# Rental Property Advise Needed



## Steve Divi (Jul 14, 2016)

Hi everyone,

I'm looking at buying a rental property on Vancouver Island and have a few questions.

I own my own house outright, can I take out a HELOC to put the 20% down on house #2 or do I need to save it in cash? (sell stock)

Also what type of fees can I expect to pay as the buyer of a $300,000 place?

I bought my house before I met my wife, would she be eligible for first time buyers incentives?

Thank you for the advise. 
Cheers


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## Spudd (Oct 11, 2011)

You are considered a first-time home buyer if, in the four year period, you did not occupy a home that you or your current spouse or common-law partner owned.


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## Nerd Investor (Nov 3, 2015)

In your situation (fully paid off home), I don't think there would be an issue using the HELOC for the 20% down payment.


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## CrazyEights (May 17, 2016)

you could also then refinance your rental (if after you done some renos) to get back the cash you put in from your HELOC....if the numbers work out.


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## Mechanic (Oct 29, 2013)

I used cash and some money from my heloc and paid it off in about 3 years but the rental was a constant headache in BC and I lost money when I sold it last year. In hindsight I would have done a lot better investing in CAR.UN, YMMV


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

Not too sure that the first time buyer program applies to rental/investment properties - I think its for owner-occupied properties only but I could be wrong.

As for the down-payment, yes, you can definitely use the HELOC off your current property. Its actually recommended since the interest on the HELOC is eligible as a deduction against the rental income. You can fetch up to 80% of the current market value.


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## Just a Guy (Mar 27, 2012)

I don't suppose you want input like a $300k property probably won't cash flow. 

As a buyer, depending on the province, you can expect to pay legal fees for closing, land transfer taxes, property appraisal fee, mortgage legal fees, heloc legal fees, heloc appraisal fee, and property tax adjustment. If it's a condo there would be the condo fees and possible assessments. If it's a new build GST. You may also pay mortgage life insurance, I don't recommend it. If it's vacant, you need to pay the utilities and the setup/deposit fees if you never has them set up before.

Depending on the circumstances, some of these fees may be waived by the bank.


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## Steve Divi (Jul 14, 2016)

Just a Guy said:


> I don't suppose you want input like a $300k property probably won't cash flow.
> 
> .


I want all input, good or bad. 

The Place that I'm looking at is in Nanaimo, has 2 legal suits and was previously rented at 750 Downstairs and 950 up, for Combined $1700 P/M

My pre-approved mortgage is 5y, 2.29%. My mortgage payments would be $1314 on 300K.

I have 60K cash for Down Payment and if I used my own money, the mortgage payment would be $1050. 

I haven't calculated taxes, insurance, property management or any other costs into this. That is the reason I'm posting here to try and determine what the final bill would look like. 

I make a fairly good wage of around 200k and save 60-75% net so I could payoff the house fairly fast if I needed. 

Thank you for the help.
Cheers


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## Just a Guy (Mar 27, 2012)

The way to make money in real estate is to use other people's money (OPM). 

Let's say you paid it off completely, you've paid $300k to make $1700/month before expenses. You have insurance, property taxes, maintenance, vacancy, etc. Let's be genrous and say you clear $1000/month. That's a 4% return that you only earn by dealing with tenants, and trust me that's work. If you get a property manager, your returns go down even more.

You could buy a bank stock and earn more with their current dividend. And your money isn't locked in. 

In this market, I wouldn't buy anything that doesn't at least make the 1% rule. 

Where you really make money is when you leverage the property. Say you buy a place for 100k, which rents for $1000/month. You borrow the entire 100k (there are many ways to do this, but let's say 20% on a heloc and 80% mortgage). 

Mortgage @ 3% is $473, taxes, insurance maintenance, etc. Should all come in at say $800, giving you $200/month income. Total invested $0. In 25 years, place is paid off, worth $100k in price adjusted dollars (maybe more, maybe less, but it will be worth something) which you created from...$0. 

Infinite return, literally money out of nothing. If the market drops and it's only worth $50k, that's still 50k in your pocket with no loss...what happens to your paid off property, which is now $150k? You paid the loss.

Also, what happens when interest rates rise? The cash flow becomes even worse. Your $1700 doesn't cash flow today, it just cost more whereas my $100k place has $200 cushion to protect against higher costs you can get to nearly 7% interest rate and still break even assuming you never paid down anything at renewal.


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## Steve Divi (Jul 14, 2016)

Some very sage advice. 

Thank you Just a Guy


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## Steve Divi (Jul 14, 2016)

Just a Guy said:


> In this market, I wouldn't buy anything that doesn't at least make the 1% rule.
> 
> .


I spent all day yesterday looking through Canada and I can not even come close to "the 1% rule"

Is the whole Canadian market just that expensive? 

Should I perhaps look south? 

Even on VI, the best I could bind was 0.6%.


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## Just a Guy (Mar 27, 2012)

In this market, they aren't common. That's the point. Just because you want to buy, doesn't mean it's a good time to buy.

I'm constantly looking for properties to buy, not just looking on one day, but looking every day across a wide area. I get notified as soon as any property that matches my criteria hits the market, yet I find only a few properties each year to put an offer on, and I get to buy even less. I bought 4 last year.

The market, in my opinion, is highly overpriced and is not a safe investment for the most part. People who are desperate to get in the market, just to be in the market, are going to lose money.

Sometimes the hardest part of being a good investor is not buying...especially when you have money in your pocket.


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## Valor (Jan 15, 2017)

Hi Steve, personally or when I joint-venture with investors on real estate, I always make sure that I get price or term.

What Price means - I get it under market value. Sure, these deals won't flock to you and they get sold in realtor's pocket listing before they hit the MLS or are sold privately. Usually they are great properties but the owner is in a distress situation. Best way is to develop a relationship with different brokers in your area. like JAG mentioned, not all realtor knows what they're talking about or what a good deal is (price or term), so you need to do your own due diligence.

What term means - You probably get market value, but the seller is willing to offer you good term. Maybe long-closing 100days+, if it's a booming market, you may be able to flip it to someone using skip-transfer in BC (avoiding property transfer tax) or doubling closing in other provinces. Or take over the owner's mortgage and maintenance payment with little to no money down, and do sub-lease it out. The latter strategy usually ends up in negative cash flow, but if you also get it under value, it MIGHT be worth it if there is a way for you to increase value of the property. Example could be fix-n-flip, redevelopment, land assembly. You'll need to educate the realtors and owners to be willingly accept these terms though. If you get into commercial real estate, terms are more openly accepted.

Another way to force property to cash flow is to do a rent to own on it. RTO also makes property management a lot less heached. You do need to make sure you have the right legal paperwork for the RTO.

All in all, what I proposed really is not really RE investing, but close to running a RE investing business. Hope this helps!


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