Infinite Returns in Hamilton, ON - Gotta Love 'em!
It doesn't get much better than owning a cash-flowing asset without any of your original money left in the investment! It took 30 months, but we now own a nice single-family property with a basement suite that will continue to throw off cash flow for years to come!
Here's how the numbers break down:
$308,000 - Purchase price in August 2015
$367,000 - Estimated ARV determined by bank for purchase + improvements loan
$80,000 - 20% Downpayment & closing costs
$89,000 - Renovation costs (including driveway & water-line upgrade)
-Upstairs was turnkey, except for adding stackable laundry in the hallway closet
-Downstairs was just studs, so we built a 2-bed, 1-bath apartment from scratch
***ALL-IN for $109,000 after 4-month renovation project was complete***
$7300 - Year 1 cash flow
$8600 - Year 2 cash flow
Refinanced for $490,000 after 30 months and withdrew $111,000!!
We've got all our money back (+ another $17k!), $98,000 in equity sitting in the property (20% of $490,000), AND the place continues to cash flow! With the original investment back in our account, the ongoing returns are now INFINITE! Needless to say, the joint venture partners are quite pleased with the results and looking to do another deal soon. :)
So how did this happen? Obviously the property benefited tremendously from appreciation, which cannot be counted on, but are there other factors that led to great returns? What lessons can be learned so that this success can be repeated?
1. Choose a cash-flowing strategy.
Adding a basement suite to a single-family home is a strategy that works very well in my target market. Though a complete house may rent for $1800-$2200 (if the basement is finished), this property has the upstairs unit rented for $1625 and the basement for $1195. That's a total monthly rent of $2820...far superior to what the house could be rented for as a whole.
2. Cater to top-notch tenants.
Turnover costs will kill your cash flow: Extra management fees, cleaning costs, advertising, and vacancy. Finding tenants who plan to stay longer-term helps increase the cash flow in the long-run. Even in an area with rent restrictions, a tenant that stay for 2-3 years is still better than turning over the unit every 12 months. Also, top-notch tenants take care of your place! Last time I visited this home, they had created some beautiful gardens, kept the lawn green throughout the summer, and even made some minor repairs without telling me.
3. Do high-quality renovations.
Not only will quality finishing help with #2 (Attracting top-notch tenants), but doing renos RIGHT means you won't be back later to make avoidable repairs. Building a basement suite from scratch with solid construction creates very low maintenance costs for years to come, which in turn keeps cash flows high.
Now it's time to re-deploy all this newfound equity into the next cash-flowing deal!