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New member, help me do my first move

desipaskaleva

desipaskaleva

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Oct 7, 2010
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Hi all,


I am a new REIN member, live in Calgary. I'll tell you my story in short. Please share experience and give me advice how to start.


We bought a townhouse in 2007. We live in it. When I read Don's book, I was glad I found a way to do what I wanted for a long time - real estate investing. There is a problem though. I'm not sure how to make the first move, when I'm stuck with the townhouse and can't get rid of it. The selling price now is $236,000 and I owe the bank $272,000. One way is to buy another property and rent it, but I need 20% down payment which I don't have. The only way possible so far is to buy a house, move in it and rent the townhouse. Then I'll have an investment property with negative cash flow (the rent is $1300, the mortgage + condo $1750). Not a great start.


I met a realtor and a mortgage agent on the last REIN workshop and talk to them. I just wanted to share with more people, so I can possibly find the best way to do that.


Thanks


Desi
 
HI Desi,


Welcome to REIN!


Based on what you have shared with us in your post, the numbers don't look good for your townhouse as a rental.


You mentioned selling your townhouse...


Why would you considering doing that given that the current market value is well below what is owed on the property? You are correct, in that you do not want to start off with a property that is negative cash flow of $450/month.


Is there an opportunity to rent out a basement suite in order to increase cash flow on this property?
 
Hi Desi,


Just my 2 cents, I am sorry to hear and to say that you are currently in no position to start with RE investing. You have done something right though I would add, by joining REIN. From what I have heard over the years...Being a member will provide you with all the insight, foundation, and opportunities going forward!!!


My reason for saying what I said above is the fact that you are currently negative on your primary home. You have bought in during the high tide and it appears that you now owe more that the value of the house. My only advice would be is for you to work on ways to increase the value of the property by maintaining, and improving its current state, and pay down your current balance (whatever way that would be...) so that come mortgage renewal time the bank will renew your financing and not foreclose on you. Find ways to maximize the use of the property. Rent the basement if it's possible for the time being to (get land lording experience) help on your cash flow.
 
Hi Desi,


I agree with both Jason and Neil, this is what I would do in order to help support your current mortgage, allow the market to adjust and build some equity back into your townhome. All this time as said, you will be learning how to deal with your customers.


Great speed forward!
 
Thank you all for the replies. Unfortunately, we are not allowed to rent the basement. We are not allowed to have bedroom downstairs, there is no bathroom either. Not possible at all. To build equity with renovation is also impossible because $236,000 is the price for renovated house with developed basement. I need a miracle in 2011 for the prices to go up enough, so when we renew the mortgage in 2012, the new financing will cover what we owe the bank. Otherwise...I don't even want to think about it. A few months ago I started paying on top of the mortgage, but that's only $2400 a year towards the principal. It's not enough to catch up till the renewal in 2012. It doesn't look promising at all. I was hoping, there is a solution, but /tiny_mce/plugins/emotions/img/smiley-frown.gif.


What do you think of that idea? If I find a good deal to buy a house to live in and rent the basement, so I can help with those $450 difference. Yes, I know it's a negative cash flow from the townhouse, but it's just temporary untill I find a way to deal with it. Do you think it's possible?


I just didn't want to miss the great opportunity to buy now in this market.


Thanks.
 
Hi Desi


If I were you I would not buy anything currently.


I would contact a mortgage broker at this point and have them help you with future planning on how to best structure things.
 
You need to stay put where you are now. Your desperation in trying to find a positive solution by attempting to move forward is only going to dig you in deeper. I have seen this many times before.


Accept the situation as it now, stay where you are and do what you can to prepare for 2012. If it does not work out you will have to pick yourself up and start over. You won't be the first or the last to realise for most of us there are many setbacks on the road to success.
 
[quote user=desipaskaleva] ..We bought a townhouse in 2007. ... The selling price now is $236,000 and I owe the bank $272,000. .. negative cash flow (the rent is $1300, the mortgage + condo $1750). Not a great start.






2007 was a bad time to buy real estate as prices were SUPER HIGH .. and it'll be until 2012 or 2013 for you to break even. In addition you have too high a mortgage. Two cardinal sins: pay too much and be too levered with negative cash-flow ! Nothing you can do now about it !


Learn from these mistakes and don't repeat them next time !


2 options going forward:


a) do nothing .. stay where you are and WAIT !


b) make more money (from other sources) so you can afford negative cash-flow of about $5000/year .. rent the townhouse .. and buy a second home .. but educate yourself on landlording techniques and how to value homes (i.e. don't over pay)


btw: your mortgage paydown per year is about $5000 (assuming a 25 year amortization), so you are still breaking even with renting .. and will come out ahead .. IN TIME .. say 4-5 years from now !


Main lesson/go forward strategy: BE MORE PATIENT !! Buy with more cash down. Be less levered ! Don't believe all the hype about real estate. It is not a get-rich-quick-scheme ! It is a get-rich-for-sure-scheme ! it is a LONG way to riches .. but a sure path .. but it'll be a decade or 2 for you to see real (6 digit) $s if you only buy with your own money !!





Related post on "5 ways to make money": http://myreinspace.com/public_forums1/f/61/t/3347.aspx
 
Desi,


Adam's advice is very good. You need to start planning with a good mortgage broker how you can move your investing forward down the road.


I can't believe I am saying this but "sometimes inaction is the best action."


Also, as per Greg's comment, there are indeed many obstacles on the path to success.
 
Thank you all for everything you said. It was very helpful for me. Sometimes I need somebody to tell me STOP AND THINK. I'll follow your advice, wait and prepare, starting tomorrow. /tiny_mce/plugins/emotions/img/smiley-wink.gif


Thanks again and have a great and successful 2011!
 
Hey Desi, welcome to REIN I'm new here too. You have been provided some great advice above, and I think one of the best things you can do with your current residence is to continue to live in it and pay the mortgage.



You are concerned by the mortgage renewal upcoming in 2012. Perhaps the mortgage brokers on the site can jump in and provide their thoughts, on every mortgage I have ever renewed (not refinancing), I have never had to get a new appraisal (providing the loan is with one of the major banks). Renewals can often be complete over the telephone, and many times they will not ask what you can sell the property for.



Some thoughts to ponder
 
Thanks Charles,

Nobody told me this before, that there is no new appraisal on the renewal. Thanks you so much and good luck as a REIN member.
 
Hi Desi,



You've received excellent advice so far from all previous posts. As Thomas said "it is a LONG path" and you are already on it.

With time you will get your current situation in order and will make the next step. Don't feel that you are missing out on something. You WILL have your opportunities when YOUR time comes.

One more thing. Many people may think that the act of real estate investing is the moment you sign the mortgage documents and purchase a property. Well this is just one step of MANY. Education, networking, partnering and attracting capital, studying the market and just preparing yourself for the mental and business game are few steps that you can take now. So my advice is take the steps that you can now, you will be much more prepared and better investor 1-3 years from now.
 
[quote user=CharlesRaymond]

Renewals can often be complete over the telephone, and many times they will not ask what you can sell the property for.



Some thoughts to ponder





I'll offer a couple thoughts on this too. My last 7 renewals (on rental properties) have all happened via telephone and fax, no appraisals, no Sophisticated Investment Binder, a phone call to the contact I had at the branch or to a Bank call service center and talked to whomever answered.



I had 3 mortgages on properties that I bought in 2007 came up for renewal in 2010 (not sure why I took a 3 year term, I must have been sleeping on that one or thought I could refinance in 3 years). The property value has dropped and the mortgage balance was very close to the value. Not too concerned, not selling, and the cash-flow is positive on these properties.



These 3 mortgages were renewed with a better interest rates (Prime -.6 vs Prime -.5 in 2007), plus I had some additional pay down on the principle. I was able to renew the mortgage at a lower interest and go back to the original amortization schedule... bottom line lower payment = bigger cash flow, all with a phone call and signature on a fax.



The key term is renewal, not refinancing. The mortgage brokers on this site can confirm or deny if it is easier to renew than refinance. The only time I have heard of a bank not renewing a mortgage (that you are paying and in good standing with) has been a sub-prime lender that is going out of business or exiting the rental property mortgages.



Key on top of your mortgage portfolio, have regular mortgage check-ups, and have the best mortgage brokers on your team to give you advice.



Welcome to REIN`, see you at an upcoming meeting
 
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