Dear David,

My spouse was laid off last fall, and we are being careful with our finances. We’ve owned a rental property for ten years, and just got word that our tenant will be moving out in a couple of months. We have considered selling the property, but understand that the real estate market and rental rates are down. We can’t afford to carry a vacant property, should we sell, accept a lower rent than we had before, or consider other options? – STRECHED THIN

DEAR STRECHED: Before making a decision, you need to gather information and do a projected financial analysis of each option. 

Start by trying to understand why your tenants are moving. These days, some tenants end up leaving because market rents have dropped, and they can potentially save hundreds of dollars a month by relocating to a different property in the neighbourhood. If this is their motivation, adjusting your rent to reflect the market is better for everyone (and you’ll need to do it anyway).  Your tenant can avoid the cost and inconvenience of moving, and you’ll reduce the risk of losing several months’ rent while searching for a new tenant.

Have your lender determine what selling might look like from a mortgage-penalty perspective. Consider your penalty, discharge costs, legal fees and selling expenses before deciding if selling the property makes financial sense.

This is a tax-planning opportunity. Because your spouse will have a lower income this year, it may be a favourable time to realize a capital gain, depending on how the property is owned and each spouse’s tax situation. Talk to your accountant about the tax consequences of a sale. 

While the property is empty, it’s easy to coordinate a quick refresh by painting, replacing any worn or damaged surfaces, and giving it a thorough clean. When you go to market, either for rent or for sale, a refreshed and professionally-cleaned property will show much better than one being occupied by a tenant, and better presentation will bring a higher price.

After owning the property for ten years, you should be sitting on a fair amount of equity. Look at the cost of carrying the property vacant, the rent you could realistically achieve today, your mortgage costs, potential selling expenses, tax implications and the amount of equity a sale would unlock. When you compare the numbers, the best path forward will reveal itself. Be sure not to base your decision purely on the fact that the current market is below its peak. We may not see those numbers again for years to come, and it’s never a bad time to take a profit.

PRO TIP: When a tenant decides to leave, new options can be revealed. Speak with your lender, accountant and Realtor about whether to sell or re-rent the property. With some professional advice, the cost and potential payback should be relatively easy to calculate. #Advice #AskDavid #TheNegotiator