My Second Investment

It was the winter of 2009. I had long since been sharing my opinion of real estate investing with my colleagues. One colleague in particular decided to purchase a triplex based on my advice. 12 months later, he was ready to sell. He purchased the property with a partner and didn't feel that the distribution of duties and responsibilities was equitable. His Brother and partner was a real estate agent who was able to broker the deal for $330k. The were asking $349,000 but didn't have any offers after having the property on the market for ~1 month. I argued that they would have to pay the buyer's agent 2.5% and that savings made my offer of $330k much more competitive. They accepted and the closing date of 378 Vanier Drive was set as March 31, 2009.

I planned to make a 10% or $33,000 downpayment. I had saved ~$10k personally and hoped to obtain the additional funds by refinancing my mortgage on 116 Rutherford Drive. I was told by my mortgage broker that 116 Rutherford Drive could be financed up to 80% without paying any additional CMHC fees.

I had the property appraised in February of 2009 at $266,250 and increased my mortgage to $213,000 (80% of $266,250).

My mortgage was originally ~$190k (90% of $207,500 + CMHC fees). I had paid it down ~$7,000 over the past 3 years leaving me with a mortgage of $183,000.

Therefore, my increase from $183k to $213k provided me with $30k of cash to apply to my purchase of 378 Vanier Drive. This was reduced by ~$7k due to mortgage break fees (I had a closed mortgage).

Vanier's monthly cash flow statement was:

$ 75 Laundry

$ 700 Rent - Lower Apt. (2bd)

$ 803 Rent - Middle Apt. (3bd)

$ 950 Rent - Upper Apt. (3bd)

$2,528 Rent - Total

($1,340) Mortgage (3.99%, 35yr)

($ 347) Property Taxes

($ 215) Hydro (Baseboard Electric Heat)

($ 100) Maintenance (Snow/Lawn)

($ 125) Insurance

($ 80) Water

($2,207) Expenses - Total

$ 321 Net Cash Flow

While the positive cash flow was great, I saved every penny in a capital reserve to afford major repairs (roof, etc...).

Two months after purchasing the property, the drain in the laundry room backed up and the basement apartment was flooded! Insurance provided ~$17k in relief. I used this money to re-floor the entire apartment with laminate floor and borders so that no future damage from water could occur - the new tile looks great!

That summer and fall two of my three tenants at 378 Vanier moved out. With the remaining insurance money, I renovated the upstairs apartment in September 2009 for ~$7,000 which afforded the following jobs:

Hardwood refinishing (Living Room, Dining Room, and Three Bedrooms);

Tiling of the Kitchen, Hallway, and Bathroom;

New Kitchen counter top and cabinet paint/hardware; and

Paint and lights throughout.

After the renovations, I increased the upstairs rent to $1,000/mo plus utilities.

I painted the downstairs apartment for ~$1,000 and increased the rent to $880/mo.

My current 378 Vanier Drive monthly cash flow looks like:

$ 75 Laundry

$ 713 Rent - Lower Apt. (2bd)

$ 880 Rent - Middle Apt. (3bd)

$1,000 Rent - Upper Apt. (3bd)

$2,668 Rent - Total

($1,340) Mortgage (3.99%, 35yr)

($ 347) Property Taxes

($ 240) Hydro (Baseboard Electric Heat)

($ 100) Maintenance (Snow/Lawn)

($ 200) Insurance - My insurance was cancelled after my claim!!!!!

($ 80) Water

($2,307) Expenses - Total

$ 361 Net Cash Flow

Having purchased the property for $330k and put none of my own equity into the property for additional repairs, I believe to have earned ~$100k in equity over the past 16 months given that comparable triplexes are selling for the low $400s.

Once again - positive cash flow, great appreciation, and the slow pay down of my mortgage by my tenants makes this property a winner!

A quick note on refinancing. Refinancing is a powerful way to increase your leverage and gain access to additional investments when cash is tight. It can be an expensive process given legal, CMHC, and inspection/appraisal fees but can often be the easiest way to access equity vs. painfully saving month by month!