Back in February, I listed my house up for sale after 16 months of owning it. I know… not my smartest decision yet, my fellow personal finance peeps! Hear me out, though! Owning my own home has been a goal I’ve had since my family moved to Canada from the Philippines. I bought into the “dream” of homeownership long before I really understood what it meant. It was something a lot of the adults I knew at the time talked about, so I figured, hey, why shouldn’t I aspire to it? Since these adults want it so much, I probably do too.
When I graduated in 2014 and landed my first job as a registered nurse, I started to work on that goal right away. I started saving for a down payment in my RRSP (registered retirement savings account) so I can use the Home Buyers’ Plan to withdraw the money for my first house purchase and save on taxes as well since us Canadians don’t get taxed on the money we put away in an RRSP. Once I saved a 5% down payment, we began our house hunt. At the beginning of the hunt, I was in a serious relationship with someone. We wanted to buy a house together. Long story short, it was not a healthy relationship. The man I was with could not hold down a job long enough and did not fix a major financial mistake from his past. In the end, I had to be the one to qualify for a mortgage if I really wanted to buy a house. Thankfully, because of my good income, good credit history, and savings habit, I was able to get us a mortgage.
The house search took about 2 years because we were searching for a specific house with specific must-haves and because the real estate market moved very quickly at the time. If you didn’t get to see a house within 24 hours of it being listed, you lost your chance because it’s probably conditionally sold already! However, we kept on. After seeing many houses and one purchase attempt that fell through, we found the home we were looking for in September 2016. The asking price was $437,000 CAD ($336,197.21 USD) but we offered $440,100 CAD ($338,582.13 USD) right off the bat because we wanted to lock the house down. It turned out to be the right decision as the sellers also entertained two back-up offers in case ours fell through.
The rest of the buying process went smoothly after that, from putting the offer in, having the house inspected and finally to the legal proceedings to transfer property. We moved in a month later on my 25th birthday, November 2nd. We lived together for 5 months before the relationship broke down and I found myself moving back in with my family again while my ex lived in the house. He lived there for almost a year until he moved out in January 2018.
I made the decision to sell after that, knowing I’d be lucky if I broke even, for several reasons:
1. The house was too big for myself to live in. It had 3 bedrooms and 2.5 bathrooms on 1,545 square feet of living space.
2. I debated getting roommates to “house hack,” however, the location of the property is not ideal. It’s in a suburban neighborhood and there weren’t very many amenities or public transportation nearby as they were still under construction for the next few years. The chances I’d find two roommates in their mid-20s who wanted to live out in the suburb in a new development were slim.
3. I wanted to get rid of this house, once and for all, as it was the last thing tying my ex and me together.
4. I could find a better investment property elsewhere — I would just have to start over with saving up a down payment and searching again.
The Attempt At Selling My House
So I put the house up on the market in February 2018. When I did my numbers, the bottom price I had to sell for (after realtor fees and mortgage cancellation fee) to break even was $435,000 CAD ($334,658.55 USD). (However, after 3 months on the MLS, the best offer I received was $420,000 CAD ($323,160.60 USD). At the time I received this offer, I put the buyers on hold because I thought that if I held out longer, I would receive a higher offer. That didn’t happen. Here are the reasons why I think the house did not sell:
1. I may have listed too early in February. It was still snowing quite a lot and so 2 of the 3 open houses my realtor did, the cul-de-sac my house is in was snowed in, and what buyers really want to trek out in cold weather to look at a house?
2. The government had recently made it more difficult for buyers to finance a house by subjecting all buyers to qualify at a rate of 5.14% stress test. This means that buyer’s incomes must be able to support the house if the interest rate hypothetically goes up to 5.14% (in comparison, my mortgage’s interest rate is 2.29%). The pool of buyers who can afford this just got smaller and those who can are pickier and know they can demand lower prices for houses.
3. My neighbor just two doors down from me had tried to sell their house for at least 6 months during the winter with no success. So they reduced their price quite a bit and the house sold for $401,000 CAD ($308,541.43 USD). Buyers looking at my home were using this price as a benchmark to negotiate the price of my house down (my house is nicer, but not $35,000 CAD/$26,930.05 USD nicer). Who can blame them, they are only playing by the market!
Halfway through the third month (April), I told myself I’d list the house for rent if I still didn’t have serious offers, so I can put a tenant in by May 1. I didn’t want to keep dishing $2,400 CAD ($1,846.63 USD) every month to float this house while it sat empty. So I listed it for rent. The next day, I received over 20 emails from people who wanted to rent the house. My realtor offered to do the property management, and I agreed to it, so ended up doing the screening process, calling tenants’ references and place of employment to prove their income. (They also did the move-in inspection and organized the finances, too.) By the last week of April, found a good tenant to put into the home. I’m so grateful for this because I would not have been in the right mindset at the time to screen tenants properly when I was worried about having to fund an empty house for longer.
The Numbers As A Rental Home
After researching comparables for rental homes around the area, we settled on renting it out for $1,745 CAD/month ($1,342.66 USD). As the homeowner, I’m still responsible to pay for the mortgage, property tax, and insurance. I opted to pay 10% every month for my property manager. And I’m putting money away for vacancy, repairs, and maintenance savings. The tenant pays for their own utilities as part of the lease agreement. All in all, I still have to put in $815 CAD ($627.09 USD) every month of my cash into this property.
My saving grace is that 2.29% mortgage rate! My mortgage of $1,779 CAD ($1,368.82 USD) is split as such: $700 CAD ($538.60 USD) + towards interest and $1000 CAD ($769.43 USD) + towards principal. Every month after the bills are paid and the tenant pays up, I pay down ove r$1000 CAD ($769.43 USD) of the mortgage for $815 CAD ($627.09 USD) of my cash. I guess you can call that a 122% ROI… kind of. I am not factoring passive appreciation at this point because it means nothing if I’m holding on to this property and I can’t refinance yet. I’ve got at least 10% equity in it because of the down payment, but I have no way to access it right now either. I’m still in a fickle spot, however, because if the tenant decides to leave, I will again have to front the $2,400 CAD ($1,846.63 USD) in mortgage, property tax, insurance and now, utilities.
My Plan With This House
I am somewhat aggressive when it comes to my investments right now. I can afford to take on more risk because I earn a good, stable income with decent benefits to cover me, my debts are under control, I don’t have dependents (or even a significant other) who will be affected if the outcomes are poor, and I’ve got decades yet to recover in time for retirement, if needed. It really sucks to be cash-flow negative on this property every month, though! I’m thinking about other things I could be doing with that $815 CAD ($627.09 USD) I’m dishing out, such as investing it elsewhere or traveling more.
Thankfully, my income is high enough that I’m able to float these housing expenses and my own living expenses. I just have to be very careful and vigilant of my budget. When the current lease is up in April, if the tenant proves to be a good tenant who pays their rent on time, maintains the property well enough, and wants to renew, then I will hold on to the house. If they move out and I have to look for new tenants again, it seems I’ll have a healthy pool of interest to choose from and I can bump the rental price up a bit with a new tenant. If I find myself in financial hardship, the option to sell and “just cut my losses” is still there. This is one of the reasons I like real estate as an asset class to hold my money in — the house and land itself will not just disappear.
On a longer term, by year 3 of owning this property, I expect to gain a 20% equity position. I can then refinance the house, pull out the equity in the form of a home equity line of credit (HELOC which I can either invest in index funds or purchase another property with. All is not lost when I have so many options and directions to choose from!
Jaymee is a Labor & Delivery Nurse by day and a personal finance blogger by night. She believes that you can create a life you love AND be financially responsible at the same time. She runs the Smart Woman Blog where she inspires millennial women to do just that.
Image via Unsplash