The Easiest Way To Get Started Investing In Real Estate

This question was sent to me through our Toronto Loft Living website.
So what is the easiest way to get started as a real estate investor? There is a dearth of information on investing in real estate in the media and on the internet, much of it confusing.

You keep hearing about how you can buy all these great deals with no money down or very little down and do quick flips pocketing a ton of cash.

If you live in southern Ontario most folks find that the banks are not that amenable and that they seem to need large amounts of cash to do anything. Plus if you are in the Toronto area, which is the best rental area prices may seem very high to you.

So how can you get into the investment market and make it work?What is the truth of real estate investing and how can you get started?

Well first thing to realize is that a lot of those people selling their product(the high priced seminars costing thousands of dollars) are making as much money from the sale of their seminar as they are from their actual real estate investing, in fact maybe even more.

For Example Robert Allen of No Money Down Fame has confessed to initially making a million dollars buying real estate but to making Millions (plural) selling his knowledge.

This does not invalidate investing. Real Estate long term is your best investment of any type. At least that is my humble opinion.

There are good real estate investing courses and good investment teachers, most of them won’t charge you thousands of dollars for their course unless you are at a very advanced level.

To know more about this call our Team and we can help you get started on this course in a very reasonable manner. We can be reached at 416-465-4545.

So how do you get started? Well first let’s define investing. Investing means to buy something and hold it with the hope of appreciation and gaining a good return in the long run. That immediately eliminates the quick flip idea.

So to invest and hold immediatley implies a longer term, and also that there has to be a way to do that.

You have three main considerations when thinking about purchasing your first income producing property.

1/ you will have a mortgage and the property will have to provide enough reliable income to cover your mortgage, taxes and utilities plus a monthly surplus to be considered as a deal that works. Otherwise you will end up losing this property.

2/ You will also need a downpayment to buy this property. If you are just getting started you may not have the 25% down or even 35% down that banks require on different types of properties. So this is a huge consideration.

3/ The property will have to be both managed and maintained. You will have a new set of skills to learn with regards to your tenants. How to be friendly, effective, but firm with your tenants.

You will have to learn new attitudes to demands for work on the property as your tenants will have you building them a new unit if you cannot firmly draw the lines.

You will need to learn some basic bookkeeping and a few tax rules to keep your finances sorted out. Plus you will need to learn how to deal with trades.

Having said the above are you still interested ? If so where you begin depends on your financial strength. If you are a first time buyer with a small down payment you should buy a property to live in that has two or three existing units.

Canada mortgage and housing corporation or commonly known as CMHC will give you a mortgage for up to 95% of value on a property with up to 3 units.

If you are not going to live in the property you will be subject to traditional bank rules unless you can find secondary or seller financing.

So let’s say you want to buy a property in Toronto for $450,000. You can theoretically buy that with $22,500.00 downpayment plus you will pay CMHC an insurance fee on top of your mortgage for the privilege of buying with a low downpayment.

Combining the two this would give you a mortgage of $443,531.00 approximately. Which would carry for roughly $2452.00 per month at today’s rates. Plus taxes say about $250.00 per month, plus utilites lets add in another $400.00 per month for heat, hydro, water and building insurance. That totals approximately $3100.00 per month.

Sound a little scary. Okay, but now we are going to add in some income.

Let’s say your building has 3 apartments a main floor that currently rents for $1000.00 a basement apartment that rents for $725.00 and a Second and third floor apartment that rents for $1300.00 per month or a total of $3025.00 per month income.

Those are reasonable rents in Toronto’s current rental market. Doesn’t quite cover the costs though does it?

However, let’s take out the main floor income and you live there in a 2 bedroom suite. You now own a home and live in it for about $1100.00 per month.

That still is about $500.00 per month less than the average downtown condo runs for the first time buyer in the $225,000- $250,000 range.

But the big thing to remember here is that you did this with only 5% downpayment… in other words you have leveraged a $450,000. property with only 5%.

When prices rise by say 10% your house will go up in value far faster than your condo. Plus land intrinsically holds a far greater value in recessions than a condo just because there isn’t any more of it to be made.

So you will receive a monthly income that covers your mortgage and the bulk of your expenses, your tenants will pay for most of your house.

You will have a home to live in, build equity as the property increases in value and you will have created tax advantages for yourself.

So whats next? You will start to improve your property and start to optimize it. This way over time let’s say five years you will increase your rents. In Ontario when a tenant moves out you can set any rent you like or whatever the market will bear. Over five years the property will increase in value building your equity position in it.

If you are not going to live in a property don’t ever buy one that doesn’t pay for itself. This strategy is for building and improving a position for a first timer.

The law of doubling says that money doubles every seven to eight years.

After five years if you have done renovations & proper maintenance to increase your income and the overall value of your home you should be able to refinance your property to take money out to buy another one. Plus don’t forget your mortgage has decreased as well.

So using this plan you can look at buying a substantial property every five years. You can then move from your first property to the next one and repeat the process or if the income and improvements have created a huge increase in value you could buy a single family home. But that might slow down your investing timeline…

Follow this method of building and you can within 7-8 years be approaching millionaire status. As a single parent this is the plan I followed. I now live in a substantial single family home in a country setting in a wonderful community 30 minutes from the urban centre.

Don’t forget that here at the Great Life Team we are here to help you with this process. We have over 20 years experience as investors… So call us for a chat when you would like more information or sign up for one of our investor workshops that will be coming soon.