You can purchase a luxury 3 bed/2 bath condo for $600K (http://bit.ly/2Clh7J9) which would cost you $4,400 monthly excluding utilities ($3K mortgage + $600 property tax + $500 property maintenance + $300 insurance)
…or you could purchase a 6-plex (http://bit.ly/2MLDgVP) which earns you positive cashflow ($500-900 / month), appreciation ($1K-1.5K / month), equity via mortgage paydown ($1K-1.2K / month) and tax benefits via reducing tax basis due to depreciation ($2K / month).
In 2015, we purchased this luxury 6-plex for $960K with indoor parking, central air, four 3 bedrooms/2 bathroom units and two 1 bedroom 1 bathroom units. Each year we’ve been close to cashflow neutral, earning absolutely no monies from positive cashflow. Many of my startup students ask in bewilderment, “Why bother?”
The reality is that many of my new startup students have walked away from investment opportunities simply because they don’t generate cashflow. Unfortunately, they have likely missed out on some pretty amazing opportunities. The reality is that positive cashflow isn’t the only way to build wealth in real estate investing; in fact it often isn’t even the typical way.
To all of my entrepreneurial friends, if you read just one book this year, I strongly recommend this be it.
After mentoring nearly a hundred entrepreneurs in 2015, and my going through my umpteenth own self-discovery phase, I’ve noticed one of the biggest mistakes made by almost everyone is a burning desire to do more. This is the not only the wrong approach to achieving success; as you gain momentum in different areas you continue to de-focus yourself and push yourself further away from achieving the potential that you are capable of in any singular focus.
Every penny counts towards your retirement and it’s vital to sock away as much as you can afford, especially while you are young. How much can you afford to invest? Let’s assume you can invest $300 each month ($3,600 each year).
Every time you look at your investments it appears to be growing; albeit slowly. Is there a way to kick-start your investment account? There is, but it’s going to require an entirely different mindset about what risk truly is and an understanding of how risk can be managed. Let’s discuss…
Most homeowners have equity in their house and each and every month as the mortgage is paid down this equity continues to grow. Unfortunately this equity earns $0. Of course the value of your home appreciates slowly over time, but this would happen regardless of what you owe on it.
A convo I’m having this morning with a colleague, I thought I would share. Should you invest in your RRSP to save taxes now or your TFSA; saving no taxes now but increasing your compounding power over the next several years? Take a look…
“Oh my gosh, your life must be so stressful. Dealing with collecting rent, evicting tenants, doing repairs, showing apartments. You must never get a break!”. These are some of the most common reactions I get from people when I mention that I invest in real estate.
Now let’s discuss how “stressful” it really is.
I’ve been investing in real estate since 2010, a total of ~60 months. During this period I’ve had to evict two tenants, one which left amicably and the other which took a 2 month process to evict. I’ve also performed mostly routine repairs every couple of months. The one non-routine emergency repair that I’ve experienced was a unit that experienced frozen pipes two winters in a row and required a few dozen hours to fix properly. Oh and I’ve also had to purchase a spray foam insulation kit and spray the basement walls in one of my units which had excessively cold floors above during the winter months.
Real estate is one of the best investment vehicles for your hard earned monies. Although it is not a passive investment, it offers numerous benefits over other vehicles:
- Low barrier to entry
- Easy to learn as you go along
- Most decisions are common sense (e.g. a tenant doesn’t pay -> evict; repairs needed -> perform repairs; vacancy -> advertise, etc.)
- Allows you to leverage other people’s time (e.g. property managers, lawyers, accountants, real estate agents, etc.) & money (the bank, private lenders, etc.)
But before you consider investing in real estate it is vital that you invest some time to learn the basics.
It’s important to be organized when you acquire new investment real estate because there’s a list of documents that are required for each and every deal. When you have a few weeks to obtain financing approval, the last thing you want to be doing is stressing because you’ll need time for inspection, closing, auditing leases, etc. Here’s a list of documents you should have ready:
- Purchase offer (including all counter offers), dated, signed and accepted
- Proof of down payment
- Updated and signed net worth statements of all co-owners / primary shareholders if purchased through a company
- Tax reports & appendices on income and expenses of each rental property
- If purchased through a company, financial statements of the company for the last 3 fiscal years
- Detailed income list for all rental properties you own
- Current copies of all current leases (along with documentation supporting rental increases that have happened over the years for longer-term tenants)
- Detailed mortgage financial statements for all properties
- Detailed financial statements of all investments held (stock, real estate, etc.)
If you purchase real estate a few times a year take the time to organize and update these every few months. These documents are the lifeline to growing your portfolio.
Founding Partner, Amplified Investments
Investing in real estate