention that, $6k of the $15k was for a new roof that I just put on the old house. 

In my 19 years of driving this vehicle is the first I have had payments on, so not doing too bad on that front, I work in the auto industry also so cost + $200 is nice. I do agree anything with an engine and tires is the worst "investment" out there.

So $9k could be gone in 3 months without winning a new house pretty easily.


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## Rusty O'Toole (Feb 1, 2012)

As a landlord with 40 years experience I say sell the house and use the equity if any to pay down your debts.


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## Charlie (May 20, 2011)

Congrats!

The financially prudent thing to do would be to sell the new home. If you won $1m (lets assume that's all you'd get on the sale of a $1.2m home) would you spend it all on this new house? As noted, you could sell the home you're not crazy about too and buy in at $500K or so and pocked a bunch of cash?

But it's a windfall....so sometimes financially prudent takes a back seat to what you want to do. Seems you've considered the operating costs of the new home, so your current plan is a good one too. Enjoy. (I worked with someone who also won a home -- about $2m value. The taxes and op costs were much higher then she could reasonably afford, so she took the cash).


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## iherald (Apr 18, 2009)

The prudent thing would likely be to sell the new house. That said, prudent is only good if you're going to be happy! As for whether to rent out your old house, do you know what it would rent for?

Here is how I figure it. Figure out the rent per month and x 10. I always assume one month a year your house will be vacant and one month's rent should be set aside for the new water heater, new stairs, new furnace etc. Let's assume you get $2,000 a month rent so that's $20,000 a year (using 10 months). What will your expenses be? Mortgage, property taxes. Will the tenants pay for gas, water and hydro or will you? 

The first step will be to ensure that you make at least $1 profit after 10 months. I know people who disagree and say you should use the full 12 months, but I'm conservative. If you will lose money renting the house, then sell it immediately. If you will make money, then look at how much will you make? Is it worth the late night calls and going over to fix the tabs, cut the lawn etc. 

Ultimately, when you run the numbers, you will decide. It's a nice choice to have!


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## Busa (Jul 1, 2013)

Charlie said:


> Congrats!
> 
> The financially prudent thing to do would be to sell the new home. If you won $1m (lets assume that's all you'd get on the sale of a $1.2m home) would you spend it all on this new house? As noted, you could sell the home you're not crazy about too and buy in at $500K or so and pocked a bunch of cash?
> 
> But it's a windfall....so sometimes financially prudent takes a back seat to what you want to do. Seems you've considered the operating costs of the new home, so your current plan is a good one too. Enjoy. (I worked with someone who also won a home -- about $2m value. The taxes and op costs were much higher then she could reasonably afford, so she took the cash).


If I won $1m cash, I would not even upgrade the house!. IF I was to go and buy a house here right now it would be about $300k. We had a choice, the new $1.2m house or $300k cash... easy decision.


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## Spudd (Oct 11, 2011)

Let's say you can get a million for selling the house right now (I'm guessing they might have exaggerated the value when they said it's worth 1.2m). You buy a new house for $300k and you're still left with $700k in cash. Plus your property taxes will be a lot lower (less than half). This is what I would do in your situation. How awesome would that be?


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## jamesbe (May 8, 2010)

Yeah, sell old house. Live in new house for a year. Then sell new house and move into something less extravagant (if you can downgrade after that LOL).

Then you'll be swimming in tax free earnings! congrats!


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## Four Pillars (Apr 5, 2009)

I can't see staying in the new house as being a problem. If they sell the old house, they should be able to clear all debts and maybe? have money left over.

They make $140k, will have no debt and should be able to handle the new house and still save a decent amount (if they want) and have a good lifestyle.

To sum up: Sell the old house....RIGHT NOW!!


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## praire_guy (Sep 8, 2011)

And with a 1.2 million house comes new furniture, new car, keep up with the jones, etc. higher property taxes. 

Sell both, buy something around 3-500k, invest the difference, and enjoy. 

Don't live in the new house for a year. Very poor advice. Once your in you won't leave.


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## kcowan (Jul 1, 2010)

I think the parallel is if I won a Ferrari in a lottery. It would be fun to drive. But I would sell it. Keeping it would lead to escalating costs of living!


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## Four Pillars (Apr 5, 2009)

kcowan said:


> I think the parallel is if I won a Ferrari in a lottery. It would be fun to drive. But I would sell it. Keeping it would lead to escalating costs of living!


I see your point, but I don't think that is an exact parallel. 

Depending on the area (nice if the OP could provide more details), a $1.2 mill house might be a decent 3 bedroom house in a good part of Toronto or a pretty big place a bit further out. However, the "normal" house in T.O. might still be $600k, so the fancy house is only double a regular house. 

A Ferrari is far more than double a 'normal' car.


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## Echo (Apr 1, 2011)

I always thought you HAD to live in these lottery houses for at least a year before selling. Is that not the case here?


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## Sampson (Apr 3, 2009)

kcowan said:


> I think the parallel is if I won a Ferrari in a lottery. It would be fun to drive. But I would sell it. Keeping it would lead to escalating costs of living!


It is funny how the type of car I'd be willing to keep has changed over the years. When I was younger, any car would immediately be sold. Now, something like a Porsche Carrera or Cayman, or an M3 - definitely keep. Anything fancier, gone. Although I have always wanted to own and Aston Martin...

time to support some Hospital lotteries.

Mike's point about the house is well taken. $1.2M house. That might be something to keep in many cities.


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## Four Pillars (Apr 5, 2009)

Echo said:


> I always thought you HAD to live in these lottery houses for at least a year before selling. Is that not the case here?


I've never heard of that, although I can't say it is never true. From what I've read - all the "mansion/sport cars/nice vacation" lotteries have cash buyout options, since most people don't really want or need a huge mansion in a different part of town or a fancy sports car. 

Even if you were required to keep the house for a while, I can't see how they can enforce something like that.


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## Echo (Apr 1, 2011)

Four Pillars said:


> Even if you were required to keep the house for a while, I can't see how they can enforce something like that.


I don't know, the For Sale sign on the lawn might be a giveaway.


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## HaroldCrump (Jun 10, 2009)

Maybe they simply do not transfer the title to you until after 1 year.
That'd be an easy way to enforce this.


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## Echo (Apr 1, 2011)

Just checked the STARS Lottery FAQ and it says:

" Lottery prizes are tax-free and winners are not obligated to live in the showhome. "

This one comes fully furnished, is the OP's lotto house furnished? I'd definitely move in.


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## Four Pillars (Apr 5, 2009)

Echo said:


> I don't know, the For Sale sign on the lawn might be a giveaway.


Haha - I agree it would be hard to hide it from them. But as Harold says - withholding the title for a year would be a way around it.

I just can't see them bothering. They are trying to raise money - who cares what happens after the prizes are awarded?

If someone offered me a nice house with nice furniture that was clean and no kids toys anywhere - I'd move this weekend.


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## kcowan (Jul 1, 2010)

I had a buddy who moved from Vancouver to Toronto and wanted to keep all his equity invested in a house. He ended up living in The Bridle Path and hated it because all the neighbours were 10+ years older and treated them as an anomaly. He eventually sold up and returned to Vancouver.

The OP has already established that $1.2 million is 2.5x what he was occupying. He would be wise to sell his original house, then sell his lottery house and shop around for a house and neighbourhood that really suits them. I know from the lotteries they run around here that the homes are best suited to a specific lifestyle/time of life.


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## Charlie (May 20, 2011)

you are not required to live in them. They cannot put you under (very nice) house arrest for winning a lotto.

Some of the lottos have cash options. In those cases the charity often buys an option for the house since most people take the cash (and they cannot use the same house next lotto). The developer gets some cash to hold off a sale for a bit, and gets to promote the house. 

Some lottos say you have to take the prize as awarded. In that case it's up to you to sell it, and you likely don't get the full stated 'value' since the value includes furnishings, decorating etc and often showey type options that don't hold their value on resale. (sometimes they'll offer you a credit for the 'stuff' (a friend who won a car got about 75% of the value in cash even though there was not a 'cash option.')).

Whatever your options, winning one would be pretty sweet.


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## Busa (Jul 1, 2013)

Four Pillars said:


> I see your point, but I don't think that is an exact parallel.
> 
> Depending on the area (nice if the OP could provide more details), a $1.2 mill house might be a decent 3 bedroom house in a good part of Toronto or a pretty big place a bit further out. However, the "normal" house in T.O. might still be $600k, so the fancy house is only double a regular house.
> 
> A Ferrari is far more than double a 'normal' car.


Small city actually, where the average selling price for real estate right now is roughly $325,000.


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## Busa (Jul 1, 2013)

Echo said:


> I always thought you HAD to live in these lottery houses for at least a year before selling. Is that not the case here?


Nope, I can sell it tomorrow without any repercussions. Tax free.


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## Busa (Jul 1, 2013)

HaroldCrump said:


> Maybe they simply do not transfer the title to you until after 1 year.
> That'd be an easy way to enforce this.


We received the title last week.

The house is partially furnished, quite a bit actually. We get free phone/internet/alarm monitroing for a yea. $1000 of food, and a bunch of other stuff.

Cash option was $300k.


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## Busa (Jul 1, 2013)

Charlie said:


> you are not required to live in them.
> 
> Whatever your options, winning one would be pretty sweet.


I agree. I paid $250 for the whole thing. No complaints! haha


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## marina628 (Dec 14, 2010)

Busa said:


> We received the title last week.
> 
> The house is partially furnished, quite a bit actually. We get free phone/internet/alarm monitroing for a yea. $1000 of food, and a bunch of other stuff.
> 
> Cash option was $300k.


In that case you made right decision to keep the house


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## Koala (Jan 27, 2012)

Echo said:


> I always thought you HAD to live in these lottery houses for at least a year before selling. Is that not the case here?


I've heard the same thing. Maybe it's the way they are set up in Alberta? I wouldn't mind living in one for a year though!


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## My Own Advisor (Sep 24, 2012)

Nemo2 said:


> +1


+10

Sell. Enjoy the beautiful new home. A great problem to have


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## kcowan (Jul 1, 2010)

Busa said:


> I agree. I paid $250 for the whole thing. No complaints! haha


No that is just your down payment on a new more expensive lifestyle. Believe me, you will spend much more than that by the time you are done.

(After all, is it not the purpose of this forum to offer financial advice?)

Is you car suitable for the neighbourhood? Or would a Porche be more fitting? If the average house price is $325k then you are nearly 4x that. So what kind of car is 4x what you are driving?


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## cainvest (May 1, 2013)

kcowan said:


> No that is just your down payment on a new more expensive lifestyle. Believe me, you will spend much more than that by the time you are done.
> 
> (After all, is it not the purpose of this forum to offer financial advice?)
> 
> Is you car suitable for the neighbourhood? Or would a Porche be more fitting? If the average house price is $325k then you are nearly 4x that. So what kind of car is 4x what you are driving?


Of course you're assuming that peer pressure is a factor here, not everyone is subject to that. As an example, I for one don't care at all if someone thinks my car is not suited to my area.


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## Busa (Jul 1, 2013)

kcowan said:


> No that is just your down payment on a new more expensive lifestyle. Believe me, you will spend much more than that by the time you are done.
> 
> (After all, is it not the purpose of this forum to offer financial advice?)
> 
> Is you car suitable for the neighbourhood? Or would a Porche be more fitting? If the average house price is $325k then you are nearly 4x that. So what kind of car is 4x what you are driving?



Actually no, we are not like that thankfully. When we bought our last house we were approved for double its cost, however, we didn't need anything more than what we bought.

Our vehicles do fit into the neighborhood along with our ages.


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## Spudd (Oct 11, 2011)

To me, the point is more if you sold the new house, you could get a house you'd be perfectly happy with, PLUS $600k in the bank. Plus lower carrying costs (property tax, utilities). I would love to have $600k in the bank.


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## Sampson (Apr 3, 2009)

Busa said:


> Cash option was $300k.


Wow. $800k for the trouble of taking the house, living in it, then selling it at market value.


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## Busa (Jul 1, 2013)

Bit of an update. 

Sold the old house, there was actually a bidding war on it. We figured out our asking price and then i tacked on $10k, then it sold for $9k OVER that. Paid all of our debts and still put $25k in the bank. And she just got a promotion. 


The new house is great, easy to look after everything, (no kids), should be a nice place until we sell it in the spring and move to another province.


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## Busa (Jul 1, 2013)

Here's the new shack.


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## jamesbe (May 8, 2010)

Looks nice but not what I was expecting at all from a lottery 1 mil type house deal LOL

I was expecting something like this:


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## Busa (Jul 1, 2013)

Haha understood. The photo doesn't do it justice! It's pretty unreal living in it still!


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## Homerhomer (Oct 18, 2010)

Congratulations.

How much you could get if you sold the new house right now, 1.2 to 300K sounds like huge discrepancy, just wondering if the real market value is closer to 300K than 1.2m.

I once won a watch in hospital lottery valued at $100, online pricing everywhere else was $19.99, hope it's not the case with your house ;-)


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## Busa (Jul 1, 2013)

It's 300k so the lottery isn't stuck with a house. They want the people to take the house and not the money. 

Would list it for $950,000


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## Busa (Jul 1, 2013)

Even if sold it for 300k that's still a
Good return on my $250!


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## houska (Feb 6, 2010)

My advice, which I note you're already sort of following.

Sell the old house, clear your debts. Since you now have no mortgage payments, your cash flow should also improve.
Reasonably enjoy the new house until Xmas, taking the mentality of a temporary luxurious vacaction, not a full time move.
Leading up to New Year's Resolution time, take a hard look at the positive way your financial situation has evolved, and make a financial plan for the future. Use that to drive a well thought out decision on whether you want to stay in the new house, or what sort of house you want to move into.

Rationale: the fact of the matter is your financial situation has changed a lot for the better. You've gone from a situation of close to zero net worth (I'm assuming you don't have retirement savings but might be wrong) to a situation where you are a millionaire. Congrats. There are lots of ways you could go from here - you could henceforth live in a millionaire house, and since you have no debts, use your saved cashflow to build a (bigger) retirement fund. You could downsize the house and be quite well set on the road to financial independence. You could mortgage the house (moderately) and invest the loan proceeds in a diversified portfolio of ETFs (and have your mortgage interest be tax deductible). And you could try to keep up with the Joneses and end up having to take a HELOC to get out of debt in a few years - clearly the worst outcome. The fact is that deciding which is a lifestyle choice for the next 5-10 years and you should take a breather to make that decision well.

Good luck and have fun!


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## Four Pillars (Apr 5, 2009)

Wow - looks like a great place.

Are you sure you will be able to downgrade after you move?


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## SpendLessEarnMore (Aug 7, 2013)

Just throwing this out there but if you're making $140k why would you want to be a landlord? Your high tax margin would eat up a huge chunk of your net rental income.

I'm barely over the 48k tax margin and pay lots of taxes on my 2 rental incomes alone. Can't imagine how much taxes you'd be paying on rental income. In the end is it worth it to have capital that can go to improving the property but instead has to get diverted to paying taxes?

If it was me I'd sell both houses, forget about being a landlord and buy a house close to work that I'd like that would leave me more than half the proceeds of selling off those 2 houses. Invest the rest and live a comfortable live off the investment gains.


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## Homerhomer (Oct 18, 2010)

For me selling the new house would be a no brainer at this time, buy something that is more reasonably priced at no more than half of what you can get for your house, be mortgage free for the rest of your life, watch your spending, invest the rest into retirement and enjoy the luck.

Mortgage free with $140K per year you should have very comfortable lifestyle without ever getting any loan for anything, and that could easily cover vacation down south few times a year and silly new cars.


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## Busa (Jul 1, 2013)

SpendLessEarnMore said:


> Just throwing this out there but if you're making $140k why would you want to be a landlord? Your high tax margin would eat up a huge chunk of your net rental income.
> 
> I'm barely over the 48k tax margin and pay lots of taxes on my 2 rental incomes alone. Can't imagine how much taxes you'd be paying on rental income. In the end is it worth it to have capital that can go to improving the property but instead has to get diverted to paying taxes?
> 
> If it was me I'd sell both houses, forget about being a landlord and buy a house close to work that I'd like that would leave me more than half the proceeds of selling off those 2 houses. Invest the rest and live a comfortable live off the investment gains.


Do you claim your rental income as your personal income and not run it through a corporation?


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## Busa (Jul 1, 2013)

So a bunch of comments said "move closer to work", the new house is only 8km away from work. 

It is already cheaper to live in the new house compared to the old house by about $800/month.

New house is outside city limits by 1/2km so the taxes are way less than in town,

Debt free. Old house is sold.

Selling the big house in the spring.


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## My Own Advisor (Sep 24, 2012)

Good call Busa.

I live in Ottawa as well. Old house gone? Great job.

Selling big house and downsizing? Awesome choice. You'll be set for life if you invest the proceeds from the big sale properly. Nicely done.


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## Four Pillars (Apr 5, 2009)

Ok Busa - enough of the financial chitchat. When's the house warming party?????


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## Busa (Jul 1, 2013)

My Own Advisor said:


> Good call Busa.
> 
> I live in Ottawa as well. Old house gone? Great job.
> 
> Selling big house and downsizing? Awesome choice. You'll be set for life if you invest the proceeds from the big sale properly. Nicely done.


Ottawa? No sir I am not there. We will be relocating and getting smaller house. Its a plan we have had for a long time but now this makes it sooo much easier.


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## Busa (Jul 1, 2013)

Four Pillars said:


> Ok Busa - enough of the financial chitchat. When's the house warming party?????


You JUST missed it! It was this past saturday!


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## NorthKC (Apr 1, 2013)

Good call and congrats on your newfound debt-free status! Enjoy the new house!


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## SpendLessEarnMore (Aug 7, 2013)

Busa said:


> Do you claim your rental income as your personal income and not run it through a corporation?


I claim my rental income as personal income. Congrats on selling your house btw. I've looked into incorporating but it doesn't make sense from what I gather. Something about being taxed on the incorporation and paying taxes again on personal. I might have to look further into it now that I'll be unemployed 4 months from now.


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