50% Downpayment?

[rkberry]

Hello,

I live in Nova Scotia, where you can buy a duplex for $80,000. I`m in a smaller town, but thanks to
people moving west, "Help Wanted" signs are everywhere, meaning anybody who wants to work can, meaning
more good tenants with steady jobs.

Anyway, I just don`t want property appreciation, I want a good income as well, and I want the property paid off in ten years. The only way I see this happening is with 50% down.

Any problems with this plan, aside from accumulating the 50% down? 

I like to play it safe and I don`t want a repeat of the early 80s interest rates, should they ever happen again,
forcing me into highly negative cashflow and eventual bankruptcy. I simply can`t justify just 10 or 20% down.

I own a couple of profitable businesses and live very frugally, so my 50% downpayment is slowly accumulating.

Thanks.

 

[SamEfford]

My preference would be to put a smaller amount down and buy more properties. Then when the market is at its peak, sell and pocket the profits.

 

[samsojo]

Yehh, it`s going to be pretty though for you to find a duplex in Calgary for $80,000. Most of them start closer to the $300,000. You can do some more research at http://www.joesamson.com/idx/ . In a fast appreciating market it`s not easy to find cheap properties which will also cash flow a lot. Usually you have to sacrifice one or the other. I beleive Don also teaches that real estate is a long term investment vehicle. Typically you`ll find that you can earn much more by long term appreciation vs. short term cash flow. I rather buy 2 properties with 25% down on each vs. 1 with 50% downpayment.



Joe,

 

[mcgregok]

I just have to ask the question!

If so many people are moving out of your town and their are a lot of help wanted signs, What is driving your economy to increase your property values? Is property values low due to people moving out of town?

Ken



QUOTE (rkberry @ Oct 16 2007, 09:00 AM) Hello,

I live in Nova Scotia, where you can buy a duplex for $80,000. I`m in a smaller town, but thanks to
people moving west, "Help Wanted" signs are everywhere, meaning anybody who wants to work can, meaning
more good tenants with steady jobs.

Anyway, I just don`t want property appreciation, I want a good income as well, and I want the property paid off in ten years. The only way I see this happening is with 50% down.

Any problems with this plan, aside from accumulating the 50% down?

I like to play it safe and I don`t want a repeat of the early 80s interest rates, should they ever happen again,
forcing me into highly negative cashflow and eventual bankruptcy. I simply can`t justify just 10 or 20% down.

I own a couple of profitable businesses and live very frugally, so my 50% downpayment is slowly accumulating.

Thanks.

 

[rkberry]

QUOTE (mcgregok @ Oct 16 2007, 10:48 AM) I just have to ask the question!

If so many people are moving out of your town and their are a lot of help wanted signs, What is driving your economy to increase your property values? Is property values low due to people moving out of town?

Ken


Not "so many" people are moving out of town, but more young people are moving away than before. Alberta has sucked away many, so it`s tightened up the local labour market. Anybody who wants to work can do so very easily, which is good, isn`t it? It`s putting upward pressure on wages, which is good, isn`t it? There is abundant new construction of all types (abundant for here, anyway). The economy`s diverse. This town has changed quite a bit in the past few years.

Property values are slowly but steadily increasing. The home I live in cost me $39,000 (paid for cash) a few years ago....now it`s worth twice that. It seems towns within an hour`s drive of Halifax are experiencing moderate growth (perhaps older Halifax residents vacating Canada`s most violent city for quaint small towns?).

Quite a few people are coming back from Alberta, disenchanted and disgusted. 

I think I`m going to tread the slow and safe path. 50% down, paid for in 10 years by nicely positive cashflow.
I want to be able to weather the storms, and them clouds, they be abrewin`.

I don`t want to even think about an American attack on Iran.

 

[MikeMcCrae]

Buy now save later. Get into the market and if you want to pay your mortgage fast make additional payments and lump sum payments on anniversary dates. If values are going up you lose money every day on you current program.

 

[markl]

I agree no sense waiting till you have 50% to put down. If these properties cashflow and you don`t need the positive cashflow you can always use that to pay down your mortgage as well as the amount you were going to save towards your 50% down. The problem with saving in a rising market the tide is working against you and when you have saved that initial 50% the property increased in value and you only have 40% so you are always playing catch up.

I like the saying don`t wait to buy Real Estate buy Real Estate and wait.

You just have to think that debt is a tool just like a hammer or screwdriver all these things help you attain a goal.

Good Luck

Regards,

Mark Loeffler

 

[grhutchings]

QUOTE (markl @ Oct 16 2007, 07:13 PM) I agree no sense waiting till you have 50% to put down. If these properties cashflow and you don`t need the positive cashflow you can always use that to pay down your mortgage as well as the amount you were going to save towards your 50% down. The problem with saving in a rising market the tide is working against you and when you have saved that initial 50% the property increased in value and you only have 40% so you are always playing catch up.

I like the saying don`t wait to buy Real Estate buy Real Estate and wait.

You just have to think that debt is a tool just like a hammer or screwdriver all these things help you attain a goal.

Good Luck

Regards,

Mark Loeffler

I agree with acting now as well. There really is no need to be so worried about these mortgages if the tenants coming in are going to carry it for you anyways. Enjoy the cash flow, let the renters pay your mortgage and use your own money to get into as many fundamentally sound investments as you can.

All the best!

George Hutchings
www.sellmeyourhomefast.com
Hutchings Investments

 

[timk519]

QUOTE (grhutchings @ Oct 16 2007, 08:44 PM) There really is no need to be so worried about these mortgages if the tenants coming in are going to carry it for you anyways. Enjoy the cash flow, let the renters pay your mortgage and use your own money to get into as many fundamentally sound investments as you can. While I can appreciate what you`re saying, I think posts encouraging "buy now, not later" are missing the original poster`s real question - namely what are the odds of the high interest rates of the 80`s returning. The original poster is concerned about is being in a highly-leveraged position, having interest rates spike, the rent can`t go up to cover the extra costs, and the resulting negative cash flow forces him into bankruptcy, which sounds like it`s already happened to him once already.

It`s not an unreasonable question, as I`ve got friends down in Florida, where the resulting of subprime-induced RE bubble has made RE credit hard to get, and if you can get it, it`ll cost you because banks are raising their mortgage rates to cover the increased risk due to declining property values. His LOC interest rate is going from 6% to 9% in the space of a couple of months as a direct result of that mess.

I don`t get the impression there`s a Sub-prime type mess up in Canada, but the question remains - what, if any, chance is there of an interest rate spike happening where he lives in (say) the next 5 years? Is it possible for an investor to see something like that coming so you can liquidate your holdings and avoid bankruptcy?

 

[samsojo]

QUOTE (timk519 @ Oct 17 2007, 06:43 AM) I don`t get the impression there`s a Sub-prime type mess up in Canada, but the question remains - what, if any, chance is there of an interest rate spike happening where he lives in (say) the next 5 years? Is it possible for an investor to see something like that coming so you can liquidate your holdings and avoid bankruptcy?


You`re right, Canada is on a totally different agenda vs. the US when it comes to lending. The US`s lending industry is based on 25% sub-prime borrowers the same thing in Canada is only 2-4%. Therefore our risk of seeing what happened down south is very small.

Can the rates go up much more because of our economy?



Keep in mind that primarily rates go up for two reasons: inflation and the value of our dollar. The way I see is that in Ontario and Quebec we aren`t seeing much of inflation, infact from what I hear is that they are toying with a recession. The high Canadian dollar isn`t helping their export industry either.

I believe that by looking at these two basic economic factors the chances of raising interest rates much higher is highly unlikely. What`s going to happen 5 years from now? I wish I had that insight with the 6/49 numbers as well.

 

[BMironov]

Hello,



With a little search you can get into discussion about prime rate forecast right on this forum:

http://myreinspace.com/public_forums/General_Discussion/61-653-Interest_Rate_Discussions.html



And here is the link to TD Economics special report:

The shape of yields to come: an outlook for US and Canadian interest rates to 2020

http://www.td.com/economics/special/ca0607_rates.pdf



I believe it should be a good answer for "prime rate" part of the question.



Best regards,

Boris

 

[jeremyfleming]

QUOTE (BMironov @ Oct 17 2007, 08:46 AM) And here is the link to TD Economics special report:The shape of yields to come: an outlook for US and Canadian interest rates to 2020
http://www.td.com/economics/special/ca0607_rates.pdf
Thanks for the great link Boris!

Jeremy

 

[askmer]

Does the amount of your savings keep pace w/the appreciation of the property in your area ? If it doesn`t, then it would make more sense to buy now as long as you can cashflow positive...

How come you haven`t sat down w/a good mortgage broker who can assist you in structuring an investment plan ?

 

[markl]

If the worry is an interest rate spike like the 80`s why not lock in to a 10 year term? They are available and you have it set for 10 years. If you listen to Don at all we should know that Variable rate mortgages will be the winner 95% of the time.

 

[rkberry]

Hello,



I thought a little update might be in order.

I`m sleeping quite well with 50% downpayments.



Good luck everyone!

 

[Jack]

QUOTE I thought a little update might be in order.

I`m sleeping quite well with 50% downpayments.

Good luck everyone!

Haha, I love it. Good for you.

If I was around when you made your original post, I would`ve applauded your strategy. Congratulations for not succumbing to the "buy as many properties with as little of your own money as you can" philosophy; as each person has a different level of risk tolerance, this should suggest that each person`s investment strategy be a little different, too.

Congrats again! Where in Nova Scotia did you end up buying?