Novice, needing a helping hand

[tommy]

Hi Everybody,

My name is Tommy, I`m 23, and am a recent engineering graduate. However, my interest involves investing and I would like to break into the real estate market in the near future. I am a novice, but have read many books, including Rich Dad and Campbell`s. I live in the Brampton, ON area and would like to purchase my first house in this area.

I have several questions and noticed that everybody here is so helpful, so perhaps you could help me as well.

1. I was thinking of buying a single detached home and renting out the basement and main floor to two different families. (I would continue living with my parents) Is this viable? If so, is this a good first investment?

2. Should I start a company for my real estate investments? If so, should it be incorporated? I am interested in the liability, but moreso the taxation aspects.

I have many more questions but do not want to bore you at the moment. I would love to talk to somebody in person who has some experience and can lend a young gun a hand, and answer some questions. Any help would be appreciated. Thanks.

T
[email protected]

 

[GrahamWhite]

Tommy,

With just one property I wouldn`t think you`d want to start a corporation. We started out with up/down + garage and what you should know is they take extra management. Choose your area of town carefully because you want a place that you can easily attract non-smokers into.

With a shared house the trick is to find a basement suite that appeals to non-smokers.

With the added management needs, you`ll want to choose a place that isn`t a long ways away so you can get to it without it gobbling up too much of your time just in travel.

If you`re thinking of ever using a management company, know that most won`t touch a multi-unit home.

Another option would be to pick up something that needs some fixing up. Live in the unit and once you`ve finished renovating it sell it and take the profit tax free on your primary residence and repeat a couple of times. After about three or four times doing this you should be able to buy the home you want to live in long term for cash, then get a big line of credit you can use to invest in real estate.

This is the direction I will be recommending to my own kids.

 

[JeffSmith]

Hi Tommy,

The way I see it.

1/ If you are in a position to purchase an investment property why would you still want to live with your parents?

2/ Invest in a property that will pay or help pay your mortgage and expenses.

3/ Make it your primary res. for tax purposes.

4/ Don`t worry about incorporating at your stage of the game. You will only contribute to your lawyer`s and accountant`s bottom line.

Jeff

 

[invst4profit]

If you can afford to buy a rental property why would your parents still want you living with them?

 

[tommy]

QUOTE (invst4profit @ Feb 14 2008, 09:51 AM) If you can afford to buy a rental property why would your parents still want you living with them?

Thanks for the input, you guys are helping me out already.

Let me explain what my plan was: I would have liked to stay with my parents for a couple more years because I could really save up a lot (no food bills and rent). I wanted to buy a property with a positive cashflow, so in effect my mortgage would be getting paid off. Then after a couple of years, I would have saved a healthy amount of cash, and I could sell the property if the conditions were right, and use the saved capital for a decent downpayment on my next investment.

Am I missing something here? Is this not the optimum way to go about it at my stage?

 

[JeffSmith]

QUOTE (tommy @ Feb 14 2008, 09:30 AM) Thanks for the input, you guys are helping me out already.

Let me explain what my plan was: I would have liked to stay with my parents for a couple more years because I could really save up a lot (no food bills and rent). I wanted to buy a property with a positive cashflow, so in effect my mortgage would be getting paid off. Then after a couple of years, I would have saved a healthy amount of cash, and I could sell the property if the conditions were right, and use the saved capital for a decent downpayment on my next investment.

Am I missing something here? Is this not the optimum way to go about it at my stage?

Capital Gains & Independence(for both).

 

[invst4profit]

It is a good way to go providing your parents are on board as they really are partners in the plan.
You should be paying them a few hundred a month to offset there costs as well.

 

[PaulPoulsen]

QUOTE (tommy @ Feb 10 2008, 02:11 PM) 2. Should I start a company for my real estate investments? If so, should it be incorporated? I am interested in the liability, but moreso the taxation aspects.

If you`re looking for a real estate investment with favourable tax implecations, forego the company and instead buy yourself a principal residence.

 

[tommy]

QUOTE (PaulPoulsen @ Feb 14 2008, 06:24 PM) If you`re looking for a real estate investment with favourable tax implecations, forego the company and instead buy yourself a principal residence.

What if I were to set up a sole proprietorship (small investment company) for tax purposes? This is so I could write off things such as office space at home, vehicle costs, real estate books and seminars, etc. Is this a perfectly legit thing to do? Would I have to buy the property under the proprietorship or it really doesn`t matter since its not its own legal entity?

 

[RebeccaBryan]

Tommy,

I would just take action and go and buy yourself a property. You don`t need to have a sole-proprietorship to write off legitimate expenses. What you need to be doing is finding yourself a mortgage broker, checking your credit score, finding a property that fits the system and your goals and take action. You can worry about tax write offs after you have done so.

It`s great you are thinking of doing this at your age, don`t make it more complicated than it needs to be. You`ll learn as you go. Don`t worry about making mistakes. There isn`t one investor on this site that hasn`t made a mistake. That`s how we all learn.

Are you a REIN member? If not, I suggest you take the quickstart and that will move you forward.

Buy yourself a home, maybe a duplex and live in the basement and rent the top out. That way you`ll likely be able to find a property that will work.

 

[EdRenkema]

Tommy,I`ve followed this thread with some interest. As far as I can tell you are struggling with the fact that you can save more by staying with your parents as opposed to buying your own home. The experience and tax free capital gains you will receive buying a home will far outweigh the `savings` of staying at your parents. Do it now and I`m sure your parents will far more supportive and helpful than if you wait till they give you a push. Use the resources on this site and get started, there is a Quickstart in Toronto April 12 & 13, seriously think about participating or join the REIN organization if you want to invest in RE on a larger scale.
I was near your age when I started except I listened to the WRONG people so I`m speaking from experience here.

 

[rymac]

Ok, a simple guestion for everyone. If you buy an investment property and then move into it before you sell it, how long do you have to live there before you can sell it without a capital gain penalty?

 

[tommy]

Thank you very much people!

You`ve been very supportive. I may sound overanalytical, perhaps I am, but I figure there are 100`s of years worth of collective experience and I may as well use it to get to a good start. I will be posting my progress throughout this journey whenever possible, to help out the next newcomer in this exciting field.

You guys have opened my eyes already, and gave me a new spin on this game. So once again THANKS.