Potential First Investment - In Need of Help

6 Replies

Hey guys,

I found a semi detached property going for 90,000. The expected rent is 950 for a 2 bedroom apartment and from what I see, 1200 for a 2 bedroom semi. Vacancy sits around 3% in the city.

The exterior looks like it needs to be worked on and I'm not sure what the interior looks like (no pictures). Given the mortgage rates here in Canada (2.54%), 5% vacancy, 10% PM, 5% maintenance, property tax and insurance and 5% down, I'm seeing CF at 351 month.

My challenge right now is:

1. A 1.5hr drive from where I am

2. No interior pictures

3. The exterior needs work to get the 1200/mth rent

In regards to those challenges:

1 / 2. I have a friend who is a REA in the region and has a few properties himself, I was thinking of having him take pictures of the interior and providing me with his thoughts about the place before I make the trip down there to see it myself. Do you think this is a good idea?

3. The exterior looks like http://cdn.realtor.ca/listing/reb14/highres/2/h315.... What do you think would need to be done to give it the curb appeal.

Note: the other half of the semi detached is also on the market for the same amount and I believe could bring in the same rent. The seller agent is also the same. Is there a way to consolidate the loan and the closing costs even though they are two different properties? Do you think I can use that as leverage for negotiating?

Any / all advice will be greatly appreciated. Thanks in advance!

Hi Chungsoon, that sound like a pretty good but not great cap rate but depends on way the avg for your market is. Being remote, if you need a property manager taking another 10% it's even less enticing.

On the outside it looks fine, I would at least power wash the brick which is no more than $200 for the washer rental. At most you could paint it from what I can see in the pic.

Good luck!

Originally posted by @Ryder Meehan :

Hi Chungsoon, that sound like a pretty good but not great cap rate but depends on way the avg for your market is. Being remote, if you need a property manager taking another 10% it's even less enticing.

On the outside it looks fine, I would at least power wash the brick which is no more than $200 for the washer rental. At most you could paint it from what I can see in the pic.

Good luck!

Thanks for the suggestion Ryder. Property management has already been factored into this. Truthfully, 350 per month is the highest I've seen and don't think I'll be able to get much higher unless I find a distressed seller.  

Being my first property, I guess I'm hesitant to pull the trigger, but when I saw your bio, it seems like you've figured out how to do make the call. If you don't mind, what's your "mindset" after analysing the numbers? I just graduated and started full time employment so definitely very green.

Hi Chungsoon, real estate investing is definitely not for those with a weak stomach and not advised unless you have at least some financial cushion.  I had more than enough saved before I made my deals (granted I was probably 6-7 years old than you are now) which gave me the confidence to close as well as not sweat every little repair or cost that was needed.  I would definitely say I'm more conservative than a lot of investors though.

My better deals have come when I was picky and not in a rush.  My lowest returning properties were the ones where I was anxious to add a new property and there weren't many options on the market.  It's better to miss a great deal than to buy a bad deal.  If you've done your homework and looked at comps in your market, have the capital for the down payment plus some cushion for vacancy, unforeseen repair and other costs then it's really just a matter of pulling the trigger.  Good luck!

Can you get a mortgage for an investment property with only 5% down?  Most banks require 20%.  Also, the variable rates are quite low now but you need to stress-test your ability to cover a higher mortgage payment if (when) rates go up. 

One thing to note, we were looking at buying a property abutting up to one we already own and our lawyer advised that if you buy two properties next to each other they automatically join up and then you have to go through the severance process to split them up again. This can be avoided by having the ownership slightly different on each one.

Hi Chungsoon, that sound like a pretty good but not great cap rate but depends on way the avg for your market is. Being remote, if you need a property manager taking another 10% it's even less enticing.

On the outside it looks fine, I would at least power wash the brick which is no more than $200 for the washer rental. At most you could paint it from what I can see in the pic.

Good luck!

Originally posted by @Jennifer Pereira :

Can you get a mortgage for an investment property with only 5% down?  Most banks require 20%.  Also, the variable rates are quite low now but you need to stress-test your ability to cover a higher mortgage payment if (when) rates go up. 

One thing to note, we were looking at buying a property abutting up to one we already own and our lawyer advised that if you buy two properties next to each other they automatically join up and then you have to go through the severance process to split them up again. This can be avoided by having the ownership slightly different on each one.

 You can get a mortgage at 5% down but you will have to pay the mortgage insurance (additional 1.5%). The 2.54% is a 5yr fixed.

In regards to the joint property: thanks for the information!