Should You Rent Out or Sell Your Condo?

Should you rent out or sell your condo?  There are a ton of websites and calculators to help you gauge whether or not you should rent or buy a home, but there are not very many calculators to help you gauge whether or not you should rent OUT or sell your home.

With the ridiculously increasing real estate in Vancouver it might be nice to have that home equity freed so that your Financial Independence Retire Early recipe can come into fruition.

Rent Out or Sell Condo?

I like to research the crap out of stuff before making a decision, so here’s my thought process.  Let me know what you think.

Should you rent out or sell your condo?  Let’s look at first how much it would cost to rent it out, and how much it would cost to sell the home.  Then we will compare the return on investment of each option.

First, there are some conditions to be aware about in Canada.  In Canada, if you sell your principle residence, you don’t have to pay tax on the gains from the home sale.  You do still have to report your ACB on your principal residence sale though.

If you sell your rental, you will have to pay capital gains (50% of the profit taxed at your marginal rate) on the income from the sale.  If you convert your principle residence to a rental unit or add a laneway house, you will need get it appraised or used a fair market value at the time of conversion to a rental unit, and will need to pay the taxes on the capital gains when you sell after you convert it to a rental.

Let’s say you have a 1 bedroom condo that is estimated to sell on the market for $450,000.

Should you rent out or sell your condo?

renting it out costs

To calculate roughly how much it costs to rent out your home, you have to factor in:

  • How much you pay per month for your mortgage (the mortgage interest- let’s say on a 1.79% mortgage rate with a $350,000 balance owing the mortgage interest annually was around $6000)
  • Your maintenance fees (unfortunately in the few years that I have lived here, the maintenance fees have gone no where but UP, they have gone up almost 20% over the past 4 years).  There has been a special assessment too (though it was under $1000), and I anticipate there will continue to be more of these as the building continues to get older.  Let’s say annually it is $3000 in maintenance fees, or $250/month.
  • The home insurance- because this is a condo, the home insurance in Vancouver is not as expensive as living in a house.  I’m not sure what the insurance would look like with the unit being rented out, I anticipate it should be higher than what I am paying now given the increased of not being owner-occupied.  Currently I pay about $450 a year.  Using an online home insurance company like Square One can save you money, get a $25 bonus when you sign up.
  • Your property taxes let’s say it was $500 annually.

Related: Square One Insurance Review: Save Money on Home Insurance

When I calculate this, on the $450,000 condo ($6000 + $3000 + $450 + $500), it costs about $825 per month to own this home for ownership purposes or if you were to rent it out.

cost to sell home

The alternative to renting out the condo is to sell the home.  Of course, there are costs with that as well.  Here are the closings costs when selling a home in BC to consider.

To calculate the costs to sell the home, these have to be factored in:

  • Realtor fees– I would likely use One Percent Realty since my husband had a good experience with them.  This would mean a cost of $6900 + GST since the home is under $600,000, provided that the buying realtor doesn’t ask for more.  However, the buying realtor usually does though.
  • Property taxes for your portion for the year– if these haven’t been paid already
  • Lawyer or Notary fees ($1000 approximately)
  • Breaking the mortgage penalties if it is a fixed term loan- this would normally be about 3 months of interest.  In my situation the mortgage is low (for Vancouver anyway!) so the penalty should not be very much.
  • Any staging costs or cleaning up costs to prepare the home for sale (let’s say $1500)

After fees and after repaying the mortgage loan (let’s say around $100,000), it will be roughly $340,000 in your pocket.  This would be tax free since there are no taxes on your primary residence in Canada.

Now let’s compare the two:

return on investment comparison

Renting Condo Out:

I would assume a $1400-$1500 monthly rent in Vancouver for a 1 bedroom, since this would be on the smaller side.

The average cost to rent a 1 bedroom unit in Vancouver is now $2090 a month.  Going forward, you would be allowed to increase the rent to the maximum that the Province of B.C. allows, which was frozen for a few years and recently in 2022 is allowed to be 1.5% maximum.

Let’s say you rent it out for $1500 a month.  The cost to own this property is $825 a month.  That’s $675 a month profit, x 12 months = $8100 a year.

On roughly $350,000 of home equity (factoring in the $100,000 mortgage), the return on investment of $100,000 is about 8%.

On the $8100 rental income per year, one would have to pay taxes on this at your marginal rate.

So, looking at this scenario, it looks like the only thing going for renting it out as the continued increase in home equity (the tenants would be paying down the mortgage), and the potential appreciation of the condo if Vancouver Real Estate continues to rise exponentially.

Who knows where Vancouver real estate prices would be in a few years?  I can’t imagine a small 1 bedroom condo selling for more than $500,000 but I can’t predict the future.  The last thing I would want to do when buying a home is over stretch myself.

Related: How to Get Rich in Canada: Be Glorious and Free

Now let’s look at the situation of selling the condo:

Selling Condo:

If one were to take that $340,000 (tax free) and invest it in the stock market with a 7% average annual return on investment, that would yield $23,800 for the first year.  This amount compounds too.

If one were to get a 3.5% dividend yield from the $340,000 invested in the market, one would get a juicy $11,900 annual dividend yield.  Not too shabby huh?

Also, Canadian dividends are taxed at a favourable rate, and much less than the marginal tax rate.

$8100 in rental income vs $11,900 in dividends from Canadian corporations.

Personally I prefer dividends to rental income for my passive income in Canada.

Related: How to Calculate the Return on Investment on your Primary Residence

the caveat

Now, there are a lot of things that influence this decision.  For example, if I sell this place, I will still need a new place to stay.  Well, my husband and I are moving to a bigger place in a little over a year.  Since we have income inequality we have figured out a ratio of how much we should each contribute to the new home.

Related: 6 Single Female Home Buyer Tips for your First Condo

Since I need cash to fund my portion of the new home, and I don’t want to be liquidating my investment portfolio to fund my contribution towards this new home.  I also don’t want to have my net worth be even more tilted towards real estate (it would mean having over 50% of my net worth in real estate, which I am uncomfortable with).

Since my goal is to have a $1,000,000 net worth by the time I’m 40, with the specifics being $1,000,000 invested in a portfolio generating passive income so that I won’t have to use the 4% Safe Withdrawal Rate, I think selling the condo would be the right move for me.

Of course, there are other non-monetary considerations, like do I have the time (and patience) to be a landlord (again)?

If AirBnB were allowed in Vancouver (right now you can only have long term rentals through AirBNB in Vancouver, meaning the guests have to stay for more than 30 days, unless it is your primary residence and you live there) then the return on home equity would be much higher, but would it be worth it still?  (I ran the numbers of a 20 day occupancy per month and still it doesn’t beat the 6% ROI on an investment portfolio).

Alternately you could just do real estate crowdfunding in Canada instead, if you want to sell and stay in the Canadian real estate market.  With addy, you can invest in Canadian real estate (many of the properties offered are multi-unit residential properties or commercial properties) with as little as $1 (and maximum $1500).  Each property offered is different and the offering memorandum would be the best place to review each of these properties up for offer.

While you can only invest a maximum of $1500 with each property, you do not have a limit to the number of real estate crowd funding properties you can invest in.

Related:

What do you think?  

Would you rent out or sell your condo?

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42 thoughts on “Should You Rent Out or Sell Your Condo?”

    • @Tom- I am learning that I don’t think I am landlord material too. There’s stuff that I should fix in my own home and I don’t even know how to do it. Like regrout my bathroom tiles.

      Reply
  1. Well, that’s a tough one, you know about my landlord stories! I don’t think being a landlord is for everybody but I still think it is a good investment.
    You didn’t calculate your return including the repayment of principal, how much would that be? It is money in your pocket at the end of the day, just not monthly cash in your pocket!
    Also are you being overly conservative with your rent estimate?
    The housing market crashing is no different than the risk of the stock market doing the same:) You may still be getting some dividend but your equity could still go down.
    I think a little diversity in any portfolio is good…but being a landlord is work!

    Reply
    • @Caroline- Yes you’re right! I don’t know why I didn’t do that and include it in this post. I have a post coming up about the exact break down of your net profit including calculating mortgage interest (this is what happens when you schedule posts 1-2 months in advance you forget what you wrote about haha). The calculations show that selling is better than renting right now. I don’t think I’m being overly conservative, maybe $1600 max. It’s a small 1 bedroom.

      Reply
  2. Hey GYM,

    Reflexively, I would want to avoid the hassle of being a landlord, though I don’t really have any expertise on the subject. I do remember that when I rented from a corporate landlord in Miami, I was required to have renter’s insurance. Maybe requiring it of a renter would bring down your owner’s insurance costs?

    Cheers,

    Miguel

    Reply
    • @Miguel- I don’t have much expertise too except being a landlord to basement suite renters a few years ago. From what I recall with my insurance company when I used to be a landlord, my insurance was higher because of the rental. Rental insurance usually just covers property that is inside (like the renter’s belongings).

      Reply
  3. “If you convert your principle residence to a rental unit, you will need get it appraised and will need to pay the taxes on the gains after you convert it to a rental.”
    I’m not sure if I’m understanding this correctly. Does it mean that, in Canada, at the time you convert from a principal residence to a rental, you have to pay capital gains taxes based on the appraisal at the date of conversion? If so, that would be very prohibitive to wanting to convert an appreciated residence into a rental because you would have to pay taxes up front and yet the equity would still be tied up in the residence.
    In the US, you just need to keep a record of the FMV at the time of the conversion, which you can then use as part of the basis to determine capital gains when you ultimately sell the property. So nothing due to the IRS in the year of the conversion.

    Reply
    • @CashflowKat-I know, it’s so different in Canada and US! In Canada, you don’t have to pay taxes on any appreciation of a principal residence. But if it’s an investment property and if you sell it, you will have to pay capital gains tax when you sell it. You don’t have to pay any taxes if you don’t sell it, but eventually when you do sell it, then the taxes will have to be paid.

      Reply
  4. Hi GYM, I think either rent or sell are good depending if you have the time/patients to be a landlord. Just for diversification reasons I prefer REITs for my real estate investing. Although I have held my REITs for a long time, I can sell them with a click of a mouse and they are not invested in one asset, on one street, in one city.

    Reply
    • @Steve- I have some REITs too but not very much. They are a great option for diversification. You are right, it’s not just one asset, one street, or one city, but I guess the appeal is being the management of your own real estate asset (both good and bad reasons) rather than putting your money into the hands of others.

      Reply
  5. OMGosh… I had to rewrite this from scratch again. There was something wrong with my Internet and the web didn’t post the comment… sigh…….. lol

    Overall, excellent analysis! There’s so many things to consider when it comes to renting OUT your current home or selling it. Even though if the returns are great, the question would be: are you willing to be a landlord? Another consideration is whether you have time, or if you want to dedicate your time being a landlord.

    I feel that sometimes being a landlord is a lot of work. Generally speaking, things can run smoothly, but you never know when your tenant is going to “complain” about something so small haha… it’s as if you’re on call at random times.

    Nothing is as glamorous as it sounds. But if a person has an interest in being a landlord and it excites them, then it’s worth the shot (not looking at the monetary returns but experience). My fiance always wanted to know how it feels to be a landlord, and so now he knows how it feels (sorta)… after going through some rough times, it can be quite entertaining telling your stories to friends or family. They always look forward hearing how unreasonable some tenants are. haha

    I’m curious… will you and your husband be buying a home, or renting once you move out of the condo?

    Reply
    • @fin$avvypanda- The Internet was all wonky today I had issues too. Sorry you had to retype the comment, that’s the worst! One option is to hire a property management company. I know someone who rents out her two bedroom condo and just pays $75 a month for her property management company to not have to deal with the calls etc. Of course that’s taking it off the top but it might be priceless if you don’t have to deal with a toilet overflowing at 2:00am.

      If you and your fiancee could do it again, would you be landlords again?

      I will message you about what our plans are 🙂

      Reply
      • haha no worries! That Internet issue happens to me a few times. Going forward, I will make sure I copy the message before hitting submit. In case anything goes wrong, I’ll just paste it again, haha.

        Yes, another option is to hire property manager as long as the net return is reasonable! I would definitely pay for that if we had no time to take care of any issues. It’s a bit too early to tell since we’ve been landlords for only 3 years. My fiance wanted to become a landlord for the experience. If we do pursue in any more properties, my fiance is looking into hiring a property manager as long as the returns make sense. For now, we’re just going to DIY like Cash flow kat hehe… Despite some hiccups from time to time, it’s been a really good learning experience 😀

        Reply
  6. We had to do this math last year!

    Vancouver is similar to SF home values so we ended up coming down on the side of selling instead of renting out after doing the math for several reasons which I was a bit sad about because it would have been awesome to have an SF based rental for the money but it’s a bit speculative, too.

    1. Long term it’s likely that property value will continue to increase so that we get the benefit of the repaid principal as well as the property value of the sale BUT we needed better cash flow to keep up maintenance and any vacancies in the meantime. We were tapped out from the new home purchase and the renovations, and needed the sale equity to top up our savings again.
    2. We have to live in the property 2 of the previous 5 years to avoid the tax so that would reduce our gain.
    3. I didn’t want two properties in such close proximity to each other considering we’re at high risk for major earthquakes. Can you imagine having to repair two homes at the same time after a major earthquake? I’m pretty risk averse and that was more work than I was ready to take on.

    Reply
    • @Revanche- Thank you again for fixing my website today lol! Thanks for sharing your reasons. Cash flow is so important and not feeling completely ‘pinched’. I know a couple who decided to rent out their condo and bought a duplex and now they are pretty darn leveraged (I think $1 million mortgage). I wasn’t aware of the tax implications, interesting to know about 2 of 5 previous years (then you would probably want to sell within 5 years if you decided to keep it and rent it out?). I wouldn’t have even thought of that (the earthquake prone nature of SF and having to repair two homes)- smart thinking…

      Reply
  7. I love this post! I often daydream about purchasing another place just for the sole purpose of renting it out annnnd also serving as a temp place to live if we ever moved again and had to sell our current home.

    Darn – I wish Airbnb was allowed in Vancouver. That was my suggestion. I have a friend who is making a killing off of his – it pays for mortgages of his current place and the new one. He also cleans up after and he’s heavily involved. But – he’s single and has time to do that.

    Abandonedcubicle.com has lots of great posts about his frustrations and adventures renting and getting in business with Airbnb if you want to check out his stuff and decision factors as well.

    It’s a tough decision! The deciding factor for me is usually one that best matches the stage of life I am in right now. If/when we have another kiddo – I would not want the responsibilities of being a landlord or Airbnb host until they are school age. Your decision to sell for all your factors listed above, and suggested in the comments would lean me towards selling as well. Best wishes!

    Reply
    • @Mrs. DS- Oh cool, just checked out Abandonedcubicle.com- so great! I know someone who quit his job and he just manages Airbnb properties in Vancouver now, and that’s all he does. That’s pretty sweet. I think even though it’s not really allowed, it’s still being done. Yeah, I can barely get out to the home on time right now for any appointment, it would be crazy to be running around trying to fix things or clean up the place (Airbnb ‘clean’ is like hotel quality clean which is something I have never achieved despite hours of cleaning).

      Reply
      • Oh I’m so happy you checked out Cubert! good dude there. Side funny story when you talk about cleaning it made me think about, my mom used to clean houses when I was growing up for a while. Often times she would take my sister and I…because she could do it 3x faster and get paid the same! Since then, I love cleaning! When we moved out of a rental when we were in between houses, the landlord actually asked if I would work for them on the weekends…lol. There’s good tricks/hacks and I’m a fan of square cornered bed sheets!

        Reply
        • @Mrs. Defined Sight- Haha oh my, slave free child labour! AND she taught you to clean! Square cornered bed sheets- you must be a pro. I used to clean one of my dad’s rental offices in high school. It was kind of disgusting cleaning the toilets but I did get paid $20 for 1-1.5 hour’s work, which was pretty good back then– sure beats the current ROI of time for this blog HAHA.

          Reply
  8. Very good analysis, GYM. I’m not a landlord person. Don’t have the patience to deal with the maintenance and tenants. I would probably just sell the condo, and get a new one. That’s the easier way, but may not be the best way. Good luck.

    Reply
    • @Helen- I like the easy way 🙂 Though I will look into the Airbnb option as the profit will be much higher than just a straight month-to-month rental and it might be more worth it if it can be automated.

      Reply
  9. When I was a kid, my parents rented out the house we grew up in and since it was an older house, tenants would often call our parents to fix various maintenance issues(mainly in the bathroom and kitchen) on a frequent basis. Luckily my uncle is a contractor and was able to help out my dad to fix most of them. Back then, I never figured out why they wanted to deal with the hassle of fixing stuff in our old home since we don’t live there anymore. Now as an adult, I see why my parents along with so many more landlords deal with it, to get a better ROI than just selling the place.
    I think if you guys can deal with the potential maintenance issues in your condo, you should rent it out and maybe down the line turn it into an AirBnB.

    Reply
    • @Kris- Yeah, if your parents bought in SF back then, they must have done really well. It’s good that you have a contractor in the family! They are so handy! My husband is not handy at all (shh he doesn’t really read this blog but he wouldn’t mind me sharing that).

      Reply
  10. This is a local issue based on numbers for each individual. I just feel like most of the time it makes more sense to sell if it is your personal residence. Usually the best rentals are bought with the intention of being a rental from the get go.

    Beyond this you have to factor in becoming a landlord and what value you place on your time. With just one unit you will not really reap the major benefits that you hear about on sites like biggerpockets and other real estate savvy folks sites out there.

    There is not a one size fits all answer to this question though that is for sure~

    Reply
    • @Damn Millennial- Oh gosh DM you are always so wise and articulate! I wonder if I am older or if you are older, millennial-wise. Good point about having it converted to a rental vs just getting a rental intended to be a rental in the first place.

      Reply
  11. Landlord woes are more than enough to keep me away from renting a property to anyone ever. You’ve gotta be a pretty disagreeable type of person to be a proper landlord, or your tenants are gonna walk all over you.

    Reply
    • @Stephen- Haha, unless you have some really nice tenants! But yeah, your statement is likely correctly at least 75% of the time.

      Reply
    • @Financial Orchid- I know!! It’s just crazy right now! I see some 2BR for $1 million right now which is ridiculous.

      Reply
  12. This is such a nice conversation thread! to me id rather sell the condo and earn from it while it still has value and it’s style is still up to date. condominium prices don’t go up as much as land properties, yes letting someone rent it is nice and all but is it gonna be that consistent in the long run. thank you Gym for taking time to make a post like this! Cheers!

    Reply
  13. Thanks for this. But wouldn’t the rental income received minus property operational expenses get added to your income tax? Also, can the mortgage payment be considered an expense against the rental income. I don’t remember seeing mortgage as an allowed expense on cra site, but maybe I missed it.

    Reply
    • @Marcina- Mortgage interest payment can be considered an expense against rental income (not the principal). Yes, you’re right, the rental income (net) will be added to income tax. Another factor to consider if you decide to rent out your primary residence condo (and will need to get it appraised once you switch over from primary residence to rental).

      Reply
  14. Hi there, I’m interested why you don’t mention the possibility of taking the election to claim your rental property as your principal residence for up to four years, thereby avoiding capital gains so long as you sell it before the 4 years is up. That could make quite a difference.
    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/principal-residence-other-real-estate/changes-use/changing-your-principal-residence-a-rental-business-property.html

    Reply
  15. When it comes to renting, it is all about the tenant. This can make or break you. Especially these days when the tenant has so many rights. Do your homework and carefully screen each and every potential renter. Great article!

    Reply
  16. Hi there! Great article! I found your piece as I am facing a similar dilemma. Would you mind sharing what you decided to do? Thanks!

    Reply
    • @Jacqueline- Thanks for visiting! I haven’t enacted the decision yet, but I am leaning closer to just selling because I need the cash (would rather not dig into my investment portfolio for that cash).

      Reply

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