# Is this a rental scam? ('we buy houses')



## Michelle1983 (Jan 7, 2014)

So I've just put my townhouse up for rent. I've never been a landlord before and am starting to get cold feet though. The more and more I think about it, I'm just not sure it's for me. 

The property itself is quite good and is located near downtown and the university. I paid $375k (put 75k down) for it last year and current operating expenses are $1350. I have it listed for $2350 and have been getting quite a few inquires (they pay their own utilities).

I'm just trying to decide what to do. I got a soft quote for a realtor and he figures he could could sell it for between 400-420k, so that would be nice and I could at least break even or come out ahead. 

I met with a few renters today. One family seemed quite good and the rest were groups of 4 college students, which are worry some. I'm meeting an older couple 50+ next week who want to sell their current home and just rent at this point in their life and requested a longer lease than one year. 

I also got an inquiry from a real estate investor who buys houses or does lease to own. I met with him today as well. 

Basically it sounds like there's 2 options. 


Option 1 is he leases it for 2-3 years at my stated rate and then we both agree he'll buy it from me at that point for X value (we determine this today). (So it's a rent to own)

Option 2 is he more or less acts a property manager, takes $150 off my $2350 rent monthly and handles everything. Tenant screening, problems with the rental, etc. He even said that if something goes wrong (they damage it, it sits vacant), that's his responsibility and I still get my cheque each month for $2200. 

To me this seems a little too good. I can see the $150 for managing it as rental companies it seems charge around 10%. But for him to also pay for any people he has to hire for repairs and the repairs themselves.... has anyone come across this sort of thing before? 

In my mind this might be the perfect solution since it's hands off and I get my guaranteed $2200/month, but I feel like I'm missing something.


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## carverman (Nov 8, 2010)

Michelle1983 said:


> Option 2 is he more or less acts a property manager, takes $150 off my $2350 rent monthly and handles everything. Tenant screening, problems with the rental, etc. He even said that if something goes wrong (they damage it, it sits vacant), that's his responsibility and I still get my cheque each month for $2200.



I went with option 2 after my divorce when money was extremely tight and had to move in with a friend temporarily. I used a pro to rent my place out (HouseSellers) at the time because after doing some serious thinking, I wasn't ready to sell, since I just bought it a year ago. 

I knew my financial predicament was only temporary and renting out my place for a year or two to make some income to pay the lawyers was the best option.
The agent looked after the screening of the tenant and found a professional (worked for defence contractor) with numerous references from previous places he had lived in the US,
and Montreal, his company relocated him to Ottawa. 

I wasn't experienced enough to determine what was a good tenant and a "tenant from hell" that I could not afford to get involved in at the time.

He collected just the first months rent ($1200) for finding me a suitable tenant with a 2 yr lease, and I looked after any property issues myself..this worked out the best for me, 
AND no bounced rent checks, no damage to my house, and the place when he moved out was as clean as when I rented it out, and I could move back right away.

Even if you decide for option 2; you will still be responsible for any repairs to your house. That is not coming out of his pocket.


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## Just a Guy (Mar 27, 2012)

These usually aren't scams, but guys who are trying to be real estate investors using a no money option.

Of course, it doesn't mean that they know what they are doing, or have experience (this may be his first place). It also doesn't mean you won't get screwed if things go wrong and the guys disappears.

Now, before you even start to panic about the potential what ifs about the system this guy is employing, I'd suggest that you step back and look at the fact that renting the place for $2350 (or $2200 if the guy does it for you) when you paid $375k is a bad retrun on investment. 

If the market corrects in the next few years, or the interest rate increases, there's a very good chance that you'll wind up underwater on this "investment". I haven't really run the numbers, but I'd think you are pretty close to losing money as it is when you factor in all the costs right now.

Personally, I'd sell. This is. Not a good rental property from an investment point of view, and it will not make you a happy landlord in the long run. There is too much risk involved, for too little money. It's properties like that that make people say that you can't make money as a landlord and that it's a horrible experience.


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## marina628 (Dec 14, 2010)

Reading your post I would say sell it , I own many rental units and I have never questioned if it was a good idea or not. Not everyone is cut out for being a landlord and since you are not confident about the decision I would say sell and cash out your profits.


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## Causalien (Apr 4, 2009)

The realtor is very cleaver.

He is basically getting a call option on your house. If it appreciates, then he will buy it. If it doesn't, you bet he will walk away. Either by paying a penalty in the contract or have hidden meaning saying you can't go after him. Or simply disappear..


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

Sounds like a popular real estate seminar type deal. It is possible the person is a responsible business person but even more likely that it is an inexperienced person with no money or resources. So check them out carefully.

I have nothing against no money down real estate deals and have done several. In 40 years of real estate investing I never scammed anybody and anyone I owed got paid 100 cents on the dollar, every time.

And, I would sell a house or condo to the right person for no money down and have done so in the past.

I am just saying, be careful. Check their credit rating, find out how long they have been in business, speak to some people they have done business with, get bank references etc. as you would for any business deal involving large sums of money.


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## Michelle1983 (Jan 7, 2014)

Thanks for all the replies. Yeah, my gut instinct is really saying just to sell and move forward from here. The guy was friendly and honest about the part he was going to be making money, but quite unprofessional. His business card only listed a number and it looked like part was hand written. 

I'm going to contact a few realtors and get price assessments on what they think I could sell for and hopefully I'll be able to at least break even on it. I found it really hard to believe that he would be paying any repairs that needed to be done. 

Just one thing for my own clarification/education, I thought this would be a really good investment/rental? 

I put in 75k, am cash flowing $1000 per month (assuming it's not vacant and there are no issues), so $12,000 year on a 75k investment, isn't that a pretty good return? 

I'm just curious where I went wrong in my thought pattern here.


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## carverman (Nov 8, 2010)

Michelle1983 said:


> Just one thing for my own clarification/education, I thought this would be a really good investment/rental?
> 
> I put in 75k, am cash flowing $1000 per month (assuming it's not vacant and there are no issues), so $12,000 year on a 75k investment, isn't that a pretty good return?


You are assuming that everything works out as you planned..and sometimes there could be surprises along the way. 
Tenant loses job or skips town, moving out of the house without notice, rent checks bounce, and unexpected repairs. 

If you are renting, you would have to declare the rent on CRA T1776 (rental income) and add that to your gross income. If you have no deductions then you have to pay income
tax on the full $12K at your marginal tax rate..so it's no longer $12k in your pocket..but $12 minus taxes owing on income to CRA.

While you could "forget" to include this income on your tax return, the tenant may not and since they pay you by check there is a paper trail and they will put you down as landlord on ONT form OnBEN and it may take a while for the gov'ts to catch up, but they could.


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## Just a Guy (Mar 27, 2012)

How do you figure you're making $1000/month when you're charging $2200? You never actually gave us any numbers...

If you punch 300k into a mortgage calculator at 3%, monthly payments, 25 year amortization, your monthly mortgage payment is $1400 give or take. It's a townhouse, so I assume you pay some condo fees, there's insurance, property taxes, maintenance, vacancy....

I think your calculations may be missing a few numbers. I doubt this property actually cash flows at all.

If the interest rate goes up, so do your expenses...


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## gt_23 (Jan 18, 2014)

If you decide to go the rent-to-own option, make sure the "investor" gives you a sizable down-payment for the option....probably at least 3%.

However, I think that holding this as a rental will prove the better decision over the longer term. $1000 p.m. is an excellent cash return on your $75k investment, even if the price does not increase.

As a young, but experienced, RE investor there is one thing I will caution you on if you choose this route. In my experience, you can earn more gross rents by renting to students, but the repairs will be higher. In any city where I've invested, there is basically the "student rate" and the "family rate". You will almost always earn more from a student house, however, when a "family" is willing to pay the student rental rate, this is generally a bad sign. I've generally avoided these situations and rent to students, however, several of my fellow investors have taken this approach and problems usually arise after a few months.

One approach to consider might be lowering your family rate below $2000 p.m. to attract a more responsible family. In all likelihood, you can avoid your $150 management fee with a responsible family and will greatly reduce your risk and turnover.

Hth.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> How do you figure you're making $1000/month when you're charging $2200? You never actually gave us any numbers...
> 
> If you punch 300k into a mortgage calculator at 3%, monthly payments, 25 year amortization, your monthly mortgage payment is $1400 give or take. It's a townhouse, so I assume you pay some condo fees, there's insurance, property taxes, maintenance, vacancy....
> 
> ...


Mortgage principal is not an operating expense. Neither is vacancy in most cities where vacancy rates are < 5%. Many townhouses outside Toronto are freehold. She may have as high as a 35 year am. Maintenance can be close to nil on a new townhouse (for the first several years). And finally interest rates....always a risk, but likely to stay low for a long time.

Assumptions are very dangerous...


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## Just a Guy (Mar 27, 2012)

Gt, I'm a very experienced real,estate investor...trust me, fudging the numbers to make them work us not a good strategy. If they persist with this investment, it would be very risky long term.

A tenant who refuses to pay rent can cost you up to six months of lost income as they play the system and you try to evict them. Maintenance is never nil, you may not have to do some every month, but you need to budget for it as it averages out. For example, you don't need to replace a roof every year, but you would after about 20 years. Do you budget a little every year ($750), or get "surprised" with a $15k repair? Rentals always require more maintenance than homes, as renters are harder on places they don't own.

As for the mortgage, 35 years means very little is ever being paid off...which means a longer exposure to an interest rate hike. As a general rule of thumb, for every 1% increase in interest, you can expect a $100/month increase in mortgage payments for each $100k borrowed. So, if interest rates go up 1%, it'll cost an extra $300/month...2% $600. Remember, your generally exposed to a rate increase every 5 years at renewal time...do you seriously think interest will stay this low for the next 30 years?

Finally, principal pay down only counts if he sells...the only way you really know what a house is worth is when someone actually gives you money for it...everything else is wishful thinking. If his expenses are, in reality, more than $2200/month but he justifies it by "principle pay down" he still has to pay that money out of his own pocket each month or the bank takes his house away...

Better to pick up a property for under $100k that generates more than $1000/month in rent. Those properties cash flow without having to fudge the numbers.


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## carverman (Nov 8, 2010)

gt_23 said:


> If you decide to go the rent-to-own option, make sure the "investor" gives you a sizable down-payment for the option....probably at least 3%.


Rent to own is a very risky game.

I know of a fellow down the street that bought a townhouse, lived in it for a year or two, then got an inheritance,bought a better place in Kanata and decided to do the rent
to own scheme..not sure how much he got on a down payment if anything, but unfortunately he got stuck with what turned out to be a welfare case (with references) with 5 or 6 kids, 
of which a couple were lets say "mentally challenged" to be politically correct. 

Soon there was all kinds of noise in the house, oldest teenager selling drugs, cops coming to the house at all hours of the night, and the landlord couldn't kick 
her out..because of all those kids, so he lost several months rent while waiting for permission from the authorities to kick her and her 6 kids out. Meanwhile they did a lot
of damage to the house, because they figured they would own it eventually...which was wishful thinking. 

In the end he lost several thousand of rental income, which he never got back and spent a few thousand to fix up the place..and sold it.


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## Michelle1983 (Jan 7, 2014)

Thanks again for the replies. I can see now how it may not be so great after all. Although I thought it was rare to find one cash flowing more than this? 

To expand on the specifics, I bought for 375k.

75k down payment, 115k mortgage (3.2 I believe, 30 years), and a 185k HELOC at prime + 0.5%.
Townhouse fees are $150 per month and property taxes are around $200 per month. 

So the total cost to maintain the townhouse as-is is about $1350 per month. 

I do definitely agree though, if interest rates were to rise, it would eat into my profit and likewise, any maintenance/repairs definitely would. That's what scares me the most of everything. The idea to lower the rent is good - I read about that on another site as well. 

But then again, I compare it to just taking the 75k and putting it down on a future mortgage and since that's after tax dollars, it seems like it may be a better idea for me).


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## Just a Guy (Mar 27, 2012)

Lower rent is actually a foolish idea. Lower rent doesn't guarantee you'll get a good tenant, that's false logic. You may have more choices to choose between, but proper screening is your best bet for finding a tenant. Even then, there are "experts" out there who know how to fake their references. There are bad tenants in every form, families, little old ladies, single people...everything. There are also good tenants in every category, students, criminals (not that I'd recommend renting to them), single guys, whatever. You can't tell by the rent they pay, or their on paper background...it depends on the person, period.

The reality is, bad tenants will apply for the lower place rents just as much as they'll apply for high place rents.

If you have a good tenant, you don't raise the rent often to keep them, but you never really know what kind of tenant you'll have until they move in...and don't forget, situations change, even great tenants can potentially go bad...relationships change, they somehow get into drugs, lose their job...whatever.

Low initial rents only ensure you've got less profits to help deal with the problems.


As for the property, you're basically wanting to manage the place for the bank, as you're not paying down $260k at all and barely paying down $115k. For the "privilege", of hopefully earning upwards of $1000 (before tax, an amount that can probably only increase if interest goes down, or rents increase), you assume all maintenance, interest rate hikes, condo fee hikes, utilities when the place is vacant. headaches of dealing with tenants, other expenses including court costs and guarantee the bank gets it's money forever, no matter what they decide to charge you until you die (since there is no cushion to ever pay down the loan).

As most of the loan is floating, they can increase your costs with 1 month's notice...oh, and you'll assume the lost in case the real estate market corrects...


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## gt_23 (Jan 18, 2014)

carverman said:


> Rent to own is a very risky game.
> 
> I know of a fellow down the street that bought a townhouse, lived in it for a year or two, then got an inheritance,bought a better place in Kanata and decided to do the rent
> to own scheme..not sure how much he got on a down payment if anything, but unfortunately he got stuck with what turned out to be a welfare case (with references) with 5 or 6 kids,
> ...


We all know of a fellow who has lost money in real estate at one point or another....it's not for everybody.

I haven't actually done an RTO deal and was not advocated for it, simply suggesting a consideration to mitigate the risk (higher down payment). If real estate prices are doomed like many in this forum seem to believe, than it seems to me like locking in the future price today might be a good strategy, no?


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Lower rent is actually a foolish idea. Lower rent doesn't guarantee you'll get a good tenant, that's false logic. You may have more choices to choose between, but proper screening is your best bet for finding a tenant. Even then, there are "experts" out there who know how to fake their references. There are bad tenants in every form, families, little old ladies, single people...everything. There are also good tenants in every category, students, criminals (not that I'd recommend renting to them), single guys, whatever. You can't tell by the rent they pay, or their on paper background...it depends on the person, period.
> 
> ...



I disagree, again based on experience.

Anyone who is willing to pay way-above markets rents has something to hide in their past. $2350 + utiliies works out to probably at least $2600 per month (above market in most citites) in rent. If a family can afford that, why are they renting in the first place? As home ownership rates have gone from 60% to 70%, the quality of renters has gone down, as those on the margin are now homeowners. Furthermore, IMO responsible renters are generally conservative and would realize that $2600 p.m. is way too high. Low quality tenants are just happy someone will give them a shot and don't think about monthly budgeting.

A few hundred $ p.m. is well worth the cost of problems and potential evictions later on, which as you noted can be costly and stressful. But anyone who thinks the demand for student and family housing is the same (and hence can charge the same monthly rate for both) is misinformed and not very experienced. The supply (that is the house and configuration) may be the same, but the demand certainly is not.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Gt, I'm a very experienced real,estate investor...trust me, fudging the numbers to make them work us not a good strategy. If they persist with this investment, it would be very risky long term.
> 
> A tenant who refuses to pay rent can cost you up to six months of lost income as they play the system and you try to evict them. Maintenance is never nil, you may not have to do some every month, but you need to budget for it as it averages out. For example, you don't need to replace a roof every year, but you would after about 20 years. Do you budget a little every year ($750), or get "surprised" with a $15k repair? Rentals always require more maintenance than homes, as renters are harder on places they don't own.
> 
> ...



OK you have a few valid points, specifically the one about maintenance. There's no "fudging the numbers" going on, it's all about what assumptions you choose to go with, and your bias came glaring through in your original post.

I don't dispute that evictions are costly, but the reality is they are rare. They are even more rare when you have done good due diligence in selecting the tenant. They are even more rare, when renting to students, in my experience - I think this is because students 1) have too much to lose from any potential court action and 2) are generally ignorant to how they can game the system. Also, there parents will in most cases bail them out.

Principal paydown is not an operating expense - if you still disagree check out a financial statement for a public REIT, or even your taxes with CRA. You didn't address the vacancy issue, so I'll assume you have no issues with that. With regards to amortization, most landlords extend it as long as possible. Many big REITS actually do interest-only - given the track record of RE capital gains in the past, this is understandable, albeit risky.

Finally, if you want to do a comprehensive analysis to ensure we're not "fudging the numbers" you ought to also consider:
1) Yes, interst rates may go up. However, since interest is tax-deductible, you need to incorporate the tax benefit of such an increase, which I suspect you never would.
2) Transaction costs need to be factored in (particularly high in Toronto). Since, she already owns the property these are sunk. An analysis of whether to replace this property with 1,2,3,4 of your $100k properties, should account for these properly.
3) Where does one purchase a property for $100k to rent for $1k p.m.? A GRM of below 10 is very hard to find these days and this example is 8.3 - if this is in fact attainable, please share with us. If you are going to suggest the U.S., well then you're introducing all sorts of other types of risk, which it is clear you like to avoid...
4) An realistic appreciate/depreciation assumption should be included.
5) If she intends to find quality tenants and self-manage, it would likely be preferable to have 1 property @ $375k vs. 3-4 @ $100k. More tenants, more problems, more driving around in the latter case, although it would diversify your risk better.

The expenses appear to indeed be $1350 per month (see Michelle 1983's post at 3:33 AM), in which case this investment not only generates income, but cash flows substantially. I'm not aware of any other $75k investment that would generate $1200-$1300 p.m. in income (income + non-op. exp = CF), and also the chance for solid capital gains.


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## Mortgage u/w (Feb 6, 2014)

The methods outlined are not scams but beware of who carries it out. If you need to choose one of the 2, I'd chose the 3rd one - SELL.

I can tell you that its not worth it keeping the townhouse as a rental. You're only showing a surplus because you're hardly paying down your capital. As one said, 'your working for the bank'!

What seems nice now ($1000 surplus) will quickly look horrible when you decide to unload the property. Since you're capital is hardly decreasing, you profit will be remain low. You need to factor in that you will need to re-invest all (or most of) that 'profit' back into the property prior to selling - don't expect to have the tenant leave and the house is ready for the realtor sign the same day. Add your capital gain tax, realtor commission etc....and you're back to square one (if you're lucky).

Bottom line, you're rental investment is not that great. Sell now that the market is high and avoid many headaches to come. If you really want a rental, find a profitable one with more than 1 door. You can't rely on 1 tenant only and be so tight with you're numbers.


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## Just a Guy (Mar 27, 2012)

Gt, you seem to twist my responses to try and change my points.

I never said "charge higher than market rents" I said, discounts don't insure quality tenants. Do you seriously think a bad tenant only looks for higher rents? I said, bad tenants can come from ANY demographic, there is no "good" one, there are no "bad ones". Even students can be bad, and not all parents bail them out.

I never said anything for or against a property manager, but they don't insure good tenants either, plus they tend to charge more for legitimate ones (one month's rent to find a tenant, 5% monthly thereafter).

I agree that principle pay down is not an expense, but if you don't pay the place down, you're at a high risk to a market correction (I don't know many people who don't think real estate is generally overpriced in Canada).

As for multiple units, I personally think it's less risky to own more as you have more sources of income, and better tax advantages after 3. Own one place, it's vacant you're on the hook for all the expenses and have no income. Own 4 doors, one becomes vacant, the profits from the other 3 should cover the expenses. The odds of multiple units being vacant at the same time is much lower than one unit being vacant. you also have 4 properties which can benefit by capital gains (which is more likely if you're buying under market in the first place). 4 places going up $25k each is probably more likely than one place going up 100k.

You may think that I'm a real estate bear, I'm not. I just think THIS property is a bad investment, I wouldn't touch it and I'm an experienced investor…a newbie is going to get burned by this. 

As you pointed out, there are not many properties available for under $100k, which means people like me are buying them below market value which protects us in case of a correction. They do exist, though maybe not in GTA, fortunately Canada is a very large place and has several other major cities. I've picked up 5 in the past 8 months or so, all under 85k (I think they averaged 75K give or take) generating an average of $1050/month all financed 100% by mortgages because I bought below market value. Each of those produces several hundred dollars of profits after all expenses including principle pay down and any other frilly expense I could think of. Those are good investments, this one is not.

Not all real estate is going to make you money, but you can keep trying to convince yourself otherwise if you want.

Maybe go check out some of the other threads and postings on this site, this topic comes up often and these threads become somewhat repetitive...


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## Mortgage u/w (Feb 6, 2014)

Agree with JAG....and this has indeed been discussed a multiple of times. There are many bad rental investments out there which newbies will convince themselves that they are profitable. This particular one is not a good investment given the numbers.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Gt, you seem to twist my responses to try and change my points.
> 
> Perhaps...but I think this is becoming futile so lets agree to disagree. I will clarify though that I didn't want to suggest that bad tenants look for higher than markets rents, merely that they have to, by virtue of being "bad." Given that vacancy rates are very low in most cities, there simply is not enough quality housing stock to go around, and the "bad" ones (or those on the margin) usually don't get selected by landlords as their first choice. The more competitive the landlord's price, the more applications he receives, the more choice he gets (best jobs, no pets, etc. etc).
> 
> ...


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## gt_23 (Jan 18, 2014)

Mortgage u/w said:


> I can tell you that its not worth it keeping the townhouse as a rental. You're only showing a surplus because you're hardly paying down your capital. As one said, 'your working for the bank'!


Yes you did tell us, I guess we should just trust your judgment. The HELOC is probably re-advanceable, but even on the 1st mtg she is probably paying down at least $100-200 p.m. Add to that her CF of $1000 p.m. and she is has income of $1100-$1200 p.m. Who cares whether it goes against the mortgage or goes in the bank, at the end of the day its earnings.



Mortgage u/w said:


> What seems nice now ($1000 surplus) will quickly look horrible when you decide to unload the property. Since you're capital is hardly decreasing, you profit will be remain low. You need to factor in that you will need to re-invest all (or most of) that 'profit' back into the property prior to selling - don't expect to have the tenant leave and the house is ready for the realtor sign the same day. Add your capital gain tax, realtor commission etc....and you're back to square one (if you're lucky).


Really? What if she keeps it 10 years...20....30? Seems to me her CG would probably be nice in either case. It's relatively simple to sell a house while the tenants are in it (close at the end of their lease of course). Nobody says she has to use a Realtor or fix it up prior to selling, especially if its in a high demand area. 

Do you work in the mortgage industry?


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## gt_23 (Jan 18, 2014)

Mortgage u/w said:


> Agree with JAG....and this has indeed been discussed a multiple of times. There are many bad rental investments out there which newbies will convince themselves that they are profitable. This particular one is not a good investment given the numbers.


Ok, I'm admittedly quite new to this, but I didn't realize it was "blog etiquette" for newbies to have to go back and read the thousands of archives before wading into the current debate....

I'm 27 and have been investing in RE since I was 21 (while in uni) and each one has been very profitable. I agree the market is expensive and I haven't been buying in the last two years, but it doesn't mean its time to sell. This lady already owns the property - she's not purchasing it. Where else can she get the leverage, cash flow, and potential compounding on $375k in the current investment environment? Perhaps multiple units @ $100k is the way to go for profitability, but she will be behind for a few years because of the high transaction costs to implement.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Those are good investments, this one is not.


Good is relative in investment....capital has to flow somewhere. if you're going to suggest that she choose to sell because this particular investment is not good, then it would be let us know how to find these diamond in the rough (aka good) investments.


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> Ok, I'm admittedly quite new to this, but I didn't realize it was "blog etiquette" for newbies to have to go back and read the thousands of archives before wading into the current debate....
> 
> I'm 27 and have been investing in RE since I was 21 (while in uni) and each one has been very profitable. I agree the market is expensive and I haven't been buying in the last two years, but it doesn't mean its time to sell. This lady already owns the property - she's not purchasing it. Where else can she get the leverage, cash flow, and potential compounding on $375k in the current investment environment? Perhaps multiple units @ $100k is the way to go for profitability, but she will be behind for a few years because of the high transaction costs to implement.


It's not blog etiquette, it's just the answer to your question is on a very recent thread in the real estate section. I outlined how I found my properties in a fair amount of detail, the only thing I left out was the actual city (because I don't need more direct competition), but I assure you they are possible to find in major cities, with low vacancy rates.

You'd also know that people like mortgage u/w owns a 4 plex that he bought for under 400k (meeting the criteria). This would allow you to realize that others may know something about this subject.

Of course, most of the properties I've bought are in foreclosure, bought by "investors" who paid upwards of 200k for the places a few years back....I'm sure they could say they cash flowed too at $1000 rent if they didn't pay down the principle, and fudged their numbers to make it work.

I've made a lot of money off "investors" like you're trying to encourage. 

I owned a 6 bedroom house as my personal residence, I could have rented it when I moved, but it wasn't a good rental. The ROI would have been good or bad (depending on if you looked at what I paid, or what the appreciated value was), but it was a high maintenance, tough to rent property...it made better sense to sell it (even though I owned it and didn't need to sell) and buy things more suited for rentals. 

Waiting, or knowing what a good investment is is the key to making money. Just because you already own something doesn't make it valuable. Just because it get you in the "rental game" isn't a good reason. Sometimes being in the game with the wrong piece is worse than missing the game. If the market corrects 25-50% at the same time as interest rates rise (and an interest rate rise will trigger a correction) how good is this investment? Remember in real estate, you have to look into the far future...this stuff isn't liquid.


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## Mortgage u/w (Feb 6, 2014)

GT, I think you need a lot more experience in the RE market before making such comments. Forget your theories....because on paper, everything looks good.


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## Michelle1983 (Jan 7, 2014)

Thanks again for all the replies; this is quite a good discussion. Okay, I see now with the HELOC. It is one thing that does concern me as it was floating so there is always the chance it can go up unexpectedly. 


i think selling is going to be the best solution. This whole experience has been a real eye opener. Two months ago I was so set to rent and figured this was just going to be the best idea ever... guess I have lots to learn still. I just feel much more safe putting it down onto my own house to reduce that mortgage, less stress all around for me and I think it'll be what gives me the peace of mind. 

I do really appreciate the explanations on everything Its good to see where my thinking was flawed.


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## carverman (Nov 8, 2010)

gt_23 said:


> I disagree, again based on experience.
> 
> Anyone who is willing to pay way-above markets rents has something to hide in their past. $2350 + utiliies works out to probably at least $2600 per month (above market in most citites) in rent. If a family can afford that, *why are they renting in the first place?* As home ownership rates have gone from 60% to 70%, *the quality of renters has gone down*, as those on the margin are now homeowners. Furthermore, IMO responsible renters are generally conservative and would realize that $2600 p.m. is way too high. *Low quality tenants are just happy someone will give them a shot and don't think about monthly budgeting.
> *


Exactly! ^


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## Just a Guy (Mar 27, 2012)

Yeah, and then you run into professional scam artists like these guys...who apply for everything.

http://www.cbc.ca/news/canada/british-columbia/story/2013/01/18/bc-badtenant.html

There are reports of this exact family working their way across Canada.


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## andrewf (Mar 1, 2010)

Not much to add, but I want to commend Just a Guy for being generous with his advice. I think it is very sensible.


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## Four Pillars (Apr 5, 2009)

Michelle1983 said:


> This whole experience has been a real eye opener. Two months ago I was so set to rent and figured this was just going to be the best idea ever... guess I have lots to learn still.


I'll give kudos to you for trying something, even if it didn't work out.


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## Michelle1983 (Jan 7, 2014)

Four Pillars said:


> I'll give kudos to you for trying something, even if it didn't work out.


Thanks, yeah, live and learn. 

Just one further question - do any of you know, how are the 2% realtors? Ideally I'd really like to walk away from this and break even, but I'm a little worried it may not happen. 

I've only ever used full price realtors before - do buyers realtors tend to move away from 2% listings quite often? I could also try listing on Comfree as well, but I'm not sure if I'd sell faster if I had a realtor doing it.


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## Just a Guy (Mar 27, 2012)

You can negotiate with any realtor on the fees. In general, my realtor is willing to cut his fees as a listing agent, but recommends that you offer the full fee to the selling agent or they may not show your house as much. My realtor would also negotiate lowering his commission if he acted as a dual agent. 

Remember, depending on the company the realtor works for, their actual commission varies a great deal as the company takes a big chunk, there are monthly fees, licensing fees, photographers, staff, etc. if they choose the wrong broker, they may not make much money. 

Btw, don't give up on real estate, you can make a lot of money in it...the trick is finding the right property. These days that's really tough.


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## gt_23 (Jan 18, 2014)

Michelle1983 said:


> Thanks again for all the replies; this is quite a good discussion. Okay, I see now with the HELOC. It is one thing that does concern me as it was floating so there is always the chance it can go up unexpectedly.
> 
> 
> i think selling is going to be the best solution. This whole experience has been a real eye opener. Two months ago I was so set to rent and figured this was just going to be the best idea ever... guess I have lots to learn still. I just feel much more safe putting it down onto my own house to reduce that mortgage, less stress all around for me and I think it'll be what gives me the peace of mind.
> ...


Perhaps as a useful exercise, you could come back in a year and let us know how your $75k investment capital performed with whatever you choose to do with it.


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## gt_23 (Jan 18, 2014)

Mortgage u/w said:


> GT, I think you need a lot more experience in the RE market before making such comments. Forget your theories....because on paper, everything looks good.


That's a rich argument. I think you need a lot more experience in critical reasoning. Did you actually read what I wrote, or look at my age and stop reading. Everything I have said is based on available facts and my experiences, not theories.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Waiting, or knowing what a good investment is is the key to making money. Just because you already own something doesn't make it valuable. Just because it get you in the "rental game" isn't a good reason. Sometimes being in the game with the wrong piece is worse than missing the game. If the market corrects 25-50% at the same time as interest rates rise (and an interest rate rise will trigger a correction) how good is this investment? Remember in real estate, you have to look into the far future...this stuff isn't liquid.


I never said that already owning makes it valuable.....simply that it is extra cost to replace the investment with a new one.

What evidence do you have to suggest a 25-50% market correction? If the market has gone up fast, does that mean it's destined to fall? I think from your last comment (and previous ones about buying below MV) it's clear you consider the risk of capital loses to be important in a RE investment decision....is that why you would pass on this despite its clear operating profitability?


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## Just a Guy (Mar 27, 2012)

Gt, you've been doing this for about six year...so you started in or about 2008 correct? That was right around the meltdown in the states and a minor correction up here in Canada. Basically, during your time in the market, you started at the real estate bottom, and have benefitted from the steady rise since then.

I have no idea what your investments are like, since you haven't posted your numbers. You however, don't even believe the properties I buy are possible. The difference is, many on this board have had to survive market corrections, so the properties we buy have to meet a criteria and numbers which can withstand decades of market turmoil. 

You seem to want respect for your experience, but in a rising market most people can make money. I'm happy you're in the market, but you haven't provided any info on what you own, so your asking for respect because you tell us you are making money. As you've seen with this example, many properties can make money on paper in the short term, or a rising market, but that doesn't mean they're a good long term investment. 

Other people on this board like mortgage u/w, and marina have posted their numbers, so I can respect the fact that they know what they are doing. The fact that you think this was a good investment doesn't make me respect your real estate judgment as far as selecting a good property. It has nothing to do with age, claimed experience, or whatever...strictly numbers.

I'd also like to note that, aside from what you think of as a good investment, I do respect your knowledge in other aspects of real estate. You bring up well thought out points.


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> I never said that already owning makes it valuable.....simply that it is extra cost to replace the investment with a new one.
> 
> What evidence do you have to suggest a 25-50% market correction? If the market has gone up fast, does that mean it's destined to fall? I think from your last comment (and previous ones about buying below MV) it's clear you consider the risk of capital loses to be important in a RE investment decision....is that why you would pass on this despite its clear operating profitability?


I believe that interest rates can't remain this low forever, that they have to rise someday. I also believe that people are paying too much for houses, buying "the most house they can afford" which, at these interest rates has just helped to inflate the prices.

I know, that if the average Canadian can just barely afford to make payments today that, if interest rates increase, they will be in a lot of trouble. If the average house is selling for around $450k, that means an extra $450/month for each 1% increase. That means people will be forced to sell, which will swamp the market and housing prices will collapse.

It used to be banks wouldn't lend more than 2.5x their average income, that's gone out the window with low interest rates.

Basically, the same thing happened in the states when people got a mortgage where the first half of the payments had no interest (which people could afford) and then 6% for the second half (adding $600/month for each $100k of mortgage). The average interest rate was only 3%, and they could get around the jump by refinancing...until the house of cards collapsed. People couldn't afford their mortgages and everyone wanted to sell...the interest rates didn't actually even rise, but it showed what would happen because they rigged their mortgages to simulate it.

I've lived through 18% mortgages, I've lived through market collapses...I've seen history repeat itself (there are cycles), I've seen unemployment where there are no jobs...and most importantly, I understand math and think long term.


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## Just a Guy (Mar 27, 2012)

Check out this article

http://www.otterwoodcapital.com/2014/04/29/canadian-housing-crash-not-yet/


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Gt, you've been doing this for about six year...so you started in or about 2008 correct? That was right around the meltdown in the states and a minor correction up here in Canada. Basically, during your time in the market, you started at the real estate bottom, and have benefitted from the steady rise since then.


I wouldn't say I have benefitted from a rise in RE prices at all, since I haven't sold anything since starting out. My only realized benefit thus far has been consistent monthly cash flow, hence the focus on profitability over CGs. I really couldn't care less what RE prices do in the short- to medium-term as I will still get a consistent monthly profit. In fact, as we saw recently in the USA, as RE prices dropped, gross rents actually increased (contrary to RE bears' beliefs), which would tend to support that view.

Appreciate the feedback.


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## Causalien (Apr 4, 2009)

Respect is earned, not asked.

It is also a factor of your age. I believe that before you reach 30, nobody gives you any respect. Most people mistake me for a 26 year old and Some say I am 22 when i shaved and. i can really feel the difference. Even in asia they mistake me for 26. So i am pretty sure if this. People thinks you are full if crap, if the experiences you have doesn't match your age. Unless if you make them fall in love with you first.

This one guy I met keeps mentioning about his experience timing the market bottom in USA RE. But you can tell it was daddy fund and daddy decision under his name from his other discussions. I don't get why people flaunt this. Daddy's is not yours.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> I believe that interest rates can't remain this low forever, that they have to rise someday. I also believe that people are paying too much for houses, buying "the most house they can afford" which, at these interest rates has just helped to inflate the prices.
> 
> I know, that if the average Canadian can just barely afford to make payments today that, if interest rates increase, they will be in a lot of trouble. If the average house is selling for around $450k, that means an extra $450/month for each 1% increase. That means people will be forced to sell, which will swamp the market and housing prices will collapse.
> 
> ...


I agree rates will increase, although probably very gradually and drawn-out. I think the issue is that as rates have trended down for 30 years, debt (public + private) has exploded - the two have been negatively correlated. We haven't experienced a high debt + high interest rate environment, so despite what anyone says, nobody really knows how the markets will react and whether higher rates will stick.

On the matter of RE valuation, I have always thought that valuation of real estate based on average incomes (or market rents) is fundamentally flawed. Since pretty much everyone uses a mortgage these days, affordability (GDS %) is really all the matters. Although if, as you point out, rates were to increase and persist at higher levels we could be in trouble if other variables (such as incomes) don't contribute positively.


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## gt_23 (Jan 18, 2014)

Causalien said:


> It is also a factor of your age. I believe that before you reach 30, nobody gives you any respect.


Yeah agree 100%...especially at work. IMO respect and goodwill doesn't get you very far these days; you're only as good as your last victory.

However, I wasn't misrepresenting my experiences in any way and despite thinking its kind of presumptuous, will try and post some examples soon.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> Check out this article
> 
> http://www.otterwoodcapital.com/2014/04/29/canadian-housing-crash-not-yet/


Cool article, I get the idea and agree that Canadian RE is pricey in absolute terms. Perhaps I'm being overly critical but here's what comes to mind in the first few minutes:

1) CDN RE is 60% more expensive than USA RE
2) Median HH income is about 50% higher in Canada
3) CAD is worth about 10% less than USD (chart does not specify whether same or diff currencies)
4) Short - med rates are similar

All else being equal, factors 2-3 could account for the current gap. Most people would probably look at this chart and say "in 2014 Cdn RE is so expensive relative to USA RE", but what if I posed the following question:

If you assume that in 2014, Cdn RE and USA RE are equally valued (based on affordability and factors above), doesn't that in fact imply that Cdn RE was undervalued (relative to USA) in 2006 when the two were at similar levels in the chart, and that they have simply become more balanced?


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## Mortgage u/w (Feb 6, 2014)

gt_23 said:


> That's a rich argument. I think you need a lot more experience in critical reasoning. Did you actually read what I wrote, or look at my age and stop reading. Everything I have said is based on available facts and my experiences, not theories.


I actually did read your posts...but you have no numbers or facts to back up your theories. This forum exists to learn and share experiences from each other....not criticize each other. Before you challenge someone, you should respect and understand the message being portrayed. You got inthe market at a specific period and can only relate to that. Others on here have experienced alot more so you should understand that. Although your arguments may be valid, you should be a little more receptive to others opinions.


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## gt_23 (Jan 18, 2014)

Mortgage u/w said:


> I actually did read your posts...but you have no numbers or facts to back up your theories. This forum exists to learn and share experiences from each other....not criticize each other. Before you challenge someone, you should respect and understand the message being portrayed. You got inthe market at a specific period and can only relate to that. Others on here have experienced alot more so you should understand that. Although your arguments may be valid, you should be a little more receptive to others opinions.


Perhaps, but IMO your arguments had even fewer facts and numbers than mine. I didn't (and still don't) see the emphasis on market timing in this instance, since in this particular case, she is already in the market (not looking to enter it). It's one thing to dismiss this investment on the grounds of poor cash flow, roic, and profitability - which on conservative earnings of $10k p.a., it is not a poor $75k investment. It's a completely different argument to dismiss this investment on the grounds that the risk to her capital (via market correction) is so grave that no amount of profit justifies it.

I am trying to resolve between the two, and it seems like it was the latter case.


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## Mortgage u/w (Feb 6, 2014)

Its not a question of market timing. She's only owned the property 1 year and as she mentioned, she'll be lucky to break even if she sells. What makes it a poor investment is the method the investment is leveraged. Majority of funding is an interest only heloc. So although the return shows a profit, it is only because she is scraping by on financing. Then you have the fact of relying on 1 tenant. One NSF and your in the red. 

All we're saying is that $75k investment can do a lot better that what she has now. You want to generate a positive cash flow, but you also want your equity to grow by decreasing your funding. This gives you better leveraging for future investments.


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> I wouldn't say I have benefitted from a rise in RE prices at all, since I haven't sold anything since starting out. My only realized benefit thus far has been consistent monthly cash flow, hence the focus on profitability over CGs. I really couldn't care less what RE prices do in the short- to medium-term as I will still get a consistent monthly profit. In fact, as we saw recently in the USA, as RE prices dropped, gross rents actually increased (contrary to RE bears' beliefs), which would tend to support that view.
> 
> Appreciate the feedback.


I too don't care about capital gains. I think you'll agree my properties cash flow. However, what you don't realize, because you haven't experienced a downturn, is banks DO care. If property prices correct, they can and have refused to renew mortgages without a new appraisal and a cash call. This is one of the reasons I'm able to pick up properties today for the prices I've found. People paid too much at the top (upwards of 200k in some cases) and 5 years later, when renewal time came, the bank's appraisal was much lower and they asked for the difference. Could you come up with 50-100k? (Remember you won't be able to use your real estate as it's in the same basket). These people couldn't either and the places went into foreclosure. 

While the banks like cash flow, they don't like it as much if the asset isn't worth the loan value plus more. 

You have benefitted from the rising values in real estate, you're just not experienced enough to know it.

BTW, I agree rents will increase with foreclosures…but the banks see things differently. Their underwriters see "underwater", they don't care about cash flow as much and I'll give you a real world example from a few months ago. I bought a two unit place (bachelor and 1 bedroom on one title), paid $73,500 for it. reno'd the place for about $3000. Got it rented for $750 & $850 per month ($1600 total). Bank's appraiser came out, ultra conservative priced it at $95,000 (in a city where there is next to nothing listed under $100k for a bachelor). Fortunately for me the other place I bought at the same time got a better appraiser and I managed to get enough financing to get enough financing from it to cover my shortfall. This unit is probably the best unit I've ever bought, but the banks don't see it that way…


The golden rule, the one with the gold makes the rules.


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## Just a Guy (Mar 27, 2012)

GT,

What I don't understand is why you are clinging to this type of deal. There are many people on this board buying real estate that are much better deals, I've got buddies who are buying like I am right now. Why do you insist on buying one which I think is terrible, but let's agree is marginal at best?

Why not try and find something better? I don't think anyone on this board ever said don't buy real estate, there's just a bunch that said there are better deals out there which could provide long term security and better returns while paying down the principle.

Why are you so stuck on holding something marginal when there's better stuff out there? I'm pro investing when it's a good deal, that's what makes me successful. I'm not pro-anything though. Even you said you don't buy if you don't find something good. All we said was sell because something better and less risky is out there.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> I too don't care about capital gains. I think you'll agree my properties cash flow. However, what you don't realize, because you haven't experienced a downturn, is banks DO care. If property prices correct, they can and have refused to renew mortgages without a new appraisal and a cash call. This is one of the reasons I'm able to pick up properties today for the prices I've found. People paid too much at the top (upwards of 200k in some cases) and 5 years later, when renewal time came, the bank's appraisal was much lower and they asked for the difference. Could you come up with 50-100k? (Remember you won't be able to use your real estate as it's in the same basket). These people couldn't either and the places went into foreclosure.


This is in Canada? I had heard about some sketchy lenders calling in performing loans, but thought this was because their funding dried up in the recession.

I'm pretty aware of most of the distressed channels available in Canada and see POS on the MLS all the time, but they tend to go at FMV. Are you talking about Sheriff's sales at auction for foreclosures?


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> GT,
> 
> What I don't understand is why you are clinging to this type of deal. There are many people on this board buying real estate that are much better deals, I've got buddies who are buying like I am right now. Why do you insist on buying one which I think is terrible, but let's agree is marginal at best?
> 
> ...


I'm all for finding the best deals possible, but the reality is many small investors do have positive experiences with the traditional route (buy SFH through MLS and buy-hold-rent). There's also the practical element of where one happens to live.

Furthermore, I'm not sure it's realistic for the average person to be able to find these needle-in-haystack deals. I've been reading and researching many of these methods for over 10 years and still have no idea what it is you're doing to get these heavily discounted deals in Canada - tax sales, POS, CRA liens, RTOs, auctions? Foreclosures are rare in Canada and since most markets are strong, I can't see why a distressed homeowner wouldn't just sell there home before going into foreclosure.

Would appreciate even a hint!


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## Just a Guy (Mar 27, 2012)

No, these are all MLS listings. Foreclosures are sent to realtors in Canada. We don't really have sheriff sales, or auctions in Canada.

These are usually from the big banks.

Remember, the CHMC has been capped now…lending will be tougher, more loans will be rejected.

You're 27 years old, been in real estate for only 4 where you've been buying…haven't made a purchase in years. Maybe there's a few things you don't know about the industry. I spend a lot of time learning about this area of investing and I'm active in it. I also work on my business and stocks the same way.

The first thing I learned is I don't know very much and there is a lot more for me to learn.


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> I'm all for finding the best deals possible, but the reality is many small investors do have positive experiences with the traditional route (buy SFH through MLS and buy-hold-rent). There's also the practical element of where one happens to live.
> 
> Furthermore, I'm not sure it's realistic for the average person to be able to find these needle-in-haystack deals. I've been reading and researching many of these methods for over 10 years and still have no idea what it is you're doing to get these heavily discounted deals in Canada - tax sales, POS, CRA liens, RTOs, auctions? Foreclosures are rare in Canada and since most markets are strong, I can't see why a distressed homeowner wouldn't just sell there home before going into foreclosure.
> 
> Would appreciate even a hint!


There is no secret formula…no fancy technique. I outlined my method on a different thread about 4 days ago…I've "hinted" that you should go look…so far you're just in this thread.

Yes these properties are rare, but not non-existent. I've had PMs with a number of other people on this board who've found similar properties all over the country. The difference is they are looking, not denying that it's possible.

As for a positive experience, I think we're on the same page…only you're setting the poster up for a negative one.


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## Mortgage u/w (Feb 6, 2014)

Foreclosures are common. Back when we were financing overvalued properties with 0 down and 40 year amorts, many people are still stuck with these and have no options when it comes to refinancing. That was pre-2007. Today, Refis are limited to 80%LTV and 30 yr amort and lending rules very tight. So when your financed at the max, pay interest only on a heloc and need money to consolidate, these people have no options so they bail out.

if you apply this to investment properties, you'll understand why good ratios are extremely important.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> No, these are all MLS listings. Foreclosures are sent to realtors in Canada. We don't really have sheriff sales, or auctions in Canada.
> 
> These are usually from the big banks.
> 
> ...


Sure - I don't think I claimed to be an expert, merely that I had experience in RE, which is more than 98% of Canadians. 

I have tendered on tax sales with no luck - they tend to go close to MV anyway. Same with POS - I assumed that when "Seller" on an MLS listing is a Bank or CMHC, it was most likely a POS and not foreclosure. Any low-balls I've submitted come back and the places sell near MV same as regular real estate. I do follow the Sheriff's sale of lands in Ontario, there are a couple each week. I think these are mostly the result of civil judgment seizures and not foreclosures.

How did you find a decent source to learn more? I've learned the hard-way that most RE experts and gurus have nothing to teach and don't give enough details to actually act.


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## gt_23 (Jan 18, 2014)

Mortgage u/w said:


> Foreclosures are common. Back when we were financing overvalued properties with 0 down and 40 year amorts, many people are still stuck with these and have no options when it comes to refinancing. That was pre-2007. Today, Refis are limited to 80%LTV and 30 yr amort and lending rules very tight. So when your financed at the max, pay interest only on a heloc and need money to consolidate, these people have no options so they bail out.
> 
> if you apply this to investment properties, you'll understand why good ratios are extremely important.


We are still talking about Canada? Why would a bank go foreclosure route vs. POS in a strong market? Is there any way to tell from the MLS listing whether it is foreclosure vs. POS other than the seller has a bank listed?


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## Just a Guy (Mar 27, 2012)

Well for one, a 10 year amortization change can significantly affect your payments. The banks may not have had a choice if the owner couldn't make the payments. Then, when they put these overpriced properties on the open market, but tighten the lending rules, they don't sell…

That's why about 5 years after the "correction" and rule changes, the market suddenly gets a dump of properties which are available below market value. 

Have you tried getting a loan lately? It's the worst it's ever been…if you can't borrow, how do you buy? They are forcing a correction slowly by not qualifying people. My bet is they are trying to control the fall…which, as history shows, will most likely fail.

As to where to learn more…try something like this forum, where there are some really successful people to learn from.

I learned for other real estate investors. People with skin in the game, not ones trying to skim off the game. There are two author's I'd recommend (and did in a different thread a few days ago…hint hint), but those are more for newbies.

I hang out with very successful people who run businesses, invest and own real estate…and I learn from them.


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## Mortgage u/w (Feb 6, 2014)

Not really. POS are not common here. The bank would rather have the client hang on to the property and force them to sell vs foreclosing. Too many legal fees on forclosure and usually big loses for the bank. So unless you can see whats happening on the title, you cannot tell what the story is behind a forced sale. Foreclosure deals are not what they used to be....as you experienced, they sell at mv....you'll have better luck on a fixer-upper.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> As for a positive experience, I think we're on the same page…only you're setting the poster up for a negative one.


I don't see how it would be negative, barring the occurrence of a rare event (market correction). Perhaps not as positive as it could be, but only time will tell.

I will go digging...stay tuned!


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## Just a Guy (Mar 27, 2012)

Sorry, I should have said "original sale price" not market value. I don't think an apartment should ever have been worth $200k. Apparently, the market now agrees with me.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> I hang out with very successful people who run businesses, invest and own real estate…and I learn from them.


I have done this a lot too, but it always seems like they end up trying to sell me something. Most have not seemed interested in partnering up or teaching out of the goodness of their hearts. I know a lot of ppl who have joined REIN, but the thought of paying thousands of $ to learn a single technique does not appeal. I have found it difficult to network with REIN members (as a non-member)...perhaps they take an oath or something


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## Just a Guy (Mar 27, 2012)

REIN is a scam in my opinion. Though I've made a lot of money buying properties from REIN members who lost their shirts and went into foreclosure.

When I said hang out with, I meant just that. These are guys I play ball with, or go to lunch with, have kids in sports together with, some are clients, etc.

I don't go looking to talk business, real estate, or investing...but it does come up in conversation sometimes. 

You need to figure out how to tell the successful people from the posers, or people who aren't. I've become very good at it over the years. Most guys I know will talk freely about their experiences...it helps to have something to compare notes with and be a bit more humble.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> REIN is a scam in my opinion. Though I've made a lot of money buying properties from REIN members who lost their shirts and went into foreclosure.


Pretty entertaining...I will try and start a posting in the next day or two and would appreciate your perspective. I too have been and am involved in business, RE, and financial markets. It was mostly driven out of interest/curiosity, risk diversification, and a desire to achieve the highest returns to quickly build capital, but sometimes wonder whether it would be better to focus in one area, and master it.


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## Just a Guy (Mar 27, 2012)

I may suggest you search through some of the other threads first...some long time members get annoyed reading the same topics over and over again. REIN, for example, has been discussed numerous times...frankly I don't think they deserve the attention.


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## Michelle1983 (Jan 7, 2014)

Okay, that's a good point about realtors being able to negotiate fees as well. I called the realtor I've been working with in our search for our home as I really trust him and he's been excellent to work with. He's going to do some price assessments on the place and get back to me tomorrow, so hopefully we can sell around 395-400k with any luck so perhaps I can come out without a loss. 





gt_23 said:


> Perhaps as a useful exercise, you could come back in a year and let us know how your $75k investment capital performed with whatever you choose to do with it.


I'm pretty sure I'll be putting the 75k or whatever I can come out with down on the mortgage for our new place. We'll be buying next spring so have been saving and the extra will definitely help out. I think this is a good route to use it? 

I own the condo I'm living in right now (worth about 200k), so I'll be selling that as well before we move, so if I take the money altogether, we'll have a nice sized own payment and monthly costs will be low. Then we'll work to pay off the remaining balance from there. 

Alternatively, I could invest. I'm self-employed so don't have hardly anything for retirement yet (been focusing on paying off mortgages up until this point of my life - I'm 30). 

I've been doing some reading though and I've read paying off the mortgage free and clear and then investing can be a good strategy? Fortunately he works in health care so has a pretty healthy pension.


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## gt_23 (Jan 18, 2014)

Michelle1983 said:


> Alternatively, I could invest. I'm self-employed so don't have hardly anything for retirement yet (been focusing on paying off mortgages up until this point of my life - I'm 30).
> 
> I've been doing some reading though and I've read paying off the mortgage free and clear and then investing can be a good strategy? Fortunately he works in health care so has a pretty healthy pension.


Personally I would borrow @ <=3% to 80% on the principal rez and invest the rest, particularly given your age.

I had suspected you might be older, most of the ppl I know who are 30 still have lots of student debt and no RE to speak of, let alone investment RE or savings. Congrats on the great progress.


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## Just a Guy (Mar 27, 2012)

The usual procedure is to try and pay down your mortgage as quickly as possible (at least on paper) because the interest costs you money, then borrow against the equity and invest the money. Interest paid on money used for investment is tax deductible, interest paid on your house is not.

When you get your mortgage, look into a home equity line of credit (HELOC) which let's you borrow against the equity in your home.

In fact, you may want to look into getting a heloc instead of a mortgage on the entire property. Some banks, like TD allow you to lock in portions of your heloc as a mortgage, but as you pay it down, the money becomes available for investing.

Of course, helocs have different implications on your credit report than a mortgage, and if you're not disciplined, it can be dangerous to have that credit available but, if used correctly it can be a wonderful tool.

Also, don't buy anything that you can't afford with a 25 year amortization, preferably 20 year with bi-weekly rapid payments. Anything more and you're not really owning a home, you're renting from the bank, while paying all the associated costs. Plus, it's a good indicator that you'll probably lose your home if something changes.


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## Eclectic12 (Oct 20, 2010)

^^^^

Is this a "readvanceable mortgage", which one can get from many financial institutions?


http://www.mortgage360.ca/learning-center/refinance/readvanceable-mortgages/

I mention this as I listened to the painful hoops my co-worker had to jump through to come close to the one I arranged more easily through a mortgage broker. The amusing part for me was that mine was through a subsidiary of the same bank. 


Cheers


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## Just a Guy (Mar 27, 2012)

No, TD has a heloc where they allow you to lock in portions as a mortgage. It was really easy and super flexible. Other banks claim to offer similar products, but I've found most to be very complicated and don't actually work the same way.


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## Mortgage u/w (Feb 6, 2014)

Just a Guy said:


> No, TD has a heloc where they allow you to lock in portions as a mortgage. It was really easy and super flexible. Other banks claim to offer similar products, but I've found most to be very complicated and don't actually work the same way.


Actually, the best HELOC product on the market is with Scotiabank. But essentially, all banks have a similar product and don't really differ that much. Once you obtain the global limit approved, you can select multiple credit products within; (mortgages, line of credits, credit cards). Most common use is obtaining a limit at 80% of market value, lock-in your mortgage portion and the rest as a secured LOC. So example; MV is $500k. 80% limit is $400k. Mortgage $300k and LOC $100k. Ideally, you're mortgage is all you owe...the LOC is available to you for investing elsewhere.

There are also other products such as the Manulife One which is an "all-in-one" banking solution. Core concept is similar; obtain a global limit and that limit acts as your daily bank account. All your transactions go through that account like one big credit card. You payroll deposits, debit/credit purchases, cash advances, etc all go through there. No mortgage or credit card payment ever required. Bank simply withdraws an interest payment at the end of the month based on its balance. This product may seem advantageous to some, but can be disasterous for others.


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## MRT (Apr 8, 2013)

Beware the combo products offered by lenders (Scotia's STEP, Manulife One, etc).

Unless something has changed in recent years, such mortgages are usually non-transferable. You need to discharge the entire group if you want to move the mortgage (or HELOC) elsewhere because they are registered as a single charge on the title to your home. When the mortgage portion matures, you can't shop it around unless you are willing to payout the HELOC, PLC, credit card, etc. portions of the account too and discharge it from title. As an added disincentive, Manulife also charges a monthly fee for their account.

There is virtually nothing you can't do with a traditional HELOC that you can do with these combo products, and I highly encourage people to keep their mortgage and HELOC apart, registered as separate charges on title. When the mortgage is up for maturity, you will then maintain the option of transferring it elsewhere, typically at no cost, without impacting the HELOC. 

As for lenders offering matrix-type mortgages with one part fixed, one variable...make sure the segments carry the same maturity date, or you may find that some penalty will always apply if you move, since the pieces never mature at the same time. 

It has been my experience for many years that people are never aware of the limitations of these products, only being pitched on the 'convenience' of them, with grossly misleading examples of how much money you can save (saving that can typically be replicated by using a traditional HELOC in a similar manner, with no such mobility restrictions, and in Manulife's case, no monthly fee).


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> The usual procedure is to try and pay down your mortgage as quickly as possible (at least on paper) because the interest costs you money, then borrow against the equity and invest the money. Interest paid on money used for investment is tax deductible, interest paid on your house is not.


I understand the logic of this, but what's the difference between non-deductible interest at 2.5-3% vs. a deductable HELOC at 4%. Aren't the basically the same thing for the average income tax bracket?


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## Just a Guy (Mar 27, 2012)

Well, first off your mortgage is paid in after tax dollars and comes out of your pocket.

Investment income is paid in pretax dollars and usually comes from revenues generated from your investments.

Other, more subjective benefits are things like controlling and deferring income. If you make a high wage, you don't really want to generate more taxable income, so having a tax deduction can be of benefit.


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## Michelle1983 (Jan 7, 2014)

Thanks gt_23, I saved really hard early on my life so was fortunate to really get a head start on everything. 



Mortgage u/w said:


> Actually, the best HELOC product on the market is with Scotiabank. But essentially, all banks have a similar product and don't really differ that much. Once you obtain the global limit approved, you can select multiple credit products within; (mortgages, line of credits, credit cards). Most common use is obtaining a limit at 80% of market value, lock-in your mortgage portion and the rest as a secured LOC. So example; MV is $500k. 80% limit is $400k. Mortgage $300k and LOC $100k. Ideally, you're mortgage is all you owe...the LOC is available to you for investing elsewhere.



This will likely be the plan. We're actually going to be porting two mortgages by the looks of it. I talked to the bank today (Scotia). So he has a condo and owes $185k on it, so that needs to get ported to the new place. Then I found out we can also port the townhouse mortgage (so that's a relief and will save me fees there). 

So I think likely what'll itll be is $185k ported mortgage, $115k townhouse mortgage + 150k down to make up the difference and 20%. . We're looking at a price of around 500k I'd say. 

I never thought of borrowing against the house to invest. So then I could take a HELOC for 50k from there, right? 

Then we'll try and do the large sum payment down on the end of each mortgage so when we refinance, we can set up the amortization terms better. Both are 25 years right now unfortunately.


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## Just a Guy (Mar 27, 2012)

Check the terms of your mortgage, you can often change your payments without penalty. So, you may have set it up to be amortized at 25 years, but you can make payments as if it was 20 years biweekly rapid and switch back if money gets tight.

It's a useful trick to have with rentals, you amortize large, but make payments as if you amortized much lower. Gives you a bit of a safety net...again, a good tool as long as used properly. Used improperly, it can get you into trouble.


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## Michelle1983 (Jan 7, 2014)

Just a Guy said:


> Check the terms of your mortgage, you can often change your payments without penalty. So, you may have set it up to be amortized at 25 years, but you can make payments as if it was 20 years biweekly rapid and switch back if money gets tight.
> 
> It's a useful trick to have with rentals, you amortize large, but make payments as if you amortized much lower. Gives you a bit of a safety net...again, a good tool as long as used properly. Used improperly, it can get you into trouble.


Thanks, yeah, I never thought to look into that. That's a really good idea. I was playing on putting down the lump sum each year - we could probably save 12-15k to add on. I know we can do the match a payment for as long as we'd like. 

Alternatively, I was playing with some calculators today; I'm almost wondering if it isn't best to just break the mortgage, pay the fees (around 6k for his, 3500 for mine) and then get a new mortgage for the same but amortized over 10 years. 

Without changing things, our payments would be around $1350 a month and we were going to save an added $1000-1500 per month to do the lump sum payment. 

If we amortized over 10 years instead on a new mortgage, our payments would go up to around $2650, but the interest paid would be a lot lower. 

Is the 10 year amortization better than lump sum?


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## Just a Guy (Mar 27, 2012)

Depends on the person. The 10 year amortization forces you to make the payments every month. The lump sum route requires discipline to do. Most people can always find other things to spend their money on rather than saving up for a lump sum.

Of course, if something in your life changes, like a job loss, injury, accident, etc. that can affect your income over those 10 years, it may be safer to have lower payments and do lump sum which are optional.

There is no "right" answer for anything in investing...but there are some obvious "wrong" ones.


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## Michelle1983 (Jan 7, 2014)

That's a good point. Maybe the 10 year would cause extra stress in case of a job loss or something else that comes up. We've been arguing a bit; I want to put away more money each month for a good lump sum at year's end and he's happy just paying the mortgage as-is over 25 years... so it's causing some tension. He said he'll do it, but it's definitely not his preference. Same would go for increased monthly fees on a 10 year.

This is the first time I'm creating a budget with someone else; it was much easier when it was just me and what I wanted to do with my money.


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## Just a Guy (Mar 27, 2012)

You guys really need to talk and compromise, financial incompatibility can cause a lot of stress on a relationship.


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## gerogesin (Jan 3, 2014)

I would suggest meeting nearly the middle and amortize for 15-20years. With the extra savings for the lump sum, I would invest in the market under a tfsa bracket which I am sure you would already do. 
You don't want to be obligated to make big payments every month. Just make sure you're not getting into a collateral mortgage unless you are aware of it's implications. I believe all TD mortgages are registered as collateral and possibly other big banks are headed that route.


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