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 Folks,

It’s Neil from First Rental Property.

I wanted to send you all a quick reminder.

Not only am I the owner and creator of First Rental Property,

I am also a Realtor with RE/MAX, and I specialize in the Greater Toronto Area.

If you are someone who is looking to purchase your first rental property in the Greater Toronto Area (Residential or Commercial), or if you are someone who is looking to buy or sell any real estate in the Greater Toronto Area, I can help you.

Here is my email address:

NEIL@FIRSTRENTALPROPERTY.COM

Don’t be shy.  Get in touch, and let me help you with the purchase or sale of real estate in the Greater Toronto Area.

Happy Investing!

Neil Uttamsingh

RE/MAX Aboutowne | 1235 North Service Road West | Unit 100 | Oakville, ON | L6M 2W2

Greetings Everyone,

Today I had a very interesting conversation with a fellow real estate investor. Our conversation was by chance, as neither one of us knew that the other was involved with investing in real estate.

I was very fascinated by this individual and the way in which he was investing in condo units in downtown Toronto.

In point form, here is a quick summary of his investment strategy:

• He is currently a part time real estate investor

• He works full time in the entertainment industry (on the set of movies, commercials, etc.)

• Specifically, he buys pre-construction condos in downtown Toronto, and flips them once the unit has been constructed.

As an aside, I know that investors with deep pockets do this. Instead of purchasing single condo units in a building, these deep pocket investors will buy entire floors in a condo building. Or they will buy a specific type of unit in the building. For instance, they may buy all of the bachelor units in a particular building and then flip them at a later date.

• This particular investor was just buying single units in a given building

• His long term strategy is to eventually invest in pre-construction condos as his full time job
  

What I found interested about this Condo Flipper was that he initially started out as a traditional real estate investor, buying and holding properties long term.

He told me that he started out investing in buy and hold properties approximately 15 to 20 years ago.

He also added that he moved into purchasing pre-construction condos because he wanted to invest his money in a ‘different’ way.  I got the feeling that perhaps he became bored of the buy and hold strategy.

Here are some important take aways that I got from my conversation with this investor.  This is the most important part of my article, as this gives an insight as to what is really going on ‘in the head’ of this particular investor.

• As fascinated as I was talking to him, and asking questions about how he was investing…he was equally as fascinated about how I was investing.

This insight led me to believe that as cool as condo flipping must be, there was a part of him that still wished he was buying and holding properties for the long run.

• He was very bullish about certain condo developments in downtown Toronto that a lot of traditional real estate investors would run screaming from.

His perspective here made me realize that opportunity truly exists everywhere.  Whether you are buying properties to hold for the long term, or pre-construction condos to flip, there is an opportunity to make a profit with both scenarios.

Often, I find that many traditional buy and hold real estate investors don’t like certain ideas.  For instance, they tend not to like the ‘buying pre-construction condos and flipping them’ strategy.  Many of them disregard this idea completely as a money making strategy.

*Neil’s Wisdom* — Sometimes when we have our eyes closed (to certain investment strategies) we tend to miss these opportunities, as we are in the dark and we don’t see them.

Just some food for thought for my traditional buy and hold investors/readers.  🙂

In closing, there was one other point that this Condo Flipper made that I found fascinating.  Anyone who has been watching the Downtown Toronto condo market knows that parking spots are now selling for a premium.  A few years back $25,000 for a parking spot was the going rate.  This going rate, depending on where you buy a condo in Toronto could now be $35,000 a spot.

The Condo Flipper told me that with his recent condo unit that he purchased at Front St. and Jarvis St. in Toronto…

…he bought a parking spot for $41,000 one year ago.  A year later, the same parking spot was selling for $50,000.

$50,000 for a parking spot?!

As the kids say… OMG!

Leave me a comment and let me know what you think of this Condo Flipper’s Investment Strategy. Do you like it?  Do you hate it?  Do tell.

Also, keep up to date with my blog.  Enter your e-mail address on the left hand side of the blog, or click on the orange RSS button at the top right hand corner of the blog.

Almost every real estate market has certain areas that are referred to as transitional areas.

A transitional area can also be referred to as an area of gentrification or an area of revitalization. It is in these areas that the real estate market is experiencing changes. The changes that are being experienced are changes for the better.

Transitional areas often times start off as a depressed area. When I say depressed, I mean that it is an area where properties are not maintained well by the owners, people generally don’t want to move in to that particular area, often there is visible crime, and there isn’t a general sense of pride of ownership demonstrated by the homeowners.

Transitional areas can be certain streets in a city or town, certain subdivisions or even entire neighbourhoods.

An area becomes a transitional area when it starts to experience a change for the better. With this change, there are a number of things that start to happen to the area.

You begin to see people with above average incomes move into this area. These people will purchase a home, spend some money to fix up the home, and they will begin to demonstrate pride of ownership towards their home. This pride of ownership is demonstrated by the care and attention they have put forth in order to make the exterior of their home look nice. During holiday seasons such as Halloween and Christmas, these owners will jb hublot king power around 15mm men 701 nx 0170 rx deployment around 18cm spend time, effort, and money dressing the exterior of their home up with decorations. In the spring and summer, these same owners will tend to their gardens, hang potted plants, and make sure that their yards are generally tidy and attractive looking.

When an area is in transition, there are a few signs that you can look for. First, you will start to see an assortment of well looked after houses, in which these new owners are moving. At the same time, just next door, you may see a run down house, where little care and attention has been put towards the home. For every 2 run down houses you see, you should be able to see one well maintained, attractive looking house. These numbers I give are just an approximation. As long as you are seeing an assortment of nice looking houses, mixed in with run down houses, this is a sign that you are in a transitional area.

Another indicator of a transitional area can be found by observing the type of cars that you see in the neighbourhood. In transitional areas that are experiencing revitalization, you will start to notice higher end cars, such as BMWs, Mercedes, and Audi. You start to notice these cars because people with higher than average incomes are moving into these areas, and generally speaking higher income earners might own higher end cars.

In these transitional areas, you often may notice construction taking place. An indicator of construction would be found when you see dump trucks, construction workers, and any sort of construction equipment. Construction will be taking place in these areas, as sometimes new houses or condo buildings are being built in the area. In addition, you will notice construction taking place on some of the run down houses. This would be a situation where someone has moved in from outside of the area, has an above average income, and is spending the time and money to make their house look nice.

You also might see notices for re-development from the town or city placed on certain properties, or you might see a number of properties fenced off and a re-development sign placed on the fence. When you see this, this simply means that a real estate developer has purchased this particular fenced off section, and the use of that land is going to change. More often than not in a case like this, new homes or condo buildings are being built on this land.

Whenever I am driving through an area that I believe to be a transitional area, there is always one indicator that I look for. If I notice a number of custom built homes, I know that I am in a transitional area. These homes would look very grand, large, and attractive and often out of place, when you compare them to the rest of the homes on the street. When you see several of these homes scattered throughout he streets or neighbourhood, you know that the area is in transition.

A transitional are that I purchased a property in was the Juction Area of Toronto Canada. Below is a map of the Junction.

This was an area that was riddled with crime, drugs, and prostitution. There are still parts of the area that quite rough. However, over the past several years, this area has experienced a lot of change. Many young families and higher income earners are moving into this area. People now want to live here. The pride of ownership is evident, and the sense of community here is strengthening with each passing day. Many new businesses and restaurants have moved into this area, and are continuing to move in each day. I had watched this area experience change over the past few years. As I keep myself educated with respect to the real estate markets, I knew this was an area where there would be tremendous long term potential. I read about the City of Toronto injecting money into this area in order to better it, and I read real estate reports that said that this area of Toronto would outpace other areas of Toronto in terms of property appreciation over the next few years. Finally, I had actually read an article in the New York Times that highlighted the Junction and the revitalization that is was undergoing.

Almost every real estate market has these transitional areas. If you know what signs to look for, you should have no trouble in identifying these areas.