Reader Case: Laid Off With a Condo

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Hey all! It’s Friday, so time for another reader case!

“I’m 39 years old and I’m on the road to FI, or perhaps I have just reached it, thanks to your and Wanderer’s great help.

I followed along on the Investment Workshop, and my Questrade account is humming along nicely, along with a recent rebalancing for the Yield Shield.

I own a condo in downtown Toronto that I am considering selling, a bachelor suite that is 480 square feet (I guess that is considered a ‘closet’ for some high-rollers).  The condo market is still bonkers right now, although the housing market’s bubble is currently bursting.  I’m assuming the condo market will follow suit with the housing market, so if I were to sell, I would prefer doing so very soon.

I purchased the condo in 2013, lived in it for 1 year, and have been renting it to tenants ever since, declaring that as part of my income. My real estate agent thinks I can get approx $450K+ for it now. My current tenant is month-to-month.  As mentioned, I think I have reached FI (according to The Mad Fientist’s calculator, I have reached the milestone), but having the steady, dependable income that the condo rent provides may make the transition to FI easier, on an emotional level.  I also like the idea of having the diversification of owning both real estate and index fund investments, but I could definitely be convinced otherwise – it just comes down to the numbers.  I’m quite ignorant when it comes to understanding what kind of dividends I can consistently expect from my current portfolio and how to adapt that to my future FI lifestyle.

I feel like I have 3 options:
1. sell my condo and put the cash into further investments in my Questrade account
2. hold onto my condo and maintain that passive income from the rent it brings in
3. hold onto my condo, but take some equity out of it, and invest that equity in my Questrade account


Some more info:

1. gross/net family income:

  • I’m single, with no children.  My last job just ended a couple months ago, but I still generate about $10K/year from playing music gigs as a solo performer.  I’m also considering doing some part-time work, to generate an additional $10-20K, if necessary.

2. monthly spending:

  • Approx $1,400/month (approx $400 groceries, $150 cell phone + home internet, $200 car fuel/maintenance, $400 home property taxes + insurance + hydro, $250 other).
  • I may inflate this to $1,750-2,000/month, as I have been living quite frugally and would like to do some travel/geo-arbitrage, to escape the Canadian winters.

3. debt:

Aside from my condo mortgage, I have no debt


Purchased for $300K in 2013

  • Monthly rental income = $1,750 and the tenant pays their own hydro.
    Mortgage = $67K
    Monthly costs are:
  • $275 maintenance fees
  • $160 property tax
  • $30 insurance

mortgage payment: 

  • I’m aggressively paying it off at $1,200 every 2 weeks.  Of that $1,200, approx $1,150 goes to principal, $50 to interest.  I could decrease payments significantly, but I’m not sure what the minimum payment would be.
    Current mortgage rate is 2.19% fixed, and is up in May, 2019.  If I sold now, it would cost me $900 to break the mortgage agreement.

Based on these numbers, I think this yields a cap rate that is just over 5%

4. fixed assets:

  • car – 2009 Toyota Matrix – I purchased it in 2013 for $8,500 cash
  • house – mortgage-free, approx $300K market value.  It is a bit of a money pit, as it’s aging and needs some renovations, but for the sake of this analysis, I’m hoping we can exclude this from the equation.  If I ended up inflating my monthly lifestyle costs to $2K, it would cover the associated costs here anyway.
  •  investments + cash:
  • $62K  TFSA, Questrade
    $95K  RRSP, Questrade
    Of the TFSA and RRSP investments, $44K is in VSP.TO (Vanguard S&P 500 index), and the other $113K is in a 70/30 equity/fixed income split as per the Investment Workshop and Yield Shield
  • $154,500 cash

Total: $311,500

Thanks again for all your wonderful help and inspiration.  I have always been a good saver and lived a simple life, but like many of the people in this community, I wish I had realized this wealth of priceless knowledge much earlier in the process.  I know this case study is a big step towards my foundation for FI, and with your help in this, I think I’ll finally be able to take the plunge into an exciting life of financial independence!



Hoo boy. Whenever I hear the words “Downtown Toronto Condo” a little piece of me dies inside, but let’s dive into the math of this condo and see what’s what, shall we?

Condo: Good or Shitty Investment?

So let’s start with the basics. LaidOffWithCondo’s condo is, on the surface, not bad. The purchase price of $300k isn’t too high, his tenant is paying rent of $1750 a month, and his housing expenses aren’t too crazy. He’s also been aggressively paying off his mortgage which, from a real estate investment perspective, is actually the wrong thing to do since his mortgage rate of 2.19% is so low, but whatever. He’s clearly not comfortable holding a lot of debt, so I’m not going to encourage him to do something risky just to make the numbers look better.

So if he uses all his mortgage prepayment options and kills the debt next year, he’ll pay about $1000 in additional interest, and the mortgage will be gone. He’ll also have $311,500 – $67k (mortgage) – $1000 (interest) = $243,500 left liquid assets.

So what do his numbers look like?

Well, after expenses (and no mortgage), he makes $1750 – $275 (maintenance) – $160 (property tax) – $30 (insurance) = $1285 a month, or $15,420 a year.

This gives him an ROE of $15,420 / $300,000 = 5.14%.

So is this is a good investment? It’s OK. 5.14% ain’t bad. You can get around that with a REIT index without the hassle of managing a tenant, but it’s OK.

One possibility is to use a HELOC to get that equity back out and boost the ROE using leverage, but I’m going to explain why that doesn’t actually help all that much in a bit.

Is He Financially Independent?

Now onto the other big question: Is LaidOffWithCondo Financially Independent?

In short: Yes, but with caveats.

Despite the condo being just an OK investment, he did two things here that really stand out: He kept his expenses under control despite being in a high-cost city and he built up a passion side-hustle in his music that he’s already able to monetize on. Put these two things together and things really work out.

His monthly spending (inflated to enjoy life a bit post-retirement) will be $2000 a month, or $24k a year. So that’s how much income we need to find to make that happen.

His income will come from 3 sources:

  1. His Condo: $15,420
  2. His Portfolio: $243,500 x 4% = $9740
  3. His Music: $10,000

Add these together for a grand total of $35,160. That’s enough to cover his living expenses, so he’s FI, right?

Here’s my concern. His condo makes up too much of that income stream (44% in a single asset). If his portfolio hits a nasty sequence-of-return period, he could make it work with just his condo and his music. Similarly, if his music career dried up, he could make it with just his condo and the portfolio.

But if the condo income stopped, he wouldn’t be able to make it. Not only that, his expenses would increase since the condo costs money to own. So he’d be hit with a double whammy of higher expenses and no income.

44% of retirement income is coming from 1 single asset. That’s not great for diversification and you’re relying on 1 tenant.

So basically, if his tenant leaves, his retirement falls apart. I don’t like them odds.

What Would I Do?

So is LaidOffWithCondo screwed? Not quite. There’s a few things we can do here to increase his odds of success to 100%.

But first, the HELOC thing. I tried to see what would happen if he took out a HELOC out on his condo and dumped it into the portfolio. This is a common thing that real estate investors do to goose the yield on their investment while freeing up capital (usually to buy more real estate).

So if he were to take out a HELOC, current B20 regulations limit the loan-to-value ratio (or LTV) of a HELOC to 65%. So he’d be able to take out a HELOC of $450k x 65% = $292,500. You can get a HELOC these days for about 3%, so this would add $292,500 x 3% = $8775 of interest back onto the condo cost, assuming he never pays that balance down and only pays the interest. How does that affect his income streams?

  1. Condo: $15,420 – $8,775 = $6,645
  2. Portfolio: ($243,500 + $292,500) x 4% = $21,440
  3. Music: $10,000

Total: $38,085

Even better, right? Yeah, I suppose. But there’s still a failure mode here, isn’t there? If he were to lose the condo income, his retirement wouldn’t fail, but if he were to lose the condo AND the music income, then we’d still come up a bit short.

It’s better, but I think we can get to 100% success rate.

What happens if he sells the condo?

OK, so if we sell the condo at $450k, he’d have to pay real estate commissions of 5%, $1000 in lawyer fees, another $900 to break the mortgage, as well as capital gains tax since it’s an investment property. Estimating a 30% marginal tax rate, he’d net about $450k – $22,500 (commission) – $1000 (lawyer) – $900 (mortgage fee) – $22,500 (estimated tax) = $403,100.

I’m making a BIG assumption on the tax rate, by the way, so he’ll have to run his numbers himself using his own tax situation.

But assuming that’s correct, that $403,100 would get added onto the portfolio. He’d lose the condo income, but this is what his income streams would look like:

  1. Portfolio: ($243,500 + $403,100) x 4% = $25,864
  2. Music: $10,000

Total: $35,864

NOW he can survive completely off the portfolio and his music income is completely bonus. Despite the fact that the total income is actually lower than the HELOC structure, it’s much safer. If his music career were to blow up, he’s still OK.

In fact, his annual expenses of $24k / ($243,500 + $403,100) =  3.7%. Remember that the 4% withdrawal rate rule states that there’s a 95% chance of success over 30 years. A 3.7% withdrawal rate, according to FIRECALC, gives us a 99.1% success rate! If he were to reduce his living expenses in lean years by just $1000 a year, that number crosses over to 100% success rate.

And We’re Done

And with that. we’re done for the week. What do you guys think? Is LaidOffWithCondo ready to retire? Would you do the HELOC thing for the higher income or would you sell off the condo and make your retirement safer? Let’s hear it in the comments below!

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52 thoughts on “Reader Case: Laid Off With a Condo”

  1. Good analysis but what concerns me at same level of being dependent on only a single tenant is the fact to pump 100% of the condo in your portfolio at this point in time where even your beloved Bogle predicts a poor or negative return on the market in the next 10 yrs.
    Be very careful with that. Although your firecalc says you’ll get 6% return you can loose 20% this or next year and you’ll wanna hit Wanderer in the nose !

    1. Hey I’m not requiring 6% YoY gains to make this work. I’m using FIRECalc to show a >99% success rate. If he reduces his spendingby just $1k a year, he’s at 100% success rate. No recorded failures, in all of recorded history.

  2. While I don’t dispute that relying on rental proceeds for 44% of your annual income might introduce too much risk, there’s a few more variables that could be added to the mix. For example, what about increasing the income from the music, or other side hustle, to decrease the reliance on the rental income, especially as the reader already acknowledged in his email that he is willing to do so.

    Also, if he sells the condo and relies only on the portfolio and music hustle for income, than the portfolio will make up 72% of his income stream. If 44% sounds risky, than 72% should sound even riskier. Markets do go down, and they can remain flat for many years, so this is a scenario that should be factored into the decision.

    I suppose that an argument could be made that an ETF portfolio is hyper diversified so less risky while a tenant is only one tenant so more risky. But while you are only renting to one tenant at a time, there are literally thousands of potential renters. This condo is situated in downtown Toronto. The rental market in Toronto right now is where the real estate market was in Spring 2017 – sizzling hot. In this rental climate you might be out a tenant for a month, maybe two, but that’s what your emergency fund is for.

    Running out of tenants would not be what I would base this decision on. The factors that I think might be more relevant in making the keep or sell decision is that the condo selling market is still strong in Toronto (for the moment), that interest rates are poised to go up (which might change that scenario) and whether there are any special assessments in the pipeline that would change the proceeds from rental income equation.

    But ultimately I think the reader in on the right track to try for at least three sources of income. You need a minimum of three legs for a chair to be stable. Four is better, but three is the absolute minimum. I personally believe that to minimize risk in FI you should have a minimum of three sources of income and am positioning my assets accordingly.

    1. Remember that a portfolio is not “one source of income.” That income is coming from stocks, bonds, REITs, preferred shares, etc. If one company were to make up 44% of the portfolio, I’d have the same concerns as well.

  3. Here’s my 2 cents worth exactly $0 🙂

    You do a great analysis of “what if there is some issue with the tenant”, however, what if he sells the condo, then the stock market tanks? by say 50-60%?

    His interest rate is so low (SO LOW!)…is that an introductory rate? He said it was set to be paid off by May 2019…is that because that rate is set to go up? If that 2.19% is for a 15 or 30 year loan, I would personally stop paying extra (who am I kidding, I’d round the actual mortgage payment up to the nearest $1000 – I like round numbers and I still get that feel good of paying extra), and build up an extra vacancy fund (it’s not an emergency fund, rentals have vacancies and maintenance).

    This accomplishes a few things: He still has diversification: 3 forms of income to depend on. If the markets tank, he has rental income and band money. If he has tenant issues, he has market income, band money and the vacancy fund (which I’d build up to 6mo-1yr’s worth). If things really go bad (or some nearby opportunity arises), he has a place he can move back into. I personally like the diversification of income, and the physicalness (not a word, I know) of actual property – it’s a personal comfort thing: I feel more secure with my income from my rentals than my income from my investments.

    Though all that said, if the rental can actually be sold for $450,000….my question for all my properties is: do I think my house is actually worth that? Example: the house we live in now will eventually become a rental – the plan since day 1. We paid $252,000 for it 4 years ago. I thought that was high then, but it met the 1% rental rule, so we went ahead with it. It’s now skyrocketed and the neighbors are selling theirs for 400,000. There is NO WAY this house is worth $400,000. If this house was a rental now (i.e. we weren’t living in it and/or had another we could move into), we’d put it up for sale. Someone stupid enough to pay $400k can have it! 🙂 (but then we’d buy another rental property somewhere else)

    A few things to chew on, and congrats and good luck!

    1. Well said, JP.

      That’s another way of saying that the current cap rate is actually less than 5%. The 5% was calculated on the purchase price, not the current value. I agree: Always use the current value so that you can properly understand your opportunity costs and trade-offs.

      Using the current value would result in a cap rate of $15,420 / $403,100 = 3.8%

      MMM’s perspective is here, and I think it’s valid whether you’re talking about personal consumption stuff or investments of any kind:

      1. Great point. If he can actually unload that condo on someone else who will never get the same cap rate as he’s getting now, sell it and let that sucker get left holding the bag.

    2. Yeah, I was surprised by the 2.19% rate too. I just heard that the 5 year rate in Canada is now 4.5%.

      He actually has a few good options here. The real question it comes to is: Do you trust your tenant/condo board more than statistics that show no recorded failure in all of recorded history if you go to the portfolio route?

      1. That’s a really good point, Wanderer, thank you. My condo board has been a bit of a nightmare to work with, when issues have come up in the past, so I’m weighing that into the equation. It may be better to find peace of mind in statistics that have been proven over and over.

    3. Thanks very much, jp – great points. The 2.19% is my current rate, on a 3-year fixed mortgage. My first mortgage (also 3-year fixed) was 2.29%. Both very low rates, and I was happy to get the 2.19%, after doing some shopping around. I wouldn’t say that I think my condo is worth $450K, but the market has been so crazy lately, people are making some questionable decisions. And for a space that is less than 500 square feet, it seems crazy that someone would make the decision to invest. I would consider selling my condo and investing in a rental property elsewhere, but all markets in and around Toronto seem to be quite inflated, so buying something else wouldn’t likely be immediate.

  4. I would think selling off the CONDO will be safer and peace of mind (no need to look for tenants, no need to attend the calls for repairs, etc.,)

    I am in the same boat, but don’t have much in my portfolio (only 100k) to offset my expenses of $30k
    I have a condo as well (Kitchener downtown) and have the same numbers as LaidOffWithCondo.
    only caveat is the value has not gone that much as his (bought last year back for $250k and now its $300k) and debating myself to wait for few more years to get more appreciation and sell (expecting to another $50k due to new GO station and Google building).

    both myself and the LaidOffWithCondo have the paid off house to live, which is enough to diversify the investment as I have tenants in basement which yields $18k and need to build the portfolio to yield another $12k which I am aiming for in few years of building the workshop portfolio of $300k.

    So my view is to sell the condo top-up the portfolio and rent a room/basement in the existing home for diversification of the total portfolio.

      1. I’ve estimated a cap rate of 3.25% for a 1500sqft townhouse condo 1km east of Uptown Waterloo (my neighbours recently sold at what looked like a ridiculous value to me, and the unit is currently being rented out). That can’t make sense! Downtown Kitchener may have better cap rates.

        Interestingly, UW residences very much knows that they’re in a situation where they have to compete for tenants, because 15,000 beds have appeared on the student market in the last 10 years.

      2. as per the current value of the condo in KW (325k), the cap rate (rent is $1350/month – $200 property tax – $230 maintenance, – $20 insurance = $900) is $10,800/$325000=3.65%

  5. To address some of the concerns expressed about the having to rely on your portfolio when the market goes down, check out Wanderer’s wrap-up of the Yield Shield last week: 🙂

    That also connects in nicely with one of LaidOffWithCondo’s concerns:

    “I’m quite ignorant when it comes to understanding what kind of dividends I can consistently expect from my current portfolio and how to adapt that to my future FI lifestyle.”

    Head back over to that Yield Shield article and scroll through the comments. I opened a discussion on the stability and reliability of dividends, and included a link to a simple analysis that can help understand them a bit better.


  6. Ya, the market could tank, the condo could tank, anything could happen, but a balanced portfolio is designed with that in mind. The 6% return is just an average, based on a balanced approach.

    The key here, is all your eggs in one basket is not a balanced approach, 44% from one asset is a lot of risk, and its illiquid. I can sell an equity with a stop loss order at 20% immediately, or close too it, but I can’t sell a portion of my property, nor can I do it quickly.


  7. Wow, this situation and these numbers are really similar to what ours were when we first discovered this blog. We had a townhouse that we’d bought in BC for $305k and we sold for $460k last year. One of my relatives suggested we rent the townhouse which would have gone for around $1800/month but we didn’t even consider it because we didn’t want to deal with the hassle of tenants, maintenance, etc. and we wanted to sell in case the housing market crashed. I have no regrets about selling, it definitely was the right decision for us.

      1. My spouse is retired and I cut my work hours in half and now work from home instead of in the office. I make enough part time that we don’t need to withdraw anything from our portfolio.

  8. Good risk analysis Wanderer.

    Personally, I think I’d sell the condo and put the proceeds into a well diversified REIT with the possibility of income growth and capital appreciation.

    He might be FI today, but how about 5 or 10 years from now? It’s important to always be compounding.

    1. Hi MERJ, I originally purchased the condo, thinking I would live in it longer term, but given that I could rent cheaper elsewhere and I didn’t end up living in a condo so much, I only lived in it for a year. I always considered it an investment, but my original intention was to be living in it for longer. The home I live in now is part of an estate, so I did not purchase it.

      1. If you keep the condo don’t expect any further appreciation on it. In fact, brace for a decline like what was observed in the detached housing market. It’s probably at its peak price now.

        When it comes time to renew, since you’ve pre-paid so much, extend your amortization period back up to 30 years. Stop doing any further pre-payments, and instead reap the benefits of extremely low carrying costs and higher monthly profit to spend on whatever you want.

        Your interest rate is amazingly low but let’s say it goes up to 3% upon renewal. A $67k mortgage for 30 years is $290/month. Your tenant pays that, and all condo related expenses and leaves you with approx. $995/month worth of play money. There is no need to pay off your investment property quickly when it’s reaping you lots of money. You always have the option to start pre-paying it down again, if you choose to.

        You still have your portfolio intact, you have real estate intact, and you have money in hand each month.

        Rental income: $1750
        Expenses: $290 (mortgage) + $275 (maintenance) + $160 (property tax) + $30 (insurance) = $755 a month
        Net per year = $995/month x 12 = $11940

        Condo: $11940
        Portfolio: ($243,500) x 4% = $9740
        Music: $10,000
        Total: $31,680

        Do NOT start taking out HELOCs with the intention of only paying interest on it indefinitely. This is gambling with a type of debt that can get out of hand quickly. With a mortgage you can choose fixed rates and and the debt is getting paid down for you.

        1. Hey Tommy! Thanks very much – this is really solid advice, with numbers to back it up. If I keep the condo, I’m definitely expecting some depreciation, but having the fixed rental income is a nice peace of mind, with the positive cash flow, as you so nicely outlined. If I sold the condo and invested the equity in index funds, I would be worried about being able to rely on the same or comparable returns, especially in the short-term.

          1. I have a mortgage on an investment property in Toronto up for renewal in 2020. I’ve pre-paid a ton on it (because I hate debt) but because the remaining balance is so low, I’m going to extend the amortization back out to 30 years on it. It makes no sense to continue plowing so much money into it to kill it off in another 8 years (instead of 22) when I can use the extra money to enjoy now while still holding the property for any potential appreciation, continue building equity (albeit at a slower rate), and still bask in rental rate growth.

            Having a property located in Toronto helps a lot since it tends to keep rental demand high. Vacancy rates go up and down however, they’ve had negligible impact on rental rates over the past 27 years. When there are period of decline, they don’t seem to last more than a year and on average the decline is like $10 or $20 per month. Surprisingly, vacancy rates don’t appear to directly coincide with average increases/decreases of rents when I look at the data.


            Average Toronto Rental Rates since 1990:

            Vacancy rates since 2000:

            Like someone else said earlier, you will also retain the option of moving back into your condo if you want to by keeping it.

            When I look at the long run I wonder what will be different in 2030 when there will be millions more people living in the GTA. Is the prospect of real estate being more affordable than it is now realistic? No. Still, it seems absurd that a house that costs $1 million today may someday cost $5 million. Then again, all the old folks that bought houses in 1950s for $20k are sitting on properties worth hundreds of thousands, if not millions today.

  9. Just an idea and with no math behind it – I’m wondering if it makes sense for him to stop paying down the condo so aggressively. Given for rental units, the mortgage interest is a tax deduction, I don’t think there’s any benefit to paying it off quickly? He could instead pay the minimum amount possible and have that cash freed up for investing vs locking it into the condo.

    I get not wanting the debt — I paid off my own condo as fast as I could because I hate debt + interest, but then I moved out and kept it as a rental. In hindsight I wish I’d sunk less into the condo. (ha, especially now that its value is dropping. And also, a special assessment. yay.)

    Another random consideration — if he goes geo-arbitrage, he may want to sell the condo anyways (otherwise, who will babysit it? A property management company will take a chunk out of his income).

    1. If he were to go the HELOC route and leverage up his investing, then yeah that would make sense. Pay the minimum, HELOC the rest out, and as his mortgage gradually pays down HELOC the equity back out to maintain a 65% LTV. You can get readvanceable HELOCs linked to your mortgage that automatically does this.

      What you’re referring to is called the Smith Manoeuvre or something like that.

  10. What the hell is he doing with $150k sitting in cash? Did the cat walk over his keyboard and sell all his shares? There is no way that a 50% cash portfolio is going to last 30 years or more at 4% withdrawals.

  11. This particular case study is really interesting because it shows the value of diversifying not just within your portfolio and paper assets but also with OTHER forms of income streams as well. I liked your analysis because it was quite informative, however, have we considered the other alternative that is available? What about if the markets crash and his portfolio were to lose value? From what I understand LOWAC is using a portfolio strategy where he is investing using a 70 equity/30 income strategy so there is more room in this portfolio for securities that are expected to appreciate in value over the ones that are being used for income? Shouldn’t the markets crashing scenario also be considered in his retirement strategy? Or is there something else that I overlooked?


    1. The FIRECalc simulations account for a bad sequence of return outcome. 99.1% success rate at current spend, 100% success rate with a slight decrease of $1k a year.

      Also, what’s a LOWAC?

  12. I suggest he keep working for another couple years. I personally don’t like living on the edge. If I spend 24k a year, I better make 48k a year. Always look ahead for future growth in expense.

    Selling the condo seems like the right thing to do since it makes sense to ‘buy low sell high’.

    Once the condo is sold, I’d keep half the money in cash, invest half in a well diversified portfolio like others have stated, and keep the other half for opportunistic investments.

    Be patient – buy low, sell high – repeat

      1. No doubt he can support himself now. I’d need more data on his future plans. Does he plan to continue to live without dependents? Will there be family burden later on? Will his expense grow quickly?

        I guess he can always just go back to work if he meets his love of his life and has children or there’s family burden. Luckily, he doesn’t live in America, where you’d need to account for health insurance.

        It’s just I would be more conservative with my numbers.

  13. I agree with you on this one. Having such a large percentage of an investment portfolio in one piece of real estate, with a mortgage, and located in Toronto is not properly diversified. I’d sell the condo and put the proceeds and much of that $150k of cash in a globally diversified portfolio of index funds and draw no more than about 3% from it in view of the long time horizon of early retirement.

  14. Thanks so much for this analysis, Wanderer and FIRECracker, and for exploring all options in such great detail. In a way, I’m glad to know that there isn’t one option that is strikingly most beneficial. Although I understand that selling the condo seems to make the most sense, there is a case to be made for keeping it, and relying on its rental income to make up a portion of my passive income. And thanks to everyone for your great feedback and input. Although I shouldn’t be trying to time the market, I do feel that the market is in for a correction in the not too distant future, as a couple readers mentioned, therefore selling the condo and putting all assets into index funds seems risky to me. I know the condo market is also in for a decent correction, but even with a market correction in real estate, I think the dividend (aka rent) will remain unchanged, or even increase, if the asset market value decreases. I sometimes overlook the lifestyle and emotional implications when considering financial decisions, but I feel like it is within these considerations that the scales will be tipped.

    1. Sure, if you trust your tenant won’t bail on you, then HELOCing back out actually increases your income stream.

      But either way, at least stop paying off your mortgage so fast. 2.19% is NUTSO low!

  15. Interesting situation!

    I’m a real estate investor, I love real estate. Still, I would sell the condo…

    1) it’s one unit. one tenant. high risk. vacancy, damages, repairs, etc.
    2) it’s a condo : if he’s on a low income year, but the other owners want to do the roof in gold and diamonds, he would have to pay his part. He owns but doesn’t have very much control.
    3) it’s in Toronto. Data suggest Toronto and Vancouver prices are on a downslide. Nothing huge, but tomorrow’s value will probably be lower. Then again, my crystal ball reading is as good as anybody’s!
    4) as Laura mentionned : “if he goes geo-arbitrage […] A property management company will take a chunk out of his income”
    5) If the market is still good in Toronto, why not try to sell it himself? 5% realtor fee in his pocket! Showing a property to a buyer is not different then showing it to a tenant. Since he already did it…
    6) A part of his capital gain shouldn’t be taxable (to confirm with accountant!)

    Also, his house is mortgage-free. That’s a tool to keep in mind if the stock market goes down (avoid selling shares to pay for “lifestyle” + reinvesting dividends + buying more shares at low price)

    He could sell the condo and use the money to buy a 20 apartment building, but that’s an other story for an other time lol!

  16. We’re investing in Real estste rentals that we buy with cash. We’re to 4th this year (3 in a hot market of Kraków, Poland, 1 in a diverse market of northern Michigan, that fills with summer rentals and lacks of long term options).

    Our strategy was small apartments, studios or 1bedroom as we can own more units for the same price. It was one of the ways to diversify: one renter is not there, we have another 3. The 4 properties will make up close to 1/3 of our retirement portfolio, with split 4 ways across two continents. We also have sold the properties in the past: many investors want to invest NOW while there are not many built apartments. This is how we can score an amazing price on a new built while we wait for it to be constructed, but sell now for extra cash. This is how we went from suburb studio to a 1-bedroom downtown with zero additional cash needed.

    I agree that selling your condo is not a bad option. If you want to have passive income from rent, try to buy something somewhere else that for the same cost can create 2-3 streams of income. Perhaps a multi-unit? The “hassle” with the renter can be solved by a property manager who manager our house in the USA.

  17. I might be missing something but I think there’s something wrong with the calculations – the figure $403,100 fails to take into account paying off the mortgage of $67,000, so the actual amount added to the portfolio would only be $336,100.

  18. My advice would be to keep the condo. Stocks trade at a PE of 24, and history has shown us that 90% of the time (over the last 100 years) stocks have traded cheaper than this. Far cheaper than this. Bonds have been in a bull market since the early 1980’s so they are at epic levels (i.e. expensive). Real estate is inflated as well, but with real estate all you need to care about is the rent. Does the rent generate positive cash flow? If it does, you are in fine shape. Plus, with whiffs of inflation appearing, you have a solid chance of rents increasing over time. And if you lose your tenant, simply get another. It’s not that hard. That’s my two cents.

  19. This was a great breakdown (and reminded me just how much I still suck at mathing sh*t up)! I have a bias against home ownership (so weird that I follow you…), but in this case I can see why it’s a tough call.

    I’m really only left with one question.

    Is this guy single?

    1. LOL. Looks like LOWC has an admirer. I’ll let him know. Maybe you guys should get in touch 🙂

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