Reader Case: How Do I Stop the Bleeding?

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To sell or not to sell, that is the question…

Or in this reader’s case, more like “how do I stop the bleeding?”

As you all know, here at Millennial Revolution, I never shut my trap about the dangers of buying into the housing “cult”. Why? Because locking all your wealth into 1 asset, feeding it your entire paycheque, betting on it making a buttload of money because housing always goes up, up, up…is stupid.

And here’s your proof (e-mail has been edited for brevity):

“In 2014 I moved into a swanky one-bedroom condo in Edmonton. I was a single guy, with a great job, and making good money so I figured I’d better buy the place, since “renting is a waste of money” and I didn’t want to move again. I believed that if I did end up meeting someone I could easily sell it, or rent it out since Edmonton was full of single guys with lots of money. My realtor assured me that I could easily rent it and be cash flow positive by a couple hundred bucks each month. And that was all the homework I did. I bought my place for $295,000 in the fall of 2014.

Since then:

1. I met a great girl, and in January 2016 I moved into her place. (My condo is too small for both of us, and her place allows us to walk or bike to work). G/F and I are splitting rent on her place and my place is empty most of the time.

2. The price of a barrel of oil went down the shitter, and all the wealthy dudes took off. It’s now a renters market, and I would be lucky to rent my place out for $1600/mth.

3. My monthly cost of ownership is $2100 (mortgage at 2.1%, which I’m making accelerated payments on – 16 yrs owing, and condo fees, property taxes, utilities, insurance)…this eats up 36% of my monthly take home pay of $5900.

5. The current suggested list price of my place is $259,000. Realtors I’ve spoken to have warned me to be prepared for a sale at closer to $245,000.

6. Given that I owe $265,000, and considering the cost of selling, I suspect I’d be on the hook for a big stinky loss of $30,000. This would go onto my line of credit, and I can pay it off in 10 months. I tried listing it in the spring at $299,000 (same price as my competition), with no success.

7. There are plans for more development around my property. I’m concerned that the potential construction would scare away renters, and that the other condos, once completed, will outcompete with my mine for renters and buyers.

Given that moving into my place isn’t an option, I’m left with the decision to either sell and eat the $30,000, or rent and eat $500/mth until the economy improves (whenever that’ll be).

I’ve been waffling on this decision for months. I’ve been trying to convince myself that the $30,000 is not a bill, rather, the cost of the lessons learned, but then there’s a nagging voice that keeps reminding me of sunk costs, maybe things will be better next year, and there’s only 16 years left on my mortgage – maybe I should refinance to 25 years so maybe I can rent and nearly break even each month, eventually I’ll make a profit, etc.

So many variables, it makes my head hurt, and I haven’t even mentioned landlording hassles, tax brackets, and capital gains…
I’m feeling like I should just pull the trigger and list it for $259,000 – if it doesn’t sell I can still rent it and relist later if I have to.

What should I do?

STB (Stop the Bleeding)”


Yikes! Okay, let’s summarize:
• Should STB keep the condo and lose $500/month or sell it and lose $30,000?

Oof, this is tough. And don’t think we didn’t try to make this work, we really put our thinking caps on and tried to get out of this situation without losing money but try as we might we just could not get the math to work out. The reason is that rental income is unfortunately taxed at STB’s marginal rate, so even if he deducted the cost of insurance and property taxes, he’s still down an extra $400 a month (20.5% Fed + 10% provincial). That’s a monthly deficit of $900 a month, or $10,800 a year.

If he sells now he’ll be able to get back to even within 10 month. If he keeps it, in less than 3 years, he’ll have bled away around $30,000 anyway. And that’s assuming he has 0% vacancy rate and a perfect tenant.

But if we were to get creative and try to re-finance that mortgage? We plugged it into a mortgage calculator at today’s rates and we estimate that can bring our monthly cost of ownership down to $1500. That helps, but because of taxes on the rental income, he’s still not breaking even. He’s operating at a loss of $300 per month, or $3600 a year.

And here’s the bigger problem: if he breaks his mortgage in the middle of his term he’ll incur a massive penalty of >$10k. So assuming he has the most common 5 year fixed term, he’ll have to wait 3 years anyway before he can refinance, making this all a moot point.

So we are faced with a rock-and-a-hard-place situation. Lose $30k now or hope like Hell that prices recover by more than 12% to dig himself out of this hole. That’s a tall order, and it doesn’t sound like the condo construction around him is going to help.

Not fun.

Personally, I don’t see the housing market in Edmonton getting better any time soon (in fact, overall Canada is losing jobs and the Vancouver housing market is already cooling), and given the risk of further losses once the other condos are completed, I can’t justify holding onto it.

BUT if he can somehow re-finance right away without penalties, renting it out at a smaller loss gives him more time to wait for a rebound.

Still, that’s not a great outcome. Absolute best case scenario with a perfect tenant and the ability to re-finance right away, he’s still losing $3600/year. Whereas if he sells, he’ll break even in 10 months. Does he think the housing market will come roaring back in just 10 months? And since he mentioned that his GF’s place is closer to work, he can reduce his expenses by not having a car,  start saving money, and be cash flow positive in less than 1 year.

And that right there is EXACTLY why I prefer renting and investing over buying.

When the market crashes (as it ALWAYS does), my portfolio continues paying me dividends, while letting me rebalance and preserve my capital. Houses on the other hand, bleeds your equity while it sits on the market, plummeting in value. And while you’re tearing all your hair out, it continues costing you in property taxes, mortgage, insurance, and maintenance. On top of that, there’s another 5% just to sell it.

That. Sucks. Balls.

STB made a HUGE mistake by betting into the Edmonton housing market. And at this point, his only choices are either “rip the band-aid off” and take the loss or “continue bleeding” and possibly lose even more money.

So that’s my analysis, but let’s hear what you guys/gals think. Sound off in the comments. What would you do if you were him?

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45 thoughts on “Reader Case: How Do I Stop the Bleeding?”

  1. It sounds like he has already wrapped his mind around the 30K loss and sometimes that freedom is worth saving your sanity.

    Great clarity in running the numbers. Having been a landlord (and losing all my rental properties in the last US housing crash), I have decided there is no such thing as a perfect tenant situation. Even if the tenant rocks, it seems at some point something in the unit may break or you could get hit with a special assessment (again speaking from experience 🙁 ) that can eat up a giant chunk of change (10K in my case). There are so many factors at work here!

    Curious to see what route STB goes! 🙂

  2. I ripped the band aid off, best decision made. Sold our house at a loss, after renting it off for 3 years. At the time we didn’t understand the math on buying and renting out a house. Had we understood that renting the house out was costing us quite a bit, we would have sold sooner. It was a great lesson learned.

    We know the markets insane where we live b/c fixer upper homes sell for $600k, very overpriced. Same climate we bought into before. This time we are passing, instead have been investing 55-65% of our income. Everyone else is stressed out from their mortgage, we don’t have that. No one has to have that

  3. I would take the loss and sell the condo. I think Edmonton condo prices might go even lower for the next couple years and could take many years after that to actually recover. STB can recover psychologically by being super frugal for a year or two, and save and invest a lot of money. Once he recoups that lost money by super saving, he’ll start forgetting about the pain of the loss. It’s always painful losing money because you feel like an idiot. But that pain will dull with time, especially if you can save a bunch more money to “make up” for the loss.

  4. I have to say I’ve learned from much bigger mistakes than that (read total mistakes in the six digits) – and it pains me to think about it. Cut the losses and rebuild. You will recover from $30,000 much quicker than you think and the freedom that comes from no worries is priceless. In my experience we get too attached to our ego and fail to see the long term picture. I live in Edmonton (renting for $700/month all-in) and we are saving up to buy investments like Firecracker and Wanderer. It’s gonna take awhile because we are still paying off student loans and rebuilding from said losses but unlike both our parents we should actually be able to retire and do it earlier than 65!!! =) Gotta keep plugging away, working hard, and being frugal. =)

    1. Financial mistakes are painful to think about…but hey, no one’s perfect, and we could’ve easily lost that much had we sold at the bottom in 2008. Good thing we were indexing and could re-balance to get out of it. It’s okay to make mistakes, as long as you learn from them.

      Since you’re able to rent for $700/month in Edmonton, this makes the “rent it out for $1600” option seem even less likely. The housing market in Edmonton could get worse before it gets better.

  5. All situations are different, there is no one-size-fits-all buying is bad or renting is bad. This property was never intended to be a cash flowing property, and STB didn’t structure it that way, (10% down, accelerated mortgage payment). If your young enough to where your living situation has the potential to change drastically within 2 years, of course buying doesn’t make sense. Even if the place appreciates moderately, your breaking even with commissions and closing costs. The biggest mistake was made by not doing enough homework on the front end, and taking a real estate agent’s word for it. Also, inexperience with worst scenario / changing market conditions.

    Decent analysis, but slanted a little bit. 1) STB does not “break even” after 10 month, he “pays off the loss” after 10 months. HUGE difference. 2) Yes you must pay taxes on rental income, but you can also deduct a lot of your expenses as well. Its not uncommon to actually be cash flow positive but show a loss on your taxes. If your actually cash flow negative, this should reduce your AGI even more.

    You are in a pickle though. I think my cursory plan of attack would be 1) refinance to get your monthly payment as low as possible. Rates are low, especially if you can still claim owner occupancy. Consult attorney to make sure your not breaking the law. 2) put it on the market at a very optimistic price point (280k?) Recognize you wont get much action immediately. 3) Rent it out in the meantime 4) get a CPA and take all the tax deductions you possibly can while renting.

    Congrats on meeting a great girl. One consideration to keep in the back of your mind, unless you think that she’s the “one”, there is always the possibility that the relationship blows up, she kicks you out and your homeless. Would really suck to take the 30k loss then breakup 3 months later….

  6. The devil’s in the details of the existing mortgage. If it has a high penalty to break it, like an interest rate differential (IRD) calculation, then it may not be worth it as you point out. But it may actually work out too.

    You may be able to talk with your existing lender (or have a mortgage broker talk with your existing lender) to see about refinancing without incurring any penalties, resetting the amortization out as far as they will allow, switch to monthly payments and discard the accelerated payments, just might bring the payments down enough to make it manageable as a rental.

    Tough situation though all around. I highly empathize with STB’s situation.

    Oh and don’t get me wrong, my business may be in mortgages but I agree that we shouldn’t all be trying to be home owners. Renting your primary residence is often a far better solution than most people realize. Keep up the good work.

  7. I’m not sure what the market is like in Edmonton, but could he consider a third option of trying to Airbnb his condo? If it’s a “swanky” one bedroom condo (and hopefully in a decent part of town), he may be able to have a chance of breaking even by putting it up on Airbnb.

    Airbnb does take up more time, obviously, but might be worth trying it out. In my experience from listing up a room on Airbnb, you can earn double what you would normally get in rent.

    It doesn’t cost anything to try, and if it turns out not to be a great fit for him, he can just go back to his other two undesirable choices. And you’ll be surprised at the demand for places to stay. If there are hotels in the area or any sort of attraction in the area (be it a stadium, a university, etc), there are people coming from out of town who need a place to stay.

    Of course, all this assumes that there aren’t any condo or city rules that would prevent him from trying to Airbnb his condo.

    1. I had to make some cuts for brevity, but the reader did mention he was getting some AirBnB stays. My concern is the demand from travellers to stay in Edmonton. It’s a nice city, but considering how few vacation days people have per year, would they use them up on Edmonton? I did see that the city gets 6-7 million visitors per year, but over half were same day visits from people who live in Alberta. For AirBnB to be an option, he’d have to see if the demand is high enough to cover the cost of ownership. I suspect it isn’t.

      1. I think the beauty with Airbnb is that you can at least try it with little risk. If it doesn’t work out, he’s just in the same spot as he is before, right?

        As for the demand, that is hard to say unless he tries. If Edmonton has hotels, which I know it does, then that means that someone has done some market research and concluded that the demand was enough to support numerous hotels. If he looks in his neighborhood and sees any hotels nearby, that means that there is demand for travelers in his neighborhood.

        I live in Minneapolis, a city that I don’t think of as very tourist heavy. But I live near a college campus, so my guest room is getting very steady demand throughout the year. There are three hotels in my area, and obviously, those hotels are able to stay in business.

        I had no idea when I put up this room what sort of demand I would get. I suspected that I’d basically get no demand, as I didn’t really see why people would want to come to my neighborhood. What would they do? If they were coming to visit friends at the University, then wouldn’t they just stay on their friend’s couch or something?

        What I discovered is that there are tons of people coming into town for conferences, or who are in town completing research projects, or visiting their kids, or random sporting events. You’d be surprised at what sort of demand you can get.

        Of course, I’ve never been to Edmonton and know absolutely nothing about the city other than that its in Canada, but if there are businesses and schools in the city, then I’m fairly confident that there will be some demand. It’s not only vacationers using Airbnb is what I’ve discovered.

  8. Our condo in Edmonton was a 10 year old 2 bedroom 2 bathroom 1080 square foot unit near West Edmonton mall. It was assessed at $265,000 but we sold it for $243,500 back in February. No one was going to pay $265,000. You can almost buy a house there for that much. We used 2% Realty and saved a bit on our sale. Still cost $10,000 for realtor and lawyer fees. All in all it cost an average of $900 a month in total costs to live there for 7 years. We paid it off in 1.5 years, that helped lower the costs. Not a huge loss. Would have been paying around that much for rent anyways. But our stocks that we own have risen 33% in that period that we lost money on the condo. Would have been way better off with the $255,000 in stocks for that 7 years.

    1. Good thing it wasn’t a huge loss and your investments made up for it. Curious about your investments. What’s your asset allocation?

  9. Hey FIREcracker – followed your posts since you popped up on CBC. Encouraging to see FI getting some attention in the media, discouraging to see the reaction. Whatever.

    The analysis is okay for a first pass, in terms of “there’s no fantastic outcome here”, but there’s a lot of important detail missing, particularly on the “hold and rent” option. You’ve definitely taken Garth Turner’s advice on investing and liquidity to heart, but might have skipped a few classes on tax avoidance, seeing as you structured yourself into a naturally tax-advantaged situation. It’s a great example of someone getting borked by betting heavily on real estate at the wrong time, but not ideal as far as

    To preface everything below, I just want to say congrats to STB on moving in with the GF. Life’s more fun with a team-mate. Go pick up a bottle of cheap wine and try not to sweat the money stuff too much.

    First, STB needs to start renting this place out immediately, whether he plans to sell or not. Better would have been six months ago. This isn’t a buy/don’t buy situation, STB already owns the condo, and is therefore leaving an untapped revenue source of around $1500/month on the table. Either way is cash-flow negative, but the expenses are what they are, and being cash-flow negative by $500/mo is better than $2000/mo.

    Second, I haven’t seen your detailed calcs, but it sounds like you’re missing out on a lot of potential tax deductions. You have property tax and insurance, but if you’re renting out a property, almost *everything* is deductible. Property tax, insurance, maintenance/upkeep, condo fees, and mortgage interest/fees. For a condo, this covers almost every expense except for the mortgage principal. I don’t know what the split between principal and interest on his monthly payments is, but considering he’s got 16 years left and is currently paying a laughably low 2.1% interest rate, a decent chunk, at least half, probably goes to principal.

    This means that STB can more than likely deduct almost all of the rental income that he earns, and the non-deductible portion, along with any negative cash flow balance, will be going to paying down the principal. Since he already has the loan, this is more or less like saving. Saving at a crappy rate of return, but at least the money is going to paying off debt. I think the rental calculation is worth re-doing with a more detailed look at the cost breakdown and tax advantages. Even if the rental income doesn’t cover all of the non-principal costs, STB can take the difference and deduct it from his employment income.

    Third, renting has an extra benefit if STB decides to sell anyway: Since it will become an “investment property”, he should be able to claim a capital loss (and closing fees for selling) if he sells and takes a bath on the price. If we’re talking about $30k, then he can carry a deferred capital loss on his tax return each year to pare down taxable income to the next jump in marginal rates. At a take-home of $5900 a month, his marginal rate is most like 36%, meaning that by converting an ordinary cash loss to a capital loss on a taxable asset, he could get $10,800 scraped off his tax bill over the next few years.

    Overall, the situation is crappy, but not dire. If he rents, his cash flow between the condo deficit and half rent with the GF will probably still be less than the average single swanky downtown AB city dude pays in rent, and part of that money will be going to paying down outstanding debt on the mortgage. I wouldn’t sweat over the decision too much. If he thinks rents will drop and interest rates will climb, sell it. If he thinks he’ll be able to refinance again at a low rate (i.e. if the initial mortgage was a 3-year term soon to expire), then holding and renting is probably a good option. Either way, he’s at least got a place to live with a great gal, so he should come out of it just fine.

    1. Spaced on a detail when I was writing this – STB can’t deduct a capital loss from employment income, it can only be used as a write-down against capital gains, so the actual tax benefit is only $5400, not $10,800. Still an additional incentive to use it as a rental while he’s deciding to keep it or dump it.

      1. Thanks for the clarification! I got super confused when I read that.

        Anyhoo…yes, you are correct in that, if it’s a rental property, there are tax deductions he’s could make. That being said, even if we exclude the $400/month in taxes, he’s still left with a loss of $500/month. And my biggest concern is whether the housing market in Edmonton will go down even further, and those condo units going up around him does NOT help.

        I’m also really doubting whether he can rent the place out for $1600. Other readers in Edmonton have mentioned they’re renting for $700 and it’s a renters market right now.

        So if the stars align, he’s able to re-finance, he successfully rents out the place for $1600, the other condos around him DON’T affect his property value, he gets great tenants with 0 vacancy, AND the housing market doesn’t go down further, keeping it may make sense.

        But a lot of things has to go right for that to work out. I’m not sure if it’s worth taking the risk.

        1. Regardless, I think renting it out in the mean time is still a good decision, since either way, the condo isn’t going to be sold in a day. Extra income and a heap of tax advantages (whether renting or selling) is worth the bit of hassle to find a renter.

          Another thing to note is that in the case of renting, the negative cash flow isn’t exactly a loss, it goes toward paying off the principal amount of the mortgage. I hesitate to say “builds equity”, because since zero-recourse mortgages disappeared, a property and a mortgage aren’t a single entity, one is an asset and one is a liability. If the condo itself declines in value at a rate of $500/month, then that money is basically a loss. I don’t even know if refinancing would be the best choice, because although it improves the cash flow, it also cranks up the percentage of the payments going to pure losses, i.e. interest. On top of that, extending the amortization period by 9 years will further increase the exposure to interest rates, which have nowhere to go but up.

          I think that this would be trivially simple as a buy/don’t buy decision, but sell vs. hold is a bit trickier. You don’t want to panic sell into a decline, particularly when the transaction costs are so steep – keep in mind that he’s already forked over a set of closing costs at the front end when he bought the place. On the other hand, my opinion is that condo prices in AB are going to get a lot lower before they come back to 2014 levels, barring some massive resurgence in oil prices from a major geopolitical “black swan” event. Personally, my inclination would be to sell, but that’s because I dislike debt and high levels of exposure to single factors (e.g. interest rates), which is why I never bought in the first place.

          Overall, this is mainly useful as a cautionary tale against burying yourself in debt to buy one illiquid asset instead of owning a diversified array of liquid assets. We’ve had years of people insisting that leveraging yourself to buy real estate is the only wise choice, because price appreciation will make you a ton of money for minimal cash outlay, but we’re finally seeing the dark side of the moon here: if prices go down, you could lose much more than you put in.

          1. “Overall, this is mainly useful as a cautionary tale against burying yourself in debt to buy one illiquid asset instead of owning a diversified array of liquid assets.”

            Exactly. It’s a tough situation and there is no easy way out. But it definitely serves as a good example to show the importance of diversification.

    2. Alex – think the capital loss would only apply to the condo value at the point where it was rented (i.e. became an investment property) to the value when it is sold – one cannot mix “personal” use with “investment” use willy nilly – definitely talk to a tax advisor before using capital losses – CRA is a VERY unforgiving task master.

  10. I would sell. It’s a sunk cost, and a lesson for the future. Take it as the cost of living downtown for the time you spent there. There is a high cost of a bad financial decision hanging around that causes stress and just an overall drag on the quality of life. One needs to get rid of that.

  11. Keeping the Condo is more market speculation, something you want to avoid, as the result is … oh ya, your screwed.

    In 10 years, its likely its value will come back, maybe… but can you live likethis for 10 years?

    this is why people walked away from homes in 82, and in 05 in the US, they were stretched too thin.

    Sell at a loss, you will make it up next time, and in other ways. I owned Nortel, tech stocks,
    etc, and lost a pile in the dot com crash, but I learned, and made it all back.


  12. Hands down, I would sell as soon as I possibly could and count my blessings if I got out taking only a 30k haircut.

    I don’t know anything about Edmonton RE, but with all that new construction and since “all the wealthy dudes took off” and the realtors saying expect closer to 245k; it looks like a fast spinning falling knife to me.

    Many, many years ago I was in exactly the same jam and, worse, for a while couldn’t sell at any price. Adjusted for inflation, I lost even more. But it was a great, if pricy, education.

    If anyone cares, this is that sad, expensive tale:

    1. Thanks for your 2 cents, Jim!

      FYI, I’m reading your book and even the acknowledgements are funny! I’m addicted 🙂

      1. Thanks, and I’m glad you enjoyed the acknowledgements. In most books they are crushingly boring and my guess is most readers skip over them for this reason.

        For those few who do read it, I wanted it to be worth the effort. 🙂

        Glad you are enjoying the book!

        1. That’s why I think your book is worth every penny. And this is coming from me, who is super judgemental and not impressed with ANYTHING. I love your book because when the author puts in max effort, even in the acknowledgements, you KNOW it’s going to be awesome. When we published our novel, we totally half-assed that part. So, kudos! You put in a TON of effort and it shows.

  13. 1 bedroom places have always been a terrible investment. Couple that with the brutal economy in Edmonton and I think he’s going to have to get used to losing money anyway because it’s not over until he actually sells it… The reality is it could sit on the market for 6 months or more before he even gets breath that $30,000 sigh of relief.

  14. Sell it, the sooner the better. Real estate in Edmonton is not going to improve and neither will the job market. He runs the risk of losing his job, and then the condo due to foreclosure. At least if he takes the hit, he keeps his credit score intact.

    The hit to his bottom line might be more than $30,000 if he hasn’t figured the bank’s break-the-mortgage fees into his numbers.

  15. Financially, the choice is obvious: take the loss asap and learn from it.

    Romantically, the choice is less obvious. He may want to think about the wisdom of making such a big financial decision within the context of a romantic relationship, the commitment of which is far from certain.

    Don’t forget, FIRECracker and Wonderer conduct their financial affairs within the context of marriage, not shacking-up. And that can make a difference, in my opinion.

  16. The interest portion of the rental’s mortgage payments is tax deductible. Do not forget in your analysis.

  17. I live in Edmonton and my employer cut 30-50% percent of the staff over the last 2 years. Most of my colleagues left town when they found another job and some still have real estate they are trying to sell. Vacancy rates are through the roof and there is tons of selection on Kijiji. Edmonton also has a ton of new builds in every direction and Major construction projects are winding up over the next year. The Redwater refinery has 5000 construction workers on site and 3000 in the greater edmonton area manufacturing the modules before they get shipped to site. Where do these 8000 people go and work as they are slowly laid off. Production starts in the fall of 2017. Negative population numbers have only just started in the last 6 months or so but I’m worried it could turn in to a stampede over the next two years.

    GET OUT!!

    PS I’m paying 950 for a one bedroom a few blocks off whyte. It’s older but it has a large walk in storage locker, heat and water included….On the top floor of course

    1. Good God, that sounds SCARY 🙁 I’m glad you’re still employed though! Nice to see the point of view of someone on the ground. Another reader said they were paying $700 in rent and you’re paying $950…so getting $1600 in rent for STB might be a bit challenging.

  18. to STB – take the haircut ASAP – write it off to education and lessons learned – you’ll recover.

    Firecracker interesting that you use a ‘bad’ situation to affirm your thesis against real estate ( yeah I know Garth advises you)
    – how about showcasing a success ?
    Sean Cooper for instance?
    (oh look did equal time 🙂

    I’d also like to hear your take on Financial Uproar’s take on your path/situation – see

    seems to me (admittedly I’m biased) Nelson makes some good points

    1. Funny that you mentioned Sean Cooper. Just had a Skype chat with him today…super nice guy and I love his work ethic. Too bad he still lives in his own basement. Guess those are the insane sacrifices you have to make to afford a house in Toronto.

      Someone already told me about FU’s (Bwahahah!) take. Interesting analysis but missing a LOT of additional ownership costs. I’m already queuing up an article to show what home ownership would’ve REALLY cost us, so quit “backseat blogging”!

      1. looking forward to the post and Sean is living in his PAID OFF basement – I would guess by choice.
        btw all these things are choices – you have yours, Sean has his, I mine – all different all really only applicable to the individual(s) involved – admittedly some choices can be poorer choices than others.

        1. Sean is truly remarkable. I would not be willing to live in the basement, because I did that in university to save money and it was TERRIBLE for my health. But hats off to him!

  19. This is a no-brainer if you just change the focus a bit. He says if he sells he takes a $30k loss he can recoup it and be even in 10 months. Lets be conservative and say one year. And lets now compare this to the rental scenario with all pluses and minuses as you have outlined.

    Sell now, $30k loss, dead even in one year. Year two keep saving (obviously you still have the income to recoup the loss of $30k) and invest that $30k. Repeat in year three for another $30k. You now have over $60k invested!! Compare this to the rental which any way you cut it leaves you still trapped and bleeding (an albeit smaller amount if rented).

    Choose freedom, take the loss and start saving aggressively and living frugally. At $30k a year for 10 years you have $300k not even counting interest or investment growth. I’ll bet once you see the money pile growing you and your girlfriend find other ways to save money or start a side hustle.


    1. Well said! Completely agree. A reader from Edmonton also said that sales continue to decline, so from that perspective, it’s less risky to get out now.

  20. Great article. I also own a condo in Edmonton, luckily it breaks even on rent. I agree with a lot of what you say about real estate, even though I invest heavily in real estate. The biggest mistake STB made was purchase price. I bought a very nice 2 br downtown condo in Edmonton a year earlier, for $325k. So to buy a 1bed for $295k, is buying a very inflated property. It hasn’t been a great investment for me, but I am breaking even with rent covering costs.

    Even when buying a property to live in, ALWAYS look at what it would rent for. If the rent won’t cover your mortgage, taxes, insurance, HOA, property management, and maintenance. Then don’t buy. Realtor commissions will wipe out the first few years of potential capital appreciation anyway.

    Most people buy real estate to speculate. It is only valuable if it can YIELD. Everything else is speculation. Real estate rises and falls short term, and barely beats inflation long term. If the rents aren’t yielding, then you are probably losing money.

    I invest heavily in real estate, but rent my own home, and am about to go on a 6 month round the world trip. I don’t understand any attraction to owning my own home. Living in highrise apartments are nicer, less hassle, and far cheaper than owning a condo.

    I wouldn’t sell and eat the $30k loss. Try to rent it out, and let inflation catch up. This is assuming it is in the downtown core in a great building. If the property is in a lowrise generic condo building outside of downtown. Sell, it has no hope of recovering.

    1. Awesome insights! Very interesting that you invest heavily in real estate but rent your own home. I don’t think I’ve ever heard of anyone doing that until now.

      And as for the renting it out, STB did mention he had to move in with his gf to avoid buying a car to commute to work. So it’s possible the building is not in the downtown core. Or maybe he works in the burbs, but then why would he buy a place downtown?

  21. Hi,

    As usual, great analysis!! A quick question though…

    When you say “When the market crashes (as it ALWAYS does), my portfolio continues paying me dividends, while letting me rebalance and preserve my capital”… Can you explain how you manage to earn a steady annual dividend on your portfolio even when the markets swing wildly?


    1. We structured our 60/40 portfolio to provide us a 3.5% yearly yield consisting of fixed income and dividends. We accomplish this by using a combination of preferred shares, government bonds, corporate bonds, REITs, and high-yield bonds. So if 2008 were to happen again, the fix income and dividends from these assets would continue paying out even as the value of the portfolio drops. That way we don’t have to sell any assets and can solely live off the fixed income and dividends.

  22. Rents are now in free fall in Edmonton…Will home prices follow next spring?

    *I took the opportunity to upgrade to a nicer rental two months ago. Now in a spacious older but well maintained two bed two bath condo. With underground parking, bike storage, gym etc. with an amazing view of downtown. The unit is assessed at 343000 and the condo fees are over 600$/month. I figure this unit would cost me 2200$/month to own. Property taxes in Edmonton will rise at least 3.1% next year.

  23. Yep. Real estate can be a sound investment, but it’s certainly not a liquid one. My two golden rules, for this reason, is to look for discount realtor commissions and only buy if you feel confident you’re going to be there for at least 5, and more like 7-10 years.

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