[Murph]

Hi folks, been reading the forum for a while and decided to sign up. It would be great to get some feedback or opinions on an investment decision that I have to make.

I am 30 years old, own two studio apartments in downtown Montreal that I bought for 55 000 each (currently worth 200000). I have about 115 000 in mortgage debt but bring in 1000 a month in rental property. I currently have an offer for one of the apartments for 105000 which I would use to clear all my mortgage debt.

Would you guys take the money and run, or go long term with the real estate. As I have to wait 3 years until the mortgage comes due (to avoid paying the penalty), what should I do with the cash? I am hesitant to invest in stocks as I think we are headed for a second leg of liquidation in the coming months (I was nailed after I invested in 2006 before the crash), and GIC's pay a pittance. Any thoughts?

 

[Rickson9]

Clearing your mortage debt wouldn't be a bad idea.

You could also sell the condo for $105K but ask for a large deposit (say $11K) and a long close (e.g. 1 year). Then ask for 20% down and 80% VTB. This would give you $21K at close ($11K deposit + $10K at close). With the 80% VTB offer a variable 5-yr term open 25-yr amort mortgage @ 3%. This would put approximately $400 into your pocket every month.

If at any time the buyer defaults on payment you can do a power of sale or take the property back in your name.

If the buyer doesn't default then enjoy the $21K and $400 per month for the years to come.

Since this is not your primary residence the amounts will be taxable of course.

 

[Elbyron]

Real Estate can be a good investment in times of inflation, and there has been some speculation that inflation may increase faster than usual over the next decade. But there is also risks associated with renting. You could have trouble finding a tenant when supply exceeds demand, or things could break down on you and cost a lot of maintenance.
An important factor in your decision should be the sale price vs actual value. If you think this offer is a really good deal, and you probably won't get a better one in 3 years (assuming value stays the same), then it may be a good idea to sell high while you can. But if you think you'll easily be able to get a similar offer later, then there's no real benefit to acting now, unless you hate being a landlord.

If you decide to take the money, you should find out how much the penalty will be to pay out your mortgage early. Also ask what paydown options you have, as most banks allow you to put down a certain percentage as a lump sum each year, and also increase your regular payment amount. And you can change to bi-weekly payments if you're not using them already. This way you avoid the fees while still accelerating the mortgage. You can probably find a spreadsheet or online calculator that can show you how much interest you will save from accelerating the paydown. Add to this any interest you could earn if the rest of the sale profits were put in GICs (for the sake of calculation). Compare this with how much interest you save by closing the mortgage now, minus the penalties.

 

[Murph]

Clearing your mortage debt wouldn't be a bad idea.

You could also sell the condo for $105K but ask for a large deposit (say $11K) and a long close (e.g. 1 year). Then ask for 20% down and 80% VTB. This would give you $21K at close ($11K deposit + $10K at close). With the 80% VTB offer a variable 5-yr term open 25-yr amort mortgage @ 3%. This would put approximately $400 into your pocket every month.

If at any time the buyer defaults on payment you can do a power of sale or take the property back in your name.

If the buyer doesn't default then enjoy the $21K and $400 per month for the years to come.

Since this is not your primary residence the amounts will be taxable of course.

Thanks for the info Rickson but what is a VTB?

 

[Rickson9]

Thanks for the info Rickson but what is a VTB?

VTB = vendor take back. Basically you become the bank, loaning the buyer the money to buy your home in return for a downpayment and a stream of income.