# Buying a New Home, Sell or Rent the Old One?



## Ralmac (Apr 11, 2013)

Hi,

My wife and I have just had a baby and want to move into a larger home. We currently own a two bedroom condo worth approximately $400K, with $200K in equity.

We live in downtown TO and we have enough cash to lay 20% down on our new home without selling our existing place.

Question...

Is there a scenario, under which, it makes sense to KEEP the existing condo and rent it out? Currently, our mortgage, taxes, and fees come to $1700. Our projected rental is in the $1600-$1800. 

Thanks! Love the forum.


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## NotMe (Jan 10, 2011)

Ralmac said:


> Hi,
> 
> My wife and I have just had a baby and want to move into a larger home. We currently own a two bedroom condo worth approximately $400K, with $200K in equity.
> 
> ...


You have to do what you want to do. Have you been a landlord before? Do you want to be one? Are your assets diversified, or if you bought this second home would all your money be in one asset class? Can you afford daycare etc when the baby turns one? Do you have the roughly $10,000 (+/-) you'll probably spend on the new house (unless it's new new new that is) once you move in? Six months emergency fund? 

Quite frankly the math to me doesn't suggest that a good return on your investment -- you spend $1700 a month every month, and most but not all months (have to assume sometimes it's empty) you get bestcase scenario $100 back - but one broken toilet kills that pretty fast. Taking $200,000 and putting it financial stocks will pay about a 5% dividend right away which is $833 a month that's taxed quite advantageously. Seems easier to me. Your system will work only if the condominimum appreciates in value as it ages, which it may.. or may not.


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## cfriesen46 (Jan 3, 2014)

*Sell*

As someone who has been in this scenario and chosen to rent. I would not recommend renting out the property unless you can clear a minimum of $500 per month. With only $100 profit per month it doesn't take much going wrong to destroy any benefit. Also if you decide to sell the condo down the road you may have to pay capital gains taxes as it wouldn't be your principal residence.


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## Just a Guy (Mar 27, 2012)

It's pretty clear cut that renting it would be a bad investment. Sell it, pay down your primary residence and then borrow back the money on a heloc if you want to invest it.


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## Ralmac (Apr 11, 2013)

Thanks guys. I didn't think it was a good idea but thought there might be something I wasn't considering.

I appreciate your time.


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## kcowan (Jul 1, 2010)

Don't forget to account for the costs of selling it. Get an agent to estimate what your net yield ought to be.


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## hboy43 (May 10, 2009)

Hi:

Given that housing is expensive these days as based upon numerous metrics ... I'd say we are at a sell high(ish) time ... suggests sell is best.
Given that interest rates have nowhere but up to go (eventually, may be 10 years yet)... lends to the sell argument.
Given that two housing units likely leaves you with very poor diversification ... lends to the sell argument.
Given that being a landlord is a PITA .. you guessed it lends to the sell argument.
Given that it will be more fun to spend time with your kids than fixing a leaking roof ... sell.

I have been a landlord and I don't recommend it. I never got really screwed, but never did anywhere near as well as stocks either.

hboy43


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## Cal (Jun 17, 2009)

Sell. $1200 a year in profit, is a .6% return on $200,000. Unless you future mortgage is less than this rate of return it is in your best interest to sell. 

I think the lowest rate currently is 2.99% for a 5 year variable. (but I could be wrong on that)


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