Where to invest 125K and question on capital gains

[Double_J]

For the past several years I have rented out my townhouse in Mississauga and have been living in my detached house in Cambridge. The renters are now moving out on March 1, and my mortgage comes up for renewal in April. My interest rate was 4.7% @ PC Financial, and based on the current rates I will not be able to lock in to that again.

So I am left with a few options. Sell the unit, and try to invest the equity else where. I should easily walk away with 125K ( after legal fees, and real estate ) what I do not know is what % is the capital gains?

Another option is to renew the mortgage and continue renting it. The trend has been 6% increase year over year. Now the house lists for 265K so 6% is much more than I would get if I took my 125K and put it in the bank at 4% (obviously).

My current mortgage is @ 4.8% and will not come up for renewal for another few years so it makes little sense to pay that down either. I only have a small car loan @ 7% and it will be done in another year.

Any ideas where I could invest to get the biggest return and does anybody know how to calculate capital gains?

Oh if I were to invest the money I have no urgent need for cash so it can be tied up for many years.

Thanks for the advice

[pitz]

So I am left with a few options. Sell the unit, and try to invest the equity else where. I should easily walk away with 125K ( after legal fees, and real estate ) what I do not know is what % is the capital gains?


If you have a job, the rate probably will be between 20 and 25% on the capital gains.


Another option is to renew the mortgage and continue renting it. The trend has been 6% increase year over year. Now the house lists for 265K so 6% is much more than I would get if I took my 125K and put it in the bank at 4% (obviously).


What sort of net income are you receiving on the property? You really haven't given enough information to really determine if, indeed, its overvalued or not. Of course, maybe you just don't like being a landlord or don't want the level of risk involved in being a landlord.

For instance, on this $265k property -- how much rent are you receiving on a monthly basis, net of expenses such as property taxes, maintenance, etc. (but not your mortgage interest costs)? I think you'd have to be netting out at least $1500 a month to make it worthwhile to continue owning, from a strictly financial point of view.


My current mortgage is @ 4.8% and will not come up for renewal for another few years so it makes little sense to pay that down either. I only


Actually, it does make sense to pay that down, if you have the cash available. 4.8% on your principal residence mortgage isn't tax-deductible, whereas any investments you make are taxable.


Any ideas where I could invest to get the biggest return and does anybody know how to calculate capital gains?


Pay down the mortgage on your principal residence, and then take out a line of credit (or refinance the mortgage completely) and 're-borrow' the money to buy investments.

I suggest index funds/ETFs.

[Double_J]

Interesting ideas, and thanks.

I was in a hurry when I typed out the original post because my wife was naggn me to get ready.

The property rents for $1400/month and they pay the utilities. My total cost to carry the unit is around $1500/month so from a monthly basis I am spending/loosing $100.

When you factor in the increase in property value, and the amount they pay down of my mortgage I have seen gains of $20,000 per year.

I could have made my monthly payments lower on the house but when I was living there I set it up to over pay, so it would be paid off quicker. At the time I was not thinking of renting the unit but it certainly helps cut off the length of the mortgage.

I am currently working now, and as a matter of fact the place I am at will be closing this year. When it closes the employees will be severed off, and my payout will be around $65,000. A recent thought of mine has been to take the equity from the sale of the townhouse, and my severance and look at getting a small franchise some where.

Of course I am still up in the air, and looking for alternative ideas. Any other thoughts or suggestions?