Any downside to my strategy?

[mar]

QUOTE (invst4profit @ Mar 19 2008, 09:05 AM) That is not exactly as I see cash flow.

The amount you pay down is not part of the calculations to figure
your cash flow. When a property requires the morgage to be paid down
to realise positive cash flow (or increase cash flow) what you are really
doing is tricking yourself into believing it is positive when in fact it is not.
This is what I call "forcing cash flow". Remember any cash you put down
is money that could be invested and earning income elsewhere. You can
play with things like ROI, to generate a warm fuzzy feeling, but the only
thing that really matters to me is how much cash is in my pocket at the
end of the month. I have not yet figured out how to pay my monthly bills
with equity. Keeping in mind I am a small investor with a family to support
not some huge corporation.

I always calculate a properties cash flow based on the cost of dept
servicing assuming the property is financed at 100%. I evaluate a
potential property purchase from that perspective.
Assume 50% monthly expences, financing 100% what would the cash flow be.
Assuming I see $100/door/month I investigate the property.

Could you please expand on the "50% monthly expenses"? 50% of what?

Thanks in advance

 

[Dejavu]

QUOTE (dwb @ Mar 19 2008, 10:23 AM) Fantastic points.If I could add, similarily using up cash that could be invested to make lump sum payments to mortgages is NOT a particularily wise thing to do in creating wealth.

Much like the person "forcing cash flow" (as `invst4profit` so perfectly describes it) those that make big lumpsum payments to try and get out of their mortgages are in fact decreasing THE BANKS risk not THEIR risk, contrary to widespread public opinion.

Why? If God forbid if the bank has to foreclose on that property, then by making large extra payments they have built up a comfortable cusion of equity thanks to the responsible client. But the responsible client loses this hard earned and hard worked for equity in the foreclosure process. Also, if there is a high mortgage on the property the bank would be more willing to work with the client to resolve the situation as they the bank is in a risky position.

Furthermore, for investment properties, why not have as much tax-deductible mortgage on the property and concentrate efforts instead on reducing non-deductible debt like principle residence mortgage or further investing that extra cash?

Every dollar that is sunk into a mortgage is a dollar returned to the bank and thus a dollar that could have instead been invested for wealth creation.

So add the lumpsum payment/extra payment idea to invst4profits "forcing cashflow" points in that putting down a ton of downpayment as a faulty strategy in wealth creation. Even though the public generally thinks of it as a wonderful strategy.

And don`t get me wrong there`s an awful lot of people that believe its a great strategy... responsible behaviour as a mortgage holder, yes, but a great way to generate wealth? NO!:
http://www.globeinvestor.com/servlet/story...hc0319/GIStory/

All great points, DWB!

What are everyone`s thoughts on making the mortgage on the principle residence tax deductable by borrowing equity from the principle residence to finance investment property?

i.e. instead of saving a downpayment for the investment property in a savings account, put this money as a prepayment against ones principle residence mortgage. When ready to buy investment RE, refinance the principle residence mortgage and take out equity to be used as downpayment for the investment property. As a result, part of the principle residence mortgage is now tax deductable and since there is a good downpayment on the investment property, it cashflows.

Thanks!

 

[invst4profit]

Through hundreds of thousands of rental properties studied it is showen that
50% of your rental income will be spent on expences.
Repairs, maintance, vacancies, advertising, evictions, taxes, insurance, management,
legal, etc.
The remaining 50% pays your morgage and/or is return on cash investment. What is finally
left after all that is your positive cash flow.

 

[alainafraser]

My number one reason I recommend joining REIN is that you will be totally confident in the decisions you make. Since joining REIN, my husband and I have purchased four properties and are in the process of closing a 5th. We personally are focused on the equity growth, but on a JV deal, we are generally getting $400 to $500 in cashflow off the getgo.

When we first contemplated joining REIN, we thought it seemed a bit weird, but based on the real value we got out of reading Real Estate Investing in Canada, we also decided to take the plunge. We have never looked back and recommend it as a true forum for learning, support, networking and getting the REAL DEAL on the news. It is invaluable. the $200 a month is more than worth it. GO FOR IT!!!

 

[Thomas Beyer]

QUOTE (willy @ Mar 16 2008, 12:30 AM) http://www.cmhc-schl.gc.ca/en/hoficlincl/m...0Properties.pdf

7.25% seems a bit high to me.


0% CMHC fee @ 80% leverage .. so 7.25% premium for the remainign 20% .. or over 1/3 of costs borrowed .. yes this is high .. but is a function of risk !

usually 100% financing provides negative cash-flow .. but has the highest cash-on-cash ROI IF the market is going up !!!!

OK to have some speculative deals in your portfolio .. but not too many !!

 

[dwb]

QUOTE (thomasbeyer2000 @ Mar 24 2008, 05:58 PM) 0% CMHC fee @ 80% leverage .. so 7.25% premium for the remainign 20% .. or over 1/3 of costs borrowed .. yes this is high .. but is a function of risk !

usually 100% financing provides negative cash-flow .. but has the highest cash-on-cash ROI IF the market is going up !!!!

OK to have some speculative deals in your portfolio .. but not too many !!

Great points.

And great to remember "OK to have some speculative deals in your portfolio... but not too many !!"

Still the best way to get 100% financing is having mortgage broker put a second mortgage on one property to make up the 20% downpayment for another new property purchase at 80% LTV. This bypasses CMHC and their fees altogether...

 

[ahuynh]

QUOTE (alainafraser @ Mar 24 2008, 04:41 PM) My number one reason I recommend joining REIN is that you will be totally confident in the decisions you make. Since joining REIN, my husband and I have purchased four properties and are in the process of closing a 5th. We personally are focused on the equity growth, but on a JV deal, we are generally getting $400 to $500 in cashflow off the getgo.

When we first contemplated joining REIN, we thought it seemed a bit weird, but based on the real value we got out of reading Real Estate Investing in Canada, we also decided to take the plunge. We have never looked back and recommend it as a true forum for learning, support, networking and getting the REAL DEAL on the news. It is invaluable. the $200 a month is more than worth it. GO FOR IT!!!


Hi

I`m just starting out but of the properties we looked at so far, it`s quite hard finding any positive cashflow properties. I am curious as to how you are able to get $400-$500 in cashflow off the getgo? Does it depend on where you`re looking? Are you self-managing those properties?

Thanks
Alex

 

[davidd101]

Hay my name is David and im a realtor in Brampton, Ontario and yes your right its a great plan, but were are you getting the 8% roi and cash flow numbers. Ive been using Dons system and found properties generating 3-5 Hundread dollars a month with 20% down