Getting into investment RE

Dave L · 11-01-2005, 05:32 AM

I have always been interested and have read a few books but all seem to be the "go for broke" 100% finance strategies which given some of the threads on this board isnt really the path I would like to take.

I live in Barrie Ontario Canada 1 hour north of Toronto and is the fastest growing city in Ontario. House values are increasing slowly but I am more interested in long term (20yr +) growth.

I can purchase a 1 or 2 bedroom condo for about $100,000 - $120,000. Rent would be about $750 to $900 per month covering the mortgage costs and even providing a small profit.

My principal question is "where does the down payment come from" Most of my money is tied up in retirement investments ($75k) and the equity in my house (worth about $270K, owe about $165k) No debts other that the mortgage.

Am i just chicken? how do i start?

legion · 11-01-2005, 05:44 AM

You could use a home equity loan.

When I initially read the title of this post, I thought you must be high on crack. Then I realized that you are: 1) in Canada and 2) looking very long term.

I don't think this is a bad plan, but maybe in a year or two the U.S. RE market will drag down the Canadian RE market, so it might be a better buying opportunity then. Until then, you can start setting cash aside for a down payment.

Just my 2¢.

turbo6bar · 11-01-2005, 06:10 AM

Are you positive you will be turning actual profit (not paper profit) on this property?

If available, you can acquire a home equity line of credit on your residence. The interest rate floats, but you only pay interest on the money borrowed.

In the US, the rental market is soft and home prices are high. It is not a great time to get in the game. I am not sure if the conditions are similiar in Canada.

If I had to start now, I would learn the rental market well. Know market prices, condition of available properties, and vacancy times. Then, look for distressed properties (foreclosures). If you can buy right, you'll have an equity cushion in case of market decline. The primary objective in the first years is getting your feet wet while not making a critical mistake.

Do you have time to work on properties and manage, or will you farm out the duties?
jurgen

Dave L · 11-01-2005, 06:33 AM

Market conditions in Canada are similar to the US with increasing housing prices and more people moving from renting to owning because of low interest rates. The differences I see are that there are no "funny mortgages" in Canada. 25 years is typical and there are no interest only mortgages. I feel that this helps keep prices down to a realistic level.

I am primarily interested in a condo or town house as the cost of entry is low and there always seems to be people interested in low rent properties.

I do have time to manage a property as my schedule is flexible and my wife may be staying at home with the kids. I also have the ability to work on a house, I have partially finished my basement, can do basic electrical, plumbing etc.

turbo6bar · 11-01-2005, 06:56 AM

Quote:

Originally posted by Dave L
Market conditions in Canada are similar to the US with increasing housing prices and more people moving from renting to owning because of low interest rates. The differences I see are that there are no "funny mortgages" in Canada. 25 years is typical and there are no interest only mortgages. I feel that this helps keep prices down to a realistic level.

I am primarily interested in a condo or town house as the cost of entry is low and there always seems to be people interested in low rent properties.

I do have time to manage a property as my schedule is flexible and my wife may be staying at home with the kids. I also have the ability to work on a house, I have partially finished my basement, can do basic electrical, plumbing etc.

Based on this, I would give you a big thumbs up. I think you have the right combination to make things work.

The ideal way to work it, in my very humble opinion, is to use a home equity line to purchase homes that need some work. Make smart repairs (not cheap or lazy), but cost-effective and long-lasting. Rent the property for a year, and give your bank a first mortgage. If you have bought at 70-85% of retail value, you can obtain a cash-out mortgage and replace the money borrowed from the equity line. Your equity line is now replenished and ready for the next property.

The advantages are:
1) your investment is leveraged on borrowed money
2) you create an equity cushion via sweat equity and buying right
3) you are taking it slow and steady. Would you want to find out you are not landlord material AFTER buying 6 properties with 5% down?

Get the whip cracking!!!