Real Estate

To keep or sell rental property

  • Last Updated:
  • Jun 7th, 2019 8:44 am
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills

To keep or sell rental property

Looking for opinions. I have a rental corner townhouse in Brampton Mount Pleasant area for 4 years. Same excellent tenant. The rent is low and my tenant has no plans to leave. They pay $1750 and the market rent is now at $2400. I'm currently out of pocket ~$300/month. Over the 4 years the house has appreciated $250,000 but has now leveled off.

I figured my options are:
  1. Sell and be happy with my appreciation
  • Hold and do the increase per guidelines
  • Ask my tenant to pay $300/month extra to prevent me from selling.
I don't want to back my tenant into a corner with option 3 but I'm losing money every month. Any thoughts are appreciated.
35 replies
Deal Fanatic
Feb 22, 2011
9746 posts
11999 upvotes
Toronto
If I were you I would refinance at renewal, extend out the amortization which will greatly reduce the mortgage payment. Problem solved you retain an appreciating asset and aren't losing money every month.

That said there is nothing wrong with taking profits. If you want to sell and pay off your house go for it.

No matter what you should increase by the max asap though, no reason not to.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
mazerbeaner wrote: If I were you I would refinance at renewal, extend out the amortization which will greatly reduce the mortgage payment. Problem solved you retain an appreciating asset and aren't losing money every month.

That said there is nothing wrong with taking profits. If you want to sell and pay off your house go for it.

No matter what you should increase by the max asap though, no reason not to.
Thanks for the quick reply. We did take on a sizable personal residence mortgage which the profits from sale would put a nice dent in. You're right, I'll increase ASAP.
Deal Guru
User avatar
Mar 23, 2008
11908 posts
8172 upvotes
Edmonton
Keep in mind that while you're out of pocket by $300/month, your tenant's rent payment is still paying down your mortgage by the principal payment amount. You could set up a HELOC on the property if you have enough equity, and draw on that as required. The available balance on the HELOC will go up every month as the mortgage principal goes down. You will pay interest at a slightly higher rate on the HELOC as compared to a mortgage, but you can roll that into a standard mortgage later if you wish.

As far as your tenant goes, you could talk to them about an "above limit" rent increase, especially if you have a good relationship, haven't raised the rent for awhile, and they know that they're paying "below market value" for their rent. A tenant can agree to a larger increase; you just can't force it on them. You could even offer to do some renovation to make their life easier/better (new kitchen or bathroom?) to give them "value" for their rent increase. That would involve a bulk "out of pocket" expense, but could be drawn from the HELOC above. But that might make them happier about accepting an increase to something closer to market value.

On the other hand, if your property is no longer appreciating and you don't anticipate it doing so again in the near future, you may want to dump the property and purchase elsewhere.

C
Sr. Member
Dec 28, 2010
683 posts
285 upvotes
Toronto
CNeufeld wrote: As far as your tenant goes, you could talk to them about an "above limit" rent increase, especially if you have a good relationship, haven't raised the rent for awhile, and they know that they're paying "below market value" for their rent. A tenant can agree to a larger increase; you just can't force it on them.
C
+1 It's worth exploring this without assuming that tenant will no accept. If you talk to them openly and suggest that you are looking to sell as obviously you are paying out of pocket and maybe included other freebies all this while - like hot water rental, any other fees or tenant insurance etc at no extra cost. Just saying that this is an option that you can just validate by having a open conversation. And most probably you will not get the $300 increase but perhaps a higher increase than the norm.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
Thanks for the replies. Solid advice. We do have a good relationship and I have mentioned earlier this year that I am considering selling. For now I'll see if they are willing to pay above the guidelines. They should go for it as if I sell they will have to pay current market rent anywhere else. I don't want to "back them into a corner" but my choices are limited.
Sr. Member
Jun 7, 2017
958 posts
712 upvotes
BC
mazerbeaner wrote: If I were you I would refinance at renewal, extend out the amortization which will greatly reduce the mortgage payment. Problem solved you retain an appreciating asset and aren't losing money every month.
OP said Brampton.
Newbie
Aug 9, 2015
60 posts
28 upvotes
Toronto, ON
thisischris wrote: Thanks for the replies. Solid advice. We do have a good relationship and I have mentioned earlier this year that I am considering selling. For now I'll see if they are willing to pay above the guidelines. They should go for it as if I sell they will have to pay current market rent anywhere else. I don't want to "back them into a corner" but my choices are limited.
You are a good landlord, I wish I had one like you.
My landlord suddenly infromed me they want to sell the place and ask me to move out in 60 days. I told them no you can't kick me out just because you want to sell. They listed the place and I have aceepted all showing appointments. The landlord wants an above market price so the place never got sold after a few weeks on the market. Now they are blaming me for their place can't sell at their wanted price, because I'm messy, that I have plates and cookwares on my countertop. And they are threating to move in and kick me out.
I'm on an acitive search to purchase a place now but it isn't going to be very fast (1st time buyer). I wish landlord told me earily this year that they want to sell so I have plenty time for a house hunting.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
Furcorn wrote: OP said Brampton.
The house appreciated $250,000+ in 4 years. Maybe not Toronto or Vancouver standards but still a solid payday in my opinion.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
sha8192 wrote: You are a good landlord, I wish I had one like you.
My landlord suddenly infromed me they want to sell the place and ask me to move out in 60 days. I told them no you can't kick me out just because you want to sell. They listed the place and I have aceepted all showing appointments. The landlord wants an above market price so the place never got sold after a few weeks on the market. Now they are blaming me for their place can't sell at their wanted price, because I'm messy, that I have plates and cookwares on my countertop. And they are threating to move in and kick me out.
I'm on an acitive search to purchase a place now but it isn't going to be very fast (1st time buyer). I wish landlord told me earily this year that they want to sell so I have plenty time for a house hunting.
That's unfortunate. I told my tenant in February that my wife and I are considering selling but reassured them that I would give ample notice (6+ months). I explained the reasons why and they were understanding. I prefer to be upfront and honest and it's worked out so far.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
CNeufeld wrote: Keep in mind that while you're out of pocket by $300/month, your tenant's rent payment is still paying down your mortgage by the principal payment amount. You could set up a HELOC on the property if you have enough equity, and draw on that as required. The available balance on the HELOC will go up every month as the mortgage principal goes down. You will pay interest at a slightly higher rate on the HELOC as compared to a mortgage, but you can roll that into a standard mortgage later if you wish.

As far as your tenant goes, you could talk to them about an "above limit" rent increase, especially if you have a good relationship, haven't raised the rent for awhile, and they know that they're paying "below market value" for their rent. A tenant can agree to a larger increase; you just can't force it on them. You could even offer to do some renovation to make their life easier/better (new kitchen or bathroom?) to give them "value" for their rent increase. That would involve a bulk "out of pocket" expense, but could be drawn from the HELOC above. But that might make them happier about accepting an increase to something closer to market value.

On the other hand, if your property is no longer appreciating and you don't anticipate it doing so again in the near future, you may want to dump the property and purchase elsewhere.

C
Thanks for the tips. I was planning on updating the backyard with a deck. I can deffinately add that to sweeten the deal.
Member
Jul 2, 2018
263 posts
256 upvotes
Brampton is a good market that is outperforming other areas of the GTA and in the future will continue to do so, especially in your specific location.
Hold it longterm, refinance it, get a 30 yr amort, buy a cash flowing property out west with the proceeds that cashflows nicely to offset this property.
Or do the math on selling -> paying taxes and transaction costs -> acquiring cashflowing multi-family and see which way you think you will end up ahead.

Another option is Cash For Keys, although I am not too sure how effective it will be in your scenario.
Realtor + Investor
Deal Guru
Feb 29, 2008
13935 posts
10208 upvotes
There is a chance that your tenant doesn't give a rat's ass that he/she is paying way below market rent. I tried to increase rent by $20 and my tenant bitched about it. Been living there 4 years paying well under market rent.
Deal Fanatic
Jun 26, 2007
5954 posts
1430 upvotes
???
JayLove06 wrote: There is a chance that your tenant doesn't give a rat's ass that he/she is paying way below market rent. I tried to increase rent by $20 and my tenant bitched about it. Been living there 4 years paying well under market rent.
Did you increase it every year to the maximum allowed? Can’t fault a tenant if you’re not doing due diligence as a landlord.
Deal Fanatic
Jun 26, 2007
5954 posts
1430 upvotes
???
sha8192 wrote: You are a good landlord, I wish I had one like you.
My landlord suddenly infromed me they want to sell the place and ask me to move out in 60 days. I told them no you can't kick me out just because you want to sell. They listed the place and I have aceepted all showing appointments. The landlord wants an above market price so the place never got sold after a few weeks on the market. Now they are blaming me for their place can't sell at their wanted price, because I'm messy, that I have plates and cookwares on my countertop. And they are threating to move in and kick me out.
I'm on an acitive search to purchase a place now but it isn't going to be very fast (1st time buyer). I wish landlord told me earily this year that they want to sell so I have plenty time for a house hunting.
If they do end up terminating your lease and you move out because of them “moving in”, and they actually do not move in and find a new tenant. You can get rent abatement from the landlord and tenant board.
Deal Guru
Feb 29, 2008
13935 posts
10208 upvotes
vaportech wrote: Did you increase it every year to the maximum allowed? Can’t fault a tenant if you’re not doing due diligence as a landlord.
Yes and will continue to go to the max. But I had this tenant before the new rules. Benefited greatly from rent controls. I’ll have the last laugh though.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
JayLove06 wrote: There is a chance that your tenant doesn't give a rat's ass that he/she is paying way below market rent. I tried to increase rent by $20 and my tenant bitched about it. Been living there 4 years paying well under market rent.
Of course any tenant would want to pay below market rent. The difference here is that I am prepared to sell. The end result would be them moving and paying current market rent. Even if they payed a few hundred extra (unlikely) it would still be WAY below market rent for the area.
Deal Guru
Feb 29, 2008
13935 posts
10208 upvotes
thisischris wrote: Of course any tenant would want to pay below market rent. The difference here is that I am prepared to sell. The end result would be them moving and paying current market rent. Even if they payed a few hundred extra (unlikely) it would still be WAY below market rent for the area.
For sure. I agree, but keep in mind your tenant may still refuse to pay more. I get the logic, but not everyone thinks that way. Anyways, friend of mine got his tenant out by telling him he was putting the place on the market. The tenant left ASAP.

I was just showing you the other side. Some tenants don’t care if they’re paying below market rent. There’s a couple threads here on the topic and you’d be surprised at the entitlement from some tenants..

If you’re a tenant paying well below market rent be prepared.
Sr. Member
Aug 20, 2015
514 posts
301 upvotes
Toronto
What were your plans with the place when you got it 4 years ago? I imagine you were still cash flow negative by 300 a month back then (or more if you increased rent per year). Now you're still cash flow negative by 300 but with appreciation on the unit by $250k.
IMO you should question why you got it in the first place. If you would prefer to lock in the appreciation now you could, but it might be even harder in the future to acquire another rental property.
[OP]
Member
Jun 10, 2008
461 posts
331 upvotes
Halton Hills
tsingoo wrote: What were your plans with the place when you got it 4 years ago? I imagine you were still cash flow negative by 300 a month back then (or more if you increased rent per year). Now you're still cash flow negative by 300 but with appreciation on the unit by $250k.
IMO you should question why you got it in the first place. If you would prefer to lock in the appreciation now you could, but it might be even harder in the future to acquire another rental property.
My plan was long term retirement investment. I was slightly negative at first but with the high appreciation I wasn't too bothered. I did not raise rent the first 2 years since my tenants are 10/10. That paired with property taxes creeping up got me around -$300. The biggest financial change is that we moved and took on a big personal mortgage. We're not house poor but I live that way. I hate having personal debt and put every spare dollar into my mortgage. This is why cashing out is appealing to me. I wouldn't be losing $300/month and would cut my mortgage in more that half.

And yes I know I should have raised the rent each year but these tenants keep the house spotless and don't call me for nonsense.

Top