Best place to begin investing in Canada with low capital?

[Jin Woo Lee]

Hi, BiggerPockets community! 

As many fellow Canadians may agree, REI is very different here in Canada versus the states, especially in the Greater Toronto Area with an average home price of about $1mm. That being said, where would you start if you were a Canadian investor starting out with low capital?

Which cities would you look at and why? How would you start looking? Are the states still better options despite the complications (tax, financing).?

[Rami Sobhani]

Chatham

[Jin Woo Lee]

Thanks @Rami Sobhani. Will take a look!

[Sankeethan Ratneswaran]

Hey Jin! 

You mentioned 'low capital',  but low capital to you could be a very different number to someone else. So I thought I'd break it down based on some of my own experience.

$10,000 CAD
I had less than 10k to invest but at the same time I didn't want to pay out of my own pocket for expenses. I was very stubborn with my 1% rule so like all the professionals say, 'go far away and invest'.
I'm from Toronto, but I drove down to Sault Ste. Marie (SSM) in Ontario. It's about a 9 hour drive from Toronto. I purchased a house there for $149,000 CAD. It was a 4 bedroom 2 bathroom detached house built in the early 1900's. However it was already mostly renovated. It still needed some minor work done. My main income at the time was a work-from-home job, so I qualified for a mortgage with 5% down. After closing costs I spent about $8,700 to purchase the property. I put in about 6k into renovations and I used my credit card for all renovations. In the SSM area, I was able to rent the house out for $1,600 + all utilities. After all expenses paid, I cash-flowed about $400/month. 6 months later I went to the bank and applied for a HELOC, the bank appraised the house for 225k and so they gave me a HELOC for 30k. This means I got all my money back plus I got an extra 15k in my pocket! This reduced my cashflow by half. You'll cashflow, get all you money back and profit at refinance! The best part of this is that if the tenants stop paying rent or you get into some serious issues with the house, it'll mostly all be affordable and you won't go bankrupt because everything there is ALOT cheaper than Toronto.

I also picked up a few estate properties in SSM for less than 90k so that I can BRRRR them. But this is more difficult cause you need 30% down, you need private lenders to close private and money for renovations. If you have less than 10k, but you are well connected with people who have money, then you might be able to pitch a Joint Venture project with a family member or private lender to make it work with almost no money down by sharing the equity and cashflow.

50,000 CAD - 100,000 CAD
With 50-100k capital, I went to Sudbury Ontario and bought a Triplex for 400k. All three units total rental income came in at $4400. Down-payment was 80k CAD 20% down. The property Cash flowed about $800/month (interest rates had sky rocketed at that point). Multifamily is more difficult to get, but there are also lots of single family homes in Sudbury. The cashflow is a lot less because houses in Sudbury are more expensive compared to SSM. But you can still find homes where you'll break even every month after you put down 20% or cashflow alittle bit. The benefit is that you'll get more appreciation compared to SSM. 

100,000 CAD - 200,000 CAD
If you have less than 200k, but you're worried about buying a million dollar house in Whitby where the tenant might not pay. Then a better option is to go slightly further out. Places like Barrie, Kingston, Ottawa, near the universities and colleges all have bungalows that you can purchase and rent out to students. If you get one with a basement, you can add more bedrooms. You can find houses there for 500-650k. You can add more bedrooms in the basement and you might be able to cashflow. The good thing about students is the turnaround rate is high so you can set new rents every time. But you're risking parties more damage to your property etc. 

USA
The biggest problem with Canada in general is the fact that we're extremely Tenant friendly. To avoid this you can just invest in the states. If you don't know how too then do this... Google "RBC Cross-Border Mortgage". Most of the major Canadian banks have cross-border mortgages. This is a financial product where the banks allow you to use your Canadian credit history to purchase in America, and they fund it all in USD. You need 30% down. 

If you want cashflow and don't know where to invest, then google "Turn key Property Investment Companies". There are companies in the US, that buy properties, fix them up and sell them as a 'turnkey' investment, and they are also the property management company too, so they'll do everything for you. Using a cross border mortgage, you can qualify for a property in the states and buy a turn key property. This will help you start building your credit history while you figure out all of the LLC stuff in the states lol.

POOLING MONEY

I've been in situations where I've had friends who've had little money, like 20k each. But they're not comfortable investing far. At the time I was doing Airbnb in Niagara Falls. So we all pooled our money in together and bought a house in Niagara Falls. With that property we airbnb'd it! for the month of August all 4 of us made 1k each in cashflow! but in February we each made like 200 bucks lol. You can do the same thing with your friends and hire a short term rental property management company but they charge 30% gross revenue as their charge.

RISKS

The further away you go from Toronto, the less appreciation you see in a bull market but the more cashflow you can make. For example my properties in SSM, I don't see them appreciating more than 20% for the next 10 years, they might stay the same. But a property in Toronto can double in price in the next 10 years. But if your goal is to start, then in my opinion it's better to start somewhere than to not start at all. And if you do Airbnb, you also risk a lot of other things like parties, vacancies etc. 

At the end of the day, there's ALOT of ways to invest in Ontario with "low capital"

It just comes down to what you're willing to sacrifice. distance? working with friends? being an active partner and sharing equity? your time and effort? 

In Toronto ppl sacrifice money for future equity lol, in my opinion that's not good.

I hope my answer was helpful to you and you learnt something bro! 

Take care bro! 

[Drew Sygit]

@jin woo lee we have a lot of client from Toronto area buying rentals in the Detroit area.

You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:

https://www.biggerpockets.com/...
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