Making the Jump

[OntarioInvestor]

I`m a new investor. Bought a condo to live in in 2008, and in 2009 I bought a bigger condo and kept the first and rented it out. After doing a lot of reading I definately want to build my portfolio. My question is what is the best way to generate the cash to come up with the next investment property.

I`ve been told banks generally want 20% down for an investment property, which means about $40 - $60k. Takes a long time to save that much from my employment income.

Looking for advice on how you guys started generating cash to build your portfolios.

(I am aware of HELOCs as well, but even still I think it will take some time for me to build the equity necessary to use a HELOC to purchase another property).

Thanks!

 

[markl]

You may have money sitting under your nose to build and enhance your portfolio.

Is your current portfolio giving you the greatest opportunity cost? Where is your rental condo? How much is market value today? What is the rent?

Depending on where your property is located you may be able to sell the one condo and turn it into 2 or 3 or even more cash flow positive properties in Top 10 towns that will let you expand.

The other thing is speak with a good mortgage broker who understands investments CMHC insured mortgages are available for rental properties.

Regards,

 

[Nir]

Just some of the ways to buy more/faster:

- HELOC
- OPM
- CMHC insured will allow putting less down, even 5%
- Re-Fi thanks to real value appreciation or appraiser under the influence (joking)
- VTB
- Private Money

Being good at what you are doing will increase the probability of implementing the above.

GL!

 

[OntarioInvestor]

QUOTE (markl @ Jan 21 2010, 08:40 PM) You may have money sitting under your nose to build and enhance your portfolio.

Is your current portfolio giving you the greatest opportunity cost? Where is your rental condo? How much is market value today? What is the rent?

Depending on where your property is located you may be able to sell the one condo and turn it into 2 or 3 or even more cash flow positive properties in Top 10 towns that will let you expand.

The other thing is speak with a good mortgage broker who understands investments CMHC insured mortgages are available for rental properties.

Regards,

Thanks for your reply.

To answer your questions.

Downtown Toronto. Purchased for $200,000 in early 2008 and put about $20,000 in rennovations in. It`s worth about $250,000 today. Rent is $1350. My equity is almost 20% (I only put 5% down initially). I doubt that selling it at this point would leave me with much left over to purchase 2 condos (after discharging the mortgage, real estate agent fees and closing costs on the new purchases).

I`m also not sure I want to invest out of town just yet. Much of the advice I`ve recieved thus far is to start local, with a market you understand, and work out from there. It would also be very hard for me to keep tabs on properties that are far out of town given the amount I work.

I`m still pretty young, 28, so I feel that time is on my side. I`m just eager to start building!

So far I`ve got both my mortgages through RBC. While I negotiated great rates from them (prime minus .8% on the property we`re talking about), I think you may be right in that I need to start talking to brokers / lenders who specialize in investment properties. Any suggestions for broker / lenders in the greater Toronto area would be welcomed.

 

[OntarioInvestor]

QUOTE (investmart @ Jan 21 2010, 09:47 PM) Just some of the ways to buy more/faster:

- HELOC
- OPM
- CMHC insured will allow putting less down, even 5%
- Re-Fi thanks to real value appreciation or appraiser under the influence (joking)
- VTB
- Private Money

Being good at what you are doing will increase the probability to implement the above.

GL!

I`ve thought about all of these. HELOC, CMHC, Re-Fi are all fairly straight forward to me. It`s just a matter of making the numbers work.

I wasn`t sure that condo owners in Toronto would do VTBs, and I`m still learning about how to get OPM and Private Money. Any reccommendations on good reads on those topics?

I`m eager to learn. I do feel like most of the books I pick up now are either too basic (i.e. just tell you why investing in real estate is great) or too technical (100 calculations every real estate investor should know). Seems that no one has written a good book for intermediate knowledge... at least none that i`ve found so far!

 

[housingrental]

Wait
Pay down mortgage
Have property appreciate
Pull out funds from a heloc in two years
Your way ahead of the game be patient.

 

[invst4profit]

If it were me I would sell the condo and find something with a better price to rent ratio. The reality is a $220,000 condo with a rent of $1350 does not, or at least will not, have positive cash flow when all the numbers are in. You are actually losing money you just don`t know it yet.

 

[GaryMcGowan]

QUOTE (invst4profit @ Jan 21 2010, 11:34 PM) If it were me I would sell the condo and find something with a better price to rent ratio. The reality is a $220,000 condo with a rent of $1350 does not, or at least will not, have positive cash flow when all the numbers are in. You are actually losing money you just don`t know it yet.
Agreed, your money could be working harder for just north of Toronto or east or west.

But as Adam said "you are way ahead of the game"

 

[Nir]

QUOTE (OntarioInvestor @ Jan 21 2010, 08:23 PM) It would also be very hard for me to keep tabs on properties that are far out of town given the amount I work.
False conclusion unfortunately. the opposite is true - given the amount you work, buy elsewhere so you can work less! pls read Don Campbell`s excellent book. will explain to you why buying where you live is not necessarily the best thing to do. You can buy 50 condos in Toronto and live on coffee pills or buy 5 properties elsewhere and tell your boss one day "don`t call me, I`ll call you". (just joking, I`m sure you got the point).
Greg is right: zero or close to zero cash flow in Toronto.

 

[markl]

Send me an email I can send you a list of brokers in the area to speak with also I can help you run some numbers if you like on what we are getting say 30 min away to what you are buying in Toronto. Prime - .8 is good but the reality is interest rates have to go up and your $250k property will not cash flow with $1,350 rent.

[email protected]

You might be surprised how far the money may go.

Regards,

 

[Karma]

QUOTE (invst4profit @ Jan 21 2010, 11:34 PM) If it were me I would sell the condo and find something with a better price to rent ratio. The reality is a $220,000 condo with a rent of $1350 does not, or at least will not, have positive cash flow when all the numbers are in. You are actually losing money you just don`t know it yet.

I also agree. Just to give a sense of better opportunities- we bought a 2 bedroom + in-law suite for 152 + 8 for renos and we currently rent it for 1200. Your property appreciation would have to be off the charts to make this worthwhile and from what I know that is probably not going to be the case in the next few years in the Toronto condo. market. Pull out your money and get into a property in Guelph, K-W or towards Barrie.

S.G.

 

[OntarioInvestor]

QUOTE (Karma @ Jan 23 2010, 10:31 AM) I also agree. Just to give a sense of better opportunities- we bought a 2 bedroom + in-law suite for 152 + 8 for renos and we currently rent it for 1200. Your property appreciation would have to be off the charts to make this worthwhile and from what I know that is probably not going to be the case in the next few years in the Toronto condo. market. Pull out your money and get into a property in Guelph, K-W or towards Barrie.

S.G.

I haven`t started looking in depth at properties outside of downtown Toronto yet. I wanted to live downtown so in early 2008 I bought a condo and moved downtown. In 2009 I realized I wanted more space so I upsized, kept my first unit and rented it out.

The property appreciation has been pretty good.. at least in my opinion. For example the rental property I have went from $220,000 (200k purchase plus 20k renos) in April of 2008 and is presently worth $250,000, which, by my novice calculations puts it at about 7% appreciation a year over the last two years. Not off the charts but pretty solid. It`s also right on the subway line and in the heart of the city.

The property I`m currently living in was purchased for $335,000 in April of 2009. It was appraised by the bank about a month ago at $405,000. About 20%, granted it was a monster year last year.

I`m not averse at all to looking into out of town properties, and perhaps even selling the first rental property we own. I`d have to do my research first, and as I mentioned before I`m still very wet behind the ears and trying to learn as much as possible. This board is actualy quite helpful in that regard.

 

[invst4profit]

Don`t be surprised if you do not sell for what you believe your property is valued at. The market is fickle and we all tend to overestimate our own properties.
You must also keep in mind that if you did sell now for $250,000 you would not likely see one cent of the appreciation due to real estate fees, legal fees etc. You have not made any money yet.

Not trying to discourage you just being realistic, in my opinion, in pointing out the realities. Condos in T.O. are a poor choice for income investment properties.

 

[OntarioInvestor]

QUOTE (invst4profit @ Jan 23 2010, 03:59 PM) Don`t be surprised if you do not sell for what you believe your property is valued at. The market is fickle and we all tend to overestimate our own properties.
You must also keep in mind that if you did sell now for $250,000 you would not likely see one cent of the appreciation due to real estate fees, legal fees etc. You have not made any money yet.

Not trying to discourage you just being realistic, in my opinion, in pointing out the realities. Condos in T.O. are a poor choice for income investment properties.


Greg,

What you`ve said about not having made anything yeet after real estate fees etc. is exactly why originally I said "I don`t see how I could sell and have anything left over to purchase additional properties." to which people thus far have differing opinions on.

Why are Toronto condos a "poor" choice for investing? While it may not have my money working as hard for me as it could I do see many benefits...

a)constant increase in population means constant supply of tenants.
b) diverse market for tenants - you can rent to students, young professionals, high end properties etc. given the large population and market of renters
c) property here is always in demand due to a constant increase in population, which to mean means steady, safe appreciation

I`m not trying to say you are wrong by any means. I`m just playing devils advocate to learn as much as possible.

 

[invst4profit]

Running a business really only boils down to making money. OK fine tenant base is varied and possibly strong but your rent is too low and nothing is going to change that. Paying $220,000 for a property that only rents for $1350 can never make money. Expenses, dept servicing and paying a return on cash invested will eat up more than you are earning. The problem is you have not been in the business long enough to know that yet.

If you want to make money in this business monthly rent must approach 1% of your property value. This is not feasible in T.O. therefore you are at high risk of losing money. This is why I advise selling, now, before the loses start to creep.

You are a new investor seeing the business through rose coloured glasses. I`m just telling you what you will eventually learn yourself through first hand experience, probably too late. Wait till you get your first non paying tenant that lives rent free for 3 months and causes $20,000 in damages before they leave. That`s the extreme, on the normal side you have hidden expenses you are choosing to ignore because for the time being your bank account is positive.

Trust me you will see in time how difficult this business can be especially with negative cash flow. But with only one property it won`t kill you and it is unlikely you will face bankruptcy so it`s OK for the time being to hang on to what you have.

I am of course assuming you have plenty of employment income to support your personal expenses through rough times.

 

[housingrental]

Greg - I like your post - OP - Also think about when you need to replace appliances, get repairs done, or entirely redo the bathroom in twenty years. Making $100 month might seem great until you spend an extra $10 000 on one off`s preiodically.

Greg - What happened to your clown face? Bring it back

 

[invst4profit]

If I use the same picture on every forum people will discover I am the same person. I`ll look for something different for here when I get a chance.

You never answered me on the other forum regarding what your picture was. Is it a secret.

 

[housingrental]

Email me your new email address
How`s the reno`s going?
But its the same name everywhere... bring back the picture...

QUOTE (invst4profit @ Jan 25 2010, 05:47 PM) If I use the same picture on every forum people will discover I am the same person. I`ll look for something different for here when I get a chance.

You never answered me on the other forum regarding what your picture was. Is it a secret.

 

[Rickson9]

QUOTE (investmart @ Jan 22 2010, 01:53 AM) False conclusion unfortunately. the opposite is true - given the amount you work, buy elsewhere so you can work less! pls read Don Campbell`s excellent book. will explain to you why buying where you live is not necessarily the best thing to do. You can buy 50 condos in Toronto and live on coffee pills or buy 5 properties elsewhere and tell your boss one day "don`t call me, I`ll call you". (just joking, I`m sure you got the point).
Greg is right: zero or close to zero cash flow in Toronto.

I agree.

 

[invst4profit]

As you wish.

Adam I can not PM you on this forum and can not change my e mail on my personal profile for some reason.

Can I contact you through your www. site?