Oh man! :(

DOZAH

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Nov 2, 2008
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#1

Asking price $235,000
Purchase price $225,000

Downpayment 18% - $40,500
closing costs - $4500
Total cash investment - $45,000

Mortage amount $184,500

Monthly gross rent $1800

expenses
Taxes $150
Insurance $70.83
Maintenance (15% of rent) $270
Propert mngmnt $198
Vacancy fund (5%) $90
Heat $144.27
Hydro $160

Total expenses $1083.10

Net monthly rent $716.90

Mortgage (P+I) $557.91

Positive monthly cashflow $158.99

Cash R.O.I. 4.24%

Monthly principle recapture $253.99

TOTAL ROI (with recapture) 11.01%



Hey all,

Above are actual numbers from a property I puchased in April 2008 at the height of the Saskatoon speculation boom and yes I`m one of those clowns who got in at the height just before the worlds economy took all it`s hits. It`s a 2 bedroom bungalow with a legal 1 bedroom basement suite.
Obviously I made this purchase before I was introduced to the REIN cashflow system. I bought this property on speculation.
My property is now worth between $180,000 - $195,000. Considerably lower than the $225,000 I purchased for.
The only reason I`m cashflowing is because my mortgage rate is currently 2% (prime -0.25) with a 40 year ammort.

I stress tested the property and added 3% to my interest rate. So at a 5% interest rate I have a negative monthly cashflow of approx $170 per month.

I don`t know what to do!? I can`t sell right now becuase it`s not worth close to what I paid for it. Should I ride it out for a few years?
What would ya`ll do? UGH! HELP ME PLEASE!!

I own 4 properties in Saskatoon and the situation is the same on all of them.

Thanks for all input guys, however harsh it may be.
 

MonteDobson

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Oct 7, 2007
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Regina, SK
#2
Your properties are cashflowing OK at current interest rates, but your rents appear to be quite high...is that sustainable?

I would hold out if you can as they are not costing you anything right now. Your tenants are paying down your mortgage every month and values will go up, in time, but be prepared to hold for a number of years to get back to your original purchase price or higher.

Real estate is a LONG TERM game, don`t worry about these short term "blips". As long as you buy for cashflow (which it appears you did), you will end up doing OK over the long run. Although, it appears your cashflow is a bit "skinny" on these properties.
 

ThomasBeyer

Senior Forum Member
REIN Member
#3
QUOTE (DOZAH @ Oct 11 2009, 04:26 PM) ..

I don`t know what to do!? I can`t sell right now becuase it`s not worth close to what I paid for it. Should I ride it out for a few years?
What would ya`ll do? UGH! HELP ME PLEASE!!

I own 4 properties in Saskatoon and the situation is the same on all of them.

Thanks for all input guys, however harsh it may be.
RELAX

Assuming they are rented and rentable with relatively low vacancy you WILL BE OK.

Why sell ?

Wait .. and in a few years you will look like a genius ..

I also assume these are 5 year mortgages .. so you have 4 year until re-fi as THEN it could get ugly if the value is not at least flat in 4 years ..

BUT: you are paying the mortgage down by about 10% in 5 years to about 166K ... or 22% in 10 years to about 145K .. or 100% in 25 years .. so assuming break even cash-flow in 5 or 10 or 15 years you will have made CONSIDERABLE money just on the mortgage paydown even in a completely flat market (unlikely of course that Saskatoon`s prices are the same in 2018 as they were in 2008 ..)

Thus: RELAX .. and ensure that they are rented .. rest will happen in due time !!

Patience young man .. patience !!

Real estate is not a "get rich quick scheme" .. it is a "get rich for sure scheme" if set up properly such as positive cash-flow properties.

Even with 0 cash flow in a completely flat market you can make a very decent ROI .. very decent !!
 

Nir

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Dec 5, 2007
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#4
QUOTE (DOZAH @ Oct 11 2009, 05:26 PM)
Maintenance (15% of rent) $270


Relax - 15% is not a representative number. perhaps you had higher expenses in the beginning however first year of ownership does not represent the rest. your maintenance and repair cost is expected to be half, around 7-8% on an average month. now smile
 

MonteDobson

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#5
QUOTE (investmart @ Oct 11 2009, 09:47 PM) Relax - 15% is not a representative number. perhaps you had higher expenses in the beginning however first year of ownership does not represent the rest. your maintenance and repair cost is expected to be half, around 7-8% on an average month. now smile

Good point...between repair, maintenance and vacancy, he is factoring in 20%...which provides a very good cushion in my opinion. He should keep building the reserve fund to balance off either a potential reduction in rents (which seem excessive to me for Saskatoon), repairs, and/or eventual increase in interest rates.

Another thing I would suggest is to get the utilities into the tenants names ASAP. You will get lower rent, but have more CONTROL over your expenses!
 

Thorin

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Aug 28, 2009
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Saskatoon, SK
#6
I am just researching REI and have not yet got any properties but I have lived in Saskatoon for over 12 years and in the last 2 years or so we have had quite an increase in population. Also our rental vacancy rate is around 0 % and people are having a hard time finding places to rent. That being said you definitely have to research your potential renters here because there are a lot that will take advantage of you and also could end up totally destroying your properties and there are also many who will take care of everything for you including small fixes. I would keep the properties because the market has leveled off and there is a huge amount of industrial construction going on in Saskatoon. We also had one of the largest job creation rates in Canada in 2008-2009 at 8000 new jobs being created. I am not sure what area your properties are in but 3 bedroom houses in decent areas of Saskatoon have a price of about 220 to 250K according to our realtor. They are a little longer on the market but they are selling just a bit slower.
 

invst4profit

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#7
I would likely try to hold out until the term of the mortgages are up for renewal. By then I would most likely be sick and tired of taking care of 4 properties with very little positive cash flow and definitely be looking at selling all 4 if property values are high enough to break even or make a small profit.
Tough it out. There may be times you go negative due to vacancies etc. but there will be light at the end of the tunnel.
 

AndyLuchies

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Sep 14, 2008
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#8
QUOTE (thomasbeyer2000 @ Oct 11 2009, 10:47 PM) Real estate is not a "get rich quick scheme" .. it is a "get rich for sure scheme"

Excellents words Thomas, I will be borrowing them incessantly...and, of course, attributing them to you.
"A very wise man once said...."

Have you written a book yet, or will you be eventually?
 

RedlineBrett

Senior Forum Member
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Oct 24, 2007
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Calgary
#9
Definitely agree with Thomas.

Your only real option is to manage your properties impeccably and keep them cashflowing and wait it out. Time heals all wounds in real estate.

MANY rein members (yours truly included) purchased property that is worth less now than when they bought... but very few are worried because they are following the systems and are minimizing their risk by keeping the rents flowing.

If you want to reduce your risk even further you could try selling on a rent to own and get a good sized deposit from prospective tenant/buyers but this is tough to do.
 

ThomasBeyer

Senior Forum Member
REIN Member
#10
QUOTE (jessandy @ Oct 12 2009, 07:43 AM) Excellents words Thomas, I will be borrowing them incessantly...and, of course, attributing them to you.
"A very wise man once said...."

Have you written a book yet, or will you be eventually?
Thanks .. note that I also added " .. if set up properly" ..

Yes, book writing is in process along the lines of
"80 lessons learned on the road from $80,000 to $80,000,000" ..

looking for a way to post chapters for feedback .. any ideas ?
 

Nir

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#11
QUOTE (invst4profit @ Oct 12 2009, 06:24 AM) By then I would most likely be sick and tired of taking care of 4 properties with very little positive cash flow.

Exactly! that`s the biggest issue buying little positive cash flow properties.
 

JoefromTO

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#12
QUOTE (investmart @ Oct 12 2009, 12:50 PM) Exactly! that`s the biggest issue buying little positive cash flow properties.

If your really worried...use some of the positive cashflow towards the principal. There`s nothing wrong with paying down debt. Your using your cashflow to create security...which is what your worried about. This will help you relax.

In five years, your debt will be lower. Otherwise, just bank enough to take care of potential vacancies/repairs/unexpected stuff.
 

invst4profit

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#13
If in fact you do see any positive cash flow it would be best if you save every dollar in your emergency fund rather than lock it up in the mortgage..Paying down a mortgage to save 2% is not money well invested.
Your savings will then carry you through any major expenses that you will inevitably see in the next few years. It will help to relieve the money stress.
 

VicChung

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#14
QUOTE (invst4profit @ Oct 12 2009, 11:58 AM) If in fact you do see any positive cash flow it would be best if you save every dollar in your emergency fund rather than lock it up in the mortgage..Paying down a mortgage to save 2% is not money well invested.
Your savings will then carry you through any major expenses that you will inevitably see in the next few years. It will help to relieve the money stress.

I would concur with everyone: Build your cash reserves and pay down debt if you are worried that the property`s value is less than the market value. Look at ways to reduce your costs? Be aggressive in your lease renewals so that the property does not stay vacant, watch your costs (if you only have a few properties, why not manage the property if you have time). This will increase your cash flow and reserves. Insurance seems quite high, may be lowering your insurance costs?

Thomas, I cannot wait for the release of your book. I always learn from your presentations, your posts and your viewpoints on different topics. When is the book available to the public?
 

TodorYordanov

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Oct 10, 2007
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#15
QUOTE (thomasbeyer2000 @ Oct 12 2009, 12:18 PM) Thanks .. note that I also added " .. if set up properly" ..

Yes, book writing is in process along the lines of
"80 lessons learned on the road from $80,000 to $80,000,000" ..

looking for a way to post chapters for feedback .. any ideas ?


Thomas, how about a blog or mail it to select REIN members list. I`d love to get your book as soon as it comes out.
I am sure it`ll will be worth its weight in gold.
 

ThomasBeyer

Senior Forum Member
REIN Member
#16
QUOTE (VicChung @ Oct 12 2009, 11:21 AM) Thomas, I cannot wait for the release of your book. I always learn from your presentations, your posts and your viewpoints on different topics. When is the book available to the public?
sometime in 2010 .. but some thoughts / chapters are on the link in my footer !

generic lessons first .. more specific in progress / being typed as we speak ..
 

JoefromTO

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#17
QUOTE (invst4profit @ Oct 12 2009, 01:58 PM) If in fact you do see any positive cash flow it would be best if you save every dollar in your emergency fund rather than lock it up in the mortgage..Paying down a mortgage to save 2% is not money well invested.
Your savings will then carry you through any major expenses that you will inevitably see in the next few years. It will help to relieve the money stress.

Depends. If you have the mortgage that has the line of credit built in, you could still pay down some debt AND be able to access those same funds through the line of credit...kinda of win/win. The key here is... you have access to the funds IF you need them...but IF you don`t, then your reducing your debt. Then when the mortgage term is up in 5 years, you have reduced your debt, and built up equity...

So depending on the interest rate and the amount of mortgage outstanding, you could have better cashflow, reduced your overall debt and not be so worried about straining through the tough times.

If you don`t have this type of mortgage, then banking the funds would be wise. However, if at the end of each year, you find that you have a more than you need in the account, you could make a small lump sum towards the principal while still keeping some in the bank account.

So it really comes down to wether or not you need the cashflow to live. I suspect you don`t because if you did, you probably wouldn`t have purchased these properties to begin with...meaning you would have looked for better cashflow, or put more money down initially, etc.

One way or another, you need to bank some money to prepare in the event you have a financial problem. Wether the storm and you will come out ahead.