We are busy professionals in our early 40’s with two children and we know that it’s time to buy that first investment property to secure our retirement. We’ve worked hard, paid off the mortgage on our primary residence and purchased a summer cottage. Now we want to buy an investment property and would love some help determining what the best type of property is to buy.
  Like many Canadians, we were taught to work hard and pay off the mortgage on our primary residence. That’s exactly what Sean and Andrea did and what a tremendous accomplishment that is. However, even with their mortgage paid off, they still have property taxes, insurance and utilities to pay. Plus the rate of return going forward is now based on “if and when the market appreciates.” Otherwise, they just have dead equity.

By working hard and paying off their mortgage, they have put themselves in an ideal position to have their equity work for them. By refinancing their home with a new mortgage and using that money for a down payment on an investment property, their tenants will pay off their new mortgage, not them. Sean and Andrea will be working smarter, not harder.

By using a safe level of leverage, they can use some of the equity in their home to invest in income producing real estate. Finding the right investment property is essential for the plan to succeed.
  Couple, married, 2 children, looking for a better retirement vehicle.  
  They understand that real estate as their retirement vehicle can outperform an RRSP retirement plan. They tried working with several Realtors who were referred to them. Unfortunately, they were receiving mixed messages and weak investment advice.
  Assess their situation, skills and resources, and guide them in the right direction in order to meet their investment objectives. Find the right Investment Realtor to help them.
  Establish a retirement plan based on real estate (not RRSP’s), so that they can control their own retirement plan and income while enjoying their current lifestyle.
  Household income $105K/yr, $40K in RRSP’s, $30K in savings, $0K credit card debt.
  Principal Residence: $325K value w/ $0K mrtg, cashflow = (-$400)/mo PITI RRSP Investments $40K = 0.1% Average return per year for past 4 years
  They have good income, great credit, no personal debt, they have researched investment areas and looked at several properties close to where they live in Ontario already.

Like many new investors, Sean and Andrea wanted to know the best city to invest in. REIN’s (Real Estate Investment Network) produces a provincial annual research report of the Top 10 Cities to invest in. The reports are very thorough, detailed and one of the best summaries of research in Canada that an investor can use when considering a long- term investment portfolio.

The challenge is that many inexperienced investors use the reports like a “hot stock pick.” In other words, they assume that if they buy real estate in the #1 city, they will automatically realize a profit that will be higher than the #2 city. #2 being higher than 3 and so on. This is simply not the case. Selecting a good area to invest in is just the beginning.

Other considerations include the actual neighbourhood, the physical property in terms of age, style, layout and zoning. The initial price per unit as well as the operating costs associated within that area and within each unit will impact the bottom line. Renovations, ongoing maintenance costs, managing an asset close by versus the cost associated with managing an asset within another province are all expenses to consider.

And of course, the tenant profiles that you are trying to attract might not be realistic within one or more of those areas. When you factor in everything to consider, there is no perfect place to invest, regardless of the economic fundamentals in the area.

It’s a balance of all the factors mentioned above along with your own investment criteria, skills, resources, objectives, level of comfort and your own personality. Plus, skilled investors can make money in any market regardless if it’s appreciating or not. Therefore, a growth market is not as relevant to these types of investors. In fact to them, it could even be a deterrent.

Based on Sean and Andrea’s criteria and investment objectives, they picked a growth market close to where they live.

They had read a lot of investment books, researched many areas and different investment strategies. They were ready to buy and simply needed help clarifying their plan, finding the right Realtor and selecting the right investment property.

Their initial plan was to purchase one starter home with a suite in the $250K to $300K price range each year for a three to four year period. The plan was fairly simple and would meet their objectives.

We selected ten investment properties within their preferred area and then pre-viewed then on their behalf. We then narrowed the list down to the best three so that they could select the final one.

Property A was a single family home in a desirable neighbourhood with a basement suite in the $350K range. Property B was a single family starter home with a suite priced at $250K. Property C was a brand new triplex for $550K.

Property A was ideal for a large family who wanted a mortgage helper. However Sean and Andrea were not going to live there and the cost associated with a large home on a large lot was not desirable as a long-term rental property.

Property B was exactly what they had envisioned. $250K starter home with a suite. On paper, it looked ideal. So much so that they did not even want to view property C, the $550K triplex. It was more than double what they had initially intended.

After a bit of convincing, they agreed to take a quick look at the triplex. After running the numbers and weighing the pros and cons of each property, they realized several things about the triplex.

1. Since the income from the triplex was legal, a larger portion could be used for qualifying for the financing compared to a non-legal basement suite.
2. The units were legal and therefore they would not have to worry about any units being shut down now or in the future.
3. Because the triplex was new, the maintenance costs would be very low for several years to come.
4. The triplex had individual heating and cooling systems in each unit on separate meters making it easy to separate the utility bills.
5. The cashflow was just as good, if not better on the triplex than an older, less expensive home with a basement suite.
6. They would have 3 units to manage in one location.
7. A better location, newer product, better floor plan, and separate garage for each unit would attract the desired tenant profile they were seeking.
8. They could use the equity in their home for the entire down payment and still have positive cashflow even after paying the new refinance payment.
9. Finally, it sped up their investment plan. Instead of buying one $250K house per year, it was like buying two.

For the many reasons above, they purchased the triplex. Knowing they made a wise investment choice, they are well on their way to having a secure retirement.

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