Should I buy my first property this year?

Question

Hi BP! I'm a newbie who hasn't bought a property yet. I live in the Hamilton, Ontario and am studying at McMaster University. I've been studying real estate quite hard, reading a lot of RE books, listening to podcasts, learning my area and the properties around Hamilton, etc. My goal is to buy my first property this year in the summer months since I'm just too busy with engineering and being a part of a club which just doesn't leave enough time for me to do much other than studying for school and real estate during the semester.

The biggest problem I have for buying a property is the cost. Here in Hamilton it's a quite hard to find potential rental properties in which the rent covers the expenses and cash flows decently (at least from the MLS). I know I can just keep searching and find a great deal, buy my problem is financing and risk. While I really do want to get started this year, I'm in first year, have very little money to my name and have no credit history. I'm simply asking if it's advisable to start this summer. If anything, my thought is that I would have to get into a partnership (no this post is not asking for a partner). Let me know if you would recommend someone in my situation to start real estate investing this year or anytime soon.

P.S. If you're going to recommend me to read the book on investing with no and low money down, that is the next book on my list.

Nick Thompson · Answer

If you are serious about starting to invest in the Hamilton area reach out to a good realtor who is also investing.  There are lots around.  Call up some realtors and make sure you 'interview' a realtor before you begin to use their services.  Make sure they have at least a few rentals in the area and they should be open about running through some of the numbers to show you how they are cashflowing their properties.  Find someone who is doing what you want to do and copy them.

Go to local meetups.  I would suggest the Mr Hamilton meet-ups or the Rock Star Realtor ones.

As for the money if you learn your niche very well and find a truly good deal then partners can always be found.  I am always amazed at how many people have money and want to invest in real estate but don't want to do anything.  If you are going to be living in a house off campus next year anyhow see if your future roommates each have $5,000 as well and go in as partners on a student rental new Mac.  There are many options so be creative and see what you can make happen.

Kenneth Noronha · Answer

Thanks for the advice @Matt Geerts and @Nick Thompson!

Matt Geerts · Answer

This is my opinion and possibly not shared by all: yes, cmhc and a higher borrowed sum means higher expenses, but not relative to the leverage you are gaining. The money HAS to keep moving into the next deal.

Say you save 5k/yr... Do you want to get into a 5℅ down 200k purchase a year from now and start making a little money, or wait 7 years to have a 20℅ down on the same house.... Oh wait, that house is worth 250 in seven years, so better make it 8.5 years.

Kenneth Noronha · Answer

@Matt Geerts

I'm surprised that a turnkey property can be a negative; I never thought about it like that. I was personally searching for more turnkey properties because my thought was that the capital necessary to invest in adding value would be huge.

Off market seems to be the only way to go and I'm really considering yellow letters. It seems like a very low cost option. Also owner occupied along with 5% down seems steep in terms of expenses to me just because of the house prices in the area along with mortgage insurance. I guess with the "discount" from finding off market deals can make the numbers work. Thanks for the input!

Matt Geerts · Answer

@Kenneth Noronha

My greatest failure in REI so far was buying a house that could not be improved. It is perfect, and so I am in for 20% and I have no hope of ever doing a "value add" upgrade and refinancing my money out. Keep that in mind.

You will likely need to start searching off market, or at least on FSBO (Kijiji, or one of the FSBO realtor sites). The MLS is full of houses that are trying to fetch top dollar, not houses that are undervalued and can easily be upgraded and refinanced. 5k is a good start. Perhaps a partnership with someone would help you both - they get to invest with an owner-occupied 5% down and you get a pile more money so you can start investing now instead of later.

Kenneth Noronha · Answer

@Matt Geerts I only have $5000 saved, but I'm planning to work two part-time jobs in the summer to build up a little bit of money. So far I have been searching the MLS for the oldest properties, but the problem is that they don't produce much cash flow at all. I'm not sure if you're familiar with the Hamilton market, but from what I saw, rents go anywhere from $1500-$1700 for a nicer 3 bed 2 bath two-story (and sometimes one-story) house in central and central east Hamilton. The houses that were listed for the lower prices were either very small, run down, or in a bad surrounding area (for example a worn down factory 100m down the road). The run down houses do seem like there's much more opportunity for a fix and flip in these areas, but I haven't learned much about fix and flips yet.

Matt Geerts · Answer

How much is not much money saved? You only need 5℅ if you plan to move in, a bank may consider half of the buildings current rents as your income (if you are buying a student rental for example), and you can use resp money.

No and low is tough when people are selling houses in 12 hours over asking. Search MLS for the ones that have been listed for a very long time.

Luke H. · Answer

Hi,I read the title of your post and a few sentences.  I suggest you buy to help you get experience.  I think right now it is a seller's market so getting a deal might be tough, but not impossible.  If i had more time to research I'd buy! Read all the books you can, buy courses, audio books, seminars, clubs. Dive in and have fun.

Should I buy my first property this year?

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