[Underworld]

Hi guys - I'm starting to read up on real estate and how to make money in it. It seems the majority of books out there are US based. I've seen twice now references to making money in 4 ways:

1) Positive Cash Flow
2) Appreciation
3) Renter paying off your principal against the house
4) Tax shelter

For point 4) The details in the book I am reading are US based. Does the same apply to Canada? If so can some one explain it to me please

Thanks!

 

[canadianbanks]

There are quite a few real estate investment books written by Canadian authors, for example:

http://www.amazon.ca/Real-Estate-Investing-Canada-Creating/dp/0470835885
http://www.amazon.ca/Tips-Canadian-Real-Estate-Investors/dp/0470838086/ref=pd_sim_b_1

Canadian housing bubble is the last real estate bubble that hasn't popped yet, so I would be extremely careful if I were to invest in real estate here.

 

[Cal]

Agreed.

you might want to read www.greaterfool.ca for a few weeks....its free too!

 

[Underworld]

Hmm interesting information there, I'll read up on greater fool.

Thanks guys!

 

[Cal]

Underworld - take you time and read up on this. IMO not the time to be buying, but thats good for you, more time to read up on the RE market. Then when it is a better time, you will have more knowledge.

Also...try...'the perfect mortgage' by alan silverstein...i think....Canadian author.

 

[NorthernAlex]

I have to disagree that Canada has a real estate bubble. Provinces maybe, or Cities, possible- but definitely not Canada in general.

If you do your due diligence and have a good positive cash flow from day one, check fundamentals, use conservative numbers which includes Repair/Maintenance, a vacancy rate, property manager fee (to me) you should be save.

I joint 7 months ago REIN, which is the Real Estate Network from the author of the mentioned books in the links above, used my common sense and the Acre system to tweak my knowledge, I enjoy the network of REIN and the closed forum group.

Back to RE:
The most important thing is positive cash flow. Appreciation is just the whip cream on the cake.

I signed today the purchase and sale agreement for a 5plex here in Sudbury for 250,000$. I am using 20% down. Approx. 48,000$ annual income, roughly 28,000$ expenses annually. (3% Vacancy, 6% R/M, 5% property management, Insurance, ....). roughly 20,000$ profit annually.

In regards of the purchase price I was lucky, as I was able to get it directly from the owner, who owned it for a long time- without paying any RE agent.

 

[hugo]

One thing to consider is that the money you get the renter to pay against principal of the mortgage is taxed at your marginal tax rate.

 

[sprocket1200]

Alex,

I would love to get into RE. Where is the mortgage in your calculation? I estimate it would be about $24,000 annually.
If your profit is really $20,000 then taxes will be $5-6000 won't they?
The total take of say $15,000 on a $250,000 investment is less than 6%.

 

[NorthernAlex]

Hi sprocket1200.

Here the latest project in detail:

Expenses $/monthly

- Heat 200$ (equal billing)
- Hydro 145$ (two are incl, 3 are own hydro- next must be own hydro)
- Water 165$
- Taxes 175$
- insurance 100$
- Lawn/Snow Service 50$ (neighbor)
- Management Fee 200$ (me now, maybe later a PM company)
- Vacancy 115$ (3%)
- Mortgage 1019$ (190,000$/4.19%/5y fix/25y amor.)
- Repair/Maintenance 240$ (approx. 6%)

total: 2,409$/ monthly or 28,908$ annually

Income
4,065 monthly or 48,780$

48,780 - 28,908 = 19,872$ Profit (or 1,656$ monthly).

NOW... you have to calculate the Return of Investment (ROI), means the money I put in (here $70,000, because I added $10k for legal expenses, taxes and "safety net") and not 250,000$. The lower the down payment the higher the leverage, but also the risk. I use roughly 20-25% all the time, as it keeps it easier with the banks. Thru CMHC it can or could go down to 5% down, but I am not sure if they now ask for 15% down.

If I would pay down the $250,000 + $10,000 in full, the numbers would not be so attractive. Indeed, but I invested 70k and should get roughly 20k back annually. This is a ROI of approx. 28%.

Now, particular with this deal I was very lucky, as I was approached directly by the owner. He wanted to sell fast and quite. That's why I got it roughly 15% below market price.

I mentioned it before: I use KISS... Keep It Simple System, which means, I will discuss with my accountant, should we appreciate or I will pay taxes. It might sound strange, but I don't have a problem with paying taxes as long as I have button line something to work with later, too.

This year I will donate some amount to my local Habitat For Humanity.

I hope I was able to help you a bit.

Write me a PM if you have further questions.

BR,
Alex.

 

[Underworld]

Interesting info.

I was thinking the same. If you have positive cash flow, you are still benefiting even if you get no appreciation on the property.

I will read up on REIN, ACRE and your measurements for income assesment.

Thanks,
Underworld.

 

[Rickson9]

Back to RE:
The most important thing is positive cash flow. Appreciation is just the whip cream on the cake.

I signed today the purchase and sale agreement for a 5plex here in Sudbury for 250,000$. I am using 20% down. Approx. 48,000$ annual income, roughly 28,000$ expenses annually. (3% Vacancy, 6% R/M, 5% property management, Insurance, ....). roughly 20,000$ profit annually.

In regards of the purchase price I was lucky, as I was able to get it directly from the owner, who owned it for a long time- without paying any RE agent.

Very nice! Grats!

 

[NorthernAlex]

Thank you very much! I hope, more deals like this stop by!

 

[Berubeland]

One other way you make money in real estate is as a hedge against inflation.

Through the effluxion of time the mortgage of $250,000 Alex got on his property will seem like chump change. Just like when you hear someone paid $11,000 for a house in Toronto 30 years ago.

The amount will be small and the payments smaller. Rents will go up by the same mechanism.

Like those stocks that increase their dividends every year real estate also increases every year. It's kind of like watching a plant grow.

 

[Maltese]

One other way you make money in real estate is as a hedge against inflation.

Through the effluxion of time the mortgage of $250,000 Alex got on his property will seem like chump change. Just like when you hear someone paid $11,000 for a house in Toronto 30 years ago.

The amount will be small and the payments smaller. Rents will go up by the same mechanism.

Like those stocks that increase their dividends every year real estate also increases every year. It's kind of like watching a plant grow.

Anyone who owned property in the 80's and 90's in provinces like Manitoba knows that real estate doesn't automatically go up. Sometimes it goes down as evidenced by 2 fully paid for homes that I owned and sold due to personal misfortune. I lost $15,000 on the first home and $35,000 on the second due to poor markets. I held on as long as I could and finally had to cut my losses and move on. As a result I am not in the financial position I had hoped to be at this stage of my life. I've learned that nothing in life is guaranteed no matter how hard one works and saves for the future.

 

[sprocket1200]

the good news is that historically real estate growth has out paced inflation, and GIC's. other then that there are better places to invest money, but it is a good diversification play, as long as you either have millions or rent.

 

[Berubeland]

Anyone who owned property in the 80's and 90's in provinces like Manitoba knows that real estate doesn't automatically go up. Sometimes it goes down as evidenced by 2 fully paid for homes that I owned and sold due to personal misfortune. I lost $15,000 on the first home and $35,000 on the second due to poor markets. I held on as long as I could and finally had to cut my losses and move on. As a result I am not in the financial position I had hoped to be at this stage of my life. I've learned that nothing in life is guaranteed no matter how hard one works and saves for the future.

Agreed but we are discussing cash flow positive rental properties.

If you put 20% down and the tenants pay the mortgage for 25 years you're still way ahead of the game even if the purchase price goes down 20% because you haven't paid for the property the tenants have.

Also I come from a small town in Northern Ontario where the cost of building materials for a house is higher than the cost of a house on the Real Estate Market.

I too have made plans......

 

[moneymusing]

Does real estate business make good amount of money? I want to become super rich in the future.If not, what other business do you recommend for good money making?

What is super rich to you? $1 million, $50 million, $10 billion? Making a million bucks can be done in nearly any entrepreneurial venture given the right business plan, a lot of sweat, and a little luck.

For a billion dollar business you're going to need people in the right places and a complete obsession with your goal. I don't think there are any accidental billionaires out there.

 

[Rickson9]

Does real estate business make good amount of money? I want to become super rich in the future.If not, what other business do you recommend for good money making?

I recommend understanding financial statements in order to make money.

If you're not willing to do that, then I guess there's just the lottery.

 

[sprocket1200]

maybe check out the list of the top 50 richest people in the world. very few real estate moguls there...

 

[Berubeland]

Sprocket I can assure you that even if the business they are in isn't real estate a good percentage of their net worth will be tied up in real estate in the form of houses to live in and buildings/land that are owned by their business.