This week’s post was inspired by my one of my long time real estate investing buddies Todor Yordanov from Proact Investments. In Todor’s post titled “Why Real Estate is so POWERFUL – Attempt at explaining it” he tells his personal story in how his great-grandfather’s home, now a retail store, provides cash flow for him and his children to pay for most of his vacation in Bulgaria. Now how is that for a legacy? What kind of legacy are you planning for your children and children’s children? I know what mine are like all sophisticated real estate investors I know.
Now here is a case study of my own. To the right is a picture of the 2nd investment property to grace our portfolio and the only property I would consider “turn key” in that it was move in condition and required limited work before renting out. We purchased this two bedroom, two bathroom, detached bungalow almost exactly five years ago. To provide some context, we made this purchase before we really started to educate ourselves in real estate investings. We had just read Robert Kiyosaki’s “Rich Dad, Poor Dad” and the book basically said to get in the market so we did. We used a part time Realtor who did not invest nor understood investors, we paid market value (5k under asking), the max term mortgage available was 25 years (not 30-35 like it is today), we didn’t buy in a top 10 town, we didn’t even know what the economic fundamentals were for this property, but we did know the neighbourhood, it is downtown Burlington in an area close to the main street, the lake, and the YMCA.
Five years ago, we purchased the property for 225k. Rent was a measley 1,050 per month plus utilities. The rent was low because we were so concerned about vacancy that we took the first couple that viewed the property. Over the years, we had problem free tenants, raised the rents, replaced the furnace and roof so that put a dent in our pockets since we were breaking even on the property. Fast forward to the present, our 2nd tenants who were an absolute pleasure are leaving us after 3.5 years so we are raising the rent to market at 1,500, we refinanced the property at a cheaper rate, 35 year amortization and at an appraisal of 290k.
So to all you sophisticated Hamilton real estate investors out there investing in the #2 town in Ontario, would you have done this deal? Hindsight is 20/20 but I certainly would. We could have improved on a bunch of things but our mortgage payments are now much lower, we raised rents by $450 per month and the appreciation alone equates to an approximate 29% average return on equity (we used a HELOC to finance the 20% downpayment so not our own money and I’m not bragging, only explaining).
What’s the lesson here? I’ve met many novice investors, especially young ones who would have walked away from better opportunities than the above because they only cashflow 100-200 per month after all expenses, plus buffers for maintenance, management, and vacancy allowance. Why? Probably due to a short term focus expecting to get rich. But as all the sophisticated investors know, real wealth is built over the long term. There is no geting rich quick. Focus on the long term, buy right and your investments will take care of you.
Till next time – Happy real estate investing everyone!
PS: If you would like to learn more about investing in real estate in Hamilton please feel free to call 289-288-5019 or email me erwin (at) mrhamilton.ca.
PPS: sign up for my newsletter so you don’t miss out out on what’s going on in Hamilton!!