# The Accountant Way to Analyze All Problems

While I was off sick lying in bed for a few days, my team got to attend one of QB Connect Toronto, one of my favorite industry conferences.

I’m so grateful that they’re learning the latest apps and tax changes so they can apply them in our businesses.

They even got to see Chris Hadfield speak about setting huge goal and working through all the problems to travel to the moon!

For those of you who don’t know, Chris Hadfield is the first Canadian astronaut that went to the moon.

It was exciting and inspiring.  😊

Speaking of excitement, one of our family members is considering buying their long-term home.

Buying properties is always exciting. 😉

They have two rental properties (one single family home that doesn’t cash flow and one duplex that is cash flow neutral).

They currently rent a condo in Toronto and they have been getting slight pressure from their landlord, who plans to sell the unit.

The couple are both high income earners with limited amount of downpayment in relations to the Toronto home prices.

Their plan was to refinance their single-family home investment property to pay for the downpayment of their next home.

The wife is concerned about the husband’s job stability and she wouldn’t want to take on a large monthly mortgage payment.

Buying a home is a major decision in life.  How do you normally tackle a major decision in life?

When in doubt, I always go back to my “go to” tool … drum roll please…

Excel!

Step 1:  I would run a “what if” analysis and see what my options are and see if I like the numbers under each scenario…

In their case, here’s the step I would take:

1. Calculate incremental negative cash flow from refinancing:
• Single family home is already in a negative cash flow position.  I would run the new monthly mortgage payment assuming they are able to take out equity from this home to purchase their home in Toronto
2. Calculate the new home carrying cost
• The monthly carrying cost typically include mortgage payment, property tax, condo fees (as they are planning to buy a condo) and insurance.  If the new condo does not include a parking spot, I would also add in the parking spot rental charge as well.
3. Compare the additional cost from 1 & 2 to the existing rent
4. Analyze own personal income against the incremental cost to see if I’m comfortable with the additional cost

Without going into the nitty-gritty, my gut feeling is telling me that this option won’t work.

Refinancing a property that is already in negative cash flow position means they will bleed more into this property in this property.

They then still have a new large mortgage (2 bedroom Toronto condo isn’t cheap).

#s didn’t work with refinance.   This option isn’t viable.

Step 2:  look for alternatives, run the numbers and analyze the pros & cons…

Another option is to sell so that they can extract the equity in this property to purchase their home.

Selling means they can free up a large sum and use it as downpayment of their home.

Selling, also means that they don’t have to carry the negative cash flowing property.

Selling seems to be a viable option.   Time for another excel spreadsheet.

I would select a sample property that they can move into, punch in all the numbers, condo fees, mortgage payment, with the large deposit and see if the monthly carrying cost make sense.

Assuming that the numbers work out, ….

Step 3: Look at non-quantitative factors and worst case scenario

Numbers matter, but numbers are not everything.

Selling a rental property may mean loss of retirement funds.

What if one of the spouse loses his/her job?

In my personal experience, my plan B is always…sell an investment property.  If I can simply sell one investment property and resolve some of the issues, I’m usually pretty happy.  😊