# Should I Sell My Rental



## dagman1 (Mar 3, 2010)

I need some input about selling a rental property I've owned for about 5 years. The property is a duplex and is currently vacant. I've since been doing some renos with the thought that I would sell it, but now I have a potential high-quality renter for one of the units.

The issue is that the building was about 3 hours away from I was living and working so I've been relying on my family members to do simple things while I had tenants (like pick up rent or meet with a contractor). I was also very busy with work at the time (I am now unemployed). So not only is it difficult to manage the property from so far away, but I didn't feel like I have the time. I especially found it stressful when one of my old tenants was not paying on time.

The property is cash flow positive, but after my expenses, I probably only come out ahead $200 a month plus principle on the mortgage. I'd guess it puts me ahead about $7000 a year for my troubles.

If I sell it myself I'm going to incure about $4500 for the buyer's agent commission, $2000 to break the mortgage contract, $1000 to list on MLS, $1000 for legal, so $8500 total. I also had to spent about $1500 on renos after one of the tenants destroyed his unit. I have about $20-25K equity in the house depending on what sort of price I could get.

I have a student loan of about $15k and I think realistically after commission I might be able to get rid of most of that if I sold the house.

On one hand I'm now unemployed and have the time to fix up the apartment and find tenants. On the other hand I forsee getting a new job sometime in the next few months and I will have the same problems as before. To make matters more complicated, bearing the costs of the mortgage by myself are hard while I only collect unemployment, so I need a renter. But I don't want to complicate a sale by having renters in the units.

I can't decide whether I should just try to fill both units now (since I could use the money) or price the place to sell and clean my hands of it in anticipation of the future.


----------



## jamesbe (May 8, 2010)

A place that turns that kind of cash flow is rare. You have enough cash flow to hire a management company to deal with the BS from the sounds of it.

I'd get it rented ASAP, then hire a management firm to deal with the BS renters. They will take a cut of your rent which normally I would never recommend but you are 3 hours away you don't really have much choice IMO.

So you'll lose $50-100 a month but you are still making $100 a month and now you have no more BS to deal with.


----------



## Montrealer (Sep 13, 2010)

If it's cash flow positive and you have the ''holding capacity'' DO NOT SELL IT!!!

Real Estate is the best long term investment, hold on to it and it will pay off when your old and want a new ''toy'' or two. 

Good luck!


----------



## marina628 (Dec 14, 2010)

You can do both , get the places rented then sell it as a cash positive investment


----------



## arie (Mar 13, 2011)

depends what interest you pay on your student loan ; that interest is not deductible and should be paid off asap 

sometimes hiring a manager may not be worth it ; where is the property and do values increase or are they flat in the area the home is 

there are many variables to consider and no one answer is correct ; in the long run real estate is a great investment but ideally it should be closer so you can properly look after it


----------



## Montrealer (Sep 13, 2010)

arie said:


> depends what interest you pay on your student loan ; that interest is not deductible and should be paid off asap
> 
> sometimes hiring a manager may not be worth it ; where is the property and do values increase or are they flat in the area the home is
> 
> there are many variables to consider and no one answer is correct ; in the long run real estate is a great investment but *ideally it should be closer so you can properly look after it*


I know people in Dubai, Vancouver, Toronto and even in the US that have invested in Montreal and have purchased buildings and commercial strip malls, as long as you are able to delegate and hire a manager, you are fine and cannot be too greedy.


----------



## andrewf (Mar 1, 2010)

Figure out how much you make on the property. You say $7k per year. Does that include any value on your time? Do you make any allowance for vacancy, repairs, etc. in that figure?

Okay, now find out how much the property is worth. I gather you think it is worth $150k. Divide your annual profit by the value to get the cap rate. If it is 2 or 3%, sell the place, buy a GIC (or invest in the market) and be happy. Sounds like your cap rate is max 5%.


----------



## balexis (Apr 4, 2009)

Yeah Montrealer, except the OP is talking about a residential duplex unit. How many Dubai investors do you know that invest in duplexes in Montreal? Didn't think so.

Arie's advice is spot-on.


----------



## dagman1 (Mar 3, 2010)

The $7000 is with allowances for maintenance, property taxes, insurance, and vacancy. The property is worth optimistically about $180,000. That makes for a pretty low cap rate.

The market is flat where the property is located and since it is a small town it is difficult to find a professional property manager. Even if I did, I might get close to a small loss, and if the property isn't increasing much in value, I don't think it's worth holding onto.


----------



## andrewf (Mar 1, 2010)

If someone is willing to buy a property like that at a 3.8% cap rate, let them! You could buy XRE and get a higher cash yield, never mind capital appreciation.


----------



## jamesbe (May 8, 2010)

People will buy properties with zero return so should be easy to sell.

I know of a property being sold. Asking $189k, currently rented at $1000 a month, taxes $170 a month, condo fees $240 a month.

I think it's a horrible investment, he thinks it is great. Do the math at 20% down, it is negative 200 a month cash flow when fully rented.


----------



## dagman1 (Mar 3, 2010)

By the way, transaction fees on real-estate are a lot, probably going to cost me $8K+ to sell this thing when you consider listing, legal, buyer's agent, minor renos, etc.


----------



## kcowan (Jul 1, 2010)

I would say hang on. When you are unemployed, you will not make a good decision.

Follow Marina's advice to get good tenants and then sit back to enjoy the cashflow.


----------



## arie (Mar 13, 2011)

dagman1 said:


> The $7000 is with allowances for maintenance, property taxes, insurance, and vacancy. The property is worth optimistically about $180,000. That makes for a pretty low cap rate.
> 
> The market is flat where the property is located and since it is a small town it is difficult to find a professional property manager. Even if I did, I might get close to a small loss, and if the property isn't increasing much in value, I don't think it's worth holding onto.


if the price is not going to rise ie little chance of capital gain i would seriously think of selling it and paying off all your debts including the student loan whic i am sure is charging you interest rates above any return on your capital for the house ( and again as i indicated the interest on your loans are not tax deductible )


----------



## Charlie (May 20, 2011)

We can crunch the numbers a whole lot of ways:

Since, if you sell you'll get $15-$17K ($25K equity less selling costs) we could go:

$2400/17000 = 14% return on your selling alternative

or use the cap rate of $7000/$180,000 = 3.8% return (subject to vacancy/repair/interest rate risk -- but also inflation protected and set to increase as principal gets paid down and rents go up). This is actually a decent return if the risks noted are manageable. But would you make this investment today?

or best case $7000/$17000 = 41% (haven't truly thought through the logic on this one ).

But they all ignore the conditions specific to your duplex. And...the most important question of all....Do you want to be a landlord? So far it seems your family's been doing the heavy lifting. This may be a good time to rid yourself of the property owning headaches and the burden to your family.

Or possibly, since you're looking for work....you could rent out 1/2 live in the other, and find work close to the place?

For me, I'd only consider holding if I lived close by. There would have to be some other very strong factors at play otherwise.


----------



## peterk (May 16, 2010)

No offence to anyone's particular point of view, but these housing discussions are enlightening for me. I think I can confidently say that I will likely never buy a house to live in, and it would be over my dead body that any money of mine got put towards a rental property. 
My advice - Sell and invest. A house is nothing more or less than inflation protection. Even bonds will do better.


----------

