Thursday, February 12, 2009

Market value of rental properties

Ana and I have been discussing selling one of our rental properties in Brantford that we currently rent to students. It's a 3 + 1 bedroom house that we originally bought to renovate and resell but were not able to sell it for what we wanted so decided to keep it and rent it out to students, since it's close to the university in Brantford.

I've been wondering if we should sell it now in case the local real estate market takes a tumble. The house now is cash flow positive, especially since the variable rate mortgage payments have been tumbling, but it is not our best performing property. We discussed this last night and came to the following conclusions:

1. If we sold it now, we wouldn't make a substantial amount of profit after realtor fees, mortgage penalties, etc so it wouldn't result in a large amount of equity to put into another project
2. Our student tenants are excellent and are taking good care of the place
3. We've done a substantial amount of maintenance on the house making it pretty much maintenance free now
4. We haven't been finding many opportunities in the market, prices are still very high and there's not much quality stuff coming available
5. The local universities are expanding like mad and since university attendence usually increases in a recession, we should have no trouble keeping it filled for the foreseeable future

Since reveue generating real estate value is based on cash flow produced, it may make this particular segment of the real estate market hold up okay in a major correction. Landlords are normally very wary of reducing rents so hopefully the rental market remains strong and we'll just keep collecting that monthly cash flow!

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