Wednesday, January 31, 2007

Is it better to rent out a property that you cannot break even on?

Toronto Real Estate Board (TREB) Average Prices and Graph
I bought a new home and want to sell for a profit, but can't right now, is there another option available to me?

In the past 8 months or so, I've had clients who have purchased a new property and have waited a year or more until the closing before they can sell the property. Normally, they would be able to make a nice profit on their investment, but this is not happening recently as often as it did over the past 10 years or so.

Sometimes a qualified buyer comes along and will pay a high enough price for the property and you can make a profit and other times you end up having to rent out the property.

The reason for this is that over the past 10 years real estate has appreciated at such a high rate per year, there has seldom been a problem with "selling for a profit" on your new property, mostly because of the extended time period from when you put in the offer until the closing.

The problem recently is that the market has cooled a little since about May of 2006 and the prices have not escalated as much as in previous years. Thus, there are other sellers that are very close to the break even point when they sell. You have to not only account for the real estate commission, but also your legal fees when you purchase and sell and the land transfer tax when you purchase plus other closing costs and disbursements. For a detailed list, read more here.

What happens is that we will end up putting the property on the market for rent and for sale and if an acceptable offer to purchase comes in before renting it out, that's great, if not then we end up renting out the property and waiting until the market value increases.

To see average price trends in the GTA.

Prices in the GTA fluctuate throughout the year Seasonal Price trends at this page.

The bottom line: Be careful when purchasing a new property in the current market if you are planning on selling it right away to make a profit. Plan on renting it out if you can't sell it for a profit.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829

No comments:

Post a Comment