Sell or Rent? (Langley, BC)

[Andy8130]

Hi everyone,

My husband and I own a townhouse in Langley, British Columbia. We purchased it three years ago at $240,000 and it is now worth $360,000. We have $204,000 left on the mortgage.

We are going to be moving to Princeton, BC (small, rural town), and we really want to buy a house there. The one we're looking at is $409,000.

My husband has been a student for the past two years (he's graduating now as a high school teacher), and while he's worked weekends, evenings and overnights around it, our income hasn't been stellar. Selling our place would get rid of all our debt from these past two years (about $50,000) and would give us a great downpayment on this house we're eyeing in Princeton. It's also probably the only way for us to be able to buy this house. (Is it?)

My question is: should we hold on to our place in Langley and rent it out, or should we just sell it? Everyone is talking about an impending real estate crash out here and it's got us a little nervous. We could really use the money from selling our place - it would be close to $150,000. We've moved around so much and have rented this place in the past and we really want to be settled somewhere. (Bad tenant experience, too - our tenants didn't pay rent, didn't leave when evicted and trashed the place before we moved back in.)

I know it's probably smartest to hold on to our Langley townhouse and rent it out. But I don't know how to qualify for another mortgage without selling this place. Is there a way to do that? We're three years into our five-year, variable term. We're young and we've got two little kids - we really want to be settled in Princeton. Can someone advise? Anybody know the Langley real estate scene?

Thank you,

Emily

 

[Thomas Beyer]

There will be no crash. That is just media hype. Gen Y folks are buying, interest rates are low and will stay low for an extended period, in-migration is strong and the #1 goal of every immigrant, rich or poor, is to own a house, baby boomers live longer than ever, land supply is limited AND municipal approvals for new developments take a long time.

This implies to me that Langley, like most Lower Mainland, Sunshine Coast, Okanagan or southern Vancouver Island will go UP in value.

Langley will likely go up faster as a % of value than Princeton which is a far far away place.

So one option is to rent a year or 2, to check out the local market and decide if you really want to live in this small town, far away from family, friends or coast, and then buy once you are really sure. Likely Langley house will be up more than the Princeton house that you might be able to buy today.

Ideally buy both, of course, perhaps with parents' help or a JV partner.

Real estate has very high transaction costs, counting mortgage payout penalties, realtor costs, legal fees and land transfer taxes, so buying with less than 2-3 year hold in mind should be avoided.

 

[adriano]

Sounds like you already made up your mind. If you do not feel comfortable keeping it then sell it , buy your place in Princeton and look at buying a rental in Princeton once you feel ready. This way you get your place and you can get settled in to it and then you could save some money for a down payment and build some equity in your new home.

 

[Matt Crowley]

Excellent rent vs. buy tool from NYT: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Just to pepper a bit of math into the decision:
Rent $2000
5% vacancy
$591 monthly expenses including 12% property management, taxes, insurance, ect
$1309 NOI
= $15,703 NOI per year
= 4.36% cap rate at property value of $360,000

Leverage ratio = 2.31 (total asset / debt)

Maximum potential return (in flat market) = 4.36% * 2.31 = 10.1%, assuming you put $0 into major upgrades like roof, exterior, kitchen, bathroom, concrete, landscaping, fencing, and only do a total of $840 in maintenance per year. Also 5% vacancy means you can have a little over a month vacancy every two years. So your final return with some cyclical expenses will be likely in the 7 - 10% range. If that seems like too much risk, strain, and concern then take your money out of the property, wipe your debt and invest the proceeds in the market and other sources. Hitting 7% is not that difficult to do with equities and a lot less risk than a real estate investment IMHO. Plus you just set it and forget it.

 

[Vine Group]

I would recommend you complete an application, http://www.vinegroup.ca/index.php/mortgage_application, and assess your options. Ideally, we would refinance the existing home and pay the debt plus access the 5% down payment in to new home.

Real Estate is a long-term play. If you can hold on to two properties valued at $769,000 over the next 20 years versus one at $409,000 you will be better off. For example, even if the BC home doesn’t go up in value your net worth is still $360,000 higher than if you sold.