# Buying a Third house and renting the second and first one



## jside86 (Mar 18, 2014)

Good day All 

This is my first post on this forum, I will try to be as precise on my situation as possible.

I currently live in Wainwright Alberta with lots of potential, Currently, I own two houses, One in Edmonton and one here
I live in the one in Wainwright and rent the one in Edmonton.

I currently have a income of $59,040 yearly plus a rental income of $18,000 yearly.
I move in my current house in 2011 and I bought the previous one in 2010.

I don't have much equity on both these house and I have around $50,000 Debt(car, lines of credits)

here is my question: Right now, I live in a 3 bedroom house, I have a roommate, but the house still feel way too big for me.

I was thinking buying a lot out of town and build a small one bedroom on top of two garage suite, I had the project estimated around $150k to $170k and renting my current house for a good amount. I would be able to get the cash down but the bare minimum of 5%.

Should I wait and get my debt down and get a bigger down payment, of should I process and move into smaller and rent my second house?

I am undecided, what do you think? Is it to fast or am I on the right track?

Thanks for your input!


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## carverman (Nov 8, 2010)

jside86 said:


> G
> 
> 
> I don't have much equity on both these house and I have around $50,000 Debt(car, lines of credits)
> ...


Don't know if you have an existing mortgage besides your debt of 50k...but if you do, you are already over the top as far as debt to income ratio.
Rule of thumb when considering to build a house on an empty lot. IT WILL ALWAYS COST A LOT MORE THAN YOU ESTIMATE.

IE; cost of lot (out of town-in the country), cost of septic system and drilled well..at least 10,000 for septic bed, up to 5,000 to drill a well, foundation $10,000 or more, inspections upon inspections and
the permits for those. Hydro pole installed $2000 or more. Culverts and road access to lot $2000 or more....then the cost of the building even if it's a factory prefab.

I know this from experience. I bought an empty lot in 2000 (out in the country), and was planning to do a foundation for a prefab. 
The lot cost about $10,000 with a well already predrilled. I paid $1000 for a road access permit (culvert and gravel) and $500 for a septic bed survey/soil conditions for leaching bed.
Cost of trucking in 10 truckloads of special filter sand media for the leaching bed was over $5000 (a few truckloads estimate). The septic cement tank and the connections
to the foundation another $2000 (estimate)...water pressure system for the well and deep well submersible pump..$4000 estimate....well anyway..you see my point about extra costs
involved.


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

I think you will be pressing your luck. Since you will be maxed out on all properties and on top of that have personal debts, you are heavily relying on the rental incomes to keep afloat. The numbers may add up for you but as a risk perspective, you will have a hard time getting the financing for the third property. If you bought your current two homes with less than 20% down, they would be lender insured; one as owner-occupied and the other as either a vacation property or a rental. That means the third one you intend to buy cannot be considered owner-occupied even if you intend on living in it. The lender will require more than 5% as down payment - more likely 20%. If you intend on pulling out equity from your other properties, you will not be able to refinance more than 80% of current market value. If your savings are limited, you will have a hard time maintaining 3 properties with no cash reserve.

Sit down with a mortgage specialist or better yet, a financial planner before going forward. I personally would sell your current home, use the profits to clear out all your personal debt and put a larger down-payment on the new home. If the rental is profitable, keep it....otherwise sell that too. No point keeping an investment which has no positive cash flow.


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## Just a Guy (Mar 27, 2012)

What are the values of the houses? How much equity? What are your costs? How is the real cash flow?

Aside from $1500/month income (does that include your roommate or is that just the Edmonton property). What rent do you expect for the wainwright house? For being precise, you've left out a lot of details...

Getting a loan these days is VERY difficult, I'd imagine a builder's loan would be even tougher.

Fill in some of the blanks and you may get a better answer.


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## carverman (Nov 8, 2010)

Just a Guy said:


> Getting a loan these days is VERY difficult, I'd imagine a builder's loan would be even tougher.


The way it works I found out when building is that you don't get the money all at once, even if you manage to convince the bank or lender to give you a loan to build.
You pretty much need to own the lot and have money for the foundation and well/sanitary..otherwise the only thing that is saleable to the lender is the lot..if you default, and
that would also require an appraisal from the lender at extra cost because the lender has to be very cautious on the property zoning and what special restrictions there may be.
Real estate may be able to sell the lot but if it's anywhere near a flood plane (and last years Alberta floods) pretty much wiped out any resale value on those homes on the flood plane
So you need to come up with money to buy the lot, then for the foundation and well/septic. Afterwards, the lender will be more interested as it's not just an empty lot any more.


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## Just a Guy (Mar 27, 2012)

A builder's mortgage is usually approved for the entire amount and then released as milestones are reached. You don't need to own the land or foundation first, the bank will release those funds to purchase those, then the down payment on the house, etc. It's a pain, but it's done all the time for custom built homes.


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## carverman (Nov 8, 2010)

Just a Guy said:


> A builder's mortgage is usually approved for the entire amount and then released as milestones are reached. You don't need to own the land or foundation first, the bank will release those funds to purchase those, then the down payment on the house, etc. It's a pain, but it's done all the time for custom built homes.


Yes, you may be right. I bought the unimprove lot first, so I had a copy of the deed. 

Here is what TD has to say about getting a builders mortgage.

http://td.intelliresponse.com/mortg...you+offer+a+building+or+construction+mortgage



> What documentation is required in order to apply? You should bring the following to your branch:
> 
> Construction contract including costs
> Construction plans or blueprint of the home
> ...


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## leblanc (Mar 19, 2014)

*Your debt might hold you back*

Your outstanding debt may be a problem with getting approved for your next mortgage. I strongly suggest that you hold out, clear up your existing debt, and build more equity that you may be able to use on your next purchase.


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## Cal (Jun 17, 2009)

I think you are thinking in the right way, but are getting ahead of yourself. Pay down some of your debt first would be my advice for now. But continue to think big.


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## OurBigFatWallet (Jan 20, 2014)

I could be wrong but $170k for the new place sounds quite low. Did you get a few estimates from various builders and if so does that include the cost of the land as well?


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## carverman (Nov 8, 2010)

OurBigFatWallet said:


> I could be wrong but $170k for the new place sounds quite low. Did you get a few estimates from various builders and if so does that include the cost of the land as well?


It is LOW..here in Ontario, assuming you own the lot already..for a 1500 sq foot "modest home" with standard construction, kitchen etc..it's 207K for a bungalow, 187K for 2 story
and 195K for a backsplit. Includes septic system, but not sure if the hydro service and well is included, so add another 4 or 5K onto that price.
I don't think driveways, landscaping is included either.

http://www.ontariocontractors.com/buildcalc.htm


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## nobleea (Oct 11, 2013)

carverman said:


> It is LOW..here in Ontario, assuming you own the lot already..for a 1500 sq foot "modest home" with standard construction, kitchen etc..it's 207K for a bungalow, 187K for 2 story
> and 195K for a backsplit. Includes septic system, but not sure if the hydro service and well is included, so add another 4 or 5K onto that price.
> I don't think driveways, landscaping is included either.
> 
> http://www.ontariocontractors.com/buildcalc.htm


His estimate of $170K was for a double garage with a 1BR suite above it. That price would easily include all the hookups, landscaping, etc. Maybe it includes the lot price as well. It looks like a small acreage in Wainwright goes for $90-100K. If the price includes the lot, then it might be a stretch.


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## jside86 (Mar 18, 2014)

Thanks all!

I think I will old on for a year or two!

Yes I want to become big but I want to do it in the right order!


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## NorthKC (Apr 1, 2013)

Definitely hold off for a few years, get the debt paid down and give yourself some breathing room before taking on another house. 

Personally, I would just sell the house and move into a smaller home. Avoid building on a new lot as I see way too many owners getting blindsided by the unexpected costs or at least until you get a good amount of cash saved up to cover these.


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## getliquid (Mar 2, 2014)

you can get approved for the 3rd mortgage with 60K income?


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## marina628 (Dec 14, 2010)

getliquid said:


> you can get approved for the 3rd mortgage with 60K income?


Probably not but the bank takes 50% of the rental into consideration.


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