Rent It or Sell It?

Welcome to Canada's Property Management podcast, your number one resource for investing, managing and maximizing the value of your real estate assets. And now here's your hosts, Carla Brown and Adrian Schulz, Canada's rental property experts.

Carla Browne:

I feel that this could be a song, but Adrian, I am not much of a singer, but do I sell or do I rent? I don't know. Is that a children's song of some sort? I'm not using sell and rent.

Adrian Schulz:

Before you mentioned that, I was thinking there needs to be background music right now.

Carla Browne:

Right?

Adrian Schulz:

So yeah, we're on the same page. And that's the question of the day.

Carla Browne:

It is. We're getting more and more investors right now just in the economic environment and what's coming down the pipe or what everyone is talking about from the media perspective. Now people are like, they can't sell for what they would like to sell it for. So do I rent? And they're asking these questions of us, right? Do I sell or do I rent? And of course, when you come to me, it's like, well, sure you should rent. But sometimes that is not always the best given the situation. For some people, if they are not willing to have that flip in mindset, selling or trying to sell might be better for them. But what I would like to dive into is from your perspective, and I know your experience is, where can we help them see the benefit if they're going to rent this property now instead of sell it?

Adrian Schulz:

Well, first of all, I think that there are more often times when you should seriously consider renting out your existing home. And the reason for that is, I suppose twofold. Number one, if you keep your existing home and rent it out, first of all, you don't have to deal with land transfer tax, capital gains, et cetera, et cetera, because there's a real estate disposition cost when you're disposing of an asset. So you forgo the loss of those costs. You also now get the ability to purchase another primary home, the one that you're going to live in with as little as 5% down payment.

Carla Browne:

That is so key.

Adrian Schulz:

Usually to get into real estate, you need to have a minimum 20% down payment to buy a rental property. But the caveat is, if you rent out your existing home and buy another home that you're going to live in, you get to use the high ratio insured mortgage program again, or perhaps the first time if you made a bigger down payment with your first home. So that's huge. The other thing that's great is that the primary home that you're about to rent out, the interest that you're paying becomes tax deductible, which means the rent money you get each month, a part of that rent money, you're not taxed on because it's going towards interest payment. And the other thing is is those monthly rent payments that are coming in, they are servicing the debt, the mortgage of that rental property.

So wait a minute, you're paying off a mortgage on your old home, but you're not. The tenant is paying off the mortgage on your old home, and the interest is tax deductible and you got to buy a second home. You have started how most families created legacy wealth, which is through long term real estate holding.

Carla Browne:

Yeah. Key thing that you just said there. Long term real estate holding. So it's a bit of a mind shift because you can actually take a situation where someone is, I can't sell my house for what I need to get out of it. And now you can become an investor, but with investments, there's always going to be highs and lows and you can't think of it as a short term thing. And a lot of these, what I call almost accidental landlords, you've heard me use that before, come to us, but their end game is to sell. And you have to do a mind shift and realize that, okay, I'm going to try to rent it. I'm going to see how this works. I'm going to realize that now these tenants are paying down my debt. I have these other advantages that Adrian has just brought to light.

And then a year from now, let's see what the market looks like. Maybe it is a good time for you to sell, but maybe at this point you're saying, "Hey, now I can actually create this long term wealth program by investing or keeping this investment." We can kind of, not convert somebody from selling because I don't want to say that, but we can make them understand that investor mindset and get out of that, well, I just want to be a landlord, because I don't even like to refer to our owners as the landlords because I just feel it has such a weird connotation.

Adrian Schulz:

They're investors.

Carla Browne:

Yeah, they are investors 100%. But investment real estate, any kind of real estate, economic conditions, everything is a cycle. So if you want to look at it very long term, but if you're going to look at it short term, let's make sure you're doing it when the cycle tells you that it's the best time to sell it and just keep in communication with us. I find that that's the best way to do it, is that if the time comes that now my realtor says the market has changed and this looks like a good opportunity for you to sell, you need just to let us know so we can do all of that timing with tenants that make the most sense. But I think the key things that you've brought to light here in this one is that now is not the time to necessarily sell off. Don't sell it off. Look at some different options that could actually be helping you long term and get you into a house at a lower cost. And you could be paying off your current mortgage that you're sitting in your house right now.

Adrian Schulz:

I love comparisons. And when you think about your retirement investment portfolio if you own stocks, equities, or mutual funds, for the most part, they're down right now. There's not a lot of people selling the stocks in their portfolio because they're down. So real estate is just another investment type. And right now I would say that values have cooled. I don't want to go and say they've gone down, but I would say they've cooled. They're no longer on that strong upward shift. So right now is not necessarily the greatest time to sell. I'm reminded of an oldie but a goodie. And that is, and it's a shameless plug, but I had created a webinar about a year ago called One Property Away: How You Can Change Your Life by Just Buying One Rental Property. And I think it's very relevant to this discussion. If you want to check it out, you can go to onepropertyaway.ca.

It is from a year ago, but the value of the content hasn't changed. It just goes into real depth over the course of about 30 minutes on what's all involved in acquiring your first rental property, which can in fact change your life. What we spoke about earlier, how you can go and buy your next home with as little as 5% down and keeping your old primary home as a rental property really fits into that one property away to change your life program or idea. It's an idea and a concept.

Carla Browne:

Yeah. Thank you. Thank you. I think I have seen that webinar. I think you sent that to me.

Adrian Schulz:

No doubt. Shameless self-promotion, that's Adrian.

Carla Browne:

Yeah. Yeah, for sure. Okay, so to kind of sum things up, I think it's really important that if you are in a situation where you are relocating, downsizing, upsizing, whatever the case may be, that's driving you to look at selling your property, work with your realtor, work with your property manager, try to do some comparisons, figure out what is going to be the best decision for you, and realize that you're not in a situation where you have to sell just because you think you have to sell. There are other options and you need to look at that and see what real estate could actually do for you from a wealth perspective looking at it from a long term investment. But I think there's a lot of really key little things then tips that you gave here, Adrian, that should help some people out to making this decision. Now that's real property management.

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