Advice for beginner

[MehradK]

Hi,



My name is Mehrad and I am new to investment in real state. I was a University of Waterloo student (in Ontario) and recently graduated. I was thinking about purchasing a property in Waterloo for investment. Knowing that Waterloo is filled with students and there is a lot of demand for rental properties, I was looking at buying a small apartment in Waterloo and make some money.

I know that pre-construction sale of condos is a hot in Toronto, ON, but in Waterloo is seems that people are not that comfortable with the idea. I say this because I found an investment opportunity in this area and wanted to seek your guidance.



This property is in its early stages of pre-construction sale so I think I may be able to get a good deal. Its called SAGE III and they are only making one bedrooms (between 800 - 1000 sf). They are asking for $250 k ( $55k is paid before construction in distributed payments) and will be ready in May 2015. Based on what they claim, they can rent the place for $1250/month ($15000/year). For those who know the city, this project will be in 62 Balsam st (which is very close to the university).



I was wondering if this is a good investment idea and if you think I should even consider this opportunity.

Many thanks,

M

 

[GaryMcGowan]

There are some great Waterloo experts on the forum. Be patient and they will chime in. In buying pre construction condos there is a lot of homework to be done. One of which is are you ok with have 55k locked into an investment and not returning any money for a few years? Most around here would say no.

Next are you looking at 1 bedroom or 2 bedrooms? Min 2 in my opinion.

Have you talked with a Mortgage Broker that understands investment real estate?



Three questions I always ask myself when looking at properties are;

How am I going to buy the property?

How can I add value on day one to the property?

How can I sell the property?



From there you can figure out where to go with your plan.

 

[Sherilynn]

I know many investors (myself included) that won't touch preconstruction. You would be putting up $55k for 2 years with no return, hoping that the price will be higher when the build is complete.



It is a huge gamble.



Why not take that same money and find a property that has already been completed?

 

[Thomas Beyer]

What else can you buy for $250,000 today in Waterloo ? 1250/ month for 8 or 12 months of the year ? With condo fees of $250 a month and property taxes another $150 or so, plus 10% management fee is there enough margin assuming it is tough to rent all year to students ? Better would be two BRs, both from a resale and rental point of view.

 

[MehradK]

Thanks for your reply Sherilynn. I would have to give the $55k in the following payment intervals, (not at once)

$5k on signing,

$5k in 30 days

$10k in 90 days

$10k in 180 days

$10k on sep 2014

$15k on occupancy.



One of the reasons I am interested in this kinda investment is that I don't have to pay a very big chunk at the beginning. for instance down payment for mortgage. I mean what other option is there without putting $50k at once? in terms of investment in real state.

 

[Sherilynn]

I understand your point. However, is the extra risk worth it???

 

[invst4profit]

Condos are generally priced too high in relation to the rental income available to ever make any real money.

$1250/month on a $250,000 property is a terrible rent to value ratio.

In my opinion a very poor investment as a income property.

 

[Anonymous]

Investing in property such a fair deal. Property always give you profit. Without any hesitation jump in to this. You you know the future opportunity to earn money go for that.

 

[Sherilynn]

[quote user=coloradosprings] Property always give you profit.





I think anyone who has owned investment property would disagree. Poorly-chosen property or lack of preparation can lose money. I have seen a few real estate investors bankrupted by paying too much for properties and/or over-leveraging those properties.

 

[Rickson9]

Terrible investment.

 

[moparcanuck]

[quote user=invst4profit]Condos are generally priced too high in relation to the rental income available to ever make any real money.



$1250/month on a $250,000 property is a terrible rent to value ratio.



In my opinion a very poor investment as a income property.





I have to second this. I don't invest in Ontario, I'm more a central Alberta kind of guy. $1250 is right around my price point for rent, but I'm usually buying properties just under $200,000 for that, with no condo fees.

 

[MehradK]

Thanks a lot for your feedback.

M

 

[Thomas Beyer]

[quote user=MehradK]

One of the reasons I am interested in this kinda investment is that I don't have to pay a very big chunk at the beginning.


Real estate requires a serious commitment of

• 
  initial time: to find assets that make sense in locations that make sense & building a team (realtor, lawyer, accountant, property manager, mortgage broker)
• 
  knowledge: of where to buy, where not to, how to manage your property once owned, how to get mortgages, how to find JV money, how to treat people
• 
  ongoing time: to manage asset
  
  cash: to close and as a reserve for cash calls
  
  credit: access to cash for a mortgage / credit worthiness
  
  mental fitness: ability to stomach set backs that will happen from time to time such as vacancies, bad tenants, unexpected cash calls, market declines or interest rate increases

You can make serious money in real estate, but only if you are serious about those six areas. Are you ?



It appears you are not ready for real estate yet.



Hence, try the stock market flavour of it: a REIT.

[quote user=MehradK]I mean what other option is there without putting $50k at once? in terms of investment in real state.
Another option is to buy REIT units, or the capped REIT index XRE.



There are over 20 REITs to chose from in Canada, over 200 in the US.



You may do better with your own real estate, but you may not. REITs are liquid, pay a distribution of around 4%, but are as volatile as the stock market and as such not as "real" as real estate but close to it for a novice that is not yet ready to commit into the 6 areas described !

 

[MehradK]

Thanks a lot. Great feedback.

 

[housingrental]

I currently manage 62 Balsam in Waterloo.



Do you currently own the place you live in?

 

[bennyskywalker]

[quote user=housingrental]I currently manage 62 Balsam in Waterloo.



Do you currently own the place you live in?




This is a great idea - consider buying a duplex and renting out one of the units and living in the other. You can figure out if you like being an investor and working as a property manager. The plus side - someone pays your mortgage or part of it for you. In the future you can move out - and now you have a duplex with a couple of tenants.



If you buy pre-construction - would you know if you are allowed to rent the unit out? Some condos don't allow that. A lot may change in a few years while you wait for your pre-construction - and the ability to unload it.