First Rental Property

Hi There,

I hope you are doing well.

In today’s blog post, I am going to walk you through how you can make a 26.1% return on your money investing in real estate.

I recently recorded a PODCAST called, 3 Reasons Why Buying A Rental Property Is Better Than Investing In The Stock Market.

In this PODCAST, I talked about 3 ways in which you can make a ‘return’ buying and holding real estate.

These 3 ways were:

Cash Flow

Mortgage Paydown

Property Appreciation

To illustrate to you how you can make this type of return on your capital, I am going to take the same example I spoke about in the PODCAST.

Let’s assume that you are a new real estate investor and you are interested in buying your first rental property.

You purchase a property for $450,000.

Let’s assume that you are purchasing a property in the Toronto or Greater Toronto Area real estate market.

As such, you provide a 20% downpayment to purchase the home, which equals ($450,000 * 20% = $90,000)

Therefore your downpayment is $90,000.  Don’t forget this number.  We will re-visit it later…

The property produces a $500/month net cash flow. (This is on the high side for Toronto, but I am using easy math to help illustrate this example)

You annualize your cash flow by multiplying $500 by 12 months.  This gives you ($500 * 12 = $6,000)

Therefore, you have $6,000 annual cash flow from the property.

Since you have provided a $90,000 downpayment, and the purchase price of the home was $450,000, this leaves you with a $360,000 mortgage.  ($450,000 – $90,000 = $360,000)

Now let’s assume that you obtain a first mortgage in the amount of $360,000 at a 2.5% interest rate and amortized over 30 years. (What is Mortgage Amortization)

Using a mortgage calculator, we can figure out that your monthly mortgage payment would be $1,422/month.

Now here is where we use some creative math.  Let’s assume that 50% of your monthly mortgage payment of $1,422 is principal, and 50% of the payment is interest.

If you use a mortgage calculator for this, you will see that the breakdown is not actually fifty-fifty.  However, I am using 50% just to make the math easy.

As such, 50% of $1,422 is $711.

This means that the mortgage amount of $360,000 is paid down by $711 each month.

We want to know how much the mortgage is paid down annually (or at least in the first year), so we take $711 and multiply it by 12 months, which gives us $8,532.  This number is also important.  We are going to re-visit it shortly.

If the property that you purchased for $450,000 appreciates at 2%, that would mean that the property would go up in value by $9,000 in the first year.  We get this number by taking $450,000 and multiplying it by 2%.

I am using 2% as an extremely conservative figure.  The real estate market in Toronto and the Greater Toronto Area has far surpassed this figure over the past several years.   

So now we take our return on our capital from year one.

We have $6,000 annual cash flow

We have $8,532 annual mortgage pay down

And we have $9,000 property appreciation in year one.

Now we add up all of these numbers…

$6,000 + $8,352 + $9,000

This equals…

$23,532

We now take this amount (the total amount you have made in year one), and divide it by your initial investment of $90,000. Which gives us…

$23,532 / $90,000 = 26.1%

So as you can see from the math above, you can make a 26.1% return on your investment (in year one) by investing in real estate.

Happy Investing!

-Neil

Hi There,

I hope you are doing well.

I always get asked by new real estate investors where they should buy their first rental property.

There are many cities and countries you can potentially invest in.

My favourite city to invest in is Toronto.

Here is why:

A)  Lack of Supply

If you are not familiar with what is going on with the Toronto real estate market recently, let me tell you.

Prices of properties have been going up at record levels.  This is especially true of “detached homes” both in the City of Toronto, and in the Greater Toronto Area.

Due to the fact that prices are going up with Detached homes, this is now having an effect on the prices of condos in Toronto.

Fewer people can afford the price of detached homes now, so more people are gravitating toward condos.

The lack of supply with detached homes, will cause condos to increase in price as well.  There will be more and more people looking to buy condos in Toronto as the real estate market continues to rise.

Which means that a condo that you buy today will be worth more in the future.

B) People Are Coming

If you don’t know this, let me tell you.

People are coming from all around the world to live in Toronto, and the surrounding areas of Toronto.

Toronto is a beautiful and vibrant multi-cultural city.

As more people continue to come to the Toronto area, this will cause there to be more demand on the housing in Toronto.

With more demand, come increasing prices.

Which again means that if you buy a condo today, it will be worth more in the future.

C)  Toronto Has Jobs

Toronto is the financial “capital” of Canada.

Major banks, Insurance Companies, and Hospitals are big time employers in Toronto.

Not to mention, start up companies, and marketing firms…

Anyone that is familiar with Toronto knows that people commute from all over Ontario to come into Toronto to work.

People drive or take the train to enter the city.

Due the fact that there are so many jobs in Toronto, and that people travel into Toronto to work, this proves to be favourable for the real estate market.

Often people want to ‘ditch’ the commute, and live closer to their jobs.  Especially younger generations.

Lots of people don’t like spending so much time in the car, and want to have more free time.

This is the reason why people move into Toronto, to be closer to their jobs.

This in turn, increases demand for Toronto real estate, as more and more people want to live in the City.

Once again, with increased demand, prices of condos will be going up in price.

Which means that a condo that you buy today, will be worth more in the future.

What Do You Do Now?

We know that people are coming to Toronto, and there is a lack of supply of housing.

We know that this is going to cause condos in the City to rise in price.

So what do you do with this information?

You can:

a) Do nothing about it.

b) Buy a Toronto condo as your first rental property.

The choice is yours.

I know what I would do………….

Happy Investing!

Neil

Hi Folks,

I hope you are doing well.

With real estate prices rising to record levels in the Toronto area, some people are beginning to speculate that condos will soon be priced so high, they will soon be out of the reach of the average buyer.

Could this actually happen?

Seriously, could condo prices rise high enough, that the majority of people will not be able to buy one?

In my personal view… it could happen.

Daniel Tencer of the Huffington Post writes,

“Single-detached home prices in the city of Toronto jumped by 32.3 per cent in a year, and now average $1.35 million. In the surrounding 905 region, detached homes jumped 25.5 per cent and are now on the verge of hitting the $1-million mark, at $957,517.”

For those of you that are not familiar with the Toronto area, the “905 Region” consists of cities surrounding the City of Toronto.

In his article, Daniel mentions that as real estate prices continue to rise, single detached homes remain far out of the reach of most of Toronto’s first time buyers.

Further, Daniel states that:

“Prices for condos in Toronto jumped 13.5 per cent (since 2015) to $471,256.”

Not only did condo prices jump in Toronto, they also went up in price in the “905 Region”.  According to Daniel:

“…the average condo there (in the 905 Region) jumped 18.9 per cent in price in the past year, to $374,792.”

So what does this all mean?

It could mean that Toronto’s home ownership rate is going to start to drop, as some experts have predicted already.

Just take a look at this.

This is the “Average Annual Toronto Sale Price” dating back to 1970.

If prices continue to rise in this manner, as you can see in the chart above, this will result in more people becoming renters for life, unless a major correction in price occurs.

This is where the opportunity lies.

If there is one piece of advice I can give you, it is this…

BUY A CONDO IN TORONTO NOW !

Condos are still affordable and they are a great investment for new real estate investors, looking to buy their first rental property.

Or, they can be a smart investment for the veteran real estate investor, looking to purchase his/her 4th property.

The tenant profile (as long as you do your due diligence) is excellent in Toronto.

I own condos in Toronto myself, and they have been a fantastic investment.

But Remember…

Don’t delay.

Buy now and prosper.

If not, you may become a statistic.

You may be priced out of the Toronto real estate market, like so many other people who did not take action.

Happy Investing!

Neil

Hi There,

I hope you are doing well.

If you don’t know what is going on with the Toronto real estate market, it is time I should fill you in.

To simply put it…

The Toronto real estate market is on fire.

Thus far in 2016, Toronto has experienced significant demand for detached homes.  At the same time there has been a lack of inventory available.

As such this has caused a supply and demand issue, in that there are so few listings available for sale, the demand for these homes is driving prices up at record levels.

If you are from the Greater Toronto Area, or have knowledge of the real estate market there, this is NOT new news for you.

Whether you are from the Greater Toronto Area or not, this could be a great opportunity for you.

Many experts are forecasting that the supply and demand issue in Toronto is going to last for year to come.

The reason for this is because, there are approximately 100,000 new people coming to live in the Greater Toronto Area each year (according to some sources).

Forecasts indicate that the Toronto real estate market is becoming an International real estate market, similar to New York, London, and Hong Kong.

Further to that, experts forecast that over the next 25 years, 4 million new people will be coming to live in the Greater Toronto Area and surrounding areas.

As this unfolds, the cost of detaches homes will continue to sky rocket.  (increase )

This is where there is opportunity for you if you are looking to invest in real estate.

Condos, especially condos in Toronto, are going to be the property type that people gravitate towards.

Condos will be the only property type that most people will be able to afford.  (Some think Toronto’s Middle Class is about to be priced out of the condo market.)

In addition, with the increase of prices, condos will increasingly become a property type that people will be looking to rent.

As a real estate investor, you should be looking to buy Toronto Condos.

I am going to go into more detail in my next blog post.

For now, it is important to remember this:

If you are looking to buy your first rental property, or if you are an experienced real estate investor looking to buy your 5th rental property, there is tremendous opportunity in buying Toronto real estate, in particular, condos in Toronto.

Happy Investing!

-Neil