Recapping My First Investment Property

Canadian Real Estate investing in the peak of the pandemic.

No this is not the property in question, but a free stock photo from Burst :).

In the spring of 2020, mostly known as the advent of COVID in North America and the changes that came with it; I got the keys for my first property. This was extremely ironic. At this point I had been trying to convince my parents to help cosign for me on a property purchase for years, but they were convinced that the equities/real-estate market was a house of cards on the brink of collapse. I did not share the same view and was on record with saying years before that due to the mechanics of supply & demand that the only way housing prices would fall would be if there was some sort of catastrophic event that wiped out a significant portion of the human population. So just imagine putting that omen out and only a month after removing conditions hearing about this new pandemic sweeping the world.

I thought I had fully jinxed myself into the biggest financial mistake of my life.

I was never able to convince my parents to help me with cosigning and I was about to make this huge purchase with a pretty uncertain future for the world, let alone the financial system.

Writing this now at the end of 2021, we know how things played out. Who saw that coming??

My first property purchase was a success and so a few months later and with that win behind me, I decided to try my hand at an investment property. A property which I would not live in and own strictly for the purpose of renting out to long term tenants for the purpose of creating ‘cash-flow’.

In this article I will break down how this purchase has gone looking back one year since acquiring the property in December 2020 and share some learnings. Here is what I will be talking about

• How I found this investment property
• How the numbers looked (and how they actually turned out)

How I found the property

The main resource I use for finding properties is Realtor.ca. If I am being honest however, the time I spend on here is mostly a waste of time scrolling through properties aimlessly and getting a sense of the market. How I really found this property was having a kick ass realtor who understood the investment landscape and also understood what I was looking for. I found this realtor through connections in my real estate investing network. When we started discussing working together I made it clear that I wanted to purchase a property in and around X price and this price would produce X in monthly rent.

The realtor sent me back 3 properties. As I had already worked with this realtor on my principal residence, I had high trust and therefore went straight to Facetime viewing all three properties. (I always virtually buy my properties through Facetime as I am usually out of country working remotely). Given the 3 options, we narrowed down on one property which produced the most cash flow and best of all, it was currently tenanted with great tenants who wanted to stay. I ran the numbers with the current tenants and their current rent and the numbers checked out. We therefore wasted no time and went straight to making offers.

Insert Lessons:

1. Be clear with your goals with your Realtor and make sure they are recommending you properties that fit your goals. Not all Realtors do this. Don’t waste your time with Realtors who send you every property within your price range.
2. When the numbers check out; go straight to offers and make it happen. Good opportunities don’t last long.
3. With the above two, you are showing your Realtor that you are a high intent buyer. They will spend more time on you and invest better recommendations in you when they know that you will always pull the trigger on a good recommendation.

The offer process went great for me. The seller wanted to close the deal before the end of the year for tax reasons and because I came to the table pre-approved and ready to go, I was able to offer a quick closing given that they were able to provide a better price. The property was listed at $229,000, I ended up paying $200,000. Knowing what the seller wanted helped me make a competitive offer while asking for a discount.

Let’s go through the numbers on this thing..
The monthly carrying costs on this property were:

• Mortgage Payment on 20% down at a 1.29% interest rate: $624
• Insurance: $60
• Strata/HOA: $237
• Utilities: $75

The rental income from the current tenants was $1,350. This therefore allowed me to produce $354 in monthly cashflow. Annualized this creates an almost 11% cash-on-cash return on my $40,000 down payment. 11% before accounting for debt pay down along with appreciation. This was obviously a pretty good opportunity especially as I was fairly bullish on the city which I was buying in. I also had a strong belief that appreciation would be good in the following years.

With that said, in the process of removing conditions a huge red flag arose. In reviewing the strata minute documents, I found out that there had been a burst pipe/flood recently that had essentially wiped out the contingency reserve fund for the building. There was 180$ per unit in the CRF. This meant that if another pipe were to burst or anything were to go wrong really, I would have to pay for it out of pocket. This made me extremely nervous. Nervous enough that I turned to Reddit get some advice. The feedback from the PersonalFinanceCanada community was not what I was hoping for.

Just to show a few of the many comments. I was so close to pulling out. Then I saw this comment..

This was such a good and valid point. I also ran the numbers; I suspected worst case scenario I might get assessed for $11,000 within the first two years. Absolutely worst case scenario. When I plugged this into my calculations I was still comfortable with the deal and was confident that the cash flow being produced would offset these special assessments in the long run.

So I proceeded and went through with the deal.

So what actually happened in the end? How did the numbers shake out?

What actually happened in terms of special assessments? I have paid $1,850 in special assessments in the first year. There are no special assessments scheduled for my second year. But I also got the property for 13% below listing price and saved 29k, so I can stomach this small one off levy.

With all costs and special assessments included the property has produced $1,900 in cash flow in year one or almost a 5% cash-on-cash return on my $40,000 invested. Assuming that there are no levies in year two, my cash-on-cash return should increase to almost 10%.

At the same time, $5,460 of my mortgage debt has been paid off which then creates an 18% return on capital.

If we factor in a 3% appreciation rate (the real rate is likely closer to 20%), then I saw an additional $6,000 in wealth creation, bringing the total return on investment to 33% in year one.

So the investment has gone great, the tenants have been great, and given the high cash flow on this property, I was able to qualify for another mortgage this month and have an accepted offer on property number three!

Questions? Hit me up on Instagram, always happy to help.

@miketsolty