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Discussion Starter #1
Hi,

I purchased a multi-unit property in the beginning of 2010 and after some redoing it and adding two units to make it a 5 plex, I believe I can sell it and put 150k in my pocket.

The property carries itself with the rents plus enough for vacancies and maybe $100-200/month in profit every month. The big question is if it is worth selling now for a quick profit or just hold on to it long term and get much more.

The property is located in Montreal and unlike the rest of canada, we have not seen the price drop in real estate at all. Instead prices keep on going up and up, but at one point will they start to go down? Will I look back in 10-20 years and hit my head for selling? Also 150k is great but I will have to pay capital gains and will it bring back anything for me sitting in an account?

Looking for some thoughts please!
 

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Hi,

I purchased a multi-unit property in the beginning of 2010 and after some redoing it and adding two units to make it a 5 plex, I believe I can sell it and put 150k in my pocket.

The property carries itself with the rents plus enough for vacancies and maybe $100-200/month in profit every month. The big question is if it is worth selling now for a quick profit or just hold on to it long term and get much more.

The property is located in Montreal and unlike the rest of canada, we have not seen the price drop in real estate at all. Instead prices keep on going up and up, but at one point will they start to go down? Will I look back in 10-20 years and hit my head for selling? Also 150k is great but I will have to pay capital gains and will it bring back anything for me sitting in an account?

Looking for some thoughts please!

If it is self-sustaining, I would think it is better to hold on to it as it gets paid off over time and many years from now it will provide a steady income to you.
 

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My thoughts are that you should sell, take the profits and do it all over again.

$200 per month is $2400 per year plus the mortgage paydown which won't be significant until year 5-10

If you can make $150 K in a short period of time by adding value why wouldn't you plan your exit and do the more profitable activity?

If you have a solid financial backing and are not too highly levered you might consider refinancing and removing your capital that way. To go use it somewhere else.

I'll always remember something Kevin O'Leary said "My dollars are like soldiers, I expect them to go out and capture Prisoners of War and bring them back, that's why my army keeps growing"
 

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Discussion Starter #4
It is self paying, but who knows what there is in store in long run with repairs and tenants. I have another property, a condo actually, and the last two tenants have been nightmares! I am going to the rental board to kick the current tenant out since he has not paid rent in 2 months. Berube, I am sure you know what I am talking about since you are a property manager from what I read in your other posts.

I would love to sell and do it again, but there does not seem to be any great deals anymore. In the past 6 months that I have been looking extensively, the only ones that were cheap were ones with huge problems like foundation, infiltration, etc.

My initial goal was pay off this building in 15-20 years and then generate an income of 40k/year from it. In 15-20 years though, the buiilding will be 50-60 years old so will I need to dump a huge amount of money into it?

A lot of questions and I son't expect answers for them all, but they are just what goes through my head when thinking it through
 

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It is self paying, but who knows what there is in store in long run with repairs and tenants. I have another property, a condo actually, and the last two tenants have been nightmares! I am going to the rental board to kick the current tenant out since he has not paid rent in 2 months. Berube, I am sure you know what I am talking about since you are a property manager from what I read in your other posts.

I would love to sell and do it again, but there does not seem to be any great deals anymore. In the past 6 months that I have been looking extensively, the only ones that were cheap were ones with huge problems like foundation, infiltration, etc.

My initial goal was pay off this building in 15-20 years and then generate an income of 40k/year from it. In 15-20 years though, the buiilding will be 50-60 years old so will I need to dump a huge amount of money into it?

A lot of questions and I son't expect answers for them all, but they are just what goes through my head when thinking it through
If you're having problems with getting good tenants in a particular property, you'll want to carefully examine the property, the area, even your ads for that property, to see if anything can be improved. I just wrote up an article for Million Dollar Journey about what I learned about tenant demographics at the Canadian Apartment Investment Conference that may prove useful for ideas. I'll make sure to post the link when it gets posted.

As far as finding a new property, I know that it can be really challenging, those properties are out there, you just need to keep looking until you find one.

You might want to talk to your accountant about paying off your building and how that actually works out in real life. I mentioned before that I have never worked for an owner that had paid off his building, I could never figure out why. The reason as I found that later is due to the income tax situation that starts to occur around year 10. In the early years, most of your mortgage payment is pure interest expense with very little mortgage paydown. Once you start paying income tax on the "mortgage paydown" portion at passive income tax rates it starts to become much more difficult. I am certainly no expert on this part of the landlord business, I'm sure it's no surprise that large corporate landlords are reluctant to share the details of their income tax return with me :)

A while back I realized that there are two very different businesses involved in real estate. Some investors are great at sniffing out the deals and creating value. Others are great at managing a building up to it's maximum usage and extracting every dollar of profit from operations. It's not uncommon for an investor who is great at one to be terrible at the other. My last boss was like this, he was great at finding deals and a horrible property manager. In fact when I started managing his property his vacancy rate was 25%. He had an additional property that was even worse at 50% vacancy. He didn't even really care, he had bought two malls side by side, severed the properties and sold one for more than he paid for both of them.

Do what you're good at!
 

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Sell or Not

I wouldn't sell the multiplex and take the quick dollars unless I really needed the money.

Many of the comments posted assume a constant status quo - i.e. no inflation or no increase in rents over the life of the mortgage. Also, the accretion associated with a quicker mortgage amortization plus some capital gains is not considered.

Perhaps you should think in terms of the total return on the investment over the life of the mortgage. If you are currently making $2,400/ year that's $12,000 in five years excluding mortgage amortization and capital gains. It also excludes any increase in rental income and the $150K. Btw, I assume your mortgage is fixed.

Furthermore, as it’s not residential there are tax write-offs which should be substantial. The cash flow which is likely tax deductible at that level of income could be used to pay off principal on your primary residence i.e. a synthetic Smith Manoeuvre.

Lastly, if you can hold it until the end of the mortgage term, you may be able to roll it over and re-finance and take out the $150K you have created. Better yet, you might be able to buy another unit and increase your residual income.

Finally, if you had the $150K, what would you do with it and what would you do with the balance of the equity in the multiplex?

Lots of pluses holding versus selling but your personal circumstances may dictate the decision.

Kiwi
 

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Hi,

I purchased a multi-unit property in the beginning of 2010 and after some redoing it and adding two units to make it a 5 plex, I believe I can sell it and put 150k in my pocket.

The property carries itself with the rents plus enough for vacancies and maybe $100-200/month in profit every month. The big question is if it is worth selling now for a quick profit or just hold on to it long term and get much more.

The property is located in Montreal and unlike the rest of canada, we have not seen the price drop in real estate at all. Instead prices keep on going up and up, but at one point will they start to go down? Will I look back in 10-20 years and hit my head for selling? Also 150k is great but I will have to pay capital gains and will it bring back anything for me sitting in an account?

Looking for some thoughts please!
Don't listen to berubeland. She doesn't own any investment properties of her own and spends most of her time posting free ads on craigslist trying to sell her services with the Giant Tiger marketing strategy: we may not be pretty and we sure aren't the best, but damn we're cheap!

It's not easy to find a winning property. The statement "go find another one" is ridiculous!

There will be many temptations for you to sell. I still have them regularly. A bad tenant. A broken this or that. "Oh, I could just sell and make money and find another one." Wrong thinking.

If the property has appreciated as it has, why won't it appreciate further? And if your tenants cover your mortgage...you are in a special and very comfy area as a landlord.

Think carefully. Talk to other investors (as opposed to those trying to make quick sales). PM me if you want to discuss the issue more. If you have a winning property, it is something to cherish and could lead to your retirement plan.
 

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I think each situation is different. So it depends on whether or not you have other pressing cash flow issues, etc, or if you're trying to reduce debt load, etc.

I have a friend in Winnipeg, who owns many buildings, and decided, well, let's sell 2 condos, so I no longer have debt, and I can live off my income stream of 40 condos with no debt, and he's happy doing that.

However, if you have a cash flow positive property, maybe you're happy to sit on it.

Since I don't know your circumstance, it's hard for me to decide what's best for you. If you have enough money, and you can sit on it and collect increasing positive cash flow, that's not a bad circumstance to be in.

However, if the cash in is less than the cash out+the nuisance factor, it's time to sell the place.
 

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If you don't have any financial pressures or need capital for another investment, I suggest holding.

I have one property that has risen every few years by tens of thousands.

And it's tenanted, and mostly running very well. However, there are still issues.

I've been tempted to sell for YEARS. And every few years the appraiser tells me...it's up another so and so thousand.
 

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Discussion Starter #11
Yes I know I will pay capital gains. I mentionned that in my original post. Scott, how old are your properties? Do you get unexpected surprises on repairs every year or two?

My plan as mentionned was to build a little empire initially, but after prices skyrocketed in Montreal and don't seem to be even taking a pause, there is not much out there to buy that makes sense and this is why I think I can get so much.

If I were to find some deals I would probably try to get some equity out of this one to put on the new one, but not sure if banks will do it since I bought it less than a year ago.
 

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You said its self sustaining and even with the vacancies it allows for about $200/month in profit.

How much of the mortgage (in dollars $) is being paid down every month?
 

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I thought you might benefit from the cap rate spread sheet

http://www.milliondollarjourney.com/wp-content/uploads/CapRateCalc.xls

If once you enter all the numbers, you'll be able to tell if the property is really self sustaining.

Basically your cap rate needs to be above your interest rate to have a sustainable building.

Other scenarios involve you paying for any repairs and vacancy out of your own pocket or working for free for the property management. From you initial post I gather you make $200 per month but if anything happens then you'll be in the hole for a few month until you "pay yourself back".

How to use the Spreadsheet

This is a sample building, a real one, which is not a great investment IMHO.

1 – You will have to figure out your own vacancy rates (which you can find on the CMHC website) it varies with each neighbourhood. Each property will be different and you will have to check up on every one.

2 – You will have to figure out your own property management fee schedule. For smaller buildings it may cost up to 10% while large multiple unit buildings go as low as 3% of gross income

3 – For Maintenance allowance I allow 10% of the gross monthly rent. This should allow for you to turn over suites when they become vacant and save money for improvements and repairs such as roofs.

Deferred maintenance is any maintenance that has not been done previous to your owning the building that needs to be done. This includes ensuite maintenance that is above wear and tear you will have to pay for. For instance, an existing tenant is living in a suite that has a hole in the countertop near the tap. It should have been replaced but has not. When you become the new owner you assume the liability for the repair.
 

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Income not Capital Gains

It might actually be considered income and not capital gains depending on how the CRA views your purchase. If they view it as a Flip - then it will be taxed as income. If your intent was to buy and hold, it might be considered capital gains. Then it depends on your tax rate.

$100-200 on 5 plex is not a lot for the amount of work that needs to be done if this does not include a property manager in your budgeted amount. Also depends on what you consider expenses. Does this include vacancy, maintainance and repairs allowances or just your hard costs?

Hope that helps
 
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