Karysa is a millennial Investor who didn't understand the normal career choice lifestyle. Discovering real estate investing, she is now CEO of a national award-winning real estate company. Karysa strongly believes this is the way to financial security and even financial freedom! She hopes to inspire young adults to consider this method to help create a life they desire and enjoy.
The winter in Canada is cold…and it makes many Canadians want to head to the South for the winter. But it also attracts Americans to Canada in search of great skiing. So, if you are a Canadian wanting to buy a property in the U.S., what are your financing options? How can you get the best mortgage rates? And if you are an American wanting to buy in Canada, what are your options for financing that investment in Canada?
Thanks for stopping by and getting the facts on what is happening in the market today! This is the fourth in a series of five podcasts on the mortgage market in Canada. We’ve got some big plans for more experts to join us on Rev N You, so make sure you’re signed up for ourRev N You with Real Estate newsletter to be certain you don’t miss any of the important market updates!
ABOUT CINDY FAULKNER
Cindy Faulkner owns and runs Meridian Coastal Mortgages. An active real estate investor, with 17 years of experience in the residential real estate market, Cindy and her team are our first call when it comes to financing for our properties. They are always happy to chat about scenarios or discuss the market, so give them a call at 604-588-4466 .
It really wouldn’t be very hard for someone to find a photo of you, and place it on an online profile and claim to be you. Or at least claim to look like you! It can happen pretty easily.
It’s exactly what happened to a friend of mine recently. Someone cropped out her husband, and was using her photo to troll for dates on an online dating site. Imagine my friend’s horror when someone told her that her photo had been spotted online in connection with someone looking for love?!
When I learned of my friend’s situation, it reminded me of a time many years ago, when I was the victim of a minor case of identity theft. Another Julie Broad had found my address and learned a few details about me, and directed a collections agency and an angry landlord my way. I was able to resolve the issue by signing some papers and showing some I.D. to prove I was not the “bad” Julie Broad.
This incident did not show up on my credit report, but it could have. And, I would have been responsible for clearing it off of my report. You see, it’s your responsibility to make sure your credit report is accurate, not the company that does the reporting. So, have you checked your credit lately?
If you haven’t, you may even be like my Mom, and not even have a credit score at all. Or, you may discover that there are old credit card balances still showing on your report like I did. Or that you are showing as working at a company that you’ve never even applied to for a job!! It can be surprising what shows up on your credit report.
It’s really the one thing you must do as a real estate investor – check your credit now, and then again in 6 to 12 months. And, keep checking it!
You need to know what your credit score is, and you also should take steps to increase your score.
A higher credit score often gives you better access to credit, better rates and sometimes even more favourable loan terms.
So what can you do to increase your credit rating/score? Some of the most important things you can do are:
ALWAYS pay at least your minimum balance every month on any loans, credit cards, lines of credit, etc.,
Don’t be a credit-seeker – this is someone who obtains new credit cards just for the “rewards” or constantly shops for the best mortgage rate (and has their credit checked by each lender along the way),
Try not to use more than 75% of your available credit for an extended period of time,
Close unused credit card accounts, mainly ones that you haven’t used for a year or more,
DO try to use your credit to establish a history of using and more importantly, paying off credit,
Check your credit at least once per year to make sure everything is as it should be.
Even if you’ve never bought any property, or you don’t think you will be buying property in the near future you still should check your credit score!
Keeping a regular eye on your credit report can help you catch anomaly’s that could indicate your identity has been stolen, it can help you make changes to your report that will increase your score, and it will make you sound more knowledgeable and professional when you speak to mortgage brokers or banks if you have a good idea of what is on your credit report.
How to Check Your Credit in Canada
Equifax is the most common credit reporting agency used by Lenders in Canada and you can check your credit and your credit score online. All you need to do is register, answer a few questions to confirm it’s you who is requesting your score, pay a fee of approx. $24, and within seconds you’ll have your credit report and score. You can also print off a form on the website, or call or fax and request your credit report for FREE through the mail. However, this will ONLY show your report, not your score. But, it’s still beneficial to obtain your report, just to make sure everything is in order.
How to Check Your Credit in the U.S.
In the U.S., Equifax is also very common as is TransUnion and Experian. Although, Equifax tends to be used the most by lenders. Similar to in Canada, you can order your report online very quickly for a fee, or you can order it for FREE through the mail. Whichever way you choose to obtain your credit report and score, it is highly recommended to do this at least annually.
by: Guest Author: Michael Acord, The Real Estate Maestro
As you stroll around your neighborhood or look for property investments online, you’ll find a lot of properties that have potential. An initial review will tweak your interest (maybe it’s the price, the location or it’s just in an area you really want to buy in), but you’ll need to dig a little deeper to find out if there is a real opportunity behind this potential. The cheapest way to do this is to pick up the phone, and call the vendor (or the listing agent – but you will probably find this method works best with For Sale By Owner Listings) and ask these 5 questions before you buy that house.
The purpose of the phone call is to extract information. What kind? As much information as you can get. I tell every student the same thing that was taught to me, real estate is a puzzle. Your job is to extract the information (the puzzle pieces) and put the puzzle together. Where do you start?
It’s not about lot size, bedrooms or baths; you start with what I call the 5 key questions.
1. Price, 2. Reason for the sale, 3. Any major renovations needed, 4. How long have you lived there, 5. What is owed (mortgage balance)?
What is your Price? “Hi. I’m calling on the home for sale (include the address as some people may have several properties listed). What is the asking price? How did you arrive at that price?” This answer will tell you the level of the seller’s sophistication. If they paid for an appraisal or interviewed agents, you may have some data that you can use in figuring out your purchase price. If uncle Vince, the tire guy, gave them the price and he knows nothing about real estate then you may assume their sophistication level is low.
Reason for the sale? This is the window question. The answer to this question will tell you how all of the other questions will be answered. The purpose of this question is to determine the motivation of the seller. If they are motivated, they will have no problem answering all of the other questions. And you really want someone who is motivated because they will be willing to negotiate on the terms of the deal. If they are indifferent to the sale of their property you aren’t going to get a very good deal. Not motivated sellers may respond with something more vague like “We are thinking of downsizing as we’re getting close to retiring”, or “We wanted to see what we could get for our place”. If they are not motivated, turn off your “take it personally button”. Their response to your other questions will likely be more abrupt and less helpful if they aren’t motivated. For example, when you ask what is owed, the unmotivated seller may say “that’s none of your business”. I like to ask this question early in the call because it’s an indicator on how the rest of the call will go. If they are rude at this point, I will bid them well and call my next seller. Time and circumstance have a way of leveling the playing field. A seller who was rude today may have to eat a lot of humble pie 6 months down the road when the property has not sold. That’s why you should always follow up on every lead you find.
Any major renovations needed? I am trying to get a list of all of the repair items that might be required. From this list I can determine my repair costs before I go out to look at the house. I also call this a negotiation question. If you discover more repairs than were disclosed in your initial conversation, I suggest you use those as a negotiating tool when it comes to your offering price. I calculate my offer price using the information the vendor gave me in the call, but when I do my property inspection, if I find more repairs are required I will ride that lack of disclosure until I get a nice price reduction.
How long have you lived there? Your goal with this question is to lead into asking how much equity the seller has in the property. A lot of equity means you have a lot of options available to buy the property. For example, the seller may be willing to hold a mortgage or hold a second mortgage on the property if they have a lot of equity in the property. A little bit of equity or no equity means you have fewer financing options that involve the seller. Be warned though, asking how much is owed can cause some uncomfortable tension between you and the seller. I prefer to just ask what is owed, that will tell me a lot about their motivation. But if you are not comfortable asking that so directly, you could ask “how long have you lived there?” If the seller’s response is many years, you can ask a follow up question such as “so you probably have a lot of equity is that correct?” This is a back door approach to getting the seller to talk about what the mortgage balance is.
What is owed? If you’re comfortable asking it, do it. The length of time someone has lived in a house can be helpful for guessing how much is owed, but many people used their homes as ATM’s in recent years and have borrowed against their homes. This means, if you haven’t asked this question, you really don’t know forsure if they have much equity in the property. From the basis of these five questions you will start to develop your purchase strategies which will lead to writing your offer.
It gets easier – so commit to calling one seller every day 6 days a week. Voice mail doesn’t count – you have to speak with the sellers. Even if you have no intention of buying that property, it provides a good basis for research, it will build your funnel of potential deals and get you comfortable talking the talk.
Michael Acord the Real Estate Maestro is an active investor, national real estate instructor and licensed real estate agent. He is one of the developers of Real Estate Coaching and Mentoring for the Professional Education Institute. He has just finished a new book “Cash Cows Come Home” and you can get your free copy atMyCowMakesMoney.com
Many Canadians are dreaming of heading south for the winter, but not just to beat the cold. They have real estate investing on their minds. Our strong dollar combined with a collapsing housing market in the U.S. spells opportunity for many. But Canada and the U.S.A are not the same country, and as much as we have in common we have differences. Any Canadian investor considering putting money in the U.S. should have a basic understanding of some key differences between buying real estate in Canada versus buying real estate in the U.S. So, before you start putting your loonies in Florida or Texas, read on.
Tax Systems:
Talk to an accountant that is experienced with American real estate investment as the countries differ considerably in terms of taxation of investment properties.
In the U.S.
1031 Exchanges allow the capital gains from the sale of an investment property to be deferred and rolled into a purchase of a similar type of property if it’s bought within 180 days. This can be done many times allowing capital gains to be deferred until the end asset is finally disposed of and not replaced;
If capital gains are realized (property is sold and cash is received), the seller is taxed at 15% of the total net gain (as long as the property was owned for more than 1 year, if less than, the rate is much higher);
Property taxes tend to be similar to those in Canada, however, if you are a Canadian and own a property in a Southern state like Florida or California, you may have much higher “non-resident” property taxes than either the locals or if you invest in other U.S. States;
Similar to Canadian tax laws, you will not be taxed on your primary residence, however, in the U.S., you can write-off the interest charged on your home.
Compare this to Canada
Sell your investment property in Canada and you’ll pay capital gains tax on 50% of the net gain. Canada does not yet have the option of deferring the gain through an exchange. The “gain” or “loss” gets added to your income and your are taxed at the applicable rate (which could be much higher than the standard 15% rate in the U.S.);
Similar to in the U.S., expenses associated with holding an investment property can be written off against your taxable income. See two previous articles for tax time tips: Part 1 and Part 2.
Before you send your loonie south this winter:
Determine if there are “non-resident” property taxes applicable in the city/state you are considering;
If you already own in the States and sell the property (and don’t buy another there to use the 1031 Exchange strategy) you’ll be required to pay U.S. taxes on the sale. You pay the U.S. first, but still have to file the tax return in Canada (showing the taxes paid in the States). Thus, you’ll only pay once (you get a tax credit applied to your Canada taxes), but you have to file 2 returns (February/March 2008 Money Sense has a great article on this issue);
Rental income requires two filings for taxes as well. You must claim the income (and expenses) in both countries, pay the applicable taxes, and get a credit for your Canadian taxes.
Lending differences between Canada and the U.S.:
The “credit crunch” or “subprime market meltdown” has had a dramatic impact on the U.S. lending environment, and has trickled over the border to Canada. Because of the economic crisis, lender guidelines and policies have changed dramatically in both countries. In the U.S., there were many mortgages given to just about any candidate. The phrase “ninja” loan was coined in the U.S. The acronym standing for “no income, no job, no assets”. Many individuals were given mortgages beyond their means. When the first large phase of ARM (adjustable rate mortgages) began to raise their rates, foreclosures began popping up all across the nation. Canadians need not fear the same crash here thanks to very different lending environments.
Hundreds of banks across the country with hundreds of differences in lending policies and guidelines;
Licensing varies across each state for who can be a mortgage broker. In some states no testing or licensing is required at all!
Bank regulation is controlled at the state and federal level, again possibly leading to less strict lending criteria from one bank or lender to another.
And in Canada
One federally-regulated Bank Act that controls what banks can and cannot do across Canada;
Only 5 major banks in Canada that control a large majority of all banking divisions;
All of the Big 5 Banks in Canada are able to lend funds for mortgages, but they have also acquired (and oversee) many of the licensed trust and brokerage companies (which lend money as well);
Mortgage brokers are provincially regulated in Canada, but the majority of provinces require extensive training, and the successful completion of a licensing test.
Economic Conditions in Canada and the U.S.:
The Canadian economy continues to enjoy good economic times with historically low unemployment rates, increased wages, and housing appreciation. At the same time, a recession has been lurking in the U.S. Many areas of the U.S. are experiencing depreciating houses, high unemployment rates, and deteriorating consumer confidence.
There could be some real bargains to be found in the U.S. as foreclosures pile up, property/houses depreciate (well into double digits in some States – Florida, Michigan, California), and our Canadian dollar continues to sit around par with the greenback. But before you take the plunge, do your research. Most economists still believe we are in the midst of the subprime fiasco. They forecast continued depreciation across the nation (obviously much worse in some areas than others) for the better part of two years. So, unless you really know an area is going to get better soon, I personally, would wait and see what the summer and early 2009 has to bring. The election, the war, federal policies to “bail-out” millions of credit-burdened borrowers, and the worst part of the subprime scenario which is predicted to hit in the fall of 2008, are all factors that will impact investment in the coming year, and it’s a gamble to buy without knowing what will happen. But, with the strong dollar, it’s a good time to head south and start looking for that dream home in Florida, isn’t it?
Some final thoughts (in this article anyways) on investing in the U.S. real estate market. If you are intent on purchasing in the U.S. and are a Canadian citizen residing in Canada, the following three ways may help you obtain financing:
Take out a mortgage in the U.S. through a U.S. based bank owned by a Canadian one such as RBC Centura or Bank of Montreal’s Harris Bank;
Purchase using all cash so you don’t have to deal with cross border financing issues (e.g., pull equity out of your home or other Canadian properties or ask your rich aunt for money!) to buy down south; and
Create a corporation in the U.S. with assets (a holding company will not work as it needs to have equity or be generating revenue) which can obtain the mortgage from a U.S. lender.
(If you missed Part One, you can check it out here).
It felt like I won the lottery at tax time this year. My cheque from the government was five figures. I am not bragging about this, because the reality is that the sale of my Toronto Condo happened at a net loss to me after real estate agent fees and our Toronto tri-plex cost us almost $30,000 last year. So, the money I got from the government didn’t come close to easing the financial pain I experienced in 2006, but it did make me glad they were investments and not solely my homes. Had they been only my homes, that money would have been gone for good.
So, how can you maximize the tax write offs from real estate investments? Personally, I always consult my accountant. In over 15 years of using an accountant, I have only once paid him more than I have gotten back from the government. But, I don’t just rely on him, I do have a decent understanding of what qualifies as current and capital expenses.
First, the definitions. An easy way to think of a CAPITAL EXPENSE is that it provides a lasting benefit and improves the property beyond it’s original condition as most renovations do. If it’s a separate asset like a new stove or fridge then it can usually be treated as a capital expense. Typically these expenses are significant (in the thousands of dollars). Usually these expenses must be deducted over several years versus current expenses which usually get fully deducted in the year they are incurred.
Some examples of capital expenses include:
The purchase price of rental property,
Fees associated with the purchase of the property such as legal fees,
Purchase of furniture or appliances to go in the property,
The addition of a deck to the property, or the addition of another bathroom.
A CURRENT EXPENSE is generally something that repairs the property to its original condition, for example a coat of paint or repairing stairs. The expense is usually one that recurs on a regular basis and provides a short term benefit. Some common current expenses include:
Costs of renting the property out (property manager, advertising, cleaning costs),
Insurance on the property,
Interest on your mortgage (note that your principal repayment is not deductible),
Maintenance and repairs that restore the property or item to it’s original condition,
Travel costs to collect rent, view or work on the property (note that this includes transportation costs but not typically lodging or food),
And office expenses that are directly related to your investment (things like long distance fax charges and telephone bills we have expensed but pens and paper we have not, although you can if it’s directly related to your investment activities).
Published:October 29, 2007
THE DISCLAIMER: Neither of us have any legal training, nor do either of us have extensive accounting training. We are not experts and we always consult with our accountants and legal counsel before we make decisions. We pay money to get quality advice when we need it and always advise our friends, family and readers to do the same.
You might roll your eyes when I tell you that the book that motivated us to set some goals, and actually start real estate investing five years ago was Rich Dad Poor Dad by Robert T. Kiyosaki. I admit that it’s a bit ridiculous how many different versions of the same concept have sold since then. I think they’ve diluted the power of their concept by over-selling it. Six years ago though, the messages in the original book really hit home for us.
Specifically, the two concepts that I carry with me today are:
The Rich don’t work for their money, their money works for them, and
Why your house is NOT an asset.
The Rich have their Money Work for Them
My parents have worked incredibly hard all their lives. Most recently they’ve been successful B&B owner/operators on Salt Spring Island, BC. They have set themselves up very well for retirement, have some money to spend now and have enjoyed being self-employed for over 30 years. What they haven’t had is freedom. Tied to their businesses 24 hours a day 7 days a week, until recently they had only taken a handful of vacations in their lives.
After reading Rich Dad Poor Dad my dad said to me, “We have been buying ourselves jobs instead of buying businesses”. At the time, I had been working for less than two years, and already realized it was going to be a long life of “punching my time card”, if I didn’t make a plan to get my money working for me. That is when Dave and I set out to figure out some ways to create income streams that didn’t require our attention every day. Neither of us was prepared to start a business, so we decided to build wealth while working for “the man” as Dave calls being employed. The objective, is and always was, to become financially free. We are working to be at a point where our assets make us enough money that we only work because we want to.
Your house is NOT an asset
This concept has been the subject of many debates in the media and amongst our friends and family, but it really made sense to both of us. The essential concept is that assets generate income, liabilities generate expenses. “The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. (p.81)”
The enlightening concept here is that as a homeowner that works, you are making everyone else rich (the owner of the company you work for, the government, and the banks that loan you money to buy your “assets”). If instead of becoming a homeowner, you bought an income producing asset (stocks, bonds, real estate, intellectual property), you would increase your income, decrease the amount you pay the governement (in some cases), and your financial “cycle” would be generating cash instead of generating expenses.
Most of us get a raise, then think about buying a bigger house. A raise means more money for the government. A bigger house means a bigger mortgage, which means bigger payments to the bank (liabilities). A home, we’ve noticed, also means many trips to Home Depot, Home Outfitters, Sears and other stores to make your home nice. If you have recently changed from renting to owning you will likely have noticed how many things you suddenly “need” to do to your house or buy for your house. It’s a never ending cycle of expenses.
So, does this mean you shouldn’t own a home? No. What it’s about is awareness – don’t fool yourself into thinking that your home is an asset just because the rules of accounting say it is. Your home does not create income for you and your family, it creates expenses.
For us, Rich Dad Poor Dad got us into real estate early in order to begin getting our money working for us. We bought an investment property before we bought a home. But, the second place we bought was a small condo for us. We would rather pay down our own mortgage than someone elses. We have since lived in three places we have bought, and they have always been homes below our means. We put the rest of our money to work for us. We do this knowing that our home is a liability, but one that we have chosen both for lifestyle and financial reasons.
Published March 22, 2007
**April 3rd, 2009 Update: Check out the article celebrating Rev N You’s 3 Year Anniversary by Julie Broad called: The Day We Became Real Estate Investors. It’s a tribute to the lessons this book taught us**
A VTB or Vendor Take Back, is simply where the seller (Vendor) of a property is willing to provide some or all of the mortgage financing on that property. A VTB is generally a lot more common on commercial properties than it is on residential, however, residential VTB’s do exist. In fact, we have had VTB’s on 3 of the 11 properties we have purchased. In one case noted above (Nanaimo B), the seller gave my business partner and I an 80% loan to value mortgage at a 5.5% interest rate with a 3-year term! Not bad considering we didn’t even have to go to the bank! VTB’s usually are held because of one or any of the following reasons:
it’s a distressed property, and to make it more desirable the vendor offers a VTB to the potential purchaser;
the purchaser is unable to obtain standard financing from the bank;
the seller knows (and trusts) the purchaser and is willing to help them out on this purchase;
the purchaser can obtain some financing from the bank, but doesn’t have the capital to close – so the seller will hold a smaller 2nd mortgage on the property; and
the vendor may make considerably more money on the property by charging a higher than market value interest rate and collecting it back over time (sometimes there may be tax benefits for the vendor as well).
As there are many benefits to both parties, it never hurts to ask if a vendor is willing to hold a mortgage on the property. Even if it’s only a smaller 2nd mortgage that just allows you to not put in an extra $5000 or $10000. As long as you aren’t over-extending yourself too far, then using other people’s money is a great way to use leverage and enable you to buy other properties. Or, to have money left over to renovate, refurbish, or spend on marketing to rent your new purchase.
For you, as the purchaser, there are other potential benefits from obtaining a VTB:
generally no pre-payment penalty if you payoff the mortgage early as with bank financing;
vendor’s rarely ask for all the documentation (T4’s, Pay stub, Employee letter, etc.) that bank’s require; and
the mortgage, and it’s value, will not show up on your credit score as is now becoming more common with the big banks and credit unions.
Keep in mind, however, that a VTB is not always a great plan. Ensure your real estate lawyer thoroughly reviews all of your VTB documentation including the Purchase and Sale Agreement and the mortgage and it’s conditions. Also, make sure you speak with the vendor to determine if the term can be extended when it comes due.
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Startled by the couple wandering around the yard, and looking in windows she decided to yell over to them and ask what they were doing. “Excuse me, are you looking for something?” she called as she watched the couple peak into the basement window. My parents replied, “Um, our daughter is considering buying this house, and she told us it was vacant and asked us to look around. She lives in Toronto, and needs to be sure this is a good investment”. Thankfully the neighbour believed my parents, and was kind enough to tell them more about the area, but it could have ended a little differently had the neighbour just called the police on my peeping parents!
Unable to find anything that met our goals in Toronto, we began searching for a property in Vancouver or Nanaimo to invest in.
Vancouver turned out to be a bigger financial committment than we were prepared to make at that time, so we eventually focused on Nanaimo. We found a place, put in an offer, negotiated the deal and closed on our purchase from Toronto. I did not see the property before we bought it. In fact, we have had it for almost a year, and I still have not seen the property.
How did we do this? First of all, Dave grew up in Nanaimo and knows it very well. This is the fourth property we have bought in Nanaimo (fifth if you count the one Dave bought with his mom many years ago), and we have a very reliable and trustworthy real estate agent and property manager, Lindsay Widsten. Dave kept in close contact with Lindsay, and kept his eye on MLS listings to spot opportunities.
Second, we both have family in and around Nanaimo. Dave’s Mom did the initial walk through with Lindsay when the opportunity arose. She sent us photos and described it to us in detail. My parents went over on a different day, and walked around the block and peaked in the windows.
There is not much you can’t do over fax, phone and email these days. All our negotiations were done via Lindsay over the fax and phone. We had our lawyer here notarize our signatures on the purchase, with another lawyer in BC acting on our behalf for the purchase. We used the same fantastic mortgage broker in BC, Cindy Faulkner, who has convinced many lenders to loan us money at great rates. Finally, we had Lindsay rent it out and manage it for us.
It helps to have the right resources, and to have some knowledge of an area to make a purchase. It definitely makes it more comfortable. And, if you don’t need to see your investment on a regular basis then it’s definitely worth looking in other locations to find your investments. It gives you more flexibility, and may diversify your risk of market crashes because those are often very geographically focused.
Last edition we talked about whetherinvesting in real estate is right for you. Assuming you’ve decided it is, then the next consideration is what are your real estate investing goals. When we bought our first two properties we were quitting our jobs to move to Toronto from BC. I was going to do my MBA and Dave was going to find a new job. My goal was to make my money work for me while I was in school.
Why is it so important to know what your real estate investing goals are? In order to figure out what type of property you are looking for you will need to know what exactly you want to get from real estate investing. Are you looking for monthly positive cashflow, longterm appreciation and equity building, or a combination? Are you interested in investing for the long term or the short term? How much time do you have and what is your risk tolerance?
Before you can determine your property type, it’s necessary to assess your current financial state and understand what you are trying to achieve and what is possible.
Your Five Year Plan – Goal Setting
This is a technique we use over and over. Sit down right now and write down:
Where you want to be financially in five years (be specific, for example do you want to be earning $100,000/year in your job, own two properties that are giving you $500/month in positive income, and have $20,000 in RRSPs)?
What can you do in the next 12 months to achieve each of the above items (once again, be specific and try and make the items measurable)?
What can you do in the next six months to move towards your 12 month goals?
What must you achieve this month to move towards your 6 and 12 month goals?
Review these goals regularly. We used to do it monthly, but now we just do it quarterly. Find what works for you, and stick with it.
We will leave how to achieve your goals aside for now, and just focus on finding a property type to help you move forward in your real estate goals. Some initial considerations before you begin a property search:
Will you live in one of the rental units or will you be an absentee landlord?
Do you have any savings to use for the purchase (or can you use your RRSP’s as part of the first time Home Buyer’s Plan)?
What size of mortgage can you qualify for?
What is your risk tolerance?
How much spare time do you have to devote to the property?
Do you have any construction/renovation knowledge (or know somebody that does)?
Will you manage the property yourself, or will you hire a property manager?
Can you afford to supplement the property monthly if necessary?
Think carefully about your answers, as each one has an impact on your choice of property. For now, let’s focus on the very first decision: Living in the building with your rental unit or being an absentee landlord.
2006 has not been a great year for us in real estate investing. After the $20,000 in fines and work orders we had earlier in the year for the “crack house” in Niagara Falls, and $5,000 in plumbing repairs in May on our three unit home in Toronto, we hoped the expensive surprises were done for the year. Sadly, in September we had to rewire the same three unit property in Toronto. After we stopped choking on the $25,000 bill, we sat down and refocused on what our objectives are.
Every month we bring you back to those objectives that we talked about in the very first newsletter, but sometimes they are all that keep you going forward. As we figure out how to pay for the new debt when we still haven’t paid off the other surprises from the year, you can see how our objectives are especially important.
So, this month as we take you through a few of the deals we did in the last five years, remember to revisit your goals for your wealth, health and life. You never know when you will need them to guide you on your next decision.
The Eleven Dwellings: Our five years of purchasing history
by Julie Broad
Neither Dave nor I make six figures (yet! we still have high hopes). In fact for almost two years while we were investing, I wasn’t making anything because I was a student. So, before you turn away thinking you can’t possibly afford to buy one property let alone 11 in the next five years, remember there are ways to achieve any goal with a little determination, effort and creativity!
As promised last month, here’s a high level look at how we picked up eleven new properties in five years:
1. Nanaimo A – bank financed deal with savings 2. Toronto A – primary residence purchase using RRSP’s 3. Toronto B – we assumed the vendor’s mortgage and our real estate agent held a second mortgage on the property (this has been a mixed blessing purchase – it’s one we were never sure how we qualified for, but had we not qualified for it we would have saved tens of thousands of dollars in repairs and renovations that we didn’t expect – shown in the photo above, our new garage construction) 4. Niagara Falls A – No money down deal with bank financing and a VTB (“No money down doesn’t mean it won’t cost you” – remember that edition of Rev N You? It was about this property) 5. Niagara Falls B – 85% mortgage from the bank, with CMHC insurance, a promissory note from the vendor and a credit for work to be done 6. Nanaimo B – 80% VTB, no bank financing and we partnered with a friend of ours to come up with the downpayment (this is an example of one of the deals out there worth looking for, and when you find a good deal it’s not too hard to find someone with cash willing to go in on the deal with you) 7. Toronto C & D – pre-construction condos where we partnered up with several people to come up with the 15% to purchase them; and we have to pay the other 10% down when they are finally built in 2008 8. Nanaimo C – Refinanced Nanaimo B as it had appreciated a considerable amount in 12 months, and we used that money to buy this property (no money out of our pockets) 9. Nanaimo D – Refinanced Nanaimo A to purchase this property, and used some of the left over cash to renovate Toronto B (this is when we love real estate and the hot market we have been in!) 10. Vancouver A – All we will say for now is that we can thank the creative and hard work of our mortgage broker and some help from our family.
There are deals you don’t see in that list that we walked away from. There is even one deal we left our deposit ($1,000) on the table because we walked away too late. Sometimes the financing just doesn’t come through. Sometimes the deal doesn’t make sense in the end. This is where having at least one condition in your Purchase and Sale Agreement is key as we discussed in a previous edition (so that you can still walk away and not lose money!).
We have since sold one of the Niagara properties because of the constant problems with the tenants, the property manager and the city, and Toronto A is on the market to pay for the costs of rewiring Toronto B. We will never say this has been easy. But, we always tell ourselves that if it were easy everyone would be doing it.
Our point of showing you what we have purchased over the past 5 years is to give you an appreciation for how a little creativity can go a long way with real estate investing. You don’t always require a lot of capital or a ton of experience as there are other people you can work with to help get you going. Short of cash? Talk to friends or family to see if they might be interested in partnering up. Short of ideas? Speak with someone you know who has a fair amount of real estate investing experience. Think “outside the box” even if the bank’s want you to be in it!
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When I learned of my friend’s situation, it reminded me of a time many years ago, when I was the victim of a minor case of identity theft. Another Julie Broad had found my address and learned a few details about me, and directed a collections agency and an angry landlord my way. I was able to resolve the issue by signing some papers and showing some I.D. to prove I was not the “bad” Julie Broad.
Many Canadians are dreaming of heading south for the winter, but not just to beat the cold. They have 
