Dear David,

We sold our business recently and used the extra cash to buy a home for our daughter. The house had what looked like a rental unit in the basement, with its own kitchen and a separate entrance. We got caught in a bidding war when buying the house and ended up paying $200 thousand over asking. When the sale closed a few months later, we discovered the house was not a legal duplex, so we are unable to rent out the basement. Meanwhile, we’ve run into financial challenges: we owe substantial capital gains on the sale of our company, and have been told it will cost $25 thousand to get our daughter’s basement approved as a secondary unit. We listed the house for sale in hopes of covering our tax bill, but aren’t getting any interest at the price we paid. What are our options? – FEELING THE PINCH

DEAR FEELING: The real estate market has experienced several ups and downs in the last five years, and I suspect this might be the year when we finally start to see some stability. Interest rates are back in check, and consumers are perking up as home ownership becomes more affordable.

In the last two years or so, many properties have been priced aggressively to try and launch a bidding war. The challenge in these situations (and a critical part of your agent’s role) is to figure out how much you should offer without going beyond market price. When you purchased this house, it sounds like there were long term plans to have your daughter live upstairs with a renter in the basement. Life then threw you a curveball, in the form of a non-conforming basement unit and a significant tax bill.

I often tell clients to surround themselves with professionals. In this case, both the tax bill and the misguided assumption that the basement unit was legal should have been avoided with proper advice. Small wrinkles happen even with experts in your corner, but these types of major surprises should never be in the cards.

If a house is listed for sale and not getting attention from buyers, it’s often the market’s way of saying that the property is priced too high. If you paid over market value when you bought your daughter’s house, selling at today’s prices could leave you with a deficiency. Given the situation, it’s time to make some tough financial decisions. You can either sell the house, take the loss and move on, or find a way to command a more acceptable selling price. The $25 thousand required to make the house a legal duplex could add enough value to get you closer to an acceptable range. Ask your Realtor for advice and have them connect you to a contractor, so you can examine some potential solutions. 

PRO TIP: Making assumptions based on what you see can be catastrophic if you don’t dig deeper. A basement with a kitchen and separate entrance may appear to be rentable, but without the correct permits and safety features, it’s not necessarily a legal income property. Check with the city before you buy to ensure the right permits are in place. #Advice #AskDavid #TheNegotiator

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Moving? Get it right. Ask David today! Call or text 519-577-1212.