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steveclark

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We currently have 2 rental properties (townhomes) on the go, in Barrie that are generating a modest but positive cash flow. Also our residence is a townhome in Alliston, a high demand area as there is little in the way of rental properties. The predictions for the area are high growth in the next 10 years. Also a major auto manufacturing plant (Honda) is here and shows no signs of slowdowns or layoffs. So in general a good place to own.
We would like to move into a residence with a little more space and have been told by our mortgage broker that we qualify for 100% on the new place and keep all 3 places to rent. Would like to hear advice on this scenario and or suggested alternatives
 
It`s just my $0.02:

Since you have 2 properties already generating PCF, and based on your description RE Alliston, it appears that your existing residence can also been transited into a strong cash flow generator. If thats the case, why not keep all of them and build up your portfolio, I think thats a perfect plan.

Also, keep in mind that the current interest is bloody low and its getting even lower, that will help a lot to offload your monthly payment for next residence even its 100% financed.
 
We would like to move into a residence with a little more space and have been told by our mortgage broker that we qualify for 100% on the new place and keep all 3 places to rent.
That`s quite risky. Even if renting out your current place will give you positive cash flow, your monthly cash outlay to service your new mortgage will be higher per month than you`re used to.

And who`s to say that Alliston real estate values don`t take a bath? If property values fall, which, looking at Ontario`s fundamentals, isn`t that far-fetched at all, you`ve suddenly got a mortgage that`s worth more than your house. Result? You`re trapped! What if your job doesn`t work out? What if you want a career change? Trapped!

Finally, the fact that there`s just one major employer and it`s a Honda manufacturing plant raises huge red flags for me. The manufacturing sector is taking a beatdown lately and it`s no longer cheaper for automotive firms to produce their vehicles in Canada. Who`s to say that they don`t just pack up and head south like so many other producers in that area?

You`ve got two cash-flowing properties in Barrie already, and you probably have a nice, easy-payment lifestyle in your pricipal residence; why put that at risk? I wouldn`t recommend this strategy, as all it does is keep you more dependent on your income from employment and more dependent on other factors outside of your control (economics of Alliston, real estate appreciation, etc.).

Seems to me that the payoff isn`t worth the risks.
 
QUOTE That`s quite risky. Even if renting out your current place will give you positive cash flow, your monthly cash outlay to service your new mortgage will be higher per month than you`re used to.

I`m not quite get it. Wouldn`t be the whole point for REIN that borrow to invest, cash flawing, then borrow more to invest more?

For sure the Alliston market is more risk comparing to Barrie`s but the risk is everywhere, and what happens to alliston, can happen to Barrie as well. So how can we handle it?
 
We are in a similar place. We have long outgrown our starter home, but with the equity tied up in properties in Kitchener with a modest cash flow, getting a larger place simply means higher monthly payments. We`re not quite ready to make that leap. We are waiting to see if some of our new ventures pay off in a solid way first and that may take a year or two.

I keep reminding myself of the slingshot - the tighter you pull back the more you will spring forward.

Carla
 
depends on your RISK perception: if you can or chose to afford a larger payment/month .. then yes, go for it .. if you like less risk and a bit more of a cushion then stay where you are ..

I played the game cashflow 101 recently .. and the guy who won had the lowest expenses although I had the highest income ..

In Canada the personal residence is TAX FREE .. so err on the side of a LARGE home .. as any future gain will be tax free (as opposed to a rental property that will be taxable !) ... i.e.: buy the largest home you can afford !

A hybrid to consider is a house where you could, if you have to, or initially, sublet a suite or rooms in the basement for add`l income .. and then keep it for the kids or not rent it if you don`t have to ! (That`s what we do in Canmore .. as our situation 7 years ago wasn`t as "comfortable" as today ..)
 
How can you not keep investing. For me giving up is way harder than trying...
 
Keep in mind your own personal comfort zone. Many will say to push your own limits
to grow but remember you do have to be able to sleep at night.
One of the major failure factors of startup businesses is over expansion.
Growing too quickly can sap your resources. You say you are getting modest
positive cash flow. Do you have a substancial war chest to ride out large
unexpected expences, or multiple large expences.
All things I am sure you have already thought about.

Too many investers see life as a race to get rich, more, more, more
of one thing usually means less, less, less of something else.
 
QUOTE (steveclark @ Mar 25 2008, 11:02 AM)
We currently have 2 rental properties (townhomes) on the go, in Barrie that are generating a modest but positive cash flow. Also our residence is a townhome in Alliston, a high demand area as there is little in the way of rental properties. The predictions for the area are high growth in the next 10 years. Also a major auto manufacturing plant (Honda) is here and shows no signs of slowdowns or layoffs. So in general a good place to own.

We would like to move into a residence with a little more space and have been told by our mortgage broker that we qualify for 100% on the new place and keep all 3 places to rent. Would like to hear advice on this scenario and or suggested alternatives




I just don't think there's enough information provided to give you the quality response you are looking for.



We have no idea if this 100% financing on the new place will result in the monthly payments eating up your entire monthly income, or if the monthly payments are easily affordible for you.



Debt servicing is everything in this situation. Especially when you are carrying multiple properties. And you haven't provided us with any information on the servicability on them.
 
Debt servicing is everything in this situation. Especially when you are carrying multiple properties. And you haven`t provided us with any information on the servicability on them.

Good point, totally agree.

That said, I`d still be very hesitant with a no-money-down deal. Overleveraging is one of the main causes of the US housing crisis; people who have put down 0 - 5% and who`s property values have since fallen are suddenly faced with the reality of owing more on a house than it`s market value, which leads to them not seeing the point in paying the mortgage, which leads to foreclosure.

You`re doing very well with the two cash-flowing properties. If you want more passive income, try either taking out equity or disposing of one (or both) and invest in a multi-family dwelling.
 
QUOTE (dwb @ Mar 26 2008, 08:46 AM)
I just don't think there's enough information provided to give you the quality response you are looking for.



We have no idea if this 100% financing on the new place will result in the monthly payments eating up your entire monthly income, or if the monthly payments are easily affordible for you.



Debt servicing is everything in this situation. Especially when you are carrying multiple properties. And you haven't provided us with any information on the servicability on them.






Its important to make your decisions in context with your long term investing plan. If you can qualify for 100% financing, its likely that your income wouldn't be stretched too much or the bank/insurer would never approve it. If however, your debt servicing ratios are approaching the max (nearing 40% with this 100% financing option), you might want to reconsider especially if you intend to continue purchasing rental proprerties in the future.



Qualifying for rentals uses much more conservative qualifying criteria. If the property you are looking at is barely break even, and your debt servicing is maxed due the mtg on your principal residence, you'll be out of luck and likely stuck with a subprime loan. If you intend to keep investing in real estate, make sure your broker is familiar with revenue property financing and that you understand the implications of your decisions - how it will affect your ability to qualify in the future.
 
I would definitely continue to invest but focus on increasing my positive cash flow not reducing it. As DWB mentioned you did not provide the numbers so we can not help you with the calculation.

Cheers,
Neil
 
Thank you all for your excellent advice and feedback. These are all the issues that we are discussing and I really appreciate the unbiased feedback of experts. Our mortgages are 110, 124 and 154K the latter being our principle residence. Our eyes are on a residence listed at 269K. Our gross combined income is 100K. We have no debt to speak of, although I still have support payments of $800/mth. In terms of available cash we do not have enough to make a significant down payment as there are minor repairs needed in the 2 rentals, and of course we want to keep a healthy reserve fund so do not want to access that.
 
Hi Steve,


If I understand correctly, you own three properties in Ontario`s best areas, your rentals are doing well, your credit is great and your income allows you to qualify for a fourth property with zero down. I can assure you there are hundreds of people reading this thread wishing they had this problem
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On a serious note, I think you need to seriously evaluate what you want from real estate. There will always be people who believe it is the right time and place to buy and there will always be people who believe it is the wrong time and place to buy.


What is important is that you decide what you want from real estate, do your research, follow the fundamentals and take action. If you want two rental properties and a nice principle residence, congratulations you are already there.


If in fact you plan to continue building your wealth by acquiring real estate, how could the timing and circumstances be better for you?


If you decide to continue investing in real estate, make sure you think a few steps ahead before signing up for 100% financing on the 4[sup]th property, you may want to leave room for the 5th[/sup] purchase
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Hi Steve,

I am in a similar situation, in Alberta.

I started 5 years ago with 1 property, got as high as 5, and am now at 3. I am staying at 3... COMFORT, CASH FLOW, It does not get any better (for me anyway) To me the market is a little unpredictable right now. I was in Ontario for the 90`s recession and just do not want to be reliving that experience.

Congrats on your success !

Scott
 
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