Question about getting out rent and into my first home/investing

[jemmrich]

Hi everyone, Im so happy to have actually found information for Canadians!! Thanks for the forum!My Story:
Ive been very interested in real estate investing for the past couple of years and have listened to many audio books on the subject, but they have all been based on the US market so my interest fizzled. At the time I still lived with my parents and I never thought it could be a possibility for me.

My renewed interest came 2 weeks ago when i saw an ad in the paper regarding mortgage rates as low as $250/month for i believe a $100,000+ mortgage. It took me by surprise. i never knew how much a mortgage would be since everyone i asked (parents, family) always gave me the short answer "depends on a few things". Even pressing with more questions, they never had answers that helped. It took me by surprise because I had always thought real estate investing didnt make you money until you completely paid off the mortgage.

My eyes grew wide as i thought over the possibilities. A $250/month mortgage vs. my current $700.00/month rent im paying now. Why would i even consider continuing to spend $700 when i could spend roughly $250 for a house of my own building equity, and then use the remaining $450 as investment money all the while maintaining my current living standard? In other words, still spending $700 a month, but more efficiently.

As the week went, on I remembered a buddy of mine earlier in the year asked if i was interested in having a roommate, split my current rent etc. At the time i didnt really think about it but the thought of purchasing a house to live in, and renting out one of the spare bedrooms could actually allow me to increase my investment savings.

My Idea:
I buy a house to live in worth no more than $101,000 as %5 down using the first time home buyer program. I use the money i save that would have normally went into rent and put it in a savings account for future investing purposes only.

I could then take in a roommate and rent out a room for ~$500 all inclusive. Use that rent to pay for my mortgage and the extra money to further increase my investing cash.

After about a year, use the money i saved as a down payment for another property, then repeat as i become more experienced.

My Question:
Would this be a good way to start or i am missing something?

Could this be the perfect situation for me to learn a lot about real estate by doing? From house hunting, dealing with banks, dealing with rent etc.

A little about me
Im a single 26 yr old southwestern ontario male, self employed and have been renting on my own and working out of the house for a little over a year at $700/month

Long term goals is to continue my home business, and to purchase a few more properties every year.

Sorry for my long post, i tend to over analyze things a lot. I think its because im a programmer and enjoy thinking over/fixing problems

 

[EdRenkema]

If you`re a programmer then you`ve got a huge jump on someone like me who is `IT challenged`.
You certainly have some good ideas, one of peoples` biggest challenges is to change their relationship with money, its a tool not an end in itself. First I would read Real Estate Investing in Canada by Don Campbell. This is by a Canadian for the Canadian markets. I would also suggest Rich Dad, Poor Dad by Robert Kyosaki, and/or The Cash Flow Quadrant, same author.
Instead of jumping in right away, I would wait at least 6 months, save for as large a down payment as you can, and go `shopping`. Find a real estate agent who you have good raport with and who also does some investing and go look at houses as many as you can. Go to as many open houses as you can, every time you look at and analyze a property you will learn something-and its fun!
As you meet people and ask questions, always ask yourself the question what is their incentive for telling me this? - especially if they are selling you something. Come back to this forum often to get real answers from real investors.
Good luck and enjoy!

Ed R

 

[kboughen]

You have listed some great ideas above. Here is my suggestion;

1) Read "Real Estate Investing in Canada" by Don R. Campbell

2) Follow the instructions in this book

3) Repeat.



Note: a $250 payment on $100,000 is an interest only payment at 3% - not realistic.

 

[MikeMcCrae]

My suggestion is buy now, save later! I think you will have trouble findind a property at 100,000 but I don`t know your market. Also see Kevins post above. Very valuable information.

 

[markl]

I agree with Mike. Don`t wait to buy real estate buy real estate and wait.

If you can pick something up for $100,000 and rent out to a friend or 2 and basically have them cover the mortgage. You can pump your extra money into paying down the principal and I know this may be above your head but then you have the smith maneuver and your ready for more investing. This is also good if you are handy and can do some general fix ups on the place you will buy and add value with sweat equity. This is exactly how I got started. If you want give me a shout [email protected] and I will see if I can help you figuring some things out. Might also be able to recommend a good REIN realtor in your area and a mortgage broker.

Regards,

 

[jemmrich]

Thanks for the replies!

I have read Rich Dad Poor Dad and will be rereading it again soon within the next few days, I also have the audio book version of cashflow quadrant.. I`m definitely an S trying to get into the I. I have realized that I will never be able to go on a vacation or free myself if I`m self employed with clients to tend to every day.

Something I haven`t read is Don Campbells book, and will order it right away!

Sweat equity isn`t a problem either, not only would it be great learning experience--like to work with my hands, but also my dad has offered to help with any renos/additions or fixes.

I live in the Goderich/Clinton/Seaforth area of Ontario, Walton to be specific, just outside of town, I have seen many listings of houses in the area around the 100,000 and lower range but have not looked at them in person. It would be very helpful talking to like minded people in the area and while I don`t have many questions now, Im sure I will have plenty after reading Don`s book.

Mark, The Smith Maneuver sounds interesting and I will need to read more about it to wrap my head around the strategy and how exactly it works, but that will be another time

Also from reading these forums it sounds like its suggested to buy as much as you can afford. Is it because its easier to get one large mortgage than 2 smaller ones? Or just the amount of cashflow that a higher priced property would return? Reason I ask was that I was thinking that if I purchased my first few houses in the sub 100k range, they could be fixed up a little and rented without the requirement of a large down payment (down payment being something I don`t have much of)

Thanks everyone, It`s the little bits of info I can research that really helps!

 

[Nir]

As Kevin mentioned above, I strongly recommend that you read "Real Estate Investing in Canada" by Don R. Campbell. This amazing step by step book on investing in real estate might answer most of your questions and be all you need to actually start buying!

Rich dad poor dad is a obviously a great and very inspiring book too. Just not as unique to investing in real estate in Canada like "Real Estate Investing in Canada" by Don R. Campbell which is also more process detailed.


Good luck,
Neil

 

[KimFranz]

Read Don`s book, read Don`s book, read Don`s book, read Don`s book, read Don`s book, read Don`s book...

That`s all you need to do for a great start. B)

Kim

 

[invst4profit]

Home ownership is greatly over rated when it comes to building personal wealth.
Your real cost on $100000 will be $600+ per month and your additional costs of owning a house will probably be another $600+ per month what with repairs, heat, hydro, taxes, setup etc, etc, etc. You should also have access to reserve funds in the event of unexpected surprises which will definatly happen.
Money wise owning your own home should be viewed as a liability in that it ties up money and costs rather than makes money. My advice would be to stay renting where you are and invest in a positive cash flow property. Positive cash flow being imparative keeping in mind that expences before debt service will eat up 50% of your rental income which means after debt service there may not be much left over so chose your property carefully.
Once financially stable with rental investment use that income to buy your own home as a reward for your hard work.

 

[donksky]

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[donksky]

 

[donksky]

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[PaulPoulsen]

Personally, I`m a big believer in owning your own home for a couple of reasons.

1) If you`ve never owned real estate, buying your own home is a great way to learn the ropes. Buying a primary residence is about the easiest real estate transaction you`ll ever make.
2) I know Robert Kiyosaki is big on treating your home as a liability and not an asset but, personally, I don`t see it. I think the crux of his argument is that the debt you assume to buy your own home doesn`t create monthly cashflow so it`s a poor use of available funds. My response is that you need to live somewhere and so you may as well be paying your own bills instead of someone else`s.

The best of both worlds would be for you to buy a home with a suite in the basement or some other type of seperate dwelling. Then your primary residence is also a revenue property.

I think if you surveyed real estate investors, a huge percentage of them would say that they started out buying their own home and then moved on to rental/revenue property from there.

 

[EdRenkema]

I agree with Paul, Q; if RK considers your own home a liability and it is in a pure cashflow scenario, then what would you consider a rental home??? Same thing except worse, nothing to show for your time. I rented for many years and much cheaper than I could have bought but once I bought a personal residence I had tremendous leverage. Plus when applying for financing for ANYTHING home ownership lends credibility and shows stability.

Ed R

 

[Thomas Beyer]

QUOTE (jemmrich @ Feb 1 2008, 01:37 AM) Hi everyone, ...

A $250/month mortgage vs. my current $700.00/month rent im paying now. Why would i even consider continuing to spend $700 when i could spend roughly $250 for a house of my own building equity, and then use the remaining $450 as investment money ... I buy a house to live in worth no more than $101,000 as %5 down using the first time home buyer program.

Where can you get a house for $100,000 ? If indeed you can, then OF COURSE you should do it .. although you have to also factor in taxes, utilities and repair bills on top of the mortgage !

Also, a 6% mortgage plus principal on a $107,000 mortgage (i.e. incl. insurance premium for a 100% levered mortgage) is about $700/month, and not $250 !

All things being equal (rent vs. own), you should always aim to own your own home, as your equity upside is TAX FREE !

 

[MikeMcCrae]

I am starting to like you Thomas. You always make so much sense in so few words.