Should I wait or should I jump in right now?

14 Replies

Hi BP members,

I am a newbie, aspiring investor in RE. Here's my situation:

I own my residential house, located in Laval (Quebec), appraised at 350K, and still 50K left of mortgage to pay. With the current reimbursement schedule, mortgage is expected to be fully paid by the end of 2022. It's my only RE property.

Initially, I wanted to wait to be mortgage free before using  a portion of the equity on my house as down payment for a multiplex or any other multi-family/appartements, but I don't know anymore. I think I have made that decision just for the sake of finishing something before starting another. There's no real other logic behind it.

Can I already jump in the RE investment world now, or should I wait? What would you do? And if you would decide to go ahead and start hunting for income properties now, what precautions should be taken in my specific situation?

Thanks for your input.

You'd just be borrowing against your house to buy something else, so you would still have debt attached to your house just under a different name.  So I'd say start looking now and if you find something, buy it.

Lots of people have a mortgage on their primary residence and mortgage on a rental.  You will need 20% down payment for the rental. I would start by talking to the bank to find out how much you can borrow. That will also give you an idea of what type of property you can buy and how much of a down payment you need.

If I were in your place, I would get a heloc loan set up and start looking for a good deal. 

If/when I found a good deal I would jump at it. To be clear: I would be careful to not jump at just anything, but would carefully analyze and find something that I could justify using conservative numbers and then I would move quickly.

But I am not you. Obviously I don't know your whole situation and your concerns (or lack of concerns) surrounding debt and risk.

I agree with Chris and get a heloc ready although it may not provide you with as much cash as a refinance option.  Market in Quebec is crazy so not sure what would be able to land at this time. 

The best time to invest in real estate was 20 years ago. The second best time is right now. Not sure who said that, but its 100% true. The longer you wait to start, the more expensive the house will be. It's never the perfect  time to buy,  maybe you have a car payment, or student loan still. but you just do it and make it work. Also, I would never try to be mortgage free. A portion of your mortgage can be used as a tax write off against rental income. And I want to be using the banks money as opposed to my own to buy houses. Just my strategy. Good luck

Your easiest path to buying a rental property would be to refinance your current property with an 80 % loan. Your monthly payment will increase but you will have about a 300k mortgage. then you use the money from that house to put the 20% down on one or 2 rentals and keep about 25k as a reserve fund. Just incase. You then use the rent from the 2 new properties to pay your 3 mortgages. And if there is a short fall, then that's your portion. And now you have 3 houses. Wait a few years, and then refinance the 2 rentals, and do it again. Every house you refinance, you buy 2 more. Until you hit your debt ceiling. Then there is j.v. partnerships and other strategies you can learn. 

Originally posted by @David Steinbok :

Your easiest path to buying a rental property would be to refinance your current property with an 80 % loan. Your monthly payment will increase but you will have about a 300k mortgage. then you use the money from that house to put the 20% down on one or 2 rentals and keep about 25k as a reserve fund. Just incase. You then use the rent from the 2 new properties to pay your 3 mortgages. And if there is a short fall, then that's your portion. And now you have 3 houses. Wait a few years, and then refinance the 2 rentals, and do it again. Every house you refinance, you buy 2 more. Until you hit your debt ceiling. Then there is j.v. partnerships and other strategies you can learn. 

 Thanks a lot David!

@Jocelyne Sema You're right. The first hurdle to overcome is your mindset. So many prospective clients who tell me they want to buy multiple properties to create long-term wealth are gun shy about leveraging the equity in their principle residence. @Frederick P wallberg

They say they "don't want to get into more debt" - these same people don't hesitate to get more bad debts. Bad debt vs. good debt? Homeowner vs. Investor? Mindset. 

@Jocelyne Sema to expand on what @Chris Baxter and @Frederick P wallberg shared with you:

1. The heloc you get with your primary residency: Get a re-advanceable kind (ie as you pay down your mortgage, the heloc goes up). When you make an investment with the heloc, the interest you pay on the heloc is a tax-deduction. Look into Smith Maneuver.  

2. Do you want to be a landlord? What is your long term goal?

3. Take the time to learn how to analysis properties and determine if you had to carry the investment properties along with the new mortgage, how long would you be able to carry them (worst case scenario)? Ensure your plan has a mitigation to protect your primary house.

Good luck. 

@Jocelyne Sema  another factor to consider is asset protection. If you wait until your primary residence is fully paid, then invest with other saved up money, and potentially get sued you now have a nice big “asset” for a lawyer to go after. If you use the equity to buy more property you have a less appealing asset to go after on paper. Disclaimer: I am not a lawyer so seek your own legal advice. 

Originally posted by @Huong Luu :

@Jocelyne Sema to expand on what @Chris Baxter and @Frederick P wallberg shared with you:

1. The heloc you get with your primary residency: Get a re-advanceable kind (ie as you pay down your mortgage, the heloc goes up). When you make an investment with the heloc, the interest you pay on the heloc is a tax-deduction. Look into Smith Maneuver.  

2. Do you want to be a landlord? What is your long term goal?

3. Take the time to learn how to analysis properties and determine if you had to carry the investment properties along with the new mortgage, how long would you be able to carry them (worst case scenario)? Ensure your plan has a mitigation to protect your primary house.

Good luck. 

Very good advice there. Thanks a lot Huong.

Originally posted by @Milo Milosovic :

@Jocelyne Sema another factor to consider is asset protection. If you wait until your primary residence is fully paid, then invest with other saved up money, and potentially get sued you now have a nice big “asset” for a lawyer to go after. If you use the equity to buy more property you have a less appealing asset to go after on paper. Disclaimer: I am not a lawyer so seek your own legal advice. 

 Didn't thought of this. Thanks!