We've heard of renting versus buying calculators (such as the one from the Ontario Securities Commission Get Smarter About Money) but have we thought about renting versus selling your home (e.g. condo). I have always liked the idea of being a landlord (my dad has a number of properties that he manages) so perhaps it runs in the family. I have had experience renting out the basement suite on the house that I purchased with my ex-boyfriend (haha, so many things wrong with that sentence, like “house purchase with ex-boyfriend”). Oh goodness, just read that post about buying a home with the ex-boyfriend and it said we were planning to be hitched soon- geez what was I smoking…? I digress…. However, 3am calls about toilets getting plugged or issues with the fridge isn't what I am looking forward to but it's all part of the landlord game. I have to admit, collecting the rent cheques is kind of fun though.
I have always thought about renting out my place when I settle down. My place has no rental restrictions and would rent out very easily (especially with the low vacancy rates in Vancouver). However, if I buy a new place with my current man (don't worry I have learned that lesson, no buying places until engaged or married in my books) I would need to put a large down payment which would mean I need money. Either I liquidate my investment portfolio (which I must say, was pretty painful to do) including my TFSA (I wouldn't be able to use the First Time Home Buyer's Plan withdrawal from the RRSP anyways) or I sell my current home. The other scenario is that we rent for the interim in a smaller space until we have a family. Alternately we do have the option of living in each other's 450 and 550 square foot apartments together, though that is kind of below the recommended minimum amount of space of 100-400 square feet of space that each person needs.
Related: How to Buy a Home in Canada
Pros to Selling Home
- It would be less of a hassle because land-lordessing is another job
- Won't have to pay capital gains tax if I sell it now (for a profit) because it will be considered a primary residence
- Won't be so overvalued in real estate
- Likely won't appreciate that much more in value if I continue to hold on to it because it is a condo, and Vancouver's real estate market is ridiculous right now
- Less debt (well, individually anyway)
- Rental income (net deductions etc.) will be taxed the marginal rate. It wouldn't be very much anyway on an annual basis after you deduct the mortgage interest, property taxes, maintenance fees etc.
Cons to Selling Home
- Nice to have a ‘back-up' home, gives me a sense of feeling like a financially independent woman
- Less income stream (however, this can be a ‘pro' because the income stream likely isn't very much if you add up all the mortgage insurance cost, the maintenance fees, etc.)
Getting More Objective
There are some rent versus sell calculators available, like these ones from All Property Management and Rental Reporter. Not the most non-biased looking calculators, but they will do. They are also American, so things are a little different including the mortgage duration and capital gains tax (I believe our American friends have to pay capital gains tax on primary residence). I like the All Property Management calculator better because it breaks it down for you and says that you will have $X more money in 5 years (or 10 years whatever your horizon is) if you SELL or if you RENT.
You can adjust for costs like maintenance fees, property management (if you choose to go this route), property taxes in these calculations.
Based on the calculations, surprise surprise, it said that I would have more money if I sold my place now instead of renting it out. In the first year, I would have more money if I kept the place and rented it out (because of the fees associated with selling) but afterwards selling beats renting it out. I think that I'll make this decision should we end up needing a down payment for a place. If we don't, I will continue with renting it out (or perhaps living in it with my guy).
Readers, have you come across this situation before? What did you end up doing, rent out or sell?