Seeking advice on investment strategy

[Wayne]

Hi again,

I just went through Dons book "Real Estate Investing In Canada" again and am taking steps to purchase property/ies. This is my scenario. I currently am looking to relocate to new smaller city close to where I currently live. Houses are cheaper and I have my eye on a few up/down rental homes there. My current home, once sold will give me approx $150K - $175K to work with. I wont be selling for approx 3 mos. In the meantime, I have approx $50K cash to invest with. I am going to the new city this weekend and will be viewing houses in the $250K-$300K range. They will all be up/down rental homes.

My idea was to purchase a home in the new city now (prior to selling current home) w/cash available ($50K) and keep tenants in place. I would purchase with 5% down and could either call this my (future) primary residence for when I sell my current home and just move into one of the suites later. Or, I can buy with 5% down and purchase as #1 investment home.

I was thinking that from the balance (approx $25K) of the available $50k cash I have left, that I could purchase a 2nd house with up/down tenanted suites. This being still prior to selling my current home. This could be house #2.

Finally when I sell my current home I will buy a third house in new city w/$150K down payment. This will be primary residence and will also rent out basement suite. This would ultimately give my 3 homes in total. I will also get A LOC on $150K down payment on 3rd house for future investments.

- Will the 5% down investments (#1 and #2) hurt me when I want to
purchase 3rd,4th,5th,6th... etc properties ?
- Is this the way to achieve the multiple property goal, or is there a better way ?

I would like to maximize my finances without compromising future opportunities.


Thanks again for all the great advice.



Wayne

 

[RobMacdonald]

Hi Wayne,

This is a very difficult question to answer without know your full financial picture, if you have a very high income, you may be able to buy several high ratio properties without having a problem. There is no real negative downside in having low equity in given proeprties, providing you meet all the other credit criteria. You also need to the weigh the cost of the insurance premiums, versus finding a JV partner, or just simply waiting until you have some equity available.

As you`re about to sell your existing home, you`re best advice would be to work out a defined plan to assist you through this process. If you have to go hi-ratio, then put down as little as possible against your residence and increase the down payment on the rentals. That will save you some money in insurance premiums. The right decisions now, will save you thousands in the future.

Also, if you intend to live in the first property you are going to buy, then you are okay to declare this as your residence. But, stay out of the gray area. Be sure you end up living there.