# First time home buyer, need help.



## alexGERMAN (Nov 27, 2009)

Im not going to ask the basic questions that any FAQ will answer.

Bascially ive got a 10 year plan and I want more experienced people to evaluate it and tell me if its good, if its possible, and what experiances theyve had that may help me.

Im 20, have around $50,000 cash.

I would like to purchase a property in edmonton with 4 - 5 bedrooms. Live in one and rent out the others to other university students. Once I have solid revenue from renters I will return to university, ive taken a year off. Use the profit to make my mortgage payments and save the rest to pay for my tuition. Graduate from UOA with a Political Science degree and no debt, and prehaps continue to law school if I still want too.

Obvious problems im facing are

-Being 20 aquiring the massive mortgage I will need is next to impossible.

-With maintenance costs and property taxes will my net profit be close enough to my gross profit to actually work with.

-Property costs in edmonton are listed as some of the most inflated in the world, I expect, and hope, that they will drop by late 2010 or sometime in 2011, however people keep talking about the economy picking back up meaning prices will remain where they are and even rise.

I dont know, its all part of my dream to not spend 5 - 10 years of my life wasting my money on a rental property when I can be putting it towards and actual investment, but is it actually fesable?


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## Berubeland (Sep 6, 2009)

alexGERMAN said:


> Im not going to ask the basic questions that any FAQ will answer.
> 
> Bascially ive got a 10 year plan and I want more experienced people to evaluate it and tell me if its good, if its possible, and what experiances theyve had that may help me.
> 
> ...


First if you are working you may find that you qualify for a mortgage. Don't mention your master plan or they will kick you out 

The best kind of property to do this with is a townhouse because they are cheaper. 

Roommates will drive you crazy but if you can find something cheap enough this is great. 

I did know one guy who did this on John Garland Blvd here in Toronto, the area there is terrible at the time he was renting out 4 rooms in each townhouse for $600-700. The townhouses are worth about $120,000 today but it's the kind of place where you might get shot at. Anyways he had 5 townhouses in that complex and then the condo changed the rules to disallow roomers. So when i met him his head was about to explode because he had to sell them or rent them individually. Anyways I could only get him like $1200 per month so that was pretty disappointing for him. I rented one and he sold a few. 

Still if you are going to do it that's how. Best to do it when you're young. 

If you can't swing a purchase you can rent a 3 or 4 bedroom and do the same and get free rent or a little dough. You will be responsible for the whole shot but it might work for you. 

Cheers


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## Shayne (Apr 3, 2009)

Do you currently have the income that will qualify you to purchase such a house? 

If you find a place with a legal suite you will be able to show the rent from that suite as income but no lender will look at your deal if you try to use income from rented rooms.


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## Accter (Jan 29, 2010)

Ok, here is the math (I did something similar about 5 years ago). With 50K you might not need a CMHC backed loan (loans where you have under 20% deposit). If you do it will be much more difficult. CMHC really has a focus on income earned. They will take 40% of your gross monthly income less off 1/2 heat and taxes and consider that your maximum mortgage amount (some places will fudge a little above 40% but its pretty firm as the recommended is 32% - 40%). They will not consider any roommate income (except if there is a separate lockoff unit which they will consider in income).

So you are likely chained to 250K or less if your income is low. I believe either TD or BMO recently had a deal where if you put in 35% deposit they wouldn't even look at your income but that only gets you to 150K which likely won't even get you a 2 bedroom condo in Edmonton. 

If you can stick to 250K or less and stay out of CMHC the banks will have much more room to get a mortgage for you. I would start at a mortgage broker as they will shop around to several banks and find if anybody will loan you money and will also find the lowest interest rate.
One thing you might want to do if you do have an income is if it looks highly likely you are going to buy put 25K of your money into RRSPs (or less if it doesn't get the desired tax write-off) at least 3 months before you need it then pull it out using the First Time Home Buyers RRSP withdrawal. This will save you massive amounts of tax (think upwards of 6-10K depending on your income) with the only negative being you have to repay that amount into your RRSPs over the next 15 years (I would also consider using the life-long learning plan for RRSP as well when you go back to school).

At a guess near the university a 4-5 bedroom house in Edmonton is likely 400K which you wont get a bank to give you without a great income (think like (350X6+500/.4 or 7ish K a month or 84K a year) or without a very good cosigner (which I would never recommend for either party). Your monthly costs would be a mortgage of $2,000, taxes of $400 and heat of $200 for a minimium if $2,600 a month. If you rent out 3 bedrooms at $450 a month you will still need to cover around $1,250 a month assuming all bedrooms are full all of the time. Also remember that repairs and maintenance can be large.

Its a good idea but I'd recommend starting smaller with a 2 bedroom condo. There is much less repairs and maintenance typically and one roommate is fairly easy to cope with. I myself started there 4.5 years ago and I now have 3 2 bedroom condos rented full time and a nice 5 bedroom house without any roommates.

Final piece of advise, renters can be really annoying so use something like lawdepot.com to have a formal contract with anybody that rents from you. It can make things so much easier for both sides if everything is clearly documented at the beginning.


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## leslie (May 25, 2009)

You have to do your own legwork. We don't know the prices and costs you will be facing. But looking up the cost of ppty, the mortgage payments on the required debt, ppty taxes, heat/water/garbage, insurance, rental incomes, etc is perfectly easy to do.

Calculate the operating profits - how

It would be my bet that when you gather that information there will be precious little net positive cash flow each month. Your idea presupposes a cash profit, but I don't think it will be a reality.


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## alexGERMAN (Nov 27, 2009)

Thanks alot Accter, that was a million dollar answer. Honestly id rather do a 2 bedroom condo, however there was a brief period of time where a 2 bedroom condo costed as much as a house around here, but things have changed alot in the last 18 months.

Thats great that you have so much property, it is my eventual goal to have several rental properties by the time im 40 to suppliment my income. Im glad to hear someone pulled it off, gives me hope.

Thanks to everyone else that answered, i am as green as they come, all input is appreciated.


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

That was a very intelligent response by accter. I doubt I can top that. But my answer to alex is different. I do NOT recommend this. I once had a condo in the GTA and the rent amount I collected came nowhere near what it was costing me to keep paying the mortgage, condo fees and taxes. I really took a bath on that deal in addition to having the headaches of dealing with a tempermental renter who was offended when real estate agents came to show the condo (it was for sale). She did everything she could, preventing lock box access, denying entry to RE agents, sick child, late rent, friggin around with eviction process etc etc etc. Plus all the repairs needed to maintain the place, have to clean the carpets, fix the toilet etc etc it just never seemed to end.

If I were you, I would use that $50K and simply register for uni and go to it. There is nothing abnormal about going debt (if needed) to get through uni. At your age, no one expects you to be investing and making money like this. You will have a tough time dealing with the banks (as I had when I was your age) to give you such a mortgage.

Go to school, have fun, make some friends, do the uni thing and forget about trying to make money on rental property in high cost housing areas. IMO it's a pipe dream.


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## alexGERMAN (Nov 27, 2009)

Thanks for the reply royal. Your answer is what I honestly expected. At my age the rules are different, and I dont want to get sucked into dream that I keep trying to make come true for the next 30 years. If I get a golden oppertunity ill take it, but for now ill have to keep wearing my white dress.


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