How are we doing?

[mar]

Hello fellow investors,My wife and I began accumulating properties earlier this year. To date, we have purchased a total of 3 townhouses and 1 semi detached in Kingston, Ontario. We are aware that Kingston is not on the top 10 list, however it did receive special mention at the QuickStart meeting (small business growth). We are both Kingston natives and are very comfortable with our knowledge of that market. Here is what we have bought so far:Property #1

Financed: $192,749 @ 4.15 var. 40yr am.
Payment: $889 monthly
Taxes: $158 montly
Rental income: $1250 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.

Property #2

Financed: $173,099 @ 4.15 var. 40yr am.
Payments: $735 monthly
Taxes: $110 monthly
Rental income: $1150 monthly

Semi, decent area, 20yrs old, tenants pay utilities.

Property #3

Financed: $ 195,208 @ 4.15 var. 40yr am.
Payments: $829 monthly
Taxes: $ 184 monthly
Rental income: $1225 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.

Property #4

Financed: $185,502 @ 4.15 var. 40yr am.
Payments: $788 monthly
Taxes: $162
Rental income: $1225 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.


All properties were financed @ 0 down, therefore incured a CMHC premium of 7% (included in financed #`s). This premium can be written off over 5 yrs and is the reason we were able to buy 4 properties rather than 1. We have had excellent success attracting quality tenants and are considering buying a few more before the October 15th deadline. We are managing these properties ourselves and don`t foresee the need to budget for management fees. Please give us a shake if we need one. Or, the confidence to proceed...time is ticking.

Thanks in advance,

Marcus Shaver

 

[realfortin]

Hi, Congrats on moving nice and fast. The one question I wonder is how you managed to buy with 0 down if you don`t live in the properties? Real


QUOTE (mar @ Aug 6 2008, 03:48 PM) Hello fellow investors,

My wife and I began accumulating properties earlier this year. To date, we have purchased a total of 3 townhouses and 1 semi detached in Kingston, Ontario. We are aware that Kingston is not on the top 10 list, however it did receive special mention at the QuickStart meeting (small business growth). We are both Kingston natives and are very comfortable with our knowledge of that market. Here is what we have bought so far:

Property #1

Financed: $192,749 @ 4.15 var. 40yr am.
Payment: $889 monthly
Taxes: $158 montly
Rental income: $1250 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.

Property #2

Financed: $173,099 @ 4.15 var. 40yr am.
Payments: $735 monthly
Taxes: $110 monthly
Rental income: $1150 monthly

Semi, decent area, 20yrs old, tenants pay utilities.

Property #3

Financed: $ 195,208 @ 4.15 var. 40yr am.
Payments: $829 monthly
Taxes: $ 184 monthly
Rental income: $1225 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.

Property #4

Financed: $185,502 @ 4.15 var. 40yr am.
Payments: $788 monthly
Taxes: $162
Rental income: $1225 monthly

Townhouse, nice area, 15yrs old, tenants pay utilities.


All properties were financed @ 0 down, therefore incured a CMHC premium of 7% (included in financed #`s). This premium can be written off over 5 yrs and is the reason we were able to buy 4 properties rather than 1. We have had excellent success attracting quality tenants and are considering buying a few more before the October 15th deadline. We are managing these properties ourselves and don`t foresee the need to budget for management fees. Please give us a shake if we need one. Or, the confidence to proceed...time is ticking.

Thanks in advance,

Marcus Shaver

 

[albainstar]

Looks to me you are doing great
all are cash positive, with good intrest rates.
I wish I could buy property in my are for that low amount!

As long as you are able to keep up with the service end seems to me like you should forge ahead!

 

[invst4profit]

The rental numbers appear some what low based on the purchase prices.
Without knowing the work that has been recently done on these buildings and based on there ages (15-20) my opinion is if you hold long term you are probably looking at a negative cash flow of about $800/month. This is based on expense being 45-50% of monthly income. As they are all probably looking at re roofing in the next 5-10 years I would be making sure you have a substantial repair fund put aside.

 

[GarthChapman]

Marcus, I suggest you measure your progress by some key indicators (the should be aggregate total figures for all properties combined):

1) Total cash invested?

2) Monthly Cashflow in $(after all expenses and allowances, as in Vacancy, Maintenance)

3) Overall Yield % (Annual Rent over Book Value (aka Capital Cost))

4) Overall ROI in $ and % (on cash invested total)

6) LTV % (Total Borrowed over current market value of all properties)

7) Equity in $ (total market values less total Bok Value (aka Capital Cost))

8) Overall DCR (use the CIBC calculations)

9) Occupancy % (what % of available units are rented)

10) Monthly overhead $ costs of your RE business (does your cashflow cover all this and then some?)

 

[mar]

QUOTE (invst4profit @ Aug 6 2008, 07:04 PM)
The rental numbers appear some what low based on the purchase prices.

Without knowing the work that has been recently done on these buildings and based on there ages (15-20) my opinion is if you hold long term you are probably looking at a negative cash flow of about $800/month. This is based on expense being 45-50% of monthly income. As they are all probably looking at re roofing in the next 5-10 years I would be making sure you have a substantial repair fund put aside.




Hello invest4profit,



I was sure I would hear back from you and I thank-you for your response. All of the properties have new roofs within the last 3 years. In fact, all the properties have received excellent assessments from our reputable property inspector. Your 50% rule has provided me with many sleepless nights, I must say. It sounds like there are REIN members who agree with your "rule of thumb" on expenses and that is why I have decided to post our progress thus far. I am not sure how this "rule of thumb" applies to those investors who chose to maintain properties themselves...as this would substantially reduce costs. Does this enter into your equation?



Can you please provide us with a complete breakdown of the expenses considered @ 50% of rental income. The REIN Property Analyzer expense form accounts for heat, electricity, water/sewer (all paid by tenants), taxes, condo fees (not applicable), insurance, property management (not applicable), vacancy allowance, rental pool mgmnt (not applicable), repairs and maintenance and resident manager (not applicable). All told, in our scenario, we are averaging 23% expenses (taxes, insurance, vacancy, r&m).



I see you're from Kingston...we should have coffee sometime.



Anyone else?



Marcus Shaver

 

[kboughen]

QUOTE (realfortin @ Aug 6 2008, 06:52 PM)
Hi,



Congrats on moving nice and fast. The one question I wonder is how you managed to buy with 0 down if you don't live in the properties?



Real




Hi Real,





Until recently, it was possible to receive CMHC 100% financing with a 40 year amortization for rental properties as long as your ratios and credit supported it.





95% financing with 35 year amortizations on rental properties are still available for qualified applicants.

 

[kboughen]

QUOTE (mar @ Aug 6 2008, 06:48 PM) Please give us a shake if we need one. Or, the confidence to proceed...time is ticking.

Thanks in advance,

Marcus Shaver

Hi Marcus,


Congratulations on such a quick start. The fact you have qualified for (4) 100% financed rental properties with 40 year amortizations indicated that you have a strong income to debt ratio and a proven ability to use credit wisely.


I have several clients comfortable with this strategy, the key benefit being your return on cash is infinite.


Of course you will want to make sure you have a long term hold strategy as the CMHC fees put you in a negative equity position for some time. You also want to make sure that your reserves/personal income allow you to handle negative cash flow months when you have vacancies, repairs etc.


I recommend you also plan for an increase in the Prime Rate over time which will gradually increase your mortgage payments.


At some point your income to debt ratios will not support future high ratio purchases and you will need a new purchasing strategy. DCR 1.1 portfolio financing will not work with the numbers you provided, so you will be looking at alternative strategies.


If you are comfortable with the above, why not continue as long as your ratios work?

 

[mar]

QUOTE (kboughen @ Aug 6 2008, 08:51 PM)
Hi Marcus,





Congratulations on such a quick start. The fact you have qualified for (4) 100% financed rental properties with 40 year amortizations indicated that you have a strong income to debt ratio and a proven ability to use credit wisely.





I have several clients comfortable with this strategy, the key benefit being your return on cash is infinite.





Of course you will want to make sure you have a long term hold strategy as the CMHC fees put you in a negative equity position for some time. You also want to make sure that your reserves/personal income allow you to handle negative cash flow months when you have vacancies, repairs etc.





I recommend you also plan for an increase in the Prime Rate over time which will gradually increase your mortgage payments.





At some point your income to debt ratios will not support future high ratio purchases and you will need a new purchasing strategy. DCR 1.1 portfolio financing will not work with the numbers you provided, so you will be looking at alternative strategies.





If you are comfortable with the above, why not continue as long as your ratios work?




Hi Kevin,



We appreciate your insight. It is nice to know that you have clients that are comfortable with the same strategy. We have been exceedingly diligent in reducing our expenses and managing our credit to allow for such opportunities. Our mortgage broker assures us that we can continue on our current path...as long as we keep driving our 1998 Pontiac Transport. It is painful, but hopefully worth it.



All the best,



Marcus Shaver

 

[mar]

QUOTE (GarthChapman @ Aug 6 2008, 07:22 PM)
Marcus, I suggest you measure your progress by some key indicators (the should be aggregate total figures for all properties combined):



Hi Garth,



Thank-you for your time. We have evaluated our properties as a portfolio and have come up with the following figures. We had to research some of the equations, as they were not familiar to us. Please let us know if any of the numbers seem incorrect.



1) Total cash invested?



$7000



2) Monthly Cashflow in $(after all expenses and allowances, as in Vacancy, Maintenance)



$320



3) Overall Yield % (Annual Rent over Book Value (aka Capital Cost))



8.4%



4) Overall ROI in $ and % (on cash invested total)



@ 3% appreciation=837%

@ 5% appreciation=2032%



6) LTV % (Total Borrowed over current market value of all properties)



100% @ estimated market values...significantly higher than Feb/08



7) Equity in $ (total market values less total Bok Value (aka Capital Cost))



$0 equity...thank goodness not negative.



8) Overall DCR (use the CIBC calculations)



1.3% on average.



9) Occupancy % (what % of available units are rented)



2.6% as per CMHC April/08



10) Monthly overhead $ costs of your RE business (does your cashflow cover all this and then some?)



Yes, nominally.




Your thoughts?



Thanks,



Marcus Shaver

 

[GarthChapman]

Marcus, numbers look pretty good.

Very little cash invested (a good thing). And therefore huge ROI %, but always remember, as a wise friend of mine always says, "You don`t deposit percentages in the bank - you deposit dollars".

I see you are reporting $0 in equity, so that would mean your values are up from purchase prices paid by about the amount of your cash invested ($7,000) - is that correct?

Overall DCR should read 130%, yes? If so that is excellent, but I suspect it should thereby be producing more cashflow. So double check your calculations. CIBC allows 5% each for maintenance, insurance, and vacancy - these need to be included in your numbers. This should be the numbers in total for your entire Portfolio.

On Occupancy, I think you are actually reporting vacancy. Occupancy would be the reverse number. Tell me what your algebra was on that. Measuring Occupancy is like asking yourself "How many rental units do I have, and how many are full?"

So in a nutshell you are nicely leveraged and at roughly break-even cash-flow after Overheads, without having invested any real amount of cash. Time will take care of driving up your cashflows - rents will increase more than costs, mortgages will be paid down, and values will increase. Make sure you have some cash reserves available in case of tough times.

Real Estate is a long-term game, and if you never bought another property you have already ensured your retirement years - and that puts you way ahead of 99% of our population.

Now it is time to review your long-term goals and take the next steps in achieving them.

 

[RedlineBrett]

Hi Marcus,

Looks to me like you are moving along nicely! Every business can use improvement and my advice to you would be to consider joining REIN. With four properties under your belt you have no doubt gained a lot of experience in Real Estate and REIN will help you get serious about your success and take you to the next level.

You will also find that it can get difficult to move past your first handful without implementing a few special strategies. Many REIN members have been where you are now and can help guide you onwards in your path to success.

I would recommend attending a quickstart as soon as you can. You can find info for that here:

http://www.realestateinvestingincanada.com...raining_Program

You can navigate to learn about other REIN resources here

http://www.realestateinvestingincanada.com/t.php?a=467920

Good luck and congrats on your success!

 

[kboughen]

QUOTE (mar @ Aug 6 2008, 09:38 PM) 8) Overall DCR (use the CIBC calculations)

1.3% on average.
I would check this again, I only see one property that hits 1.1 DCR. Different Lenders use different calculations (and often change them), but as a quick reference I use the following;


(Rent x .75)
___________


(Mortgage + Property Taxes + Condo fees if applicable)

I still believe you are in good shape and have several options to proceed, just don`t think you will qualify for portfolio DCR financing.

 

[Nir]

Dear Marcus,

Total mortgage = $746.5K
Total annual rent = $58.2K

To compensate for the fact tenants pay utility let`s take 60% of the rent as estimated net operating income: 0.6*58.2/746.5=4.7% CAP =~mortgage interest
In other words, unfortunately 0 cash flow. Since it`s a none top city to invest in we can not expect much appreciation either.

Marcus, for a property/ies worth 746K you can, and should in my opinion, generate a significantly higher annual rent of at least $110K almost double the rent you collect. (yes, the property/ies will probably be older, you will have a home inspection every time and perhaps they will not be in the same condition as yours, but still..)

HOWEVER, the experience you gained is amazing and has no price purchasing more properties than I have so far, also you will probably not lose money and hopefully built relationships with a team who will help you grow your business further..

Just be a little more aggressive next time looking for excellent deals only and don`t compromise on less (why should you?)

Good luck,
Neil

 

[Thomas Beyer]

very well done .. keep going .. unless you`re sick and tired of managing existing properties ..

you may hit a wall with the banks soon .. talk to a broker how to sell this high leverage or high ratio to future lenders !

also add TIME invested .. i.e. hours per deal .. and assuming a certain annual appreciation: what is your ROI per hour of time invested !

 

[nepoez]

QUOTE (investmart @ Aug 8 2008, 12:06 PM) operating income: 0.6*58.2/746.5=4.7% CAP =~mortgage interest
In other words, unfortunately 0 cash flow. Since it`s a none top city to invest in we can not expect much appreciation either.

If that statement were true, Marcus should sell all his properties?

 

[Thomas Beyer]

QUOTE (nepoez @ Aug 9 2008, 10:19 AM)
If that statement were true, Marcus should sell all his properties?


no, as he self-manages and controls his cost very tightly .. his only cost right now are taxes and mortgage payments ..



he should buy more (if the bank will lend him more).. with the caveat that interest rates will likely go up a notch .. so 4.1% is not a sustainable model .. he should budget 5.5 to 6% interest rates, plus a reserve for R&M, and see if it still makes sense to own assets.

 

[nepoez]

Since this is in ON, rent might not match the rising interest. If this were in Edmonton, do you think the rent increase can keep up to the interest rate? My break even property(and others I will buy) will become negative $250/m at a 6% interest rate so my ability to increase rent by that much is crucial. What is your opinion? Is it foolish to invest in break even properties knowing that the interest rates will go up soon?



My rationale is that rates are raised to counter inflation, which means there's expected inflation, which means increase in rent...



Thanks for any feed back,



Nepoez





QUOTE (thomasbeyer2000 @ Aug 9 2008, 10:24 AM)
no, as he self-manages and controls his cost very tightly .. his only cost right now are taxes and mortgage payments ..



he should buy more (if the bank will lend him more).. with the caveat that interest rates will likely go up a notch .. so 4.1% is not a sustainable model .. he should budget 5.5 to 6% interest rates, plus a reserve for R&M, and see if it still makes sense to own assets.

 

[dnaumis]

Hi Marcus,

Just out of curiosity how do you handle snow removal and grass cutting?

If you're managing the properties yourself is that something you would do or ask the tenants to take care of?

Just wondering how this is usually handled if landlord manages the property.

Thanks,

Debbie






QUOTE (mar @ Aug 6 2008, 06:48 PM)
Hello fellow investors,



My wife and I began accumulating properties earlier this year. To date, we have purchased a total of 3 townhouses and 1 semi detached in Kingston, Ontario. We are aware that Kingston is not on the top 10 list, however it did receive special mention at the QuickStart meeting (small business growth). We are both Kingston natives and are very comfortable with our knowledge of that market. Here is what we have bought so far:



Property #1



Financed: $192,749 @ 4.15 var. 40yr am.

Payment: $889 monthly

Taxes: $158 montly

Rental income: $1250 monthly



Townhouse, nice area, 15yrs old, tenants pay utilities.



Property #2



Financed: $173,099 @ 4.15 var. 40yr am.

Payments: $735 monthly

Taxes: $110 monthly

Rental income: $1150 monthly



Semi, decent area, 20yrs old, tenants pay utilities.



Property #3



Financed: $ 195,208 @ 4.15 var. 40yr am.

Payments: $829 monthly

Taxes: $ 184 monthly

Rental income: $1225 monthly



Townhouse, nice area, 15yrs old, tenants pay utilities.



Property #4



Financed: $185,502 @ 4.15 var. 40yr am.

Payments: $788 monthly

Taxes: $162

Rental income: $1225 monthly



Townhouse, nice area, 15yrs old, tenants pay utilities.





All properties were financed @ 0 down, therefore incured a CMHC premium of 7% (included in financed #'s). This premium can be written off over 5 yrs and is the reason we were able to buy 4 properties rather than 1. We have had excellent success attracting quality tenants and are considering buying a few more before the October 15th deadline. We are managing these properties ourselves and don't foresee the need to budget for management fees. Please give us a shake if we need one. Or, the confidence to proceed...time is ticking.



Thanks in advance,



Marcus Shaver

 

[Nir]

QUOTE (nepoez @ Aug 9 2008, 09:19 AM)
If that statement were true, Marcus should sell all his properties?




Dear Nepoez,



Good question. Only Marcus knows the exact condition of his properties/business, and if somehow he can generate higher than the expected income based on the numbers provided, that's GREAT.



However, I think it's good to know he/one can also generate signifficantly higher income from properties with the same total value as his.



REMINDER: different people have different goals! My target function is maximum passive income. but... I'm also paying a price - buying older properties with more potential headaches and risks.



Regards,

Neil