Toronto condo investors: hold or sell?

Calculate the real monthly gap

Rent minus mortgage, condo fees, property tax, and insurance. If that number is negative, that is your monthly cost to hold. Multiply it by the number of months you expect to carry it. That total is what you are paying to keep the position open.

Selling has costs too

Commission, legal fees, a mortgage break penalty if you are mid-term, and capital gains tax on the appreciation of a non-principal residence. Run the net proceeds figure before assuming a sale solves the problem, particularly if the unit is worth less than the purchase agreement price.

• Break penalty: three months interest on variable, interest rate differential on fixed
• Capital gains apply to investment properties, not principal residences
• Assignment sales carry their own restrictions and HST considerations

Financing options that let you hold

Extending the amortization reduces the payment. Refinancing another property to create a reserve can fund the negative carry. On completion of a pre-construction unit where the appraisal comes in below the purchase price, secondary financing or a family loan sometimes bridges the shortfall. Each option should be priced against the cost of selling.

The appraisal gap on closing pre-construction

Lenders finance a percentage of the lower of purchase price and appraised value. If the appraisal is below the contract price, the difference must come from your own funds. Ordering an early appraisal well ahead of the closing date turns a crisis into a planning problem.

Frequently asked questions

What happens if my condo appraises below the purchase price?

The lender funds against the lower value and you cover the gap in cash or with secondary financing. Find out early rather than in the final week.

Can I extend my amortization to improve cash flow?

Often yes on an uninsured mortgage, subject to lender policy and requalification.