Newbie needs help

[younginvester]

Hey all,

I'm 26 years old and looking for some investing tips.
I currently own a house in Gores Landing in which has greatly appreciated with everything else to the east of the GTA. I owe 175,000 on it and my real estate agent says it could go for 300 to 330,000 range. Now I want to get some rental property but its to inflated in my area.
My question is what is the better play. To sell the house I own and take my profits an hour east of my current area to the Trenton area where I can buy a triplex for 350,000. Or keep my house in Gores Landing and buy a second single family home in the Trenton area, where they are going for 140,000 to 170,000?

 

[Thomas Beyer]

Real estate has very high transaction costs i.e. legal fees, realtor fees, mortgage penalties, land transfer taxes, income or capital gains taxes (if an investment property), moving costs etc. As such, keep that to a minimum.

Some discourse on the agony and the ecstasy of real estate, i.e. the age-old question of "to sell or to refi ?" is here http://blog.reincanada.com/sell-or-refinance-the-agony-and-the-ecstasy

Specifically, in your case, it means if you like the area where you live AND like to stay AND can afford a higher mortgage AND the bank will give you one consider refi (or at least get a line-of-credit) and invest the net proceeds elsewhere, for example locally or an 1h away if there is upside.

Also invest in your non-real estate career, both time and money, as real estate investing is meant to be part-time as a networth enhancer and not necessarily as a career itself.

Other "how to get started" discussions / insights here: http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/ ..

 

[younginvester]

Thanks for the info Thomas. Basically it really doesn't matter to me where I live, i'm just looking for upside. It will add some commute time to work. The only thing i'm worried about is if I leave the more expensive market, one which I got in before it really inflated I wont get back into it.

Jordan

 

[Alvaro Sanchez]

If you are planning on returning to the area later on then don't sell. Speak to a mortgage broker and see if you can get some equity out from current property and use that to buy a small plex in Trenton. Say, If 50k equity pull out is not enough then find a JV partner with another 50k for a 50/50 arrangement to buy an income property in Trenton (or same area). Try to keep the house without being too over-leveraged.

 

[Matt Crowley]

To add my two cents, everyone in Toronto who rode that wave up is going to be riding that wave down, real estate is a terrible hedge against bad consumption outcomes. When real estate prices go down, rents go down, job prospects go down, vacancies go up, property values go down.

I would get money out of Toronto if you are feeling like you have extra cash right now. It has all the signs of an overheated market. Yes, if people are willing to pile on top of other people in rental apartments rents can keep going up but price to rent ratios are generally totally whacked.

Run the numbers very, very carefully. Real estate is an equity trap if you don't plan to hold long, long term. Disposition costs are ~10% of asset value for new purchases once you factor in Realtor, closing costs, and interest penalties, more if you have CMHC fees. What about maxing out your TFSA and buying a REIT? You will probably take home more cash in the end.

 

[Thomas Beyer]

... What about maxing out your TFSA and buying a REIT? You will probably take home more cash in the end.

A TFSA (nor RRSP) doesn't allow leverage. One of the core benefits of REAL estate is to borrow at sub 3% up to 80% loan to value (LTV) and invest it at higher than 5 or 6%.

The trick i.e. the point of this post is to find assets that yield well over 6% ... and to get a mortgage.

 

[younginvester]

I do have a friend interested in doing a JV. Is their a structure to follow when working one of these deals to make sure your both on the same page.?