Keep or Sell?

Question

Hi BP family. Looking for points of view on selling or keeping properties in Toronto, Ontario. Here is the scenerio:

3-unit investment property worth $2m. Have $500K mortgage. Currently cash flows. Is it better to sell, pay off mortgage and capital gains and take the cash to invest in another property or is it better to refi/ETO and take the cash to invest in another property?

What else would you do with the cash if not buying another investment property?

Thanks in advance for your response.

Randall Alan · Answer

@Huong Luu

In my opinion, presuming you need the money - it is better to cash-out refi the property.  It avoids having to pay the capital gains and lets the property keep appreciating while you still own it and reap those future rewards and more cash-flow from the property in the meantime.  Bonus - the interest on the loan is tax deductible!

You would not want to over-leverage the property though.  The bank will make you leave 25% equity in the property - but you also still want the property to at least cash flow some - so be careful how much equity you pull out / new debt you take on.

I would do a cost benefit analysis of what your actual gain is in cash-flow on buying a new property with a (currently) higher interest rate (if financing), versus just holding on to the current appreciated property and enjoying that cash flow.

All the best!

Randy