# Stuck in Winnipeg



## Cold_one (Mar 23, 2011)

As we should know, real estate doesn't always appreciate. I have found this the hard way. Background: 3 years ago I bought a condo for my daughter to live in while at Univ of Manitoba. The building is close to the campus, well built - cement, inside parking and always full. When I bought it I had the opportunity to buy a second parking space so it has two indoor parking spaces. Of course paid at height of demand so have 300K into it, no mortgage. This summer she moved from Winnipeg for another opportunity, so I have it listed at 288K BECAUSE there is now a glut of condos in the area and hardly any re-sales. 

As it has been personal use for all this time, the capital loss on any sale can not be used against any capital gains I have from other investments. I can put it into the buildings rental pool and earn about 1600/mo before expenses - about $1000/mo net after property taxes, condo fees, mgmt fee (necessary as I live 2 hours away). My accountant says that by doing this I can then, after a period of time, say it is rental property and a capital loss can then be used against capital gains. The problem is if it is in the rental pool, then it may be harder to sell as the tenants have to be considered.

I know that free advice is just what its worth, however I am venting and am looking for thoughts. If I drop the price to a point that it sells, I take a real hit. If I hold, rent then at least I get say $1k/mo net plus the capital loss is then useable against other gains. I could also take a HELOC or mortgage on the place to earn put money into other investments, but that is increasing risk as if the investments go down ....then...

Don't want to buy another condo or property as one hit is enough, plus I like investments to be a little more liquid. Certainly not in Winnipeg at the moment!

Appreciate thoughts.


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## gibor365 (Apr 1, 2011)

> The problem is if it is in the rental pool, then it may be harder to sell as the tenants have to be considered.


 I agree. Because you condo is close to University, and if you rent to students , it will be harder to sell...


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## Spudd (Oct 11, 2011)

On the bright side, your daughter probably would have paid more in rent than you will lose on the condo sale. So you can still consider that as a family, you came out ahead on the deal. 

If you don't sell it now, I think odds are the price will continue going down in the future as interest rates eventually start to rise back up again.


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## Xoron (Jun 22, 2010)

Cold_one said:


> ...
> My accountant says that by doing this I can then, after a period of time, say it is rental property and a capital loss can then be used against capital gains.
> ...


BUT, When it changes from Personal use to Rental, you have to declare a "Value" for it. If you declare the full value ($300k) at the time of the change, and then shortly after claim a loss (by selling it lower than $300k), the CRA might have something to say about it. 

Be sure to get a written estimate on the value as backup if you go this route.


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## Potato (Apr 3, 2009)

Cold_one said:


> As it has been personal use for all this time, the capital loss on any sale can not be used against any capital gains I have from other investments.


Check this again with your accountant, it should be -- you can't get out of a capital gain on a secondary property just because it was for personal use. Even if not, the amount isn't worth the headaches of becoming a long-distance landlord to students. ~$12k of loss turns into ~$3k of tax savings even at a 50% tax rate. A rounding error on the other costs of the deal.



> about $1000/mo net after property taxes, condo fees, mgmt fee


What about vacancy and repairs? Plus this will be taxable income -- 6 months of (successful) renting would create a larger tax bill than the one you're trying to get back with the capital loss (assuming you do need to do any of this rigamarole to claim the capital loss in the first place). 

You're only looking at ~4% yield here, likely less if you add in a few thousand to repaint and replace the fridge after each ~3 year cohort of students passes through plus some vacancy.


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## Cold_one (Mar 23, 2011)

Potato said:


> Check this again with your accountant, it should be -- you can't get out of a capital gain on a secondary property just because it was for personal use. Even if not, the amount isn't worth the headaches of becoming a long-distance landlord to students. ~$12k of loss turns into ~$3k of tax savings even at a 50% tax rate. A rounding error on the other costs of the deal.
> 
> 
> 
> ...


All the replies are affirming my basic inclination to sell and suck up the loss - going to be more than 12K; list is 12K off purchase, but any offer will be less than list and then there is the 5% commission, so probably 30-35K loss! And currently it is empty but I am paying: condo fees, prop taxes, minor utilities = $600/mo. It was bought for a purpose (which is over) and at the time I had hoped if it sold for what I paid then OK. That isn't going to work out and I don't really want to be a landlord with all the potential headaches involved. For the relatively small income (after tax) it can generate, I'd rather have the cash to invest into dividend paying stocks or whatever, that are more liquid - with no tenants to deal with. 

I'm not 100% sure, but CRA seems to have a pretty hard rule here - personal use, if there is a gain, is taxed but if a loss then no deduction - a different standard but that is the way it is. I guess so CRA prevents taxpayers claiming losses on all kinds of personal use items - boat, rv, jewelry etc. OF course if you had bought a classic car and it appreciated, they'd want their cut. 

I appreciate the comments and I think I'm going to suggest to the agent to find a price that will move it sooner than later. 


Thanks,


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## none (Jan 15, 2013)

Spudd said:


> On the bright side, your daughter probably would have paid more in rent than you will lose on the condo sale. So you can still consider that as a family, you came out ahead on the deal.
> 
> If you don't sell it now, I think odds are the price will continue going down in the future as interest rates eventually start to rise back up again.


Not even close. Over the last 3 years a couch potato has made 7%+. This means that 300K would be worth ~370K. add on the condo fees, closing costs etc, blahblah. plus the 12K loss if he can sell PLUS the realtor fees of probably another 10K he's at LEAST 100K poorer for buying this condo. 

Unless his daughter was planning on spending about $3000 a month on rent each month over the last three years this is a financial disaster.


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## Cold_one (Mar 23, 2011)

none said:


> Not even close. Over the last 3 years a couch potato has made 7%+. This means that 300K would be worth ~370K. add on the condo fees, closing costs etc, blahblah. plus the 12K loss if he can sell PLUS the realtor fees of probably another 10K he's at LEAST 100K poorer for buying this condo.
> 
> Unless his daughter was planning on spending about $3000 a month on rent each month over the last three years this is a financial disaster.



Should have known better, but "it seemed like a good idea at the time".

Sucks to be me!!!


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## none (Jan 15, 2013)

I wasn't criticizing you or making light or fun... it seems like you fully realize your turn of bad luck. I get a bit tired of Spudd's level of thinking that renting is somehow ALWAYS bad. For example, in your case, renting would have been a much better investment.

I hope you find a way out of it all. I'd just sell it now, take your lumps and move on. Sorry for your non-capital loss.


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## heyjude (May 16, 2009)

Cold_one said:


> Should have known better, but "it seemed like a good idea at the time".
> 
> Sucks to be me!!!


Don't beat yourself up over this. It could be much worse. In 2005 I inherited my parents' home in Ireland. I sold it at the peak of the market to a parent of University students, just like you. He renovated the house. The market crashed and he later sold it for half of his purchase price.


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## Spudd (Oct 11, 2011)

none said:


> I wasn't criticizing you or making light or fun... it seems like you fully realize your turn of bad luck. I get a bit tired of Spudd's level of thinking that renting is somehow ALWAYS bad. For example, in your case, renting would have been a much better investment.
> 
> I hope you find a way out of it all. I'd just sell it now, take your lumps and move on. Sorry for your non-capital loss.


Haha, I'm actually a renter after we sold our house in Toronto to take advantage of the bubble (turned out, we did it a year too soon, but oh well). I was just trying to cheer him up.


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## Cold_one (Mar 23, 2011)

While there isn't a bottomless pit of money, I can accept the loss/hit and not affect me too much. My current issue is to sell it quickly as I don't want to deal with it any longer and as we go south for the winter, not wanting to try and deal with a long distance real estate transaction. This means trying to determine how low to move the price to get rid of it. A teaching moment perhaps - those of you in hot markets may not have to worry about selling but in Winnipeg, especially for condos, it is difficult. The supply is exceeding demand by quite a substantial percentage now, making it tougher to sell and certainly adjusting prices. Maybe it will come around but in the area my condo is in, a number of buildings (condos and apartments) have been built within the last year with more on stream - I guess there certainly wasn't any collusion among the developers as a number of units not sold out. This glut is only going to make it more difficult to sell in the future, thus my additional motivation to sell. For example, I know of a person who bought a condo (also for use by a relative) in a brand new building built by the same developers as my unit. He bought it a guaranteed price 2years ago while under construction. Guess what, the market price for that unit is now less than what he bought it at. 

So in the end it would have been better to have the money invested, take the income from it and have paid the rent with the income.


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## MoreMiles (Apr 20, 2011)

Spudd said:


> Haha, I'm actually a renter after we sold our house in Toronto to take advantage of the bubble (turned out, we did it a year too soon, but oh well). I was just trying to cheer him up.


A year too soon? Am I missing something? The rise of Toronto housing price has not stopped yet so why are calling a peak already? You may be 5 years too soon or 30% too soon which nobody knows until after the fact.


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