Investing with LOC

[hardel]

Hi All,

I follow this forum on a regular basis and find it very informative. I am still learning and hope to learn more...

My wife and I have been on the fence about investing in real estate for a few years and have finally decided to to take the plunge. We are both in our mid-forties and have been fortunate to build up equity in our personal residence. We have a property on our radar that we may be putting an offer on but, would like to get an answer to one question before we proceed..... If we use our LOC for a downpayment, do we set up the LOC for monthly payments (principle and interest) or interest only?

A little info. on the property:

List Price: 299,900.00
Apartments: 3
Rent: 3000.00
Oil: vendor
Elec: tenants

Expenses:

Oil: 274.00
Taxes: 192
Ins. 83.33
Prop. Mngmt (5%):136.30
Vacancy All. (2%):54.52
Repairs/Main. (5%):136.30

Monthly Expenses:$876.45

Down Pymnt: $43,500 (20% if acquired at $290,000)
Mortgage @ 4%: 1300.00

Cash Flow:$823.55

Your opinion on LOC question and this property would be appreciated. Thank-You!

Hardel

 

[housedoc]

Advice?
You might want to improve you math skills first!
20% 0f 290K is 58K.....5% of 3000 is 150.....

You have left out some expenses: LOC, legal, closing costs

Where is it located?
Learn all you can about landlord/tenant rights and responsibilities.

Also, check the legality of the units.

 

[luckyluciano]

all the below. As for the LOC I would do interest only, then once you have the investment on autopilot start attacking the principle$

QUOTE (housedoc @ Sep 19 2009, 08:34 AM) Advice? You might want to improve you math skills first! 20% 0f 290K is 58K.....5% of 3000 is 150..... You have left out some expenses: LOC, legal, closing costs Where is it located? Learn all you can about landlord/tenant rights and responsibilities. Also, check the legality of the units.

 

[kboughen]

QUOTE (hardel @ Sep 19 2009, 08:03 AM) If we use our LOC for a downpayment, do we set up the LOC for monthly payments (principle and interest) or interest only?
I suggest you set the Secured Line of Credit up with interest only payments for (2) key reasons;

1) Interest only payments will maximize you cash flow

2) Interest only payments lower your GDS/TDS ratios making it easier to qualify for this purchase and future purchases

With a Secured Line of Credit you have the option to pay down as much principle as you want and redraw it back when you want, even though it is set up with interest only minimum monthly payments.

When calculating your projected carrying costs, be sure to factor in that your cost of borrowing on this SLOC will increase as prime increase. If the bank decides to increase the relationship to Prime you are charged, your rate will also increase.

 

[invst4profit]

Your estimates on expenses are somewhat low. You will likely see monthly expenses above $1000 and possibly as high as $1500 when viewed long term. This is all dependent on condition and age of building but to be on the safe side you should budget for $1200 per month starting out. That is basing expenses on 40% of income which in my opinion long term is slightly low but you can adjust your reserve going forward. Otherwise looks like a fair deal.
I would probably offer $270,000 to start max $280,000 to buy.

 

[hardel]

QUOTE (housedoc @ Sep 19 2009, 10:04 AM) Advice?
You might want to improve you math skills first!
20% 0f 290K is 58K.....5% of 3000 is 150.....

You have left out some expenses: LOC, legal, closing costs

Where is it located?
Learn all you can about landlord/tenant rights and responsibilities.

Also, check the legality of the units.

Hi Housedoc,

Thanks for your reply! I kind of pride myself on my math skills....just my mind was thinking 20% down and I thought this was alot of money so I decided on 15% and did not reflect this change in the document. The other percentages are derived from $2716 (3000 less the oil/heat). My apologies for the mix up.

The property is located in St. John`s, NL. I will take your other comments into consideration as I move forward. Thanks Again!!

Hardel

 

[hardel]

Hi,

Housedoc, luckyluciano, kboughen and invst4profit, I like to thank you all for the prompt reply to my topic. Your comments are appreciated.

This is a great forum for beginners! I am hoping to see the property tomorrow with my realtor.

Take Care!!

Hardel

 

[Thomas Beyer]

QUOTE (hardel @ Sep 19 2009, 06:03 AM) .. If we use our LOC for a downpayment, do we set up the LOC for monthly payments (principle and interest) or interest only?
a LOC is an extension of your chequing account .. so pay down as much every month as every $ on it costs you interest. So, why keep $12,000 in the chequing account and a LOC balance of $245,000 .. if you could reduce the LOC to $233,000 ..

QUOTE (hardel @ Sep 19 2009, 06:03 AM) A little info. on the property:

List Price: 299,900.00
Apartments: 3

$100,000/unit sounds a little high to me .. is it real nice ? Are these 3 units legal ? 3 titles or one ? Could you sell as condos down the road .. look into that as it could be a very profitable exit strategy ! Or could you convert one title today to 3 tomorrow ?

QUOTE (hardel @ Sep 19 2009, 06:03 AM) A little info. on the property:


Rent: 3000.00
..
Rent is verified how ? $1000/unit in NL sounds high to me .. are they 3BR each ? I don`t know much about NL .. all I (think I) know it is usually lower than Ontario or "out west" where I am .. but I maybe mistaken here !

QUOTE (hardel @ Sep 19 2009, 06:03 AM) Expenses:

Oil: 274.00
Taxes: 192
Ins. 83.33
Prop. Mngmt (5%):136.30
Vacancy All. (2%):54.52
Repairs/Main. (5%):136.30

..


Expenses seem too low ..

R&M sounds low ..

any deficiencies ? roof ? boilers ? windows ? landscaping ? fridges ?

PM: who does it .. you ? then 0 .. or someone else ? then 10-12% for a triplex !

Vacancy 2% ? let`s rephrase vacancy to "not collected" and if you use 10% you are safe.

 

[Zee1960]

Thomas - BRILLIANT! I love the linguistics/semantics of "no collected".

How about words "Opening" or "Opportunity"?

Years ago I someone mentioned substituting the word "Stress" for "Excitement".
I wrote it on a Yellow Post It and keep it in sight for months, to train my brain!

Extremely powerful!

~ mm

 

[Thomas Beyer]

QUOTE (Zee1960 @ Sep 19 2009, 03:33 PM) Thomas - BRILLIANT! I love the linguistics/semantics of "no collected".

How about words "Opening" or "Opportunity"?

Years ago I someone mentioned substituting the word "Stress" for "Excitement".
I wrote it on a Yellow Post It and keep it in sight for months, to train my brain!

Extremely powerful!

~ mm
Thanks .. of course I meant: "not collected" ..

 

[hardel]

QUOTE (thomasbeyer2000 @ Sep 19 2009, 01:32 PM) a LOC is an extension of your chequing account .. so pay down as much every month as every $ on it costs you interest. So, why keep $12,000 in the chequing account and a LOC balance of $245,000 .. if you could reduce the LOC to $233,000 ..



$100,000/unit sounds a little high to me .. is it real nice ? Are these 3 units legal ? 3 titles or one ? Could you sell as condos down the road .. look into that as it could be a very profitable exit strategy ! Or could you convert one title today to 3 tomorrow ?


Rent is verified how ? $1000/unit in NL sounds high to me .. are they 3BR each ? I don`t know much about NL .. all I (think I) know it is usually lower than Ontario or "out west" where I am .. but I maybe mistaken here !




Expenses seem too low ..

R&M sounds low ..

any deficiencies ? roof ? boilers ? windows ? landscaping ? fridges ?

PM: who does it .. you ? then 0 .. or someone else ? then 10-12% for a triplex !

Vacancy 2% ? let`s rephrase vacancy to "not collected" and if you use 10% you are safe.


Hi Thomas,

I really appreciate the value you add to this forum, your experience and knowledge is so valuable, especially to us beginners!

From what little experience I have in this industry I can safely say it is next to impossible to find a 2-unit property for under $200,000 (not saying it can`t be done). The price is more in the $220,000 - $250,000 range....very hard to make it cash flow. The main floors usually rent for about $900-$1000 and basement apartments $600-$700. My strategy is to look for multi-unit properties.


Deficiencies - I will know after my viewing today, but here is what`s listed....new vinyl windows, new oil-fired water heater, upgraded elctrical.

Prop. Main. - I will maintain property

Vacancy - Currently the rate sits at .4 per cent...so I quadrupled this number and rounded to 2 (my readings say to double)

I will find the exact breakdown for rental on each unit today.

Thanks Again for weighing in on my concerns!

Hardel

 

[luckyluciano]

I agree, thank you Thomas. I also agree that finding properties which are desireable, high demand locations which attract the better tenants, paying higher rents, newer properties, all in all demand the least management and maintenance are not available under $200k per door. Now, I am fully aware. That there are properties for lower prices but there is a price to pay for everything. I could be the minority here but I would rather. Pay a slight premium for Real Estate that is more in demand and closer to my home. As my time and energy has a price to it as well.

QUOTE (hardel @ Sep 20 2009, 07:11 AM) Hi Thomas, I really appreciate the value you add to this forum, your experience and knowledge is so valuable, especially to us beginners! From what little experience I have in this industry I can safely say it is next to impossible to find a 2-unit property for under $200,000 (not saying it can`t be done). The price is more in the $220,000 - $250,000 range....very hard to make it cash flow. The main floors usually rent for about $900-$1000 and basement apartments $600-$700. My strategy is to look for multi-unit properties. Deficiencies - I will know after my viewing today, but here is what`s listed....new vinyl windows, new oil-fired water heater, upgraded elctrical. Prop. Main. - I will maintain property Vacancy - Currently the rate sits at .4 per cent...so I quadrupled this number and rounded to 2 (my readings say to double) I will find the exact breakdown for rental on each unit today. Thanks Again for weighing in on my concerns! Hardel

 

[housingrental]

They`re available for under 200k almost everywhere else in Ontario other than downtown Toronto...
You could purchase almost anywhere else, hire a property manager, do nothing, and still net more with the type of rent to purchase price you can get with 200k+units.

QUOTE (luckyluciano @ Sep 20 2009, 09:11 AM) I agree, thank you Thomas. I also agree that finding properties which are desireable, high demand locations which attract the better tenants, paying higher rents, newer properties, all in all demand the least management and maintenance are not available under $200k per door. Now, I am fully aware. That there are properties for lower prices but there is a price to pay for everything. I could be the minority here but I would rather. Pay a slight premium for Real Estate that is more in demand and closer to my home. As my time and energy has a price to it as well.

 

[nubiwan]

Hello Hardel

I am a fellow NL investor new to this forum. I currently have 3 investment properties that I own and rent in CBS. The market is very strong here too. Super strong. I`ve been looking to see if any other investors exist from our province here on REIN.

I am currently looking for my 4th investment property. Would like to ge together to compare ideas, collaborate, what have you with anyone with a local interest.

If you want to get hold of me, or go for a cofee, then my email is anthony.mcgann @ nf.sympatico.ca. Hope that`s not against posting rules, but I am unabl to PM you at my current level.

Tks
Tony

 

[aiden1983]

QUOTE (hardel @ Sep 20 2009, 05:11 AM) .....Vacancy - Currently the rate sits at .4 per cent......

The property has a vac rate of .4% (it`s percent, not per cent

)? That is really low! What is the length of term that the vac rate has been calculated for? I would think that a 5% vac rate would be as low as I would calculate and another few % for people not paying rent. Try and be conservative with your numbers (high on overhead, high vac rate, and low rents). If it looks great like that then it will only surpass your expectations in the future. We don`t want you thinking that you will make $800 a month and then end up with -$500 a month in the long run. Good luck with the investment.

 

[bizaro86]

QUOTE (aiden1983 @ Sep 25 2009, 12:15 PM) The property has a vac rate of .4% (it`s percent, not per cent

)? That is really low! What is the length of term that the vac rate has been calculated for? I would think that a 5% vac rate would be as low as I would calculate and another few % for people not paying rent. Try and be conservative with your numbers (high on overhead, high vac rate, and low rents). If it looks great like that then it will only surpass your expectations in the future. We don`t want you thinking that you will make $800 a month and then end up with -$500 a month in the long run. Good luck with the investment.

This is a good point. A vacancy rate of 0.4% works out to 1.5 days of uncollected rent per year on each unit. That means if a property sat empty for one month, it would have to have not a single days vacancy for the next 20 years. That doesn`t seem likely to me even a hot market. Even 2% vacancy is only a week of uncollected rent every year.

Michael