When the Bank Box is Too Small to Finance Your Rental Property

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

Toronto House Purchaseby 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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