I have $500,000 and want to know what I should do with it.

[anonyme]

I just turned 26 and own a successful marketing firm. I have just over $500,000 saved up (held in a corporation I own 100% of). My credit score is 720. I live in Waterloo, Ontario. I have lots of friends with degrees in project & facility management that I could partner up with in some way as well.



Now that things are settling down for me and I have much more time on my hands, I have been researching real estate for the past few weeks. I believe it is how I want to invest my money now and in the future.



I have time.

I have money.

I have ambition.



I would like to hear your general thoughts and you can ask me questions. If you were me, what path would you look into?



Anonymous.

 

[RedlineBrett]

1. Join REIN if you haven't already.

2. pay off your mortgage if you have one. (if you don't have one buy a house to live in and stop paying rent)

3. take out a HELOC against your primary. You can do this up to 80% LTV and the interest is tax deductible.

4. Find the best investment focused realtor you can in your own town and ask him/her to find you the best deal possible in a location with high upside. Use this person's network where required.

5. Buy one good property and manage it yourself until your tenants have been in place for a month. 6. Decide if you have enjoyed the last two steps. If you have then lather, rinse repeat. If you haven't then try hiring a property manager and see if it's any better. If not then don't get into the business.



The best in the business make it look easy... the reality is it isn't.

 

[invst4profit]

Hindsight being 20/20 if I had it to do over I would find someone experienced in commercial properties and try to invest, partner or at least learn every thing I could then dive into commercial properties.

Being that you are in Ontario I highly advise you stay away from residential properties. Ontario regulations highly favour tenants, evictions are near impossible and there is a growing number of tenants, professional or otherwise, with "entitlement" attitudes. It is a very difficult business in Ontario for the inexperienced.



http://ontariolandlords.ca/forum/



If you do consider getting into the risky residential rental property business visit the the forum I have posted. You should get a real eye opener.

 

[Thomas Beyer]

[quote user=anonyme] .. I just turned 26 and own a successful marketing firm. I have just over $500,000 saved up ... If you were me, what path would you look into?




Impressive young man (or woman?) !!!



Consider to buy a commercial property or a small apartment building .. say 30% down + 70% mortgage plus reserve would allow you to buy a building worth about $1.5M .. which is a 15 suiter in Edmonton or Saskatoon or GTA, a 10-12 suiter in Vancouver or Calgary or a 20+ suiter in smaller towns or most Ontario cities !



ROI: say a 6% CAP rate building worth $1.5M yields 90,000 in net income annually .. and with a 4.5% mortgage of $1.050 at $70,000/year would yield a slightly positive cash-flow of about $20,000, much to all of it tax deferred due to building depreciation. Mortgage paydown/year is about $23,000/year or a return of about 4-5% assuming no cash-flow due to re-investment into asset.. and assuming a modest increase in rent or lease of 3%/year, and thus a value increase of 3%, or $45,000 would yield about 14-15%/year TAX FREE UNTIL SOLD.. plus cash-flow (especially in year 3 and later) .. more if rents or value grow faster than 4% which is the case in some sub-markets or some buildings that you can buy and improve !!



Those yields are far higher if property has a higher CAP rate, say 7.5% or 8% which can be found in some markets !



Another strategy is to invest in about ten $50,000 blocks with various REIN members in equity or JVs or MICs .. or in public REITs ..



Feel free to call or email with help you may need !

 

[Rickson9]

Speaking for myself I would invest in U.S. real estate where gross yields are over 20%. That's my personal experience anyway.



I didn't join REIN myself because I am satisfied with my investment results so far.



Best regards and good luck!

 

[markl]

Brett provides you with some good advice up front join REIN and get educated. There are many different ways to invest in RE as there are many different property types you can invest in RE.



You need to find your comfort zone and figure out your niche.



That includes property type but also property location.

 

[anonyme]

Thank you all for your replies!



One of the ideas I've been tossing around in my head is to invest in student housing here in Waterloo and around the planned light rail transit (Kitchener, Waterloo, Cambridge). I'll certainly consider looking into commercial investing and REITs as well.



[quote user=RedlineBrett]

1. Join REIN if you haven't already.

2. pay off your mortgage if you have one. (if you don't have one buy a house to live in and stop paying rent)





I'll join REIN today and purchase the ACRE course. I recently purchased a house this January (20% down). You're saying I should just pay off the mortgage outright?



[quote user=RedlineBrett]

6. Decide if you have enjoyed the last two steps. If you have then lather, rinse repeat. If you haven't then try hiring a property manager and see if it's any better. If not then don't get into the business.





I know I will enjoy the research, due diligence and finding deals because that is just what I'm naturally good at. My weak point would be managing tenants, renovations, etc. A property management company would be a must, especially here in Ontario where tenants are notoriously bad and landlords have no power (as mentioned above).

 

[schierau1]

In paying down the mortgage and getting a home equity line of credit he is referring to the tax advantages. Read the book The Smith Manoeuvre to learn more and consult a tax accountant. In the US personal loans/mortgages are tax deductible, in Canada they are not, unless you convert the mortgage to a line of credit which you then use to make investments. The interest on the line of credit used to purchase investments is then a yearly tax deduction. At the end of the day you simply converting bad debt (non-deductible mortgage interest) into good debt (deductible interest when used for investments). You can re-invest your yearly tax return into additional investments. You are not taking on any more debt, simply converting it from non-deductible to deductible interest. It is very important to have proper tracking for reporting purposes.

 

[RedlineBrett]

Ziv posted above describing why you should pay off your mortgage. If you put 20% down then you'll end up with the same mortgage balance. You'll likely have a small payout penalty but if you work with the bank that has your mortgage you should be able to get them to waive the fee if you are using an LOC. Payments might actually drop because you will no longer be paying any principle, just interest.



Regarding dealing with tenants and renovations - guess what... that's what real estate is!



You don't have to actually DO it yourself... but for you to be able to manage a GC or manage your manager prudence requires you have experience in these fields... otherwise how will you know if they are BSing you?

 

[wgraham]

All this great advice....



I say put it on Black

 

[anonyme]

Great advice guys. I plan on learning everything I can over the coming 6 months, at which point I will take action.



Any other pieces of wisdom you wish to bestow upon me before I venture on my educational journey?



What (Canada specific) books should I go buy right now?

 

[ChrisDavies]

I have a list of REIN recommended books on Amazon. I'd buy the whole bookshelf....wait. I own most of the bookshelf already



http://astore.amazon.ca/rein-bookshelf-20

 

[Rickson9]

[quote user=anonyme]Great advice guys. I plan on learning everything I can over the coming 6 months, at which point I will take action.



Any other pieces of wisdom you wish to bestow upon me before I venture on my educational journey?






An investor's results are correlated to the cost of acquisition of the asset. Good luck!



Best regards.

 

[KeithnCalgary]

If you are concerned about having to deal with tenants, property managers and the other aspects that go along with owning real estate then Call Me Immediately (403) 614-8843. I would like to discuss a Joint Venture Partnership with you. A Joint Venture will take away your concerns of having to deal with the things you don't like, allow you to reap great returns, learn about real estate investing and enjoy the extra time you now have.



I will show you how we have produced great returns for our current Joint Ventures and increased property values without using money from our own bank accounts. An opportunity to learn and get great returns on your investment.



I look forward to hearing from you!



Keith

 

[orei]

I'm 28 and have been in the Waterloo student housing market for over 5 years now. I'd be happy to meet you for a coffee and tour you around the prime areas for student housing.



It CAN be great investment when done right....



PM me at bryansvoice (at) gmail (dot) com

 

[johnsu]

The real question you want to answer FIRST is "What do I want my investments to provide for me?" then set a time line on when you want those accomplished, do the number crunching on what return you'll need to earn yearly to get there and then find the investment.



Otherwise you may be taking on extra risk or investing in something that get's you no where slowly!

 

[housingrental]

Hi Anonymous



I can relate.



I'm also in Waterloo, young, have a few dollars, and have my own firm.



If I were you I would sit on cash and wait for opportunities to present themselves.



Taking action is important.



Sometimes the best action to take is to be patient - it can take a look of time to amass wealth, and very little to lose it - If you decide to take a different path give me a shout through my website. I'm happy to provide you my perspective on investment real estate - or even sell you part of my portfolio if you are in buying mood. I'm not.

 

[housingrental]

The current problem is all number crunching based on certain assumptions - with the potential for major structural changes to the rental landscape in Ontario from BOTH the municipal and provincial level and material risks nation wide to stability of investment real estate BOTH from an operating income and valuation perspective - you will not be able to know if you have found an investment to accomplish your goals until many years later...



[quote user=johnsu] The real question you want to answer FIRST is "What do I want my investments to provide for me?" then set a time line on when you want those accomplished, do the number crunching on what return you'll need to earn yearly to get there and then find the investment.



Otherwise you may be taking on extra risk or investing in something that get's you no where slowly!

 

[housingrental]

I would recommend holding off on those purchases

Joining REIN was a good choice - Send me an email if you are making it to the next meeting

Paying off your mortgage might or might not be the best route for you to take - it'll depend on what you'll using it for





[quote user=anonyme]Thank you all for your replies!



One of the ideas I've been tossing around in my head is to invest in student housing here in Waterloo and around the planned light rail transit (Kitchener, Waterloo, Cambridge). I'll certainly consider looking into commercial investing and REITs as well.



[quote user=RedlineBrett]

1. Join REIN if you haven't already.

2. pay off your mortgage if you have one. (if you don't have one buy a house to live in and stop paying rent)





I'll join REIN today and purchase the ACRE course. I recently purchased a house this January (20% down). You're saying I should just pay off the mortgage outright?



[quote user=RedlineBrett]

6. Decide if you have enjoyed the last two steps. If you have then lather, rinse repeat. If you haven't then try hiring a property manager and see if it's any better. If not then don't get into the business.





I know I will enjoy the research, due diligence and finding deals because that is just what I'm naturally good at. My weak point would be managing tenants, renovations, etc. A property management company would be a must, especially here in Ontario where tenants are notoriously bad and landlords have no power (as mentioned above).

 

[housingrental]

Hi Bryan

You know I've been a big backer of student housing and it's what I focus on.... Unfortunately the fun has been had in student housing in Waterloo for at least the next few years... Now is not the time to enter the market......Huge supply increase coming up from new builds rushing to get projects in before density allowance change + potential for opening up on restrictions of supply re bill 140 + potential from more interesting stuff to happen following Northdale report in future = RUN from Waterloo student housing...............





[quote user=orei]I'm 28 and have been in the Waterloo student housing market for over 5 years now. I'd be happy to meet you for a coffee and tour you around the prime areas for student housing.



It CAN be great investment when done right....



PM me at bryansvoice (at) gmail (dot) com