Sell vs rent condo to upgrade to new townhouse / Tax-free capital gain vs cashflow (What would RFD do?)

• Not having kids certainly makes a huge difference in monthly expenses compared to our friends who have (simply a lifestyle choice, please don't make such decisions based on finances)
• Consistently live below our means since we started working. We plan on splurging for our new home but will maintain financial discipline going forward
• Good old saving and investing, we put enough aside to max out our TFSA / RRSP and beyond. Compound interest is a proven wealth creator. No trust fund or generational money involved, I envy those who had parental assistance for their first home
• Speaking of first home, we started really small hence the desire to upgrade. In hindsight, we could have purchased 2x or 3x more house and ride the real estate boom in the past ten years, and end up with similar net worth (although much less for investments)
• Which leads to one can buy and sell real estate, no one is tied to their forever home (whatever they sell on HGTV) I read enough threads and everyone wants to jump on SFHs as soon as they graduate... we couldn't do it 15 years ago and we certainly can't in today's market so we are "settling" with a townhouse. Baby steps and accumulate wealth at your own pace.

TwinkoStar wrote: ↑ I think most people who sell end up regretting it, myself included. Many wise people advise to “buy and hold forever” unless you’re really not interested in dealing with rentals... you’ll still get to have the cap gain until 2021/22 tax free so there’s really no reason to sell right now? Condo rentals are also fairly easy to manage and low risk.

By the way if you go with Plan B, I’d advise refinancing the full 80% and put that into your primary residence as the interests can be tax deductible against the rental income.

What I’m more interested in is, how did you guys accumulate 800k in assets at 150k household income? That’s quite a feat!

IForgotMyRFDName wrote: ↑ Howdy MarinersFanatik!

Whether we have rental property or not is inconsequential to our retirement goals. Fast forward 20 years, we would have certainly accumulated a net worth of 7 digits. This provides enough passive income to live comfortably (once we include standard pension + OAS). At that age we see ourselves downsizing back to a small appartment or condo, with even less monthly expenses.

My circle of friends would say keep the condo and rent it out. I see the allure in creating a new source of passive income and I favor real estate as much as stocks. But I trust strangers' opinions on RFD more than my own friends, ha!

ZhaoW9051 wrote: ↑ Are you sure about the refinancing is tax detectible? The refinanced money goes to the primary residence which is not a investment, so the tax will not be deductible. If the refinanced money goes to a investment account, then the tax can be deductible

MarinersFanatik wrote: ↑ If you feel like having a rental property is inconsequential to your retirement goals, then I don't see any reason why you need to do it. It takes work being a landlord and sometimes it can be stressful dealing with tenants. Why deal with it if you don't have to?

• Interest rate fixed at 2% for 25 years
• I'm able to increase rent each year to cover any increase in operating expenses (increase in condo fees, taxes, insurance and inflation)
• Able to maintain margins, cash flow positive at $200+ per month (or $2,400 per year)
• AAA+ quality tenant who accepts this annual increase and pays on time each month for 25 years straight
• Property is kept pristine, no major renovation required even after 25 years later

IForgotMyRFDName wrote: ↑ Thank you MarinersFanatik, it's a dilemma that I'm facing now because I happen to be at that inflection point. Rental property, just like anything else, has its pros and cons. The key question is if I have to endure extra work and stress dealing with tenants, is the ROI worth it?

IForgotMyRFDName wrote: ↑ Thank you MarinersFanatik, it's a dilemma that I'm facing now because I happen to be at that inflection point. Rental property, just like anything else, has its pros and cons. The key question is if I have to endure extra work and stress dealing with tenants, is the ROI worth it?

Per my napkin math to sircheersa above, let's add a few more assumptions:

• Interest rate fixed at 2% for 25 years
• I'm able to increase rent each year to cover any increase in operating expenses (increase in condo fees, taxes, insurance and inflation)
• Able to maintain margins, cash flow positive at $200+ per month (or $2,400 per year)
• AAA+ quality tenant who accepts this annual increase and pays on time each month for 25 years straight
• Property is kept pristine, no major renovation required even after 25 years later

In this ideal scenario, basically I'm being asked to carry $130,000 debt yielding 1.84% ($2,400 / $130,000) which is rather disheartening. Of course we agree that the property will appreciate significantly 25 years later, but I won't see that gain until I sell. Meanwhile, a huge portion of that gain is being offset by any money I need to put in within that time frame (no major renovation in 25 years is just unrealistic).

My takeaway in this thought process is that for the average person, having 1 or 2 rental properties won't materially affect one's net worth. By all means, if someone enjoys being a small landlord to collect a few hundred bucks of passive income, that's great! To make real money, one must commit into the rental game all the way and take advantage of one of the biggest pros of real estate: leverage. I must build enough home equity (through debt repayments + price appreciation), to refinance in a few years for a 3rd property (2nd rental). Rinse and repeat. Once you reach the level of 5 to 10 rental properties, now we are talking serious money (for the average person). At this point I have already become a part-time, if not full-time, property manager?

Either my math is totally wrong or I'm not seeing the full picture. This is why I am eager to hear from those who went through this.

techkid wrote: ↑ You might consider that being cash flow positive is a "best case scenario". Even if you break even (net zero cash flow), your tenant is helping you make mortgage principal payments which would be your "income" (it's just building your home equity rather than put into your investment portfolio). You likely won't be materially impacting your net worth from rental income from 1 or 2 rental properties, the real money would be from the potential price appreciation on the properties. The spread between the price appreciation and the mortgage interest rate multiplied by your leverage factor (let's say 4) is really what you're going after.

• You get to enjoy the largest living space
• Considered as strongest real estate subcategory (residential) with highest potential for price appreciation
• Tax-free capital gain when sold as primary residence

• Cash flow positive in an ideal scenario, most likely break even
• Tax-free capital gain when selling townhouse as primary residence, but this doesn't apply for other two condos
• Definitely some sweat equity required when dealing with tenants

• All these properties are across each other on the same street somewhere in GTA
• Same debt obligation, 20% downpayment and 2% interest for 25 years for all properties
• All properties built the same year, same level of quality

IForgotMyRFDName wrote: ↑ I knew we have smart people in this sub-forum.

Let's agree that whatever cash flow my rental properties would bring is negligible, and that the end game of real estate is the day we sell as the long term price appreciation is magnified due to leverage. In this case, wouldn't it make more sense for the average person to buy as much primary residence as possible, as opposed to splitting one's resources with multiple rentals? Consider the following examples:

Strategy #1: Buy single detached at $1.2 M and hold for 25 years

• You get to enjoy the largest living space
• Considered as strongest real estate subcategory (residential) with highest potential for price appreciation
• Tax-free capital gain when sold as primary residence

Strategy #2: Buy $600,000 townhouse + 2x $300,000 condos as rentals, hold for 25 years

• Cash flow positive in an ideal scenario, most likely break even
• Tax-free capital gain when selling townhouse as primary residence, but this doesn't apply for other two condos
• Definitely some sweat equity required when dealing with tenants

For the sake of simplifying our discussion:

• All these properties are across each other on the same street somewhere in GTA
• Same debt obligation, 20% downpayment and 2% interest for 25 years for all properties
• All properties built the same year, same level of quality

The logical conclusion is that the single detached will see the highest price appreciation and all of the capital gain will be tax-free when sold as primary residence. I understand that some see it as a lifestyle choice (ex: prefer living in condos rather than dealing with house work). I also acknowledge the ability to purchase rental properties in different markets or neighborhoods (diversification). But pound for pound, dollar for dollar, what are the odds that Strategy #2 will come out on top?