In 2005, we bought our home for $420,000 (Richmond BC).
In 2016, we had an offer from a developer for $1.25M which we turned down because it was too sudden and we were buying our second income property. With that amount, we would have had to downsize to a townhouse in the came city.
Now, a land assembly agent thinks that we could get $1.65M based on the current market for redevelopment to townhouses. Since we have been thinking about this for the past 2 years, and have a total of 4 income properties, we are in a better place to sell and relocate somewhere more affordable. Cash flow on our income properties is low so there isn't enough to support us. After paying off our home mortgage and HELOC, we will be left with $1.45M.
A. Move, Buy your dream house (on Vancouver Island- Nanaimo) for ~$1.5M ocean front and with a detached mortgage helper and continue working.
B. Move, Buy a live-in flip ($500,000) and invest the rest on the right deal, examples?
C. Buy a duplex ($500,000) outright that would rent for $4000/month and buy something close to the dream home with a mortgage, and use the income from the duplex to pay down the mortgage (yes this is less than the 1% rule but that is my market).
There are many other options so feel free to share your thoughts. Large MF properties aren't readily available in the current market at fair prices. Cap rates are low because land value is at a premium.
I did just finish podcast 250 with Grant Cardone and am not interested in throwing away money in rent, or scaling up to multimillion dollar properties.
Remember I am Canadian- so our dollar is worth less that the USD.
Thanks in advance!
I would sell, buy a simple affordable home, invest the money in a income fund and continue working.
No point in continuing to purchase non cash flow properties and risk correction in real estate market. Appreciation speculation is becoming too high risk.
You should easily be able to average 8-12% returns in a fund. Assuming you could invest 1M, roll back in the income, you should be very comfortable at retirement.
Hi @Shaidah K. ,
Congrats on the appreciation in your property. I don't have a specific answer for you but I would focus on what your ultimate goal is. Do you like your job and want to continue working or are you looking for freedom from a day job? Based on that answer I would then decide what would get you closer to your ultimate goal. Your goal may actually be to live on the oceanfront. Focus on the ultimate goal and work backwards would be my advice. For me personally, I am most interested in picking the exact job I wish to do. I like working but am very happy I have flexibility to control how, where, and when I work. I hope this vague bit of advice helps.
@Shaidah K. For me, I would sell as quick as I could. I would cash out in a heart beat. After that, I would have to play with some options, but you would be in a phenomenal financial position.
Another option is, maybe you could sell for slightly less and take an interest in the project. Basically partner with the developer. Say sell for $1.45M and get $250k applied as capital in the development deal. There would be a lot of caveats, you would want to trust the developer, have contracts and they would need to be raising capital for the project and so on, but it is a different approach.
Also Keep in mind that you would probably owe some sort of capital gains tax on the sale. So make sure to talk with an accountant.
Be sure to report back on what you decide to do. It would be a great story!
congrats @Shaidah K. !! Sell, Sell, sell and buy as many doors as possible...as long as they fit Your criteria.
"What would you do if your home quadrupled in value" in just 13 years?!?! My god, I would wonder what the heck has happened to have caused such an unhealthy market!!! I cant imagine that local incomes have quadrupled in that time frame! Vancouver-metro looks like a crazy bubble, you may want to consider that selling now means getting out at (or near) the top of an unsustainable appreciation bubble.
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Hello from Nanaimo.
I would personally choose B, opting to delay that dream house just a bit in exchange for growing your income property snowball faster.
That being said, for 1.5 million you can get an absolutely gorgeous house here... I think I read somewhere before that you already have a property here, so you should know that 1.5 million would probably get you one of the top 50 or so houses here.
Another option my husband wants to do is pay off all our investment property mortgages ($1M) that would leave ~$400,000 to buy a home. The investment properties gross income is at $7000/month rent. We could easily manage the properties, budget for repairs/ vacancy/ management and have enough to live. Then we could quit our jobs. Goal is to stop Working for the Man.
Another thing to consider, if we sell, we can't afford to buy anything locally to get further ahead without downsizing. So that means we need to quit our jobs and move somewhere else. They aren't jobs that allow us to work from home or transfer to a different City. The plan was to retire at 45, and we are still 6 years from there.
Thank you everyone for your comments so far!
@Jeremiah Prophet I like the duplex plan the best too and buying a home that allows us to live a lifestyle we want is probably the route we will go. I want at least an acre to grow my own food and to continue with our beekeeping hobby/passion.
@Thomas S. Where do you find these "funds?" I don't like the idea of giving a large chunk of money to someone to manage for me. I would rather buy something tangible like real estate, even if it doesn't cash flow and breaks even. Building equity is still pretty sweet.
@Uwe G. Thank you! I guess this is the one time I won't argue when someone says we are lucky. I really like your advice to work backwards from the ultimate goal. Your advice definitely helps since both me and my husband don't like working our current jobs. We would love to do something with flexibility, and unlimited vacation days. I trained as a yoga teacher for that purpose so when I retire (at 45) I could teach more regularly. But I have learned that yoga teachers get paid very little for a lot of effort.
@Andrew Kerr I work for a municipality in Land Development (a different municipality from where I live), and deal with the Engineering side of development (and understand the planning/ rezone process). No offence to anyone out there, but my experience with developers is that they are money hungry people and will step on and trash anyone to make that dollar. Your idea is intriguing but not something I am interested in. I should add that my property is one of the smallest on the block at 6400sq.ft. The arterial road I live on has been designated as multifamily (townhouses) in the recent OCP (Official Community Plan) and is close to a desirable area.
@Ryan D. The market here is crazy but it has been like this for a while. People have been speculating that it will burst for the last 5 years, but it continues to escalate. Land is at a premium because it is limited with ocean on one side and mountains on the other. Also, with the Canadian dollar low, we get a lot of foreign buyers who come here for just a month and leave their home/townhome/condo vacant for the rest of the year. Several new condo towers are being built everywhere and being sold out before completion. Working in Land Development (on the municipal side), I see a consistent increase in development every year.
@Randy Molland Thanks for your ideas. Very similar to Podcast 250 with Grant Cardone. Unfortunately, your recommendations aren't for us. They are too non-conventional. We have always had the dream of living mortgage free and have been working towards that since we bought our home in 2005. It comes down to my goal and how to work backwards to achieve my goal with low risk.
@Shaidah K. It sounds like foreign buyers are having a toxic effect on your market, & corroding the ability of those tied to the local economy to purchase homes. I know there was a foreign buyer tax implemented last year, though from what I I've read it hasn't had much of an impact. Are there any other measures that are being taken to confront this issue?
Its a shame the Vancouver has become so destabilized, I've visited several times over the last 10-15 years and it always strikes me as a wonderful place for people live.
@Ryan D. You are right about foreign buyers, and the 15% tax isn't enough to deter them. It is unfortunate as millennials can't afford to buy homes and probably never will. My coworker was given $500,000 from his parents to buy a place, even with that, he can't afford to buy anything and is now paying rent of $4,000/month to rent a house in Vancouver. Until the Canadian dollar goes up, I don't think foreign buyers will slow down on purchasing property here. And yes, Vancouver, BC is a beautiful place to live and has the mildest climate in Canada.
Well, I am a complete noob, but I would sell and, unless you are tied to the exact area you are in, relocate to a more affordable area. and buy a house with the minimum down for and a mortgage. Then the rest would go into an index fund, and I would retire.
OR, if you want, invest some of the rest in more income properties, but ones that make sense. You the luxury of time at that point to look for "great" investments.
There are a lot of details we don't know about your situation. Is your current home on a waterfront? How much have waterfront properties (I'm assuming waterfront) been appreciating? Can you check for other sold properties in a one or two mile radius of your home.
Also, consider that we in the USA have a perspective that is hard to forget. Namely, our personal homes are exempt from tax on the first $250,000.00 of profit if single, and $500,000 if married filing jointly. The tax man in Canada takes a different slice of the pie than here.
Another thing to consider is that the economy of your region of Canada, and price appreciation, is different from the USA. Most people I talk to believe we are at a market peak. So our perspective is tainted by that common understanding. Who knows if Vancouver is anywhere near peak? Selling now could be the wrong time.
I personally pay the minimums on my rental properties. I don't want sunk equity. I want to use equity fund more acquisitions and increase cash flows.
Thanks for your comments. My current home is NOT waterfront but my dream home would be waterfront. The real estate agent is looking to list at is $258/sq.ft. Recent land assembly nearby sold for $244/sq.ft. Homes similar to mine (built in 1980, 1800sq.ft, 2 car garage, and close to same lot size) sell for about $1.4M on the market (not for redevelopment).
From the "Tax Man's" Website:
When you sell your home, you may realize a capital gain. If the property was solely your principal residence for every year you owned it, you do not have to pay tax on the gain. If at any time during the period you owned the property, it was not your principal residence, or solely your principal residence, you may have to report all or part of the capital gain.
Based on the above, I won't have to pay and capital gain taxes.
As for economy and real estate market, there has been speculation that the bubble will burst but that speculation has been ongoing for several years now. Right now, property prices are leveling out and not selling for over asking price, but selling AT asking price with multiple offers.
How do you use your equity in your rental properties to fund more acquisitions? By refinancing them? The only way to buy cash flowing properties in my market is to start with a bigger downpayment. Looking at different markets where property prices are lower, and there is potential for cash flow is risky when the population is under 5000.
Not selling means I will be surrounded by construction and townhouses and my lot will be orphaned with no development potential, which decreases its value. We already turned down the first offer in 2016 which we are glad we did. It caught us off guard. We have been getting our ducks in a row (finacially and mentally) for selling when the price is right.
That is a scholarly answer. I think you've answered your own question with that analysis.
I've got a free and clear property right now that I'll borrow equity out of, and I'm selling one this spring, and will use those amounts to acquire, hopefully, an 8 unit or higher apartment building. I'm a value investor, so I look for properties that have lease loss, or some other add on gain that I can leverage after I buy it.
Have you considered investing in other parts of Canada, such as an emerging market, where your acquisition costs could be lower? I don't like investing outside my region, but Vancouver sounds pricey.
Have you considered doing what they want to do and you make the money on the new townhouses? Seems you would have enough equity to kick off this project from the start after getting your business plan and building plans in line.
If they didn't need to demo your home for the project you could also see about selling any extra land you may have and staying put.
What a phenomenal financial position. Congratz.
I don't have much value to add because I'm not a millionaire yet, but I sure as hell wouldn't be bothering with little duplexes if I was you. If you can relocate somewhere cheaper I would consider that, I don't know the vancouver market but in my market you could buy 5 10+doors multifamily with 1m if you pay the market price... Look around in canada imo.
Just an update...
I discussed my land assembly with a Developer I know through work. He was able to talk to his developer friends and provided a pretty decent offer to us. Since we don't have to pay commission, we get an extra $50,000. My husband and I are pretty happy with this offer, but after discussing with neighbours, they all want to counteroffer. We don't mind counteroffering but are worried about asking too much and then the developer not wanting to play ball. I would love to share more details and numbers but for now I think I should abide the confidential clause. I will say the offer is for slightly more that 4 times the price we paid for our home. The long closing for December isn't appealing because we won't get money until closing and we would like to secure a house sooner rather than later as prices continue to rise.
I am also trying to convince my husband to move to Ecuador for a simpler and more affordable lifestyle. With our payout, we could comfortably for the rest of our lives (cost of living very comfortably is about $2000/month).
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