Should You Sell Your Income Property in London Ontario, or Buy?
I get asked this question more often now that London Ontario, and the area is in a Seller’s market setting record prices for houses, condos, and investment properties.
A knee-jerk reaction to selling is that they can double or triple their initial investment and for buying; if prices & interest rates rise, they may not be able to enter the market.
Before I go over a few scenarios, I am not an accountant, a financial advisor, a lawyer, or a banker. I have been working with investors for 40 years. Most likely, I have experienced every upside or downside you can think of or never heard of!
I will cover getting professional advice at the bottom of this blog; for the time being, let’s use some common sense. Common sense is free and personal; that is why 90% of people don’t use common sense; they pay to accept the noise, clutter, and self-serving opinions of advisors!
Sell Now Scenarios:
Scenario #1: Paul and Louise (names changed to protect the innocent or the guilty), besides their residence, have bought three houses to use as their retirement income over the past eight years.
I helped them sell all three over the past six months, of which, at minimum, they doubled their investment, two tripled! Their net proceeds were $780,000; I had asked them how many years did they have to work to net $780,000? There were capital gains and mortgage penalties; they decided they were mortgage-free, could retire ten years earlier than planned, had much more time for themselves, and could travel.
Good decision!
Scenario #2: Carolyn (name changed to protect the innocent or the guilty) had purchased a tri-plex in 1993 and had great tenants, her issue was the tenants were paying 65% of the current rental market (her words: “they are so nice, I just never raised their rent over the years!”). Her employment changed, and she did not want to be a long-distance landlord & the numbers did not add up if she had to hire a property manager & make the necessary improvements to maintain the integrity of the building.
I helped her sell to a qualified investor who saw the potential income that the property could generate and was willing to allow inflation & perhaps a vacancy or three to allow the numbers to work. Carolyn did very well on the sale, even after capital gains and the mortgage penalty, managed to be debt-free and pay cash for her dream condo in ski country!
Scenario #3: Paul & Pratima (name changed to protect the innocent or the guilty) finally had their non-paying, townhouse destroyer tenant vacate their property; it only took 13 months (from the mouth of a legal assistant). They and I agreed that they are not the best to be in the landlord business, I sold their townhouse for a healthy gain, and hopefully, Paul and Pratima will not keep going to those get-rich real estate investor gatherings!
Scenario #4: Margaret & Phillipe (name changed to protect the innocent or the guilty) own three income properties now and want to buy at least two more this year. They have refinanced their existing properties and have a respectable down payment and a great mortgage provider that will enable them to proceed. Their thoughts are that with such low mortgage rates and inflation, it’s free money!
Scenario #5: Eric and Colleen (name changed to protect the innocent or the guilty) want to buy a duplex or larger, live in one apartment, and rent the other out to help reduce their monthly expenses and build equity. Their friends have been buying a single residence to live in; Eric and Colleen, with patience, will quickly increase their net worth before their friends do!
Scenario #6: Song and Chin and their parents (name changed to protect the innocent or the guilty) come from a family of real estate investors and feel London Ontario is still undervalued and are buying if the numbers meet some minimums they have set.
Well, three to sell now and three to buy now; who’s right? They all are because, as individuals, their risk tolerance, their tolerance for the Landlord and Tenant Act policies, their tolerance for the challenges that will occur in the future decides for them.
- The allowable rent increase in Ontario is 1.2%. Hmmm, London taxes are more than that; hydro and water, insurance, cleaning supplies, repairs are double or triple 1.2%.
- If the so-called inflation rate is 5%, the uninsured five years fixed rate to borrow is 2.54%; how long do you think it will take mortgage rates to rise? History repeats itself.
- With the cost of a starter home for buyers being $400,000 plus or, in some cities, $600,000, tenants will be staying put. That’s a good thing for landlords, however, will the Landlord and Tenant Act and the decision-makers lean for the tenant or the landlord? You and I both know where that is going.
As Henry Ford said, “If you think you can or you think you can’t, your right!” Buying or selling an investment property is no different, but here’s the catch, from whom you get advice!
If you have a sore throat, do you go to your doctor, Dr. Google, or a Brain Surgeon? Three opinions, which advice do you choose?
Get legal advice from Uncle Sid, a general practice lawyer, a real estate lawyer, a divorce lawyer, or legal aid?
Get financial advice from a financial planner, Aunt Mary, the above legal options, an experienced investor, your licensed accountant, your tax preparer, or no one; you know it all?
I have had clients & non-clients make serious financial decisions from:
A loan officer at a major bank who had been in the position for two months and did not own a house or an income property.
Mom and Dad, mortgage poor, 500 credit score.
A financial advisor whose only source of income is directing her clients into mutual funds or securities.
Thanks for reading this far; I end with three Samuel Clemens quotes:
“Don’t part with your illusions. When they are gone, you may still exist, but you have ceased to live.”
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.”
“There are two times in a man’s life when he should not speculate: when he can’t afford it, and when he can.”
