All Forum Posts by: James Ma

The main points that cause me to think about selling:

- When location economics are not looking good (ie. less population growth, less jobs, negative regulatory issues etc.)

- When financials for the property go south and lower profitability or cause the property to negative cash flow

- Opportunity cost, finding a higher ROI investment to put your money into

- Risk diversification, maybe your portfolio is unbalanced because of a single property (ie. 80% of your networth in a single investment property) and you'd like to diversify your exposure into different investments

Figure its time for me to write up a win post for the community. I started out in late 2017 in rentals and this was the second unit I ended up buying in early 2018. Earlier this year I was up to 6 rentals and decided to sell this one.

Investment Info:

2bd2ba buy & hold investment condo in Chilliwack, BC, Canada

Built in 2009

Purchase price: $209,000
Cash invested: $209,000 from Refinance. Rather than invest into stocks, wanted to take a safer play in cash flowing real estate.

Rented for $1400/mo for most of the hold period

What made you interested in investing in this type of deal?

Cashflowing property where the rent covered all of the expenses such as mortgage payments, HOA fees, property taxes, insurance etc. including 5% vacancy rate and felt safe even if there was no appreciation or the market downturned I would still be covered as long as rent didn't drop much.

How did you find this deal and how did you negotiate it?

My realtor had showed me around Chilliwack and some of the cashflowing opportunities. This was a building we had looked at but I didn't buy on my first go. This unit popped on the market and seemed underpriced (should have been selling for around 230K) so I called my realtor and told him to buy it same day offering up to over 10K asking if needed. He was able to close it that day and before the weekend came for $1000 under asking which was great as this was a hot market where units were going into multiple cash only bids selling over asking. 

The one hangup about the deal was this was a probate property which meant I had to wait until the executors approved the sale by the deceased owner's family. I was a bit worried about this as I'd be paying interest on the refi but my realtor assured me the probate was already in progress in the courts so should be done soon and if it went longer than a few months he would cover the interest payments for me. I decided we got the property at a steal purchase price so was worth the risk especially with the interest getting covered by my realtor and the probate ended up finishing after a couple of months and didn't drag out.

How did you finance this deal?

Fully funded from refinancing my primary at 3.24% on 30 year amortization 

How did you add value to the deal?

Self managed the property.

What was the outcome?

The property appreciated from the purchase price of 209K to 300K (peak price point) in a year where I thought about selling and cashing out but decided to stick to my plan of buy and hold as it was still generating cashflow. 

In 2020 with COVID, insurance crisis and strata (HOA) fees going up, and my tenant giving notice, it seemed like a good time to cash out as the property would no longer cash flow and I feel like there will be some decent opportunities in stocks that could come up in the near term. I asked my realtor to put the place on the market.

Unfortunately they announced HOA fees would rise from $300/mo to $500/mo while I was selling the property which impacted the final sale price a bit (I think I would've got 270K) but was able to sell for $262.5K

After paying capital gains taxes, realtors and notaries, it resulted in a total profit of about $43K or a total of about 20% ROI after 32 months. I also had the benefits of writing off expenses (ie. interest, property taxes etc.) and depreciation which added greater profitability during the hold period which I didn't add into the above calculations.

Lessons learned? Challenges?

The total ROI wasn't as much as I would've hoped for compared to investing in stock market indexes but I felt was a much safer route. Interesting to see though if it would have been a 20% downpayment with conventional mortgage, it would've been over 100% return.

The refinance strategy made sense at the time though since it was a hot market and most offers accepted were cash only. It also did allow me to sell the property without having any mortgage penalties to pay out since it was clear title thanks to the refi cash purchase.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My realtor was great, still work with him to this day. 

Look up real estate syndications, its the best way to get involved in REI passively. You won't have to look for deals and you can invest passively with some syndication structures also able to give you the tax benefits as well to write off depreciation.

REITs are similar to any stock but can give you exposure to REI. Downsides are you're still paying CEOs, management etc. salaries along with being subject to more stock volatility (ie. when markets crash, REITs typically get dragged down as well but when you own real estate the rents are still going to be the same). Also no taxable benefits.

Always try to communicate and compromise with the tenants especially the ones who are capable of paying. In Canada, it could be part of educating the tenants to collect the rent subsidy from the gov't; I had one tenant who wasn't aware she could have applied and received $500 towards rent during the time her partner was still paying rent but she lost her job due to covid.

They're still on hook for the rent eventually so I'd threaten that legal action will commence once the eviction moratorium is lifted so they better have the money ready then or they'll go into collections. Until then, unfortunately I think it's a time where you have to be a bit nicer to tenants especially the ones who may try to game the system as there is really no teeth in the current laws until the bans are lifted.

I'd focus on trying to make a decision taking the emotion out of it. If you can hold the property through this challenging time, do you think values and rents will recover or what is the other option that you have in mind if you were to sell the property? Selling a property isn't cheap so the place you move into would have to make sense after taking into account sale and moving fees... No matter if you're "up or down" on the investment, you want to figure out whether there is a better opportunity cost or option you can move into.

And thank you for sharing your story. I feel like many have similar stories but are not posting about them out of shame or feeling embarrassed about their situation. Mistakes were made but its how you learn and grow from them that counts!

My fav book was 

Hold: How to Find, Buy, and Rent Houses for Wealth (Millionaire Real Estate): Chader, Steve, Doty, Jennice, McKissack, Jim, McKissack, Linda, Papasan, Jay, Keller, Gary: 9780071797047: Amazon.com: Books

 Each province has its own laws which is the main difference you'll probably encounter along with foreign investment taxation but has to be researched individually.

Joe had some great advice. I'd be a bit softer on his comment about making mistakes early on - I think that's inevitable for people starting out but you should be doing what you can to minimize those mistakes and learn from them if they do happen.

I'm part of a local landlords group and there seems like a decent number of them who have no idea what the basic laws and regulations are and how being a landlord even works - don't be those guys. Study books, read your local laws and regulations (the internet is a beautiful thing!) and chat with others on BP you'll do just fine.

Hi Greg, do you feel like cap rates are a strong enough metric alone to be meaningful since they don't take into account vacancies and mortgage costs? I feel like sellers throw out cap rates often that are not reflective of a realistic scenario 

Etransfer, set up automatic deposit so no chance of fraud issues.

But to comment on red flags, never give deposits unless you have met the person at the property and they opened the doors for you. Even then you can be scammed by subletting tenants. If something feels off, I don't think it's a big deal if you want to ask to see some paperwork of actual property ownership

Unless you're leasing agreement has anything included regarding number of occupants, I don't think there's much you can do. I get the sense you're worried about wear and tear which is a legitimate concern but you can't do anything other than the usual if you have a tenant you want to get rid of.

If they're good tenants, I wouldnt do anything except congratulate them on the new member of the family.