Down payments are high, where should I be allocating my time?

[dgstl14]

Hi everyone,

I just finished Real Estate Investing in Canada and am really hyped to get started on my real estate investing journey. However the book capitalizes mostly on using other people's money to finance a property, it doesn't mention much regarding the 5-20% down payment, and I'd like some clarification as to where I should allocate my time for the next couple of years.

Personal context: I am 25 years old, living in QC and just graduated in chemistry, and realized that there is little to no money or room for economic advancement in the field. I just started working for a lab back in January and am currently set to make $38k CAD pre-tax: at the end of the day I'm taking home ~$28k if I'm lucky; even less if I start factoring in weekly groceries and gas. Luckily I live with family, so I have no rent to pay (if I did, I'd probably end up in the negatives in this disastrous housing economy). My main concern is that there is very little room for advancement in my company (and most other companies for that matter), the most I can expect to make after several years of promotions is $50k CAD pre-tax, so I am contemplating a career change, regardless of how much I love my current field.

Long story short, I'd like to transition toward become an actuary by studying for the exams on my spare time and writing them when I feel sufficiently comfortable with the material, all in hopes in that the increased salary will take me closer to a down payment in my real estate investing ventures. The idea of becoming an actuary is honestly not too appealing to me: I'm only considering the route because at my current salary it would take several years to secure a down payment on even the cheapest of properties.

My ultimate goal is to buy the duplex I am currently living in with family and rent out the upstairs unit for additional cashflow. But again, with my current salary, it would take me too long to ever accumulate even a down payment.

For further financial context, I am taking home ~$2,200 CAD/month and ~$1,700 of it is dropped immediately into my TFSA and invested in a series of stocks and high-dividend ETFs, while the rest is spent on gas, groceries, and maybe ~$100-$200 of "play money".

Would you say real estate investing is economically feasible, even with such a low take-home sum? I only have so many hours available between Friday night and Sunday night, I'd like to optimize my results and own at least a single rental property by age 30 if it's economically feasible.

Where would you allocate your time in my shoes?

I appreciate your feedback.

 

[Matt Crowley]

Thanks for the detailed post. Here is my two cents:

- "investing in real estate" and a "career in real estate" are different things as you have observed
- most "investors" in the REIN theatre buy SFH/duplex/smaller properties and fix them up with minor renovations. This is a typically 6-10% IRR projected return. If you want to get into higher returns, you need to become a developer. There are few part-time developers. You need to be in the industry and learn how to do it.
- all else equal, you will make a higher return with less risk if you invest in your RRSPs and TFSAs than you could in real estate. Working with before tax dollars (or equivalently, untaxed after-tax untaxable dollars) will beat the same level of risk-return every time
- 25 is young, focus on your career and building your educational capital. You sound like an extremely driven person. Put a bit more time into the kind of career and life you want. Your career is going to be long it is worth the extra time to be in a field that really drives you. Canada has an extremely good (and cheap) education system. It is a worthwhile investment.
- there is nothing special about real estate inherently or making money with it. If you want a "career" in real estate, there are many, many routes.
- if you are serious about investing, consider taking the CFA program. It is the gold standard globally in investmet analysis. That is a good starting off point for getting into the investment world and could open doors for you to be a real estate analyst at a development shop.

Finally, don't choose to be an actuary because it is marginally more money. That is not a good reason. Lots of actuaries like what they do but believe me it is a grind and I know lots of people who do not like it. Think more upstream in terms of career advancement (MBA, CFA, masters) rather than downstream (second undergrad degree).

If you are deadset on getting into real estate with no money down, here is how I would do it.
- buy a SFH in a location that is highly appealing to younger people and make it a rooming house
- throw in a second kitchen downstairs. This will be the backup plan to rent the house as 2 suites in case you bail before the business plan timeframe.
- live in the house and pay rent
- JV with a family member and set up your fees so that you earn 8%-12% of gross revenues and take care of the whole house and ensure it stays full
- Put the home in your name so that you qualify for the debt
- Set up the JV so that your parents get full return of capital + 10% IRR return then split profits 80% to them and 20% to you. Agree to an exit timeframe of 3-5 years.

That will give you a bit of cash along the way and protect their capital.

 

[Thomas Beyer]

This is good advice above.

Consider a move to Alberta as you can earn double.

Yes you need more experience AND more money to buy a house, however if it is owner occupied you need only 5% down. That may work. Perhaps someone in your family can co-qualify for a mortgage and/or lend you the down payment. Then live there and rent out various rooms to others or up or downstairs as stated above.

What’s a chemist? A pharmacist? Or a lab tech?

Your best real estate investment is that between your ears ! Work on that ie educate yourself further.


Thomas Beyer, Asset Manager & Improver, Hard Asset Investor & DeFi Asset Hodler, Author, Father, Mentor, Hiker, Kayaker www.prestprop.com

 

[dgstl14]

What’s a chemist? A pharmacist? Or a lab tech?

I had deluded myself into thinking that an "analyst in analytical chemistry" (the position I currently hold) was an intermediate step between pharmaceutical developer and lab tech. Now that I compare job descriptions, it is essentially identical to a lab tech. How demoralizing it is to go to university for a BSc only to end up in a dead-end entry level position that can be occupied by anyone right off the street. Throughout school I've worked a couple of part-time odd jobs such as personal trainer and infantry soldier and I didn't quite expect to start again at the metaphorical "bottom of the barrel" after graduation. I made a little less in a summer with the military than I make now in a year with the lab, so that's a tremendous motivator to aim higher.

Truthfully, I've already mentally checked out of science, it is a field where employees are terribly underpaid because they are stupid enough to do what they love rather than do what earns a living. I'd rather develop highly transferrable skills that make me valuable across all industries regardless of what I decide to pursue, like sales, finance. etc. Outside of a lab, I am currently worthless. I don't even want to make it to the end of 2022 in this job because I feel like the time could be better spent acquiring a more useful skillset in another field.

Enough of the pity party, for now, I'll continue exploring my options and educating myself in basic financial literacy and real estate investment, and try to find the members of my investment team (realtor, mortgage broker, lawyer, accountant. etc), perhaps while applying for positions with more transferrable skills.

I appreciate your input.

 

[Thomas Beyer]

Funding a satisfying career is paramount.

University often overrated and now often self-serving, ie benefitting unionized staff and profs first and foremost, not society or students anymore.

You may enjoy a career in sales say a realtor, or selling cars, chemical equipment, trucks or industrial machinery. Check that out as earning potential quite high for those that can sell.

There’s 5 ways to make money. It’s one of 80 chapters in my book written for folks like yourself that you may find useful. https://www.amazon.ca/80-Lessons-Learned-Road-000/dp/0992108306


Thomas Beyer, Asset Manager & Improver, Hard Asset Investor & DeFi Asset Hodler, Author, Father, Mentor, Hiker, Kayaker www.prestprop.com

 

[magicmove44]

Funding a satisfying career is paramount.

University often overrated and now often self-serving, ie benefitting unionized staff and profs first and foremost, not society or students anymore.

You may enjoy a career in sales say a realtor, or selling cars, chemical equipment, trucks or industrial machinery. Check that out as earning potential quite high for those that can sell.