real estate

Sell home, don't play absentee landlord

Steve McLindenq_v2.gifDear Steve,
We have an offer on our Toronto home, but after the inspection, the buyer wants to further negotiate the price which is starting to make the deal unattractive. If we compromise further, we'll make no profit whatsoever. The house is in fantastic condition, is in a very desirable area, and includes high-end finishes and top-of-the-line appliances.

Do you think it's wise to sell anyway instead of renting it out for another 20 years, after which it would be ours? We're moving to the U.S. for a job opportunity. What would you do?
-- Helen

a_v2.gifDear Helen,
If you were living in one of the many still-depressed housing markets in North America, the answer would be a quick and easy one: Sell, sell, sell and don't look back. But the Toronto market, if recent data holds any weight, has shown more bounce this spring than most metro areas in Canada and the lower 48 states, largely because housing inventory there is somewhat narrow and prebust lending standards in Canada were more strict.

However, what you really have to gauge is the likelihood of another timely offer coming along soon, and/or the hidden costs and perils of becoming an absentee landlord. If you were to hold out for a little more money with the intent of making at least some profit, what value would you place on the uncertainty of that next offer and the inconvenience that the situation could cause when you're trying to relocate? It's a roll of the dice.

If you do decide to become a landlord, you will have to treat it like a business. And since you'd be an out-of-the-country absentee landlord, you might have to hire a property manager who would charge from 5 percent to 10 percent of the rent for the service. That's unless you know someone trustworthy and handy who could collect the rent and tend to repairs for less money. You also would have to thoroughly screen potential tenants, using credit and background checks, and arrive at a fair asking rent. Or you could pay the property manager extra to perform those functions.

All it takes is one bad tenant to skip out after vandalizing the place or missing payments to make you rue the day that you held out for a few dollars more. Also, realize it is tougher to rent out higher-dollar homes for the equivalent of a monthly mortgage and insurance payment because the renter universe at that level is smaller. Houses valued at about $175,000 typically rent for 0.9 percent of total value, or around $1,575 per month. But with a $400,000 house, the percentage drops further as you ascend the value ladder to only 0.75 percent of value, or around $3,000 monthly.

There's another consideration: Would your homeowner's insurer let you be an absentee landlord without paying a higher premium for coverage? You had better check if you're leaning toward renting.

Meanwhile, try telling the potential buyers that you will be glad to meet them halfway on the repairs or repair credits, given the place is already in great condition. All things being break-even and despite the relative health of the market, I would still just sell the place to help clear my financial slate and eliminate one potentially huge relocation headache. But I don't possess all the financial details that you do.

Good luck on whatever you decide.

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