I had ~$12,000 in my RRSPs along with some very helpful and generous family members. While far from wealthy my family has always been very supportive of "healthy choices." They paid for half of my University education and offered $10,000 towards the down payment and $2,500 towards my air conditioner just because they did the same for my Brother and always keep things even.
My 89 year old Oma (German Grandmother) chipped in another $10k as she did for all of her other 3 Grandkids out of her savings generated from her piecemeal factory work earnings and thrift after immigrating to Canada in the late 1940's.
I owe many things to my Grandparents and Parents. My Oma and Opa taught me the value of a dollar while my subdividing Grandfather demonstrated how to take calculated risks.
Mushy stuff aside, the date was July 2006 and I now had $34,500 burning a hole in my pocket.
$12,000 Personal RRSPs
$12,500 Gift from Parents
$10,000 Gift from Oma (Thanks Oma!)
$34,500
I put 10% ($20,750) down on the property and reluctantly paid CMHC (Canadian Mortgage and Housing Corporation) mortgage insurance fees of ~$3k (1.75%).
I spent ~$20,000 on improvements as listed below.
$ 7,500 Furnace & A/C
$ 5,000 Windows (11)
$ 1,000 Baseboards
$ 1,500 Front Door
$ 1,500 Flooring (Laminate & Hardwood Refinishing)
$ 1,000 Paint supplies
$ 1,500 Washer & Dryer
$ 1,000 Misc. Fixtures (Lights, Plumbing, Window Coverings, etc.)
$20,000
My two friends each paid $525 per month and my girlfriend paid $400.
My total monthly cash flow statement was:
$1,450 Rent
($ 37) Insurance
($1,366) Mortgage (Including Property Taxes of ~$225/mo) (5.4%, 25yr, fixed rate closed mortgage)
($ 425) Utilities (Gas, Water, Hydro, Internet, Phone, TV)
($ 378) Negative cash flow (my rent!)
Only paying $378/mo in rent was a great deal. Better still was that I owned the property and as a result was paying down my mortgage and benefiting from overall market appreciation!
In January of 2007 one of my roommates moved out. If I had been in a family home, it would have been difficult to find another roommate to replace the lost rent who I was willing to co-habitat with. Fortunately, since I lived in a duplex, I simply moved upstairs with my one remaining roommate and advertised the lower apartment in the local newspaper for $260 fee. After no luck during the first run of the ad, I met a wonderful young couple who signed a 1 year lease at $750/mo plus utilities for the downstairs two bedroom apartment. Success! Not only had I replaced my lost rent but in fact I had increased my overall rental income and transferred responsibility for some utilities to the new tenants! This house was really working out great!
With the new tenant I avoided ~$100/mo in Water & Hydro and earned an additional $200/mo in rent resulting in my new monthly personal cash outflow $100/mo - not a bad deal!
In the spring of 2007 my second roommate moved out and I shared the beautifully renovated 3 bedroom upstairs unit with my girlfriend - it was great. After a year of happily living in the unit, my better half moved to Toronto to attend the Schulich School of Business at York University where she earned her MBA. With the three bedroom unit being too much space for a lone bachelor I advertised the upstairs unit (this time for free on Kijiji) and met two young ladies who moved in on August 1, 2008. They paid $1,100/mo including utilities while I lived in my parents' rec room for free. As a full investment property at this time, my new monthly cash flow looked like this:
$1,850 Rent
($1,366) Mortgage & Property Taxes (5.4%, 25yr, fixed rate closed mortgage)
($ 225) Upstairs: Water, Hydro / All: Gas Heat
($ 37) Insurance
($ 75) Lawn & Snow maintenance provided by the tenant in the lower apartment
$ 147 Net positive cash flow!
Things were looking great. My bank balance increased every month, my mortgage decreased, and my property value increased!! All good things.
A critical point is that I have never spent any of my positive cash flow. I put 100% of it into reserves which I use to buffer major repairs. I have since installed two water heaters, a new roof, and a fence at 116 Rutherford Drive which have largely been financed by cash reserves generated by the property itself.
As of August 1, 2010 I have increased my rent by $75/mo and decreased my mortgage by refinancing (see next post) at 3.99%. Therefore, the property continues to generate still more cash than it had in 2008.
In addition, comparable duplexes are now being listed in the low $300s resulting in ~$100,000 in capital appreciation over the past 4 years.
I couldn't be happier with how this property has turned out and you can do the same.
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