We are building a new house and will own it in February. I have been asked several times if I would like to rent a house that I have now and put it up for rent. After you stop laughing, explain why you don’t want to own a rental property.
I prefer to own a small fraction of just about every publicly traded company in the world through low cost total market ETFs. I am happy to share their benefits with you.
The idea of being a landlord and having to worry about finding and managing tenants, dealing with general upkeep and maintenance, and holding reserves for major renovations and repairs is not at all appealing. is not.
As a financial planner, I also have many clients who own rental properties. Some are happy owning and managing multiple properties, while others share horror stories of bad tenants, expensive repairs, cash flow problems, and underpriced prices. Rating outside of Ontario and British Columbia.
Still, I like exploring my options. There is a non-zero risk that our home will not sell in a reasonable time and at a price we are willing to accept. If the local housing market dries up, it may make sense to withdraw from our listing and rent out the home at least temporarily (a year or two).
A real estate appraiser determined that we could get about $2,800 a month for our home.
Let’s assume you extract a significant portion of your existing home equity for a down payment on your new home. This leaves us with a mortgage of approximately $390,000. Paid over 25 years, the mortgage payment would be $2,284 at a 5% interest rate. Property taxes and insurance add $650/month. The monthly cost would be $2,934. Tenants will pay their own utility bills.
Even if you could make $3,000 a month, you would only make about $800 a year. That’s not enough for maintenance or minor repairs (let alone major breakdowns).
For example, a small $340,000 mortgage will have a mortgage payment of $2,000, making the numbers more acceptable. But that’s just depriving Peter of paying Paul. That is, the smaller the mortgage on the existing home, the bigger the mortgage on the new home.
Then there’s the real problem of being a landlord, even if only temporarily. it’s not for me. After all, I’m Canada’s worst handyman. I would be hiring maintenance on the property, further eroding the already very thin profit margins.
Finally, there is my trust in the local real estate market. The Lethbridge housing market appears to be 2-3% more stable per year than the boom and bust housing markets. Therefore, real estate lotteries are unlikely to be profitable in the short term.
Related: Was My Home a Poor Investment?
For these reasons, renting an existing home after moving is a last resort.
This week’s roundup:
Last week, there was an official announcement that the TFSA annual cap will be raised to $6,500 in 2023. This brings his lifetime TFSA cap to $88,000.
Also note that CPP recipients will see their benefits increase by 6.3% in January, based on the 2022 inflation rate.
I would like to thank Paul Brent of Globe and Mail for including my comments in this article on tax loss harvesting.
Promotion of the week:
I didn’t go shopping on Black Friday, but if you want to take advantage of the online deals this weekend, first visit a cashback website like Rakuten to earn rebates on your purchases.
If you’re new to Rakuten (formerly Ebates), sign up now and get a $30 cash bonus.
In addition to the higher TFSA contribution limits and indexed CPP benefits, Erica Alini says most Canadians will receive a tax credit as tax rates will be adjusted upwards by 6.3% (participants) .
What should I do with my mortgage in an environment of rising interest rates? Objective Financial Partners’ Jason Health shares some strategies.
Andrew Hallam says that if you keep asking this one question, if you save $500 a month, you’ll get $12,100,000 over 60 years.
Should RRIF withdrawals be based on the younger spouse’s age? It depends.
Wealth of Common Sense blogger Ben Carlson rights says the market can’t save you if you can’t save.
Of Dollars and Data blogger Nick Magiulli turned 33 and wrote a great article about learning to live.
Stop thinking about what to retire from and start thinking about what to retire to.
Most investors have experienced massive double-digit losses. Andrew Hallam explains why we are not far from chimpanzees:
Investing wisely is not chasing past returns or coveting what others own. Instead, it’s important to own a globally diversified low-cost portfolio. It’s about maintaining consistent allocations through thick and thin. This means adjusting the balance as needed. That is, sell some of the “winners” and add the proceeds to the “losers”.
Index investing as a theoretically optimal investment strategy works best in efficient markets, but markets become less efficient when everyone becomes passive index investors. Ben Felix explains what this paradox means:
Rob Carrick explains what the Algonquin Power debacle says about dividend stocks and GICs (subs).
My Own Advisor Marc Seed shares an update on financial independence. Exciting stuff!
Wealth of Common Sense blogger Ben Carlson now compares infamous FTX founder Sam Bankman-Fried to match king Ivor Kruger.
Finally, Jason Zweig, a longtime Wall Street Journal personal finance columnist, shares his suggestions for books every investor should own.
Have a nice weekend everyone!