Newbie Investor – Buy two properties or one?

[lilbuffet]

Okay so I just graduated from University this past May. I got a job offer with an oil company out in Calgary starting in the fall. I just finished reading the Real Estate Investing in Canada book and I will be purchasing my primary residence sometime in the fall/winter.

The advantage I have is that the company will assist me with my purchase. Basically they will cover the following ONLY ON MY PRINCIPLE RESIDENCE:

1) Lawyers fees

2) Title registration, land transfer tax etc

3) Mortgage placement fees

4) Mortgage insurance if required

5) Cost of a real property report if required

6) Home inspection

7) Appraisal fees

So now for the question.

I am looking at 2 bedroom condos in the range of 250K-275K in downtown. I currently have access to 50K cash I could potentially use as a down payment on my principle property.

Now lets assume I purchase a condo worth 250K, should I use the 50K as a 20% down.

Or

Should I put down 25K in my principle residence and obtain a high ratio mortgage, and then search for a second rental property sometime down the line, and use the remaining 25K as a down deposit.

Basically I will rent out the second room in my principle property and use the second property as a complete rental unit.

I talked to the mortgage broker and I have been pre-approved for up to 300K on my principle property while getting locked in at an interest rate of about 4%, but this will only apply to my principle residence.

Any advice? Is there any info I am missing.

PS. My entry level salary is around 60K/year.

Any tips/advice will be appreciated.

Thanks

 

[invst4profit]

If it were me, looking back to your point in life, I would proceed with extreme caution.
New job, new location, new life.
I would not buy a home until I was established in the new area. Renting would be a more practical approach.
you may find you do not like the area or the job or the job may not last. Last hired, first fired.
Buying a home is a long term commitment (5 years) that could be very costly if you are forced to sell sooner.
My advice would be to take it slower.

 

[lilbuffet]

i think i left one part out....i completed a 16 month internship in 2007-2008 with the same company and I lived in Calgary so I am familiar with the city and company.

 

[housingrental]

Buy your own place if you know you`ll be there long term and if your job was lost you`d have lots of other work options that could support you.

Don`t buy a rental property yet. When things go wrong you`ll need cash to cover - and you won`t have it or the income to subsidize your investment property.

 

[GarthChapman]

You may want to hold off buying your principal residence for a while as noted in other posts, but ask your employer how long they will hold their offer of contribution to that purchase for. When you buy think about taking advantage of of the fact your employer will pay the cost of the mortgage insurance (so it will not be added to the mortgage as normally done) and thereby you will only have to put down 5%. Keep the balance in reserve for when you are ready to buy a revenue property.

 

[jgg123]

House with a basement suite?

 

[GarthChapman]

QUOTE (jgg123 @ Jun 23 2009, 12:43 PM) House with a basement suite?

Good point. You can buy up to a 4-plex with a CMHC insured mortgage at 5% down providing you live in one unit. Live free and enjoy a good investment, without the risk associated with an illegal or non-conforming suite (Calgary enforces their Zoning Bylaws on a complaint basis). When ready down the road a bit, rent out the 4th unit and buy something for yourself.

 

[markl]

Garth you took the words right out of my mouth.

Buy a small multi unit let your tenants pay while you live for free. Take your cash invest in a cash flow positive property. Invest the money you would have been spending on your mortgage and utilities on your own residence.

Good Luck

 

[Nir]

As usual, Excellent point Garth!

Just curious/wanted to confirm: when selling such a 4-plex, do you not pay tax on the entire gain or just the gain
on the portion you lived in? If the last, does the accountant estimate the value of that portion or is there a more accurate way to do that?

Cheers,
Neil

 

[GarthChapman]

I`m not an Accountant, but I think I remember learning years ago that if you live in a unit of the building when you sell it, and have designated that unit as your principal residence, that you could have that unit appraised at time of sale (unless the units are identical and therefore it would be a simple pro-rata calculation) and not pay Capital Gains Tax on that portion of the property. If you did not live in the unit all during your ownership of the building, then you would have a more complex calculation to make, and would need to have had appraisals done when you moved in and moved out (or sold). Appraisals are always needed to establish value, unless the purchase or sale will do that for you (which will not work if the units are not all of the same value).

But do check with your Tax Accountant with this question before you act please!

 

[lilbuffet]

thanks for all the tips and advice!

 

[Nir]

QUOTE (GarthChapman @ Jun 23 2009, 08:19 PM) I`m not an Accountant, but I think I remember learning years ago that if you live in a unit of the building when you sell it, and have designated that unit as your principal residence, that you could have that unit appraised at time of sale (unless the units are identical and therefore it would be a simple pro-rata calculation) and not pay Capital Gains Tax on that portion of the property. If you did not live in the unit all during your ownership of the building, then you would have a more complex calculation to make, and would need to have had appraisals done when you moved in and moved out (or sold). Appraisals are always needed to establish value, unless the purchase or sale will do that for you (which will not work if the units are not all of the same value).

But do check with your Tax Accountant with this question before you act please!

Thanks Garth.