# Any real estate investors here? Buying Rental Property.



## FrugalTrader (Oct 13, 2008)

I'd like to hear from some real estate investors. I have invested in real estate in the past, but have recently sold my last rental property.

Personally, if you find a good cash flowing property, it can be great for the cash flow. However, land lording is a job in itself and really requires a certain personality to enjoy that aspect of real estate investing.

For the investors, what criteria must be met before you consider purchasing the property?

For me, it's (more details here): 
1. Cash flow positive
2. Nice neighborhood
3. Decent condition
4. Under market value


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## Lakedweller (Apr 3, 2009)

This is certainly the right time to buy rental property in some markets. The huge price increases between 2001 and 2008 pushed many potential buyers into the rental market. So the availability of good quality tenants is still there. The entry level new houses are a great investment if you want to keep your hands clean.
As far as landlording is concerned, there are many companies who will manage your property for a small fee. (www.ipinvestments.ca)
There was also a time where I would have said property values were less suseptable to deflation. Anyone coming into the market in the last three years might argue with me, but long term it is a proven leader for beating inflation.
Finding under-valued properties is a full time job. Unless you have intimate knowledge of planning or development proposals, it is difficult and risky to buy under valued properties. It is also more difficult to rent them.
Cash flow is not the be all and end all of property investments, especially as your "pockets" get deeper. Being able to hold a cash negative property for 5 to 10 years can be great long term investing. Look at all the farmers living on the fringe of most cities. Do you think the small guys are making money? Not without farming subsidies. But developers are buying their land at 2,5,10,20 times the price they paid for it. 
Buying a property in a nice neighbourhood is like buying a GIC. Sure you'll get 2-4% return over the long term, but is it worth the headache of being a landlord? Not likely.
With the move under foot in most municipalities to encourage higher density and infill and brownfield development, buying a property in a redevelopment area is a good investment. Go in with no money down and assemble three or four properties in a row and market them as a single parcel for a 4 storey apartment. 
That means learning about the planning processes in your municipality.


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## Sampson (Apr 3, 2009)

Our first residence (condo) has now become our rental. We leveraged the unit at the height of the market to pay down our higher interest rate on our residence so its a funny one to look at.

I agree with lakedweller that cash flow does not have to be positive. If you count principal pay down, we are positive, in addition we have all those tax benefits.

We chose an 'up & coming' neighborhood, since we new we wouldn't be at the condo long, and there are significant city planning projects to make our neighborhood extremely desirable.

Other than that, if/when we look for more, those four criteria are most important in my books. Next time I'd look for something that could be cash flow positive even after management fees. We've been lucky in the past with problem free tenants, but I know that string is about to change (as I get in my car to check out repairs I need to do...)


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## fifi (Apr 3, 2009)

A friend-partner and I, who have similar goals and thoughts about real estate investing, began about 2 years ago--we started with a small 2 bedroom rental, then purchased a full duplex. Our first, we bought a fixer-upper, since we both had some time, and reno'd--it's been breaking us about even. We also do no-down (use our HELOC for down payment), which makes great mortgage rates even better with tax-deductibility. 

The duplex has been great--we're leaning more and more towards multi-family for the future. I should qualify that we are both public service employees, not wealthy at all...

Guidelines we follow or will be following:
1. Average out the ups and downs of the market--we will be buying one property each calendar year (we don't have time to research more either!!).
2. Must be multi-family (even if it's just an up-down rental)
3. Area that has good access to public transit/amenities, with good future growth potential.
4. No major structural problems (even if reflected in price--it seems to snowball quickly from friends' perspective).
5. Must have positive cash flow or very close to it (or what we see as becoming positive within a year or 2.).
6. Must have future redevelopment possibility (such as having the potential to knock-down and build 2 infills).
Of course, when we look at each property we aren't close-minded--something could come around where we could bend the rules, but we won't rush in to anything (if we're beaten to a property by another buyer, we just assume that they inherited a multitude of problems--makes us feel ok about it!

fifi


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## ethos1 (Apr 4, 2009)

cash flow with 100% leverage

walk away position if the market tanks and/or the rentals cannot be maintained

Low cost of purchase is good, but the leverage & cash-flow is primary


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## Germack (Apr 4, 2009)

I was a real estate investor but sold all of my properties. It is impossible to find properties with decent CAP rates at the moment. RE investment should always be cash flow positive with 100% financing otherwise I believe they are poor investments. The cost of ownership doubled during the last 8 years, however cost of renting just increase with inflation. This is just not sustainable over the long term. I believe the Canadian real estate market is way overvalued and headed for a major correction.


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## DrStan (Apr 5, 2009)

I used to have a rental property, but at market prices here in Ottawa, it was impossible to generate any kind of strong cashflow (the townhouse could rent for $1400 a month, which barely covered expenses and left no room for vacancies), notwithstanding my $50,000 downpayment that I could have invested elsewhere. The time aspect was also a bit of a downer, considering all the time I spent on that project. In the end, after two years and a half, I sold the property and walked away with a grand total of about $10K profit. Not worth the dozens and dozens of hours spent on it. From now on, REITS will make a fantastic proxy. Just as an example, if I had used my $50K downpayment to purchase RioCan at that time, I would have made about $3,000 per year in income (at 6%), which is not far from what I earned through a ton of hard work over the time I had the property. My mistake: counting on capital gains instead of cashflow and financing some of the monthly shortfall with my own cash. Not smart, but enlightening.


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## The Financial Blogger (Apr 4, 2009)

FrugalTrader said:


> For me, it's (more details here):
> 1. Cash flow positive
> 2. Nice neighborhood
> 3. Decent condition
> 4. Under market value


Hey FT, I wonder how you can actually find a cash flow positive rental property in the current market? In Montreal, you can't get a cash flow positive property unless you inject 35 to 40% cash down. That's insane! Is there any alternative?


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## FrugalTrader (Oct 13, 2008)

The Financial Blogger said:


> Hey FT, I wonder how you can actually find a cash flow positive rental property in the current market? In Montreal, you can't get a cash flow positive property unless you inject 35 to 40% cash down. That's insane! Is there any alternative?


Personally, I've found the best way is to find deals. Basically properties that you can negotiate down under market value. It's more challenging to find deals already listed, most are found via private sales and advertising.


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## Germack (Apr 4, 2009)

The Financial Blogger said:


> Hey FT, I wonder how you can actually find a cash flow positive rental property in the current market? In Montreal, you can't get a cash flow positive property unless you inject 35 to 40% cash down. That's insane! Is there any alternative?


I know what you are talking about. I am from Montreal too. The only alternative I see is staying on the sidelines and not investing in RE at the moment. Sooner or later prices will fall back to its fundamentals.


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## Sampson (Apr 3, 2009)

DrStan said:


> if I had used my $50K downpayment to purchase RioCan at that time, I would have made about $3,000 per year in income (at 6%),


But that investment would be down by close to 33-50%. Housing prices have come off, but not that much.


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## DrStan (Apr 5, 2009)

Hi Sampson,

The value of the investment in REI.UN would have dropped, but as a long-term investor stock prices over a couple of years are not a huge concern, as long as the bacon keeps rolling in. I guess it's a question of "woulda, coulda, shoulda", but it just illustrates that there are some ways of making strong revenue from income properties without buying a residential rental.

To folks who are considering buying income properties in Montréal, please note that the Québécois renter is the most protected species this side of the snow leopard. They can give the runaround to landlords for months on end, not paying their rent, refusing legitimate rent increases while landlords' costs explode, play games with the housing tribunal, etc. There is an interesting opinion article in La Presse this morning, from a disgruntled landlord who mentions that he has lost thousands from being played by his overprotected tenants. I would never touch that market. Si vous lisez le français:

http://www.cyberpresse.ca/opinions/forums/la-presse/200904/06/01-843814-la-regie-ma-eu-a-lusure.php


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## Bullseye (Apr 5, 2009)

Also a former RE investor, currently out of the market completely (REIT's aside). 

I agree that cash flow positive with 100% leverage is a requirement, and that must be with ALL costs in, including vacancy provision, maint and repair, and management (to compensate for my own time and hassle). 

The problem is that the rental market has been flooded with new 'investors' the past few years, driving up prices and reducing CAP rates to where it's not profitable in most places to bother. 

Rent minus mortgage payment and property taxes does not equal profit, but that's what all these people pouring into the market seem to think. 

So I wait, biding my time. A shakeout is coming, already starting, I believe. As these investors realize they are holding losers and flee, I will be there waiting to lowball them and pick up some great properties in the panic.  If it doesn't happen, I'll remain out of the market.


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## Jademonkey (Apr 8, 2009)

FrugalTrader said:


> I'd like to hear from some real estate investors. I have invested in real estate in the past, but have recently sold my last rental property.
> 
> Personally, if you find a good cash flowing property, it can be great for the cash flow. However, land lording is a job in itself and really requires a certain personality to enjoy that aspect of real estate investing.
> 
> ...


By Cash Flow Positive, is that only referring to the mortgage or everything(property taxes etc)?


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## FrugalTrader (Oct 13, 2008)

Jademonkey said:


> By Cash Flow Positive, is that only referring to the mortgage or everything(property taxes etc)?


Jademonkey, cash flow positive after ALL expenses. Mortgage, insurance, property tax, vacancy, estimated repairs.


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## lazy cdn (Apr 3, 2009)

*help*

I have cash money for a dp, but cannot find value anywhere.


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## fishnguy (Apr 5, 2009)

Sampson said:


> But that investment would be down by close to 33-50%. Housing prices have come off, but not that much.



Your line of thinking is way off. If you put 20% down on a home that subsequently loses 10% of its value, guess what....you're down 50%! That is the joy of leverage. It is not an apples to apples comparison.


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## Genius Boy (Apr 3, 2009)

*Think commercial or multi-family units*

Dear FT:

I'd contemplate thinking commercial or multi-family units. Requires much higher up-front costs, but you can leverage property upon property. Commercial properties have longer terms leases, and generally less hassle than being a landlord. And being a busy professional, that's important.

Why commercial?

Pros: Less hassle, longer-term leases, usually companies that can afford to pay you (i.e. better guarantees that you'll get paid). Usually, better property appreciation values (if you buy wisely in downtown cores). Easier ability to leverage with more properties.

Cons: Higher interest rates, requires higher downpayments. Need to spend lots of time finding cash positive property.

For example: I found a property with a 12% gross, 7% net cap rate. i.e. from the start, I've been making 7% net. That's irrespective of property appreciation. The key is doing your homework, and making sure you get good property value.

Once it gets big enough, you should set-up a holding company, which has massive tax advantages (through dividend splitting). For example, if my wife decides to stop working ... I can take the profits and give it to her at her lower tax rate (and via a dividend, which is taxed lower). These tax considerations are important the wealthier one becomes.


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## FrugalTrader (Oct 13, 2008)

Genius Boy, do you have your commercial property under a corp?



Genius Boy said:


> Dear FT:
> 
> I'd contemplate thinking commercial or multi-family units. Requires much higher up-front costs, but you can leverage property upon property. Commercial properties have longer terms leases, and generally less hassle than being a landlord. And being a busy professional, that's important.
> 
> ...


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## Alexandra (Apr 3, 2009)

*Rental Properties*

One way my husband and I make some money "on the side" is by owning rental properties. We have bought (and sold) a few in the last seven years, and I thought it might be useful to share some of the things we learned.

1) Never make an emotional decision when buying a rental property. Chances are you will not love your rental property. That’s okay - this is not your home…this is like any stock or bond. You need to make the decision to buy with your head, not your heart.

2) Before you make an offer, walk through the place with your contractor so you know what the place will cost you to repair and what you may have to fix/replace in the next few years. 

3) Before you make an offer, create a spreadsheet that breaks down exactly what the place will cost you each year. Work on a “worst case” assumption. This includes the cost of the mortgage, repairs, maintenance, empty units, broken appliances, roofing every 10 years, etc… If you cannot get positive cash flow from the property each month, then do not buy.

4) Bargain hard for the purchase price of the place. Make barely acceptable offers. Be prepared to walk away. Be prepared to end up bargaining for several houses and to keep getting rejected because your offers are too low. That’s okay…you will find something eventually. You are not emotionally invested anyway, right? 

5) Our experience has been that the more rental units in one place, the better. If you have a single-tenant apartment and the tenant is terrible, or the place is empty for several months, you have no income. With a house with several apartments, you are at least getting some cash flow even with a unit or two sitting empty. It is also much cheaper to buy one three-tenant home than three single-tenant properties…you essentially have almost the same cash flowing in each month, but at a much lower purchase price.

6) You need to set aside a lot of emergency money for each rental property. Assume that you will need 6 months of rent, in case you cannot get a tenant. Set aside a few thousand dollars for miscellaneous repairs. Or get a line of credit. You will need it.

7) Assume that you will get at least one call per month about an issue you have to address. Many people think that rental property is hands-free. It is not. If you do not have the time to address issues, you will need a property agent, and this eats into profit. If you want hands-free investments, rental units are not the way to go.

8) Look for a handy tenant. We have one tenant who basically manages our three-unit property for us. He takes care of any small jobs, and has a list of our contractors for any larger jobs. In return he gets a small break on the rent, use of the garage, and use of the backyard to grow produce.

This is getting long, so I will end here. Does anyone else have any tips they would pass on to someone looking to buy rental property?


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## Rickson9 (Apr 9, 2009)

Great tips! Thanks!


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## Adamcg (Apr 20, 2009)

*Started last year*

Hey,
I had some money saved up and was looking for my first property. I was reading about real estate investing and decided to by a multi-unit property to help with the mortgage. I couldn't find any nice triplexes in an area I wanted so I bought a duplex. I found a great tenant within a month of taking possession and it has been great so far. I have had to fix a few problems but with interest rates so low on my variable mortgage my tenant is basically paying my mortgage off while I pay for utilities. 
I also recently purchased a condo, the lowest form of real estate investing as some people say but I think it was just a great investment. All in I will have to pay $10,000 with down-payment and closing costs. I have already rented it out for June 1 and will be making roughly $100 a month off it. That is 12% return-on-investment in just the first year.
Let me know what you think.
Adam


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## Adamcg (Apr 20, 2009)

I also just wanted to say Alexandra's post was really good. All valid points.


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## iamphysio (Apr 4, 2009)

Adamcg
If you have positive cash flow after all expenses (mortgage (PI), taxes, condo fees, insurance, utilities, maintenance budget) I think I'd buy 5 more of those condos if I could! Having positive cash flow is great. 12% cash return on investment is great. Especially when you think that you also have mortgage principle paydown and property appreciation to be factored in that would also make the total return on investment look even better than 12% (likely up to 30-40%). Really nice to have this in a property that hopefully is also low on the PITA (Pain In The A**) factor. Well done.


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## Germack (Apr 4, 2009)

Adamcg said:


> Hey,
> I had some money saved up and was looking for my first property. I was reading about real estate investing and decided to by a multi-unit property to help with the mortgage. I couldn't find any nice triplexes in an area I wanted so I bought a duplex. I found a great tenant within a month of taking possession and it has been great so far. I have had to fix a few problems but with interest rates so low on my variable mortgage my tenant is basically paying my mortgage off while I pay for utilities.
> I also recently purchased a condo, the lowest form of real estate investing as some people say but I think it was just a great investment. All in I will have to pay $10,000 with down-payment and closing costs. I have already rented it out for June 1 and will be making roughly $100 a month off it. That is 12% return-on-investment in just the first year.
> Let me know what you think.
> Adam


Just curious. What are your numbers. Purchase price and monthly rental income?


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## lazy cdn (Apr 3, 2009)

*US filing*

if i as a canadian, bought US real estate, what filing obligations would i be under ?


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## marriosuffy (Apr 27, 2009)

Can you gain your real estate license from the internet and sell real estate in Tenn? I called a real estate company and i didnt ask that question but looked at gaining my real estate license from internet. I know real estate, i have 7 homes that i rent out, but unsure about the truth about online colleges. Please help. Thank you.


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## canabiz (Apr 4, 2009)

Some disturbing stories about tenants here that provide another perspective at owning rental properties

http://www.redflagdeals.com/forums/showthread.php?t=733501


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## iamphysio (Apr 4, 2009)

Canabiz
This is certainly the an extreme perspective of owning rental properties 
I would highly recommend anyone who is looking into buying rental properties to purchase the book "Landlording: A Handymanual for Scrupulous Landlords and Landladies Who Do It Themselves" by Leigh Robinson. I have read quite a few books in preparation for doing it myself and this one has been the best. I am happy to say I have rented property now for 6 years, to 5 different tenants and the worst problem I have had is dealing with a garage door opener that wasn't working (in -30). The best way to avoid problems is to be thorough in your screening process. Read the book and do what it says.


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## Rickson9 (Apr 9, 2009)

iamphysio said:


> Canabiz
> This is certainly the an extreme perspective of owning rental properties
> I would highly recommend anyone who is looking into buying rental properties to purchase the book "Landlording: A Handymanual for Scrupulous Landlords and Landladies Who Do It Themselves" by Leigh Robinson. I have read quite a few books in preparation for doing it myself and this one has been the best. I am happy to say I have rented property now for 6 years, to 5 different tenants and the worst problem I have had is dealing with a garage door opener that wasn't working (in -30). The best way to avoid problems is to be thorough in your screening process. Read the book and do what it says.


Thanks for the book recommendation. I'm always looking to learn more!


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## iamphysio (Apr 4, 2009)

Rickson9 
You're welcome. I believe the 7th edition of the book was more the Canadian edition.


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## alekseyz (May 1, 2009)

FrugalTrader said:


> I'd like to hear from some real estate investors. I have invested in real estate in the past, but have recently sold my last rental property.
> 
> Personally, if you find a good cash flowing property, it can be great for the cash flow. However, land lording is a job in itself and really requires a certain personality to enjoy that aspect of real estate investing.
> 
> ...


I have 3 rental properties. And I am purchasing another one as a pre-construction.

Here are my criteria:
1. Cashflow, each door in the property has to make at least +80. I have 3 duplexes, +180, +238, +340 consistently.
2. Relationships with the team. I am paying my property manager, my handyman and everyone who needs to be in place. If I can't find a team to support the property - I won't buy it.
3. Condition and price. Depends on how much I have cash in my pocket. If a lot then maybe buy a very ugly property and rehab. Done it to one of my property. Bought it 20% below the asking price and put some heavy renovations but now it is a great cashflow (+340).
4. Financing - how am I going to finance it. Big question. Right now, I am pretty full. Soon I will start finding JV partners because I can not finance the new properties.
5. Neighborhood - as long as it is not a drug neighborhood, I don't care.


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## markpropertyinvestment (May 14, 2009)

*Any real estate investors here? Buying Rental Property*

This is certainly the right time to buy rental property in some markets as well invest property also....


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## samthomas (Jun 11, 2009)

markpropertyinvestment said:


> This is certainly the right time to buy rental property in some markets as well invest property also....



Hi,

Which point of view are you telling that this is the right time? I believe that it's because of down economy trend. Isn't it?


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## GeniusBoy27 (Jun 11, 2010)

FT: 

Sorry. This may be the slowest reply on record, but things got busy, I lost my password, blah, blah, blah ...

I didn't start off with a corp, but I'm about to buy a set of commercial properties, where I will start it off with a corp.

Early on, the tax benefits do not equal the benefit of developing a corp. So for 1 or 2 properties, probably not worth it ... when you're getting to my stage, where it's about 8 properties, absolutely ...

I'm going to put a separate post on how people would best structure a corp.


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## Rob_23 (May 29, 2010)

GeniusBoy27 said:


> I'm going to put a separate post on how people would best structure a corp.


Please do, I would be interested to learn





GeniusBoy27 said:


> when you're getting to my stage, where it's about 8 properties, absolutely ...


Would you mine giving us an example of what type or commercial properties you own, or maybe the first one you bought to get into this venture? Maybe some numbers too? For myself and I'm sure others are interested in learning about commercial income properties. Thanks!


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## GeniusBoy27 (Jun 11, 2010)

FT:

So you do have to remember this is Toronto, where property values are a little high.

The first property we bought was a work/live loft place in downtown Toronto. We bought the property with 2 parking spots for $353,000. The current valuation of the property (bought 3 years ago is close to $550,000). So we're talking up front, if I sold now, I'd have made at least $150,000 (after agent's fees, lawyers fees and so forth), but before capital gains.

The key valuation in buying a property (or any property is income generation). I calculated out the cap rate. We figure the going income was somewhere around $3400/month gross, which meant a gross cap rate of around 11.5%, and a net cap rate of 6.8% (after the mortgage costs plus maintenance costs, taxes, insurance, loss rate). That is an excellent starting net cap rate.

Because it had the duel designation, we bought it originally under personal property first, with the mortgage rates under personal property, and moved in for a year, and had the property re-evaluated. That way, we captured the capital gains of about $200,000.

We then bought our current home, and moved out.

We found great tenants, and structured an increasing rate of increase of 5% per year for the first 5 years of the lease (with GST). Plus the rental of the parking spaces, we're essential making $3400/month for the first year, $3550 for the second year, and so on.

The nice thing about commercial property is the fact that you can get extended leases (or at least, it's customary), and you're not rent controlled.

We've purchased office spaces since then, mostly targeted at 2 types of places: 1) either retail space, on streets with high traffic; or 2) medical/professional office space. The key like any rental property are good tenants. And we have excellent tenants.

The bottom line though is looking at net cap rates above 6% is where I start, and it takes time to look and research this out. It helps to have a good real estate agent, to find properties not just on MLS, but to find especially distressed properties that you can buy for under value.

All our properties have been cash flow positive from the start and I think that's the key.


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## envision29 (Jun 17, 2010)

*Investment options*

I was hoping someone can point me at the right direction. I am very new at investing and only planning to start it. My situation is simple: I bought a brand new condo 5 years ago for 150K with 10% down. I now have 110K left on my mortgage. I estimate the value my condo at around 200-210K right now. So by using the equity in my condo I should I expect to have from 60 to 80K for the down payment of my investment property. I have absolutely no experience in being a landlord and/or doing maintenance. Also I don't have any cash in reserve for repairs. I still haven't made my mind as to what rental propert should I buy. I have a couple of options: 
A. Buy an old triplex around 300K (maximum I can borrow with my downpayment) and use a higher rate mortgage (tax deductible anyways) with cash back option (to have extra in case of repairs)
B. Buy a brand new condo around 250-300K in the area of high appreciation 
C. Buy a brand new triplex around 600K in the area of high appreciation with a partner who may put 300K down payment in cash. According to him, with so much cash down banks should provide a very good rate. Also, he suggested for me to open a corporation to buy this property and save on GST/HST. Obviously his name would figure on the contract as well. This idea seems very interesting to me since owning even half of such a huge asset in an area of high appreciation may turn out to be very beneficial in a couple of years. Also I would never be able to afford this by myself. There's a company that finds people to lease your place, they do credit check and so on, so by the time the triplex is built you don't need to seach for tennants. The rent from tennants would be half/half but unlike him I would have to pay off my mortgage. 
One of the greatest benefits of buying a new residential investment is that everything is under warranty for 5 years and you don't need to do any maintenance.

Any thoughts ?


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## GeniusBoy27 (Jun 11, 2010)

The key isn't the value of the property, it's the amount of income coming in, so it's hard to comment.

If you're buying new properties, you do have to pay the GST, so that would be the downside of your warranty, and you also can't use all the equity in your condo (you could use 80% ...), so the amount that you have to play with is a little less.

To be honest, that situation is semi-risky, because you're leveraging with no leeway for bad things to occur. So I'd be a little more risk averse in this situation, but that's me.


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## Berubeland (Sep 6, 2009)

envision29 said:


> I was hoping someone can point me at the right direction. I am very new at investing and only planning to start it. My situation is simple: I bought a brand new condo 5 years ago for 150K with 10% down. I now have 110K left on my mortgage. I estimate the value my condo at around 200-210K right now. So by using the equity in my condo I should I expect to have from 60 to 80K for the down payment of my investment property. I have absolutely no experience in being a landlord and/or doing maintenance. Also I don't have any cash in reserve for repairs. I still haven't made my mind as to what rental propert should I buy. I have a couple of options:
> A. Buy an old triplex around 300K (maximum I can borrow with my downpayment) and use a higher rate mortgage (tax deductible anyways) with cash back option (to have extra in case of repairs)
> B. Buy a brand new condo around 250-300K in the area of high appreciation
> C. Buy a brand new triplex around 600K in the area of high appreciation with a partner who may put 300K down payment in cash. According to him, with so much cash down banks should provide a very good rate. Also, he suggested for me to open a corporation to buy this property and save on GST/HST. Obviously his name would figure on the contract as well. This idea seems very interesting to me since owning even half of such a huge asset in an area of high appreciation may turn out to be very beneficial in a couple of years. Also I would never be able to afford this by myself. There's a company that finds people to lease your place, they do credit check and so on, so by the time the triplex is built you don't need to seach for tennants. The rent from tennants would be half/half but unlike him I would have to pay off my mortgage.
> ...


*First of all the word on the street is that property prices are going down.

Second You say you have no experience being a landlord. This troubles me because when you buy real estate you are buying a second business. In effect you are buying the building to house your second business which is providing housing to tenants. If you were buying a building to open a restaurant wouldn't it be prudent to actually know something about running a successful restaurant? There is no doubt you will learn but there is no need to learn the hard way. Pick up a book or two about property management first. 

Third when you buy a property "in an area of high appreciation" you are speculating on the real estate market going up. SPECULATING. This is very unwise in our current market. 

I don't mean to be negative, I believe that real estate is a good way to make money. Stocks are also a good way to make money. Does this mean that every stock is a good investment? No way! 

So please for your own sake pick up a few books on how to select real estate using the income to pick which one is a good investment. 

A good book with solid advice is Don Campbell's Real Estate Investing in Canada if you can stomach the anecdotal way the book is presented along with the many sales pitches on the REIN network. 

I don't recommend the REIN network because it's expensive and it's where all the sharks gather to take advantage of the naive new investors. 

As a new investor you have a giant bullseye on you and people will try to take advantage of your naivete to sell you crap. 

One final tip - YOUR INVESTMENT PROPERTY MUST PAY YOU. I cannot stress this enough. 

Next week sometime there is a post going up on www.milliondollarjourney.com called Landlord Math. It describes a couple ways of calculating the value of property. You will need it in your search. Please go read it. 



*


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## Cal (Jun 17, 2009)

envision29 'A. Buy an old triplex around 300K (maximum I can borrow with my downpayment) and use a higher rate mortgage (tax deductible anyways) with cash back option (to have extra in case of repairs)
B. Buy a brand new condo around 250-300K in the area of high appreciation
C. Buy a brand new triplex around 600K in the area of high appreciation with a partner who may put 300K down payment in cash. According to him, with so much cash down banks should provide a very good rate. Also, he suggested for me to open a corporation to buy this property and save on GST/HST....One of the greatest benefits of buying a new residential investment is that everything is under warranty for 5 years and you don't need to do any maintenance.'

My thoughts...

A. I would be hesitant to do that, as you will definitely have some repairs, possibly major, and you seem to have no experience with that. Also, the comment about wanting to pay a higher interest rate b/c it is tax deductible is foolish. The numbers on that will not make sense. You are trying to make a profit, not a loss.
B. sounds like speculation, plain and simple, no research
C.Buying a property with someone, in the event of a job loss, bankruptcy whatever, you are still on the hook for the full amount. This is why I don't like to buy property with anyone else.

Don't go to a bank for a good rate. Go to a mortgage broker.

For one investment property a corp will probably not be beneficial. I am sure once you talk to your accountant about it they will bring you to the same conclusion.

You should check the Tarion website regarding warranties. 1 year for most interior things, 2 years for external leaks and such. A new place will always have even minor cracks from the property settling and such, so minor plastering will normally have to be done periodically.


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