# Selling v. Renting



## ykphil (Dec 13, 2009)

I own a mortgage-free house worth around $450,000 and I am relocating to Calgary to start a new job. I quit a very lucrative executive job (that I hated) to take a much lower paid job (the salary is ridiculously low, probably the equivalent of a junior greeter at Wal-Mart...but I love this new job), and without a rental income, or selling my house, I will not be able to afford living in Calgary. Luckily, I don't have any loan, debt or financial obligation, and I have a very frugal lifestyle. I am debating whether it would make more financial sense to rent the house or sell it. I have a serious and reliable person who is willing to rent my house for $1,900 + utilities on a 2-year lease. The only expense I would have to incur are municipal taxes (annually $2600). The house is in good condition and would likely not require any upgrade or significant expense in the next few years except regular maintenance.

I don't know much about investing and real estate, but my thinking is that it would be more advantageous for me to rent the house, use its equity to buy a property in Calgary, and use the rent money to pay for the mortgage and other monthly housing expenses. I'm pretty sure that at my current salary, I would not qualify for a mortgage, but thanks to my former credit rating, I still have a huge line of credit and a $50,000-limit credit card, both at zero. I'm also thinking that keeping my house would allow me to sell it at a higher price when the economy gets better.

I would appreciate any recommendation on what the best option would be in my situation.

Thanks in advance.


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## Rickson9 (Apr 9, 2009)

I would sell, book the tax-free gains and rent in the new city.

Why?



ykphil said:


> I don't know much about investing and real estate...


This.

No offense, but any opinion after that isn't important.


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## FrugalTrader (Oct 13, 2008)

One thing to note is that if you use the equity of a rental property to buy a principal residence, the interest is not tax deductible.

On another note, it's not a big deal to learn about property management. The biggest challenge would be taking care of the property from another province. However, that could be mitigated by finding a trusted property manager.


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## MoneyGal (Apr 24, 2009)

You'll also lose the PR tax exemption for the years in which your house is a rental property. 

You'll need to estimate FMV now and pay tax on gains for appreciation in years during which the house is rented. 

My advice is to make sure you've run these calculations in your estimate of how much you're going to come out ahead if you hold onto the house as opposed to selling it now. 

Also: I'm a little concerned that you may be suggesting you are going to finance a house purchase in Calgary using a line of credit and a credit card -- especially when you say your income is going to be very low. 

In your shoes I'd probably rent your house here and rent in Calgary as well, at least until you are clear that the job (which you haven't started yet?) is a good fit for you. I'd probably do this for a minimum of 6 months before I made any other decisions.


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## leslie (May 25, 2009)

I moved out of town and rented out instead of selling ..... BIG MISTAKE. Not only is managing from another city impossible, but when you realize your mistake and want to sell, selling it becomes impossible. Yeh, I can just hear you swear you have a great person who will look after things ... Their promises will soon be forgot.

I say sell, regardless of how the $$$ are working.

Also remember that Lines of Credit and credit cards are based on your employment. As soon as they figure out that has changed, your limits and rates will change as well. You should not finance long-term illiquid assets with on-demand debt.


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## firsttimehomebuyertips (Oct 3, 2009)

Ok, first of all that is great that you have no mortgage on your home! 

These days I like to keep things simple. Why not sell your property and take that huge amount of cash and put in to a bank account. Well, actually 5 different accounts in different banks.(so the money is insured) I am sure you could secure an interest rate of 2.5% on the money and that is $11,250 a year. Surely you could rent a place in Calgary for that amount. This is just what I would do. That way if you decided that after a few years you want to move somewhere else you don't have a property there that will complicate things.


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## Berubeland (Sep 6, 2009)

Frugal Trader - you should know better - property management is not simple. A good property manager will need to know a lot about construction, renovations and property maintenance and have good reliable cost effective contractors on their contact list, they will have in depth knowledge of tenancy law in their area, they must be able to have access to credit reports and knowledge of how to qualify and select GOOD tenants. That is just for a start!!! 

Good property managers are few and far between.


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## FrugalTrader (Oct 13, 2008)

Berube, you are right, it's not simple. I was thinking in the perspective that he only had one property and that he could learn as he goes. However, being in another province complicates things exponentially.


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## Cal (Jun 17, 2009)

I wouldn't recommend renting out a place that is far from where you live. Life happens, and when something needs to be checked or repaired, it can be a pain in the @ss to deal with if you are not close to the property.


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## Ben (Apr 3, 2009)

I'm with the general consensus above. I would sell the house, stick the cash in the bank, and rent in Calgary. Keep it simple. You'll have enough change to deal with in the new town without keeping one foot in the old world.



ykphil said:


> I'm also thinking that keeping my house would allow me to sell it at a higher price when the economy gets better.


The house may not be worth more tomorrow. In my community, house values are up 19% year-over-year, and the economy has been terrible. Why then should it surprise me to see house prices fall in a strong economy?


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## Dana (Nov 17, 2009)

I would sell the house. Here's why:

* you have no experience with property management/ landlording. It is difficult enough when you are in the same locale as your investment property, having a long-distance rental is even more complicated. 

* you have a potential tenant who you already know. Is s/he friend or family? Personal relationships and business often don't mix well. 

* If you claim income and expenses related to the property, it will become a deemed disposition for tax purposes and will no longer qualify as your personal residence, therefore you will be taxed on further gains. 

I would sell it and bank/ invest the money. I understand that you don't want to lose the tax-free growth that the home's appreciation will provide, but if your income is as low as you say it is and you maximize TFSA/RRSP contributions, your taxable income can be minimized.


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## Alexandra (Apr 3, 2009)

I would definitely sell the house and rent in your new city. It seems like Canada is still experiencing a housing bubble, and so why not take advantage of this fact and get out of the game for awhile while the numbers are with you?

It is hard enough to take care of a property while you are in the same city - doing so while out of the city could quickly become a nightmare.


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## Smac20 (Sep 7, 2009)

*Selling vs Renting - How to decide*

If you want a proven economic approach to decide whether selling or renting is right for you at a certain point in time you need to learn how to use the USER COST APPROACH. This is a powerful economic tool that was created back around 2005 and predicted the real estate bubble in the U.S. I adapted this approach to the Canadian Market Place for a term paper in my final Urban Land Economics Course for my Urban Land Economic Degree. I posted some excerpts from my paper and how to determine whether there is or is not a real estate bubble in http://investingincanada.info/2009/...-market-in-a-bubble-an-economic-response.html

It's a bit of a snoozer but full of great insight.


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## FirstRate (Dec 23, 2009)

I like your idea unless you think prices are going to drop dramatically in the near future. Then it would make sense to sell at the top and buy when it reaches bottom.


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