Keep my first house and rent it out or sell it?

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Keep my first house and rent it out or sell it?

Sherri Morrison
Corunna, Ontario · Member since 2019 · 3 posts · 0 votes

Thanks to anyone reading this! It's my first post, and am learning more everyday about real estate.

We purchased the 1963 bungalow house (in Ontario, Canada) in 2010 for $155,000. It's probably worth around $275,000 if we sold today. And over the years we've put about $25,000 into it - although it would still need more to get it rent-ready (at least $5,000). The remaining mortgage is $80,000, and we're looking to buy a new house to live in for less than $350,000.

So - since the value has increased so much, would it make sense to sell it?

If we refinanced the house at $230,00, monthly payments + taxes would be $1379. Plus we would still need to factor in maintenance.

Houses in the area generally rent for $1500-$1800

Does refinancing at $230k to refinance make sense? Does that sound like something that's possible, or would it be more like $165,00 if they only let you refinance up to 60%? I choose $230 because it seemed like the number that would allow us to rent it out, plus give us a good downpayment on a new home. However, if the real value of $275,000 was used, I don't believe that the rent would cover the expenses - so it makes me wonder if it would make more sense to sell it.

Please share any guidance or advice, I'd greatly appreciate it!

Sherri

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Huong Luu
Specialist · Vancouver, BC · Member since 2016 · 315 posts · 145 votes
6y

Hi. Great question and great situation to be in. I would suggest keeping the property and renting it out, only if you can cash flow it. There are other things you can do with your money that will give you a return (and without the headaches of being a landlord). I hear what Roy is saying about the appreciation, but you can't count on that. Being close to Sarnia, the appreciation growth has been good. Also keep in mind, most lenders will give you 80% LTV of their appraised value. Regardless of what you can sell it for in the market or what another appraiser says or what your RE agent says, the lender will use their own appraisers.

Have you considered staying in this house, refinancing with a HELOC and then using the HELOC to buy an investment property? This way, your investment property would be a full tax write-off (including the land transfer tax(es), along with the HELOC interest. Also, this would probably allow you to access more funds to buy a multiplex.

Good luck

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  • Roy Cleeves
    Residential Real Estate Broker · Kitchener, Ontario · Member since 2014 · 687 posts · 370 votes
    6y

    You should keep it and rent it even if you have to put a little money in each month.  Because you will make money by the mortgage being paid down each month and hopefully it will continue to appreciate in value each month and finally rents will go up over time to cover it.  

    Think of it like an RRSP. IF YOU had to put in $100 each month yet at the end of the year you had $5,000 and you got that by only putting in $100 a month, you would probably do that. 

    So if you can afford to keep it and rent it - then it will lead to long term wealth. 

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  • Sherri Morrison
    OP
    Corunna, Ontario · Member since 2019 · 3 posts · 0 votes
    6y

    Thank you Roy, that's a great perspective on considering the big, long term picture. I really appreciate your response. Wonder if the first step into rentals is always the hardest?! Feels like a big mindset shift.

    0Reply
  • Huong Luu
    Specialist · Vancouver, BC · Member since 2016 · 315 posts · 145 votes
    6y

    Hi. Great question and great situation to be in. I would suggest keeping the property and renting it out, only if you can cash flow it. There are other things you can do with your money that will give you a return (and without the headaches of being a landlord). I hear what Roy is saying about the appreciation, but you can't count on that. Being close to Sarnia, the appreciation growth has been good. Also keep in mind, most lenders will give you 80% LTV of their appraised value. Regardless of what you can sell it for in the market or what another appraiser says or what your RE agent says, the lender will use their own appraisers.

    Have you considered staying in this house, refinancing with a HELOC and then using the HELOC to buy an investment property? This way, your investment property would be a full tax write-off (including the land transfer tax(es), along with the HELOC interest. Also, this would probably allow you to access more funds to buy a multiplex.

    Good luck

    1Reply
  • Sherri Morrison
    OP
    Corunna, Ontario · Member since 2019 · 3 posts · 0 votes
    6y
    Thanks so much Huong for taking the time to offer your guidance. I didn't realize lenders would use their own appraisers. Does that mean I shouldn't bother getting an independent appraiser?

    We thought about staying in the house, but due to new jobs coming in around the area recently, the street the house is located on has become very busy, and we are looking for a quiet place to live. It might be a good thing for renting out since so many people passing by will see our For Rent sign though!
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  • Huong Luu
    Specialist · Vancouver, BC · Member since 2016 · 315 posts · 145 votes
    6y

    HI @Sherri Morrison, An indep appraiser can run you around $300 to $500+. Hold off on getting an appraisal until someone tells you to get 1. The reports are only valid for a 30-90 days. 

    I haven't done a 'for rent' sign in over 10 years. There are many free on-line platforms (facebook, craigslist, rentboard, etc) to find A-grade tenants. On-line platform allows you to 'sell' the property without as much work as a lawn sign (ie pictures and descriptions, etc) so you are filtering out tenants before they call you. 

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