Episode 138: Keep, Sell, or Leverage: Why Keeping Your Home as a Canadian Rental Property May or May Not Be The Best Move!

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Thinking about turning your current home into a rental when upgrading to a new one? Before you commit, how do you know if it’s a smart financial move or a costly mistake?

Many homeowners face this dilemma when moving—do you sell your home and reinvest, or hold onto it as a rental property to build long-term wealth? In today’s episode, we break down a real listener’s Canadian financial crossroads: a dual-income couple with a low-interest mortgage and a growing family debating whether to keep their current home as a rental property. The challenge? Balancing cash flow, investment returns, and financial security while avoiding potential pitfalls as first-time landlords.

With rising interest rates, equity access considerations, and rental income projections, making the right choice isn’t always straightforward. We explore the key factors every homeowner should consider, from mortgage refinancing to the hidden costs of rental ownership, so you can confidently decide if keeping your home as an investment is the right move for you.

By tuning in, you’ll learn:

• How to assess whether your current home makes sense as a rental property.
• The risks and responsibilities of becoming a first-time landlord.
• Alternative Canadian investment strategies that might provide better returns than holding onto your existing home.

Don’t make a costly Canadian real estate mistake—hit play now to uncover the best strategy for your financial future!

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial independence requires smart planning, especially when it comes to growing your net worth and generating passive income. We explore conservative leverage strategies such as the Smith Maneuver to convert non-tax deductible interest on your primary mortgage to tax deductible interest as well as conservative leveraged life insurance strategies including immediate financing arrangements (IFA). For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Hey, hey there, Canadian wealth secret seekers. Today, we’re going to dive into a real life wealth building dilemma from one of our listeners who happens to be from a dual income household, looking to grow the real estate portfolio while balancing financial security with a low interest rate mortgage coming up for renewal in the next couple of years, a growing family and big decisions ahead. Should they refinance?

Should they leverage a HELOC or a home equity line of credit? Or should they sell and reinvest elsewhere? We’ll break it all down, the cashflow, tax benefits, and long-term strategies to consider. So stick around as we provide some much needed clarity. All right, my friends, you are with Kyle again. My apologies to those who want to be hanging out with John here today.

but today I wanted to address a question from someone who reached out on social media. If you’re not following us on social media, head on over to your favorite social media platform and look for Canadian Well Secrets. We are at Invested Teacher. Sadly, our title of our podcast is way too long in order to create a handle on most social media platforms. So that’s what you’ve got for now, but if you search for Canadian Well Secrets, you’ll find us.

This one’s from Instagram and they reach out. This is a East coaster here says new listener and newly awakened to begin my journey of wealth building with my new family. I have what I feel to be a very complex opportunity that I want to take full advantage of and looking for you guys as the hopeful clarity providers. Amazing that you know, you’re reaching out and you know, entrusting us to at least provide some perspectives, not advice, but perspectives.

some backgrounds here he and his wife have good jobs they pay in the one hundred and ten to one hundred and twenty thousand dollars range it sounds like both of them are are doing that so that’s a nice healthy income. They both have a government pensions. She likes her job and will work it forever whereas he dislikes his and wants to build a portfolio or a business that would allow them to leave at some point so there’s definitely some you know entrepreneurial spirit here.

as well as this idea of growing a portfolio. They live in the eastern provinces. I’m not going to hone in on which one. They purchased their primary residence for $330,000 in 2021. They got a solid, sub 2 % fixed mortgage. So we’re going to use 2 % for this conversation here today. And it’s valued now. The property is valued at $425,000. So some nice appreciation there, despite.

you know, the markets may be softening over the last couple of years there. The remaining mortgage is at 290 and it renews in November 2026. That’s about 18 months from now. Didn’t do the math on that, by the way, but you know, we’re looking at a year and a half ish or so down the road. Now they’re in a smaller house with the idea that they want to grow their family and they would like to grow their actual home with them, meaning

They want to make sure as they are having kids, and it sounds like that times now that they want to sort of expand, which most people, what they do, they sell the property. There’s no capital gain on that property. So it’s a primary residence. They take that money, they roll it into the next property. And usually what they’re trying to do is they’re trying to, you know, do a couple of things. They’re trying to either, you know, maybe restretch the amortization so that the payment stays lower. Maybe they keep the amortization the same and they’re just ready to take on a higher payment.

or any other aspect of that might be happening, right? So these are all really interesting perspectives to have. So ideally though, they’re looking and saying, you know, they would like to potentially keep this home. And we’ll talk a little bit about what that might look like. But they’re saying his guts saying that it’s telling him to do everything they can to keep the house as a rental.

to build future wealth so they seem confident that real estate’s definitely gonna be helpful here, but they don’t wanna jeopardize their future comfort and buffer if things take a turn for the worse. So right there, a question that I would have for them is like, what does that mean and what does that look like? So on our end, can’t really help you overcome that until we know what that means. What does that actually look like? If it takes a turn for the worse, are we worried about the market?

taking a turn and therefore like you’re not comfortable sleeping at night noting noting the property isn’t worth what you thought it was worth. Is it a cash flow crunch? Is it a little bit of both? Like what’s going on there? And sounds like really, you know, nobody wants to get in over their head. Now they were talking about this. They’re saying like we could keep this property refinance the property, the current home, pull equity out to use towards the new home. However, that

new interest rate would eat up most of the cashflow on the property and they’d lose their, you know, less than 2 % interest rate for, you know, almost two more years, which makes it very close to break even. Taking out a HELOC is another option, which would allow you to keep the current rate for another year, but it also impacts cashflow as it adds another payment to your finances. So one thing that’s worth mentioning right now, as we kind of dig into this scenario a little bit more is that,

You are absolutely right. If you do a full refinance, the full refinance is going to be at a new and higher rate likely, right? So, you know, somewhere around 5 % ish is likely somewhere in there. You could probably do better. Some people are seeing like low fours right now on a fixed product. Some people are saying, Hey, you know, variable might be the way to go. Either way, you’re going to be higher than 2%. So you’re right. So trying to

preserve that as one aspect of it. It’s one part of the equation. The other aspect is trying to sort of think this through and figure out that first off, if you want to buy a bigger home, that’s like sort of a lifestyle move. And I’ve been there. We’re in our home that we had actually sold one of our investment properties when we had built this particular property. So totally get it. Probably wasn’t the best move from an investment standpoint for me to have done that. However,

Emotionally at the time I felt like that was the right move. So you’re to have to sort of balance these two things out as you try to make some of these decisions. But one thing I can tell you is that if we can hang on to that low rate as long as possible and maybe consider the home equity line of credit as an option in order to help with the down payment on this new primary residence, that could definitely be a good move on your part that would keep this current property.

you’d move into the other property that would then become the primary residence. So that residence from that date forward would be where you’d keep your quote unquote capital gain exemption from that property. So that’s all great, all good stuff there. But now the real question is, like, you know, whether this is like the right move at all. So while it’s convenient to keep a home,

and buy another. It makes it easy. I don’t have to sell it. I don’t have to lose money on the sale or the transaction. These are other things to keep in mind. When you sell a property, you might have to sell it for more or for less than you’re anticipating it’s worth, depending on the market. You’re going to have to pay realtors and all kinds of things like that. So keeping this home and renting that would be great if the numbers make sense. So let’s look at this thing first. You’re saying,

in this message, this particular individual saying it’s worth, you know, it’s worth about 425, you could rent it at about 2000 to $2,200 monthly. So I’m gonna start with $2,000 a month. Let’s just see if this thing is actually worth keeping as a rental property at all. One thing I can tell you though, is that oftentimes the homes that we live in and that we found to be like great as our home,

may or may not be the right fit or the best fit for a rental property. Why? We typically take care of our homes in a particular way. Well, many of us do. I can’t speak for everyone. However, when someone moves in and it’s a rental, oftentimes people tend to not seem to take care of things as nicely as maybe you may have done. So why I say that is that this property, depending on where it is and so forth,

you may have what I’ll call a little bit of a loss in terms of the neighborhood that it’s in. So it might actually be better to sell the property and buy, you know, a duplex or buy a multifamily property. Like you might be able to get that dollar to stretch a little bit further. Now, what that might mean is that, you know, the property itself might not be as nice as the one that you have now, but you also don’t have to worry about tenants coming in and maybe them not treating the property as nicely as you might have.

of liked in your mind. So those are some thoughts. But what I wanna do is I wanna take a look here and I’m gonna share my screen for those who are hanging out with us on YouTube. You can see up on the screen, I’ve got our property analyzer up here. And we’re gonna take a look at what’s going on right now. Like what we know today is that your property is worth around 425. You’ve got about, I’d say about 30, just north of 30 % in equity. So I’m gonna have down payment as 32%.

We have about 21 and a half years, I’m assuming on the actual amortization of the mortgage because you’ve been in this home for, you know, about three and a half ish years since you bought it. And therefore about 21 and a half years left, I’m assuming, unless you started with a different amortization schedule. With that, you’ve got about 290 left. I’ve got 289 here close enough.

We’re looking at this thing apples to apples. And what we’re gonna do is we’re actually going to approximate some things. Things I don’t know right now are the cost of property taxes where you live. I can go and look at an average and so forth. I went with $2,400 a year. Now, if it’s $2,400 and it’s less than that number, then that’s a benefit, obviously. If it’s more than that, then obviously these numbers are gonna be off a little bit. The same, I picked the same for property insurance as well, $2,400.

Again, I don’t know exactly what this property is. I don’t know the address, nothing here, but we’re gonna use this as a starting point. And I also included 10 % for repairs and vacancy as just sort of a bit of a buffer number. So another $200 per month that has to be accounted for. Now, you had mentioned 2,000 to 2,200 dollars as rent. I’m gonna pick the lower of the two numbers just to be more conservative here. And what you’re gonna notice,

So you got about $21 of positive cashflow here. Now what that actually works out to, if we assume appreciation of about 3 % per year, if we assume mortgage pay down according to the amortization schedule we had, like you can see here that, you know, without appreciation, you’ve got about 8.2 % of return on investment here, which is great. I say great, it’s not amazing for real estate by any means, but it’s a good number.

And when we include the appreciation, we’re looking at about 17 and a point 6%. That’s awesome. Your cap rates at 4%. So it’s pretty low. But again, fairly easy here. Maybe you like the property. Maybe you feel really good about owning this property. So not a bad thing at all. However, in a couple of years, when you go to renew this mortgage, we’re going to look at this from a renewal perspective. So same property, same value, except let’s pretend you get a rate of about 5.2%.

And let’s say you wanted to keep the 20 year amortization. So once your five year term is up, you’ll have 20 years left on the amortization. All of a sudden, that’s going to put you in more of a cash crunch here. You’re going to be down in cash flow negative about $4.47 per month. Now that might help you answer your question as to whether is this something that we’re willing to do. Now when I look at the numbers with appreciation, you’re looking at like a 10 % return still.

Not bad, but most real estate investors are looking for cash flow positive. Now there’s a number of things that we can modify here that will impact whether this is quote unquote worth it to you or not. And this other idea that I have is like, hey, maybe you stretch out the amortization again. This is a rental now, and therefore there’s no rush to sort of pay this thing down. I might go ahead and stretch it out to 25 years.

And if I stretch it out to 25 years, what you’re going to notice is that all of a sudden, your net cash flow is now kind of cut in half from negative 400 ish down to negative 241, which is still not ideal, but maybe manageable for you, right? Maybe you’re feeling like that’s OK. The other nuance is that most people are probably going to say, fixed rates are actually going to be lower. And if I go to like, say, rate hub, for example, mortgage rates, like, let’s see what we got on a five-year fixed.

I see a 389 here on the screen. Now that’s usually like, you know, bottom of the barrel. I see 429. I see 424. A lot of these are featured. So like, what if we went to like 445 or something, you know, we try to be conservative 445 on the interest rate and this on the fixed side, it might be better to go variable by that point. We’ll see time will tell.

And all of a sudden now you’re looking at your only cash flow negative by $122 per month. Things are looking better for you and you might be saying, wow, that’s actually not that bad. Here’s something else we haven’t considered is that right now this property technically has quite a bit of what we call equity in the home, but you are planning to use that equity for this new home purchase. So the big question you really have to ask yourself is,

When I buy this new home, how comfortable am I going to be in this new home with those new mortgage payments? until we really know exactly what you’re setting yourself up for from this new home, if that’s your major concern, then maybe the investment property may not be the best way to go. However, if we adjust some of these things and let’s pretend, you know, mortgage or property insurance is actually only like 1500 a month.

And let’s say, you know, you’re only expecting like 7 % repairs and vacancy all of a sudden, or, and maybe it’s $2,100 you get in rent instead of 2000, all of a sudden we’re now at net cash, your cashflow of $106 per month. So you are net positive here. So a lot of this has to be thought about as you go into this, but I would say the big unknown that we don’t have to help you along here is how comfortable are you

with the new home that you’re purchasing and the new financing terms that you’re purchasing under. I would argue that the thing that’s gonna cash crunch you the most is probably gonna be your new primary residence. Why? Because we tend to buy nicer homes. They tend to be a little bit more expensive. We tend to take out slightly bigger mortgages on them because we wanna live a comfortable lifestyle. And if you want to do that, amazing. But that’s probably what’s gonna be more of the cash

the cash flow crunch that you’ll experience if you were to choose to keep this investment property. However, on the other hand, what you may choose to do is you may decide that maybe there’s a better option. Maybe there’s better investment opportunities out there that I can get. And maybe we let the dust settle on our new home purchase first with plans to pull out as much equity or keep as much of your own money out of this new primary residence.

so that you can buy the proper investment property that you’re really after. Said another way, we don’t want to keep this current primary residence just because it’s convenient. We want to keep it because it’s actually a good investment and you’re feeling like it’s something worth keeping versus putting into other investment buckets. The cashflow part is obviously a major concern.

and you certainly don’t want to be sleeping at night or not sleeping at night because you’re wondering where the next bill is gonna get paid from. So we’ve got a lot of things for us to consider here, both thinking of your cashflow with this new home that you’re planning to purchase, what does that look like and sound like? And then how cashflow negative are you willing to go in order to keep this particular property or does it make more sense to actually sell this property

and take investment dollars, commit to a certain amount that you plan to invest in real estate or otherwise, while still buying this new larger home that you’d like your family to grow in. Friends, we are encouraging you to reach out to us through social media or any other platform, including our website by heading to canadianwealthsecrets.com.

We have a contact button there that we’d love to hear from you all about what’s going on in your world and how we can help you along your wealth building journey. Remember, if you are unsure of where you are in the wealth building journey, you can head over to our pathways assessment page over at Canadian wealth secrets.com forward slash pathways. And you can take our quick assessment in order to get next steps for you along your journey.

Incorporated business owners. If you have yet to join our unincorporated business owners masterclass, head on over to canadianwellsecrets.com forward slash masterclass and you can opt into that free online learning course. All right, my friends until next time we will see you later. And just as a reminder that this is not a podcast for investment advice. It is for entertainment purposes only.

This content is for information only and you should not construe any such information or material as legal tax investment, financial or other advice. And just as a reminder that I am a fully life licensed and accident and sickness licensed insurance agent, as well as the VP of corporate wealth management with the pan Corp team, including corporate advisors and pan financial. So reach out to us for any of your insurance and leveraged insurance needs. Take care.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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