# quickest / cheapest way to get an income property



## Mtlcouple (Jun 19, 2012)

What is the quickest / cheapest way to get an income property within 4 to 5 years? With regards to saving for the down payment?

My options:

1- Double up payments on the mortgage 
2- max out TFSAs and other savings accounts

Let us assume that 100k can be amassed in 4 years to leverage the income property. 

I guess my question is, does the equity in my house weigh the same as the $ in my savings account according to the bank?
Ie. will the bank say, you can only use 80% of the $ in your house to leverage the IP. 
Whereas the 100k, I know I can use 100% of it. 

Ill also ask this question to the bank, but they are not always forthright.


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## HaroldCrump (Jun 10, 2009)

Regardless of what the bank says, $100K in cash savings is not the same as $100K in home equity against your family home.
Would you rather put $100K of cash on the line, or your home into a leveraged investment?

I also sense a desperation in your post about acquiring an investment property? Why such rush?


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## Eclectic12 (Oct 20, 2010)

I suspect the easiest is if a relative gives it to you .... :biggrin:

I'm not sure where is better. However, cash in hand will be king as you can use the full amount whereas the equity in the house will be limited to a percentage.

At the same time though, if you have personal income to pay off the personal mortgage regardless and the income property appears to the bank to be stable (i.e. low tenant turnover, rents cover expenses plus maintenance plus mortgage with a healthy profit leftover), getting a mortgage for the income property on it's own may be possible.

There's more the bank will look at than just your cash savings and/or equity in your personal house.


Cheers


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## Chris L (Nov 16, 2011)

Cash in hand, to which you can in theory borrow from your principle residence as a down payment when you are ready to buy your income property. Your total debt is going to come into question when buying your second property, be prepared to have a cosigner and/or a 25% downpayment or you may not qualify.


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## Just a Guy (Mar 27, 2012)

Well, if you have good credit, you only need to amass the down payment. You get a mortgage on the property for the remainder (if the banks will put one on the property, some seem to be implementing "minimum loan amounts" that are quite high). 

Unless you are buying multi-unit places, you shouldn't be spending anywhere near 100k on a place, since it won't cash flow. 

I'd talk to a realtor and get put on a list of available properties that match what you are looking for, then go look at a bunch. This will give you a feel for the market. I'm on several lists, like all foreclosure a, all apartments/multi units, all places under 100k, etc. I get a few emails everyday with listings. Most get trashed right away, but once every so often I go look at a bunch. Most I walk away from but, every once in a while, I find something I like and make an offer...some fall through, but one or two seem to work out every year.

I forgot to mention, you should pre-qualify with a mortgage broker or bank to ensure you've got your money in place beforehand, it's easier to buy unconditionally, to get the best prices.


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## Sampson (Apr 3, 2009)

Just a Guy said:


> Unless you are buying multi-unit places, you shouldn't be spending anywhere near 100k on a place, since it won't cash flow.


Of course it would give a positive cash flow.

Buying a place $100,000 with $100,000 down and monthly rent of $500 would give positive cash flow.

Terrible return on equity, but certainly cash flow positive.


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## Just a Guy (Mar 27, 2012)

I subscribe to the "must cash flow with 100% financing" model that was in Radvanyi's book.


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## Rusty O'Toole (Feb 1, 2012)

Mtlcouple said:


> What is the quickest / cheapest way to get an income property within 4 to 5 years? With regards to saving for the down payment?
> 
> My options:
> 
> ...


It is possible to buy income property with no money down and no payments, I have done this several times. The first time was in 1972, before any of the "No Money Down" books and courses were even written.

You can get a mortgage for up to 90%, that means you only need 10% down. It does not have to be cash savings, it can be borrowed or it can come from a partner. There are many ways of buying property besides saving up a wheelbarrow full of cash.

Speaking of duplexes, I once bought a nice little duplex in Trenton for $60,000. I paid for it with $45000 cash I got from remortgaging my house plus $15000 in credit card advances. I immediately applied for a mortgage through a mortgage broker.

Now get this. Because I was applying for a mortgage on a property I already owned, the mortgage was based on the appraisal not the price I paid. It appraised at $87000 and I got a conventional, 80% LTV loan for $69000

Remember I only paid $60000. That means I got my money back plus $9000 to the good.

Now what about the payments? It brought in $1100 a month and the mortgage payment, taxes and insurance were under $600 so I made $500 a month.

So, $500 a month positive cash flow on an investment of $0 and a payment of $0 a month.

This is why I like real estate as an investment, the leverage is very advantageous if you are starting with little money of your own.

The key is to only buy with positive cash flow, or at worst, break even cash flow. I would never buy investment property with negative cash flow although I know a lot of people do it. If I can't find positive cash flow I go do something else.


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## Rusty O'Toole (Feb 1, 2012)

If you can find a landlord that wants out (like me) you can make some advantageous deals. I have sold properties with vendor take back mortgage, to people who could not qualify for a bank mortgage. Why? Because I get 8% interest. If I sold the conventional way I could get some cash that I could put in the bank, and get 2% interest. The bank would then lend my money out on a mortgage. 

I figure why not cut out the middleman and increase my income by 300%.

There are lots of ways of doing things. You don't have to do what RE agents and bank clerks tell you to do.


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## Chris L (Nov 16, 2011)

Rusty O'Toole said:


> Speaking of duplexes, I once bought a nice little duplex in Trenton for $60,000. I paid for it with $45000 cash I got from remortgaging my house plus $15000 in credit card advances. I immediately applied for a mortgage through a mortgage broker.


No offense, but your example is way out of date. People wont be dreaming about doing this for another 10 years, and only if the **** really hits the fan.


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## HaroldCrump (Jun 10, 2009)

Just add a 0 to all the numbers, and you'd be pretty close (more or less).


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## andrewf (Mar 1, 2010)

Really, where can I buy a property that sells for $600k and is appraised at $900k, plus rents for a 22% rental yield? Sign me up for twenty!


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## Four Pillars (Apr 5, 2009)

In all fairness, he did specify that this wasn't a recent purchase - "I once bought".

That could mean it happened 20 years ago, 50 years ago, in a parallel dimension etc etc.


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## marina628 (Dec 14, 2010)

andrewf said:


> Really, where can I buy a property that sells for $600k and is appraised at $900k, plus rents for a 22% rental yield? Sign me up for twenty!


Hey Jon I just bought four houses in last 2 weeks $189,000 ,$400 management plus insurance only expenses as I paid cash and the net rental is $2900USD .I have 6 more under contract ranging from $30,000 -$75,000 and they are renting for $800 -$1000 a month.My friend has been buying there over a year and she has a good agent and contractor so she connected me,ROI of 20% is possible on these areas.oops this is West Atlanta for cheaper homes and Metro Atlanta a bit more expensive.


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## Cal (Jun 17, 2009)

I too sense some desperation with the OP...

With mortgage rates where they presently are, I think that option 2 is best, utilize your TFSA as much as possible.

Hopefully you can find a property that gets you a better return than your investments.


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## Mtlcouple (Jun 19, 2012)

Thank you to those who offered some positive insights. 
I re read my original post and realize it has an amateurish tone to it which
accounts for the fact that there were a lot of responds aimed at someone 
starting out in RE. I'm sure someone will benefit from this advice. 
I already own a few duplexes and I'm planning my next move.

For the two guys who say they sense desperation on my part,
I wonder what you would tell someone on here who wanted to get in, in the next 5 months or weeks! 

Now to get back to the original question.
There are a few considerations with regards to the future downpayment. 
The one I find worth mentioning is If we ever found ourselves in a US style 
negative equity situation then the 100k that I poured into a building could theoretically 
be lower.


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## Berubeland (Sep 6, 2009)

It is my opinion that 100K in the bank will look better than 100K on your personal mortgage.

And while Rusty may have happened on such a deal in 1972 a lot of what he proposed is illegal. Investors have to put down 20% on an income property and I'd recommend having an additional slush fund to pay for those extra expenses. There is a reason for the rules. 

The United States is a different environment than Canada. 

Take your time, do it right, play by the rules.


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## Mtlcouple (Jun 19, 2012)

There is a large grey area between what is illegal and what is creative. I will not knock 
Rustys methods although I wouldn't use them in 100 years!
Some poor guy is paying him 8% so he can own RE. Now that's desperation. 
I'm personally inclined to use that sweet variable rate that will go on in perpetuity. LOL


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## HaroldCrump (Jun 10, 2009)

Mtlcouple said:


> I re read my original post and realize it has an amateurish tone to it which accounts for the fact that there were a lot of responds aimed at someone starting out in RE.
> I already own a few duplexes and I'm planning my next move.


It certainly seemed like a newbie R/E specuvestor question.
You wrote : _ guess my question is, does the equity in my house weigh the same as the $ in my savings account according to the bank?
Ie. will the bank say, you can only use 80% of the $ in your house to leverage the IP. _

For someone already owning "a few duplexes" that question does sound pretty newbie.
I am not convinced that we know the real story here.


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## Four Pillars (Apr 5, 2009)

HaroldCrump said:


> I am not convinced that we know the real story here.


I'm thinking that "Montrealer" got married?


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## HaroldCrump (Jun 10, 2009)

Four Pillars said:


> I'm thinking that "Montrealer" got married?


LOL...and got "a few duplexes" as dowry.


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## the-royal-mail (Dec 11, 2009)

LOL probably just another RE pump trying to create "buzz" and get people excited about buying more RE.


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## Eclectic12 (Oct 20, 2010)

Mtlcouple said:


> Thank you to those who offered some positive insights.
> 
> I re read my original post and realize it has an amateurish tone to it which
> accounts for the fact that there were a lot of responds aimed at someone
> ...


I would have though owning properties (unless it's for a short while) would have provided the experience to have figured out the answer. 
I'm not being critical - I'm just surprised.

It also makes the question incomplete as there's whatever equity are in the duplexes, depending on the cash flow coming in from the duplexes are well. There's also the potential negative if the bank decides that adding the new property puts too much of a strain on the overall financial picture.

Depending on how it all works out, having the liquidity of cash to help bring any ratios the bank wants into a more reasonable lower number might speed up the process.


Cheers


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## Cal (Jun 17, 2009)

Mtlcouple said:


> For the two guys who say they sense desperation on my part,
> I wonder what you would tell someone on here who wanted to get in, in the next 5 months or weeks!


I would tell them to take their time, don't be in a rush just to be a LL.


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