All Forum Posts by: Stephen Leblanc

the rent you take in is income. You get to reduce the income you pay tax on by claiming expenses you used to operate your business. What is left is what you pay tax on. What mike said was not to understate your expenses to overstate your income on a tax return.

Ok, here is my situation. I'm looking at buying a 4 unit apartment building for $85000. The total rents are $2225.00 and taxes are 1500 per year.

Up here in the great north, (Canada) I have the option to 100% finance this deal but the cmhc fee is 5-6%. Should I pay the 20% down to avoid this fee or keep my money to invest in another property? The 100% financing mtg can go for 25 years at about 6.5% locked in for 10years.

I want to use the 100% financing so I can buy the property for $3000 in legal costs instead of $20,000 ($17,000 down pmt/$3000 legal). Am I missing anything by going this way? The mtg pmt will be a bit higher but I figure I can offset this cost buy using the difference in the down payment money to buy more units.

Does this make sense, or am I setting myself up for trouble down the road.

Steve

could you take that $12000 and use it as a down payment on your own place?

its hard to say without knowing what you would receive for rent...but I can't see how you would take in enough in rent to cover all the bills. Your bills will account for 50% of the rent (average). Some of the bills you need to pay out of the first 50% include: taxes, insurance, maintenance, vacancy, damage caused by angry tenants, legal, office supplies, water, utilities, etc. So that leaves the other 50% to take care of the mortgage payment.

ie. if you have a mortgage payment of $1600. You would need to take in at least $3200 in rent to cover the bills. Any extra would be the profit.

I'm not sure you understood me correctly...maybe you did. On the current buildings I own, I know exactly how much I make on each unit. I record all the rent and list every expense as it comes in. What I assumed he meant by how I figure out cash flow was what figures I used to see if my buildings would be profitable when taking into account all the variables like vacancies, damage, maintenance, etc. The things that are hard to put an exact figure on until it happens. I use 50% of the gross rents for these expenses and I try to make $100 per unit. I hope this is a little clearer as my short response was a little vague.

edit...when I look back at his responce, I think I must have read it wrong. Sorry for the mix up.

that makes a lot of sence to me. Thanks for the advice. I think his problem is that this is a second income for him and he wants as little hands on involvement as possible. I don't mind work as long as I'm going to get paid.

I don't need much cash for the rentals I buy. 100% financing will get me the cash flow I am looking for. I know mike will disagree that he hasn't seen a building cash flow at 100% financing, but they do in my area. I can buy a duplex that will bring in rent of $1200.00 for a purchase price of $40,000. They are nice places, not dumps.

i use the 50% rule.

Ok here is my situation. I just bought a duplex which closed 2 weeks ago. This leaves me with a positive cash flow of $750 per month from the 5 units I own. The problem is I made a deal with myself that I would not buy another property unless I had at least $1000 in reserves for each unit I own. $1000 seemed reasonable to me, that’s the only reason I set this figure. So 5 units, would require me to have $5000 in the bank. I currently only have $2500 in the bank. So here are my two options, a patient one and non patient one. The first patient option is to save the $750 per month until I reached the $5000 safety net plus $2000 for the safety net on the new duplex and $3000 for the closing costs. That’s $7500 I have to save before I would feel comfortable buying another duplex. So at 750 per month that would take 10 months. Option two, the impatient one. I approached my aunt and asked her if she would like to invest some of her money into my rental properties and I would pay her back in monthly payments with her earning 8% on her money. She said she would love to get 8% on her money. I could borrow about 13,000 from her and pay her back 400 per month for the next 36 months. I could use this money to increase my safety net and buy more properties. The only downfall would be the decrease in cash flow from 750 per month to 350 per month until I purchased another building.

I am very comfortable with debt as I work in the financial industry, so I am very careful not to become overly leveraged. I would like to go with the second option as it would allow me to continue purchasing rental properties, but I don’t want to make any mistakes financially which will run my business into the ground.

Steve

would you let great financing arrangements convince you do do a borderline deal. I'm not talking a 'dog' of a deal, but a solid property which has cash flow of $75.00 per unit on a 25 year mtg. I have a mtg broker who has a new mtg product which allows me to buy 2 unit buildings with 100% financing for 40 years. It would cost me about $3000 out of pocket to purchase a duplex. The only extra fee is an increased CMHC or Genworth fee of 7%. So for an example, if I found a property which would cash flow 50-75 per unit at 25 years but would cash flow $150 per unit at 40 years, would you do the deal. All im doing here is keeping any equity out of the house as mtg paydown and trading it in for cash flow. Is this a good idea.

steve