Need some advice

[flyingbird]

Hi:



I have the following properties:

• First house. This house is rented and has around $300 cash flow.
• Detached. This house is my current house live in. The property value going up around $200K now.
  New Condo. It is still in construction and will be ready by the end of this year. But I guess it will be delayed. I used HLOC for downpayment and my calculation indicates I will have little cash flow for this unit.
  New Detached. This is my new purchase and the closing day is around Aug, 2013 or later.The property value going up around $150K now. I would like to put two units in it (will have cash flow) if I don't want to move in.

My first approach is to sell the current house to pay off all HLOC and move into the new purchased detached house later on. By doing this, I will almost be mortgage free. This is low risk approach but I lose one nice property.



The second approach is to keep all four units and rent three out. But the risk is when market coming down, I will suffer more lose and my debt level is high.



Pls provide your insights.



BTW, I am reading the book "51 Success Stories from Canadian Real Estate Investors". And some story is amazing, such as single mom owns over 10 properties.

If I am right, people just use the HLOC of first house to buy second one, then use second house's HLOC to buy third one,..... This is ok as long as market is up, if market is down, then people will have big trouble and may lose all properties.

Is there any other way to do it which I don't know here?



Thanks,

 

[Thomas Beyer]

Prices in economically strong regions, especially in desirable locations usually do not go down, or only temporary. However, properties in economically weak areas, areas with ex-migration or in undesirable locations will have a much higher chance of value decline.



Where are these properties ?



Being mortgage free is a good goal when you are retired, perhaps ... or for your own home with no rental income. Are you retired ? Why is being debt free so important to you ? Owning investment real estate mortgage free makes no sense. It makes sense to lower your mortgage to perhaps 50% LTV and increase cash flow and some downside protection, but to me it makes sense to borrow at 3-4% and invest it in an asset yielding 6-10% !




Taking on debt has an element of risk, and risk has to be mitigated through diligent and ongoing research, area selection, property selection, property management and property enhancement.




Unclear to me how you know that a property that is not yet built is 150k more.

 

[flyingbird]

Thanks, Thomasbeyer!



These properties are all in north of Toronto, ON. I have been here for 10 years and see lots of booming around here: Lots of people come here to work and settle down. That's why I don't see we will have big down turn here.



I am just below 40, so still have lots of time to work and also invest before retire. And I am the single income for whole family.



I can deduce that my new house's value increase from the recent sold price of very similar house around against my purchase price.



My rental house LTV: 31.7%

My current house LTV: 47.14%



Would you please provide more insights based on the number above?

 

[Thomas Beyer]

Well, if you are CERTAIN that prices will be 150,000 higher in 2013 than your purchase price then you should not buy one, but three or four. Sell them as they are ready, and have enough cash to sustain debt payment during sales period.




Liking real estate to (cash) cows, ask yourself: what business am I in: the beef business or the milk business ? Both have to do with cows, but they are different businesses !





It appears, you are in the beef business, as making $120,000 (after holding costs or realtor sales costs are deducted) is 400 month of $300/month.




Btw: I am an omnivore.

 

[flyingbird]

Thanks again!

I think I was Only lucky for this case.

 

[johnsu]

Be more clear on your end result. If you're still in wealth accumulation mode then selling doesn't make sense unless you are under cashflow crunch.



Personally, if you're in building mode, I'd just make sure I have a healthy reserve fund 3% of property value price in another account to carry properties to just play it 'safe"