We helped one of my daughters (I have five children) buy a home four years ago for $345,000. We added a basement apartment for $80k so her total cost is about $425,000. We had it appraised last month—after insane pandemic-induced appreciation, it’s now worth $760,000 according to a local appraiser.
First thing she said to me after we received the appraisal was, “Dad, let’s sell it! Imagine how much cash we’d have!”
I discouraged this by noting:
1. She might just blow the money in a couple of years
2. She’d be without any inflation protection
3. Since her tenant is helping pay off her mortgage, she wouldn’t benefit from any wealth effect (mortgage paydown by tenants)
4. Mortgage paydown is like forced savings—unless folks force themselves to save, most won’t
5. She would have no protection against future impoverishment as an elder
6. Imagine what this property will be worth when she is my age (40-years from now!)
7. Since part of the home is rental, she might have to pay some capital gains taxes if she sold it
8. Even if she keeps the cash around, interest from her bank would be much lower then what she is making by holding onto the property in terms of both cashflow and appreciation not to mention wealth effect from mortgage paydown…
9. She has to live somewhere
10. Transaction costs (legal fees and realtor commissions) are significant not to mention that the time and effort required to a) sell the place and b) buy another one is significant
What did I do?
I “bribed” her to keep it.
We put a HELOC (home equity line of credit) in place so she could access some of its growth in value and give herself some walking around cashish without having to sell 😊
As Warren Buffett once said, “My favorite hold period is… forever,” or something like that.
FOR REAL ESTATE INVESTMENT AND BUSINESS COACHING THAT’LL HELP YOU PROVIDE FOR YOURSELF AND YOUR FAMILY FOR 3-GENERATIONS, PLEASE CONTACT:
Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
Ottawa Senators founder
ROYAL LePAGE Performance Realty broker
BOOK YOUR FREE CLARITY CALL WITH PROF BRUCE NOW, https://brucemfirestone.com/coaching/prof-bruce-real-estate-investment-and-business-coaching/talk/
• MAKING IMPOSSIBLE POSSIBLE
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