Owner/rental based property?

[BradHillier]

Hi REIN members, anxiously waiting for my membership joining kit from REIN, i should have it this coming week. I can`t wait to join REIN!

I hope to attend March`s seminar in Edmonton, living in Grand Prairie.

Anyhow, i like to know if i can actually purchase a home and rent out rooms of the property to break even with my mortage payments.

eg.

A property that had a basement suite which i could live in and i rented the upper level of the property. For instance, 3 bedrooms.

Does anyone have any experience and/or advice on this scenario?

Thanks,
Brad

 

[Sherilynn]

Greetings Brad.

Unless you are renting rooms seperately (ie. to individual students or workers) then it is difficult to have your mortgage completely covered by basement renters. Have you considered living in the basement suite yourself and renting out the upper suite? It is easily possible to have your mortgage completely covered with upper suite rental. Then you would just need to pay the taxes, insurance, maintenance, etc. out of your own pocket (all should be partially tax-deductable providing you claim the rental income).

Renting your own basement suite is a great way to save money.

Good luck.
Sherilynn

 

[GarthChapman]

Hi Brad,

Welcome to REIN!

Your concept is a great way to start. Many investors began by doing just what you are contemplating. You will probably find renting by the room to be more work, but it will normally generate more cash. Living in the basement suite and renting the main floor should probably get you close to break-even in most cities - in Grande Prairie you may well be in the black.

Hope to see you at an Edmonton meeting soon.

 

[BradHillier]

QUOTE (Sherilynn @ Jan 14 2008, 10:47 AM) Greetings Brad.

Unless you are renting rooms seperately (ie. to individual students or workers) then it is difficult to have your mortgage completely covered by basement renters. Have you considered living in the basement suite yourself and renting out the upper suite? It is easily possible to have your mortgage completely covered with upper suite rental. Then you would just need to pay the taxes, insurance, maintenance, etc. out of your own pocket (all should be partially tax-deductable providing you claim the rental income).

Renting your own basement suite is a great way to save money.

Good luck.
Sherilynn

That`s what i was thinking Sherrilynn, occupying my basement amd renting the upper level.

 

[BradHillier]

QUOTE (GarthChapman @ Jan 14 2008, 11:35 AM) Hi Brad,

Welcome to REIN!

Your concept is a great way to start. Many investors began by doing just what you are contemplating. You will probably find renting by the room to be more work, but it will normally generate more cash. Living in the basement suite and renting the main floor should probably get you close to break-even in most cities - in Grande Prairie you may well be in the black.

Hope to see you at an Edmonton meeting soon.

I hope to see you soon in Edmonton too!

I can`t wait to join REIN.

Even to be in the black alittle would still be pretty good. Beats the cost of rent and your actually building equity, right?

 

[RobMacdonald]

Hi Brad,

Not a bad way to start on the path of real estate investing. I agree with Garth, renting by the room will bring more cash, plus more headaches. Not to mention, qualifying at a bank. A bank will not allow rental income from rental of individual rooms, but they will recognize rents from self contained suites.

Good luck!

 

[BradHillier]

QUOTE (RobMacdonaldCMT @ Jan 15 2008, 01:01 AM) Hi Brad,

Not a bad way to start on the path of real estate investing. I agree with Garth, renting by the room will bring more cash, plus more headaches. Not to mention, qualifying at a bank. A bank will not allow rental income from rental of individual rooms, but they will recognize rents from self contained suites.

Good luck!

Thanks Rob and Garth. It seems from MLS that Grand Prairie doesn`t have a whole lot of properties for sale, that includes a basement suite below 200K. That said, i haven`t really went outside the papers and online ads.

I`ve seen a few 3brm properties renting for $1600/mth plus utilities. Using the %10 filter that would give me about a $190K purchase price - if i stayed in the basement with the upper level having 3brms. I believe anyways, its been awhile since i read Don`s book and its now up off Greenland/Artic somewhere with my father, he`s on a fishing vessel.

Is it reasonable to get a property that contains 2 or more units that i can stay in the black? While living in the smaller and/or lowest rental potential unit? If not how would this affect my future investment opportunities?

I`m still waiting for the REIN package! I should of went to a public library to print off the forms.

Edit: I`m assuming in the "Black" means profit? Seems like this little business slang has me confused.

 

[GarthChapman]

Hi Brad,
If you can buy at the 10% factor these days in Alberta you are doing very well, and should easily be positive cashflow with both units rented. So if you live in the smaller suite you will have a very low cost of accomodation, and the banks will like the resulting numbers, leaving you more room to borrow for more rental properties. And yes, in the `black` means profitable.

Hope that helps,

 

[BradHillier]

QUOTE (GarthChapman @ Jan 15 2008, 11:08 PM) Hi Brad,
If you can buy at the 10% factor these days in Alberta you are doing very well, and should easily be positive cashflow with both units rented. So if you live in the smaller suite you will have a very low cost of accomodation, and the banks will like the resulting numbers, leaving you more room to borrow for more rental properties. And yes, in the `black` means profitable.

Hope that helps,

Thanks again Garth.

Reading into your response are you saying the %10 rule is harder to satisfy in Alberta currently?

I remember in Don`s book he mentioned something about using %9 in some situations. Can`t remember why.

 

[MonteDobson]

Hi Brad,

The 10% filter that Don talks about is just that, a filter...it doesn`t necessarily mean that you throw out the property that doesn`t work and move on, as currently in Alberta you wouldn`t buy much. It is basically just the first step, in a series of many that can be used to save time when analyzing the vast number of properties on the market. If the numbers are way out then you move on...if they are somewhat close to 8-10% then it may be worth looking further. Then from there you gather the data from the property and start crunching the numbers more accurately (ie. taxes, mortgage payments, insurance costs, market rents etc) to see if they make sense. To me positive cashflow is great to have, but breaking even is good as well when you factor in the long term appreciation.

Hope this helps a bit!!

Also wanted to run something by you that you may be interested in. I am looking to sell one of my 1/2 duplexes in GP this year sometime to pursue other opportunities. This duplex is located in South Patterson and was fully renovated when I bought it about a year ago. Best part is that this duplex contains a basement suite, so you could either live in the basement and rent the main floor or vice-versa, which would be a great way to get started and help pay your mortgage at the same time.

Let me know if something like this would be of interest to you and I will get you some more details...and help you out with the whole property analysis thing as well!!

Regards,

Monte Dobson

 

[GSI]

Hello Brad,

*Red= Loss/negative cash flow
Black= Break-even and above (profit)

Finding a property with a large upper unit and a garage for extra income would help you balance your mortgage payments. Keeping in mind that if you find a good deal (meaning a quality property with potential to increase rents) and you have to subsidize the rents for a short while and CAN do so easily (I believe in an earlier email you said that you were earning a decent salary) that may still be worth getting into.

Another option may even be a modular type home or 1/2 duplex with converted basement suite.

Todd Millar-

*Origin From the practise of using red ink to denote debt or losses on financial balance sheets. Likewise, in the black for businesses that are financially solvent.

This phrase conjures up inky-fingered clerks in Dickensian offices scratching in ledgers with quill pens. In fact, the term is much more recent than that. The first known citation of it is in the 1926 Wise-crack dictionary, by George H. Maines and Bruce Grant:

"In the red

, losing money in show parlance."