HI @Jason Yong, nice to see a fellow Canuck here :)
I think your attitude of 'what can I bring to the community' is a great start. I'd really like your input on a crypto project I'm working on, but I'll leave that to the end. I'm in a similar situation as you, living in an overpriced metro (Vancouver) and getting started on my REI journey. I'm currently house hacking and would urge you to reconsider this strategy.
There are 4 benefits to this investment strategy. First, you can use a conventional mortgage, which have the lowest interest rates. Second, primary residences require a lower percentage down payment. Third, any profits from selling the property aren’t taxed. And fourth, you'll learn many of the important skills that you'll need for future investments (analyzing properties, evaluating a property's 'best use', working with realtors & mortgage brokers, screening and managing tenants, hiring & working with contractors, understanding tax implications, etc). You have to live somewhere, anyway, so why not make your home a part of your investment strategy?
If the reason you're not currently house hacking is because you don't have any spare rooms, then consider trading up to a bigger place, or see if you can hack your floorplan to add an extra room. The cost of buying a bigger place could be offset by the rent that you'll get. A room in nice home goes for about $1000 in Vancouver, so it must be similar in Toronto. $1000/m works out to about $200k more 'house' that you could buy (20% down @ 5% for 25 years). Also, some lenders will even include rents as part of your mortgage calculations. Later, if you sell, you’ll get the full benefit of a higher price for having bought a bigger place, along with any value appreciation. Bonus: look for a house with a hackable floorplan for adding rooms/bathrooms - ie. forced appreciation, in investor speak.
Renting by the room is usually more profitable than getting a house with a rental suite. For example, a 2 BR basement rents for almost $3k, but it has the same space as 4 BR, which could rent for about $4k. However, you'll have to check local bylaws about how many unrelated persons can live in one house.
Other than money, there are a few things to consider when house hacking. Most important is the fact you’ll be living with your tenant (surprise! you are now a landlord). This can actually be a benefit if you did a good job screening the applicants – you might even become friends, or a nightmare if you didn’t. Your best friend may not be your best tenant if they have different standards of cleanliness, for example. Screening tenants and then dealing with them after they move in is both part art and part science, and it’s a critical skill to learn if you plan on owning rental properties as part of your investment strategy. Having bad tenants can ruin your investment goals, especially at the beginning of your investing journey when you only have a few properties and not much cashflow to fix any problems they might cause.
Taxes are another important consideration for house hacking. Rental income must be declared and is taxable. Unfortunately, any expenses associated with improving/maintaining the property for rental purposes aren’t deductible since it is your primary residence. However, if you later sell the property for more than you purchased it, either due to appreciation or improvements, you won’t be taxed on the profit because it’s your primary residence.
Serial house hacking is a great way to build your real estate portfolio, but it does involve the inconvenience of having to move frequently. The idea is that you start with one house hack to save for either a bigger property or an additional property as your new primary residence, move in to that one and house hack it for a year or more, and then do it again. The amount of time you have to stay depends on your local tax rules, and the amount of money that can be saved from hacking that property.
If I still haven't convinced you about house-hacking, then you might consider buying in the Kitchner-Waterloo area. A 4 BR house can be had for less than $1M, but they're surprisingly small, so not much chance for floorplan hacking. Or look for a cheaper, spacious 3 BR that you could hack into 4. Renting out is easy because of the nearby universities, younger population and good jobs in the area. Rental income from 4 BR probably won't cover the mortgage, taxes and maintenance, but you could claim rental deficits, mortgage interest, depreciation and other expenses against your personal income because it's an investment property (check with a real estate accountant).
Unfortunately, there's really no such thing as 'passive' REI, especially in the beginning, not if you want to get the maximum benefits. Even if you hire a manager, you'll still have to manage the manager, unless you're super lucky and they're really good (in which case you'll probably have to pay them more). There are stories aplenty where managers sign bad tenants, ignore maintenance, don't collect rent for months, etc.
REITs might seem like passive REI, but I think they have 4 significant disadvantages:
- - Just as with any investment vehicle, you have to understand the details of the REIT, including its strategy, sector, holdings, management, etc., and then decide if it matches your investment goals.
- - You can’t take advantage of leverage. A mortgage allows you to control a property that is worth many times the value of your down payment.
- - Property value appreciation doesn’t get passed on to shareholders.
- - Most importantly, its value goes up and down with the stock market, and it can in fact go to zero if it’s poorly managed
The closest thing to passive REI is joining a syndication. And even then you still have to do your homework on the deal analysis, and carefully vet the partners involved. You're also trading convenience for a lower return on investment.
I hope at least some of this advice was helpful.
Here's the part where I ask you for your input about my crypto project. I'm building a community site where people get paid for writing reviews about products and services. For example, imagine shopping at Amazon, Airbnb, Tripadvisor, Best Buy etc. if there were no customer reviews. User reviews contribute to business profits, so people should get paid for helpful reviews, right? In addition to getting paid from the site's advertising revenue, community users can also get a token with their demographic details which advertisers can pay to access. How many developer hours would you guess is needed to create a token like that? Also, how about a 'coin' which gets awarded to users for helpful reviews, and that they can use for voting on community projects?
Please let me know if you'd like to discuss my advice or project offline.
Cheers
