Advice for starting out

[StartingInBC]

Let me introduce myself. I`m a 25 year old recent university grad with a modest gross income of 52k a year. I expect to have between 18 and 20k saved up by April for a down payment. This is where I differ from everyone here. This is my first property and not an investment property... yet. Due to my living in the greater Vancouver area, housing is very expensive. Considering that, I`m limited to looking for a condo in Surrey or Langley. I don`t intend to live in this condo for longer than 5 years, and the sooner I could trade-up my living arrangements the better. To speed up this process I will get a two bedroom and rent the second room out. Ideally I see my next step in the property ladder as a modestly priced home with a rentable basement suite.

What I want to ask the experts is how they would approach this scenario to best position themselves for an investment property down the line. Some of the ideas I`m floating in my head :



1)Buy a cheaper unit, small upgrades, live in it, rent the room, have high payments and build equity until it can be refinanced to cashflow upon buying a new place to live in.

2) Do all the above but try to sell it for a modest profit instead of holding it. (This assumes that the condo would be too difficult to cashflow and/or I wouldn`t be able to get a mortgage on my new home while holding the mortgage of the first place)

3)A strategy of selling and buying sequential trading up in value of the home I own and live in. (This might be a more realistic strategy due to the extremely high house prices in my area) With the money I`m not investing in the housing market, I could put elsewhere (LP?).

Any comments or advice is greatly appreciated.

 

[housingrental]

I`d do none

I`d rent (what I assume is a cheaper to carry) one bedroom apartment for a few years
Save up more cash
Spend some time to learn one market
Then pull the trigger on something you can spend money on upgrading that you can add value to

In a few years you will have:
a) Expertise to discern when a property is available for a sale at sufficient discount to allow for built in equity after reno
b) Have enough cash to renovate
c) Have enough cash (and I also assume with a growing income from more work experience qualify for more) to purchase a wider range of properties to choose from and have a reserve funds to sleep well at night if your career experiences any bumps on its path

 

[Thomas Beyer]

QUOTE (StartingInBC @ Dec 4 2010, 05:41 PM) .. Considering that, I`m limited to looking for a condo in Surrey or Langley. I don`t intend to live in this condo for longer than 5 years, and the sooner I could trade-up my living arrangements the better. ..
Try to buy a small house. Crappy. Cheap. 3BR+. 2 1/2 bathrooms+ (or enough room to add one or 1.5) In a decent location though.

i..e a C asset is a B or A neighborhood. Then bring value to average of neighborhood. That is the fastest value gain. It will take some work on your end renovating .. or lots of beer for buddies helping your renovate !

Then renovate while you live there. Rent out a room or 3 indeed. That is the fastest way to wealth as you pay no taxes on a gain.

Condos, unless rental pooled in smaller towns with a long-term view in mind, are not a great investment due to condo fees beyond your control and limited land per condo.

Land appreciates. Building on land depreciates over time.

Thus, buy land .. with a crappo house on it.

A quick search on mls shows 31 homes below $400,000 in Langley. 5% down = $20,000 and one is yours.

Step one: pre-qualify for a mortgage. Perhaps parents, Grannie or your favourite uncle co-signs for a mortgage .. or even adds some cash !

Step 2: start looking for a home that suits your lifestyle for the next few years.

Go slow. Become an expert in an area. That takes a while.

Finding a right price point takes a while too. Write low offers, say 10-20% below asking. If you have not written 10 offers that have been refused you paid too much ! This "offer writing skill" and "finding the right price point" also takes a while to muster and some realtors will be pissed off. Get used to it. After having used 3 or 4 you`ll find one that you click with and that knows the neighborhood that you have in mind.

Maple Ridge or Surrey might be better .. as they are in the REIN top 10 list for BC. However, Pt. Moody, Coquitlam, North-Van or Ladner have some decent pockets too!

Keep in mind where you work as traffic is hellish in Lower Mainland. Don`t spend 3h/day commuting. Better spend that time on real estate research !

Related posts:

5 ways to make money http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html

How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html

Happy huntin` .. and report back here what happened 4, 8 or 14 months from now !

 

[toddzimmer]

I was in your position when I moved to Surrey about 10 yrs ago! I bought an updown duplex that was outdated and needed some work, which I did over time. I have rented out our basement suite over the 10 yrs and over time made over $80K in the process from rents. It cut my rent down to a manageable amount. If you are single you can go even further and have a buddy rent out one or two of the upstairs rooms you live in. This process enabled me and my family to build equity and turn it into a portfolio of rental properties over time as we used our HELOC from mortgage paydown and appreciatioin.
Another strategy is similar to the above, but YOU live in the basement suite and rent out the top floor for more $. Eventually when you go to sell, these are desireable houses as they have mortgage helpers!

Todd Zimmer
REIN member Surrey,
B.C.

 

[glasszz]

Arh~ I wish had read this post long ago...

I just bought my 1st apartment condo...1 bedroom..in Edmonton Strathcona area..1 block from Whyte Ave
Now I think I might have made a wrong move after reading this post, I should have bought a house!
My closing date is Dec 15th..now I am not as excited as before

What should be my next "right" move if I want to continue to build my portfolio? Maybe a house around that area since it`s nearer to the University?

 

[jjaris1982]

If I were you, I have to buy a house nearer to the University and continue on what you have started. Goodluck!!!

 

[bizaro86]

QUOTE (glasszz @ Dec 7 2010, 09:54 AM) Arh~ I wish had read this post long ago...

I just bought my 1st apartment condo...1 bedroom..in Edmonton Strathcona area..1 block from Whyte Ave
Now I think I might have made a wrong move after reading this post, I should have bought a house!
My closing date is Dec 15th..now I am not as excited as before

What should be my next "right" move if I want to continue to build my portfolio? Maybe a house around that area since it`s nearer to the University?

I wouldn`t get disappointed with your plan based on one post. There are many ways to skin a cat, so if yours is well thought out there is no reason to follow a path set by another.

Regards,

Michael

 

[StartingInBC]

QUOTE (ThomasBeyer @ Dec 5 2010, 05:24 PM) Try to buy a small house. Crappy. Cheap. 3BR+. 2 1/2 bathrooms+ (or enough room to add one or 1.5) In a decent location though.

i..e a C asset is a B or A neighborhood. Then bring value to average of neighborhood. That is the fastest value gain. It will take some work on your end renovating .. or lots of beer for buddies helping your renovate !

Then renovate while you live there. Rent out a room or 3 indeed. That is the fastest way to wealth as you pay no taxes on a gain.


[...]

Maple Ridge or Surrey might be better .. as they are in the REIN top 10 list for BC. However, Pt. Moody, Coquitlam, North-Van or Ladner have some decent pockets too!

Keep in mind where you work as traffic is hellish in Lower Mainland. Don`t spend 3h/day commuting. Better spend that time on real estate research !

Happy huntin` .. and report back here what happened 4, 8 or 14 months from now !

Thank you everyone for the replies! It seems there is agreement by both Adam and Thomas that I should look to buy a house that can be significantly upgraded to add value/equity quickly. The advice only really differs on when to pull the tigger. My next step will be to hit the library and check out some books on property improvement and renovating. Does anyone have any suggestions on books to start with? Also, is the renovating strategy still something you`d recommend if I wasn`t particulary handy and would have to pay for all of the mid to large projects?

In regards to location, ideally I would buy in west Maple Ridge as I would have a roommate I`d trust (a buddy) and I work just on the other side of the golden ears bridge. Much of affordability of Maple Ridge would be eroded by the ~130 a month I`d pay in tolls however. This seemingly puts Langley and Maple Ridge on equal grounds with me and requires even more scrutinizing before I make a final decision. Another factor is my non-work life is centered in west Coquitlam, Burnaby and a girlfriend in East Van. Narrowing down a specific location is probably going to be the most difficult decision and it consumes my thoughts for long stretches of the day. But, I digress..

Todd, It sounds like you have done well for yourself in Surrey. I aspire to have a similar story one day.

 

[kfort]

There are a TON of reno`s that can be completed by any reasonable novice. Even first time results can be impressive. I recently did a lot of work (hours, not difficult work) to a condo prior to renting it and found most information online. Check manufacturer websites, Supplier websites (home depot/rona/canadian tire etc) and even Youtube. There are a ton of "how-to" instructions out there. You WILL find some confusing/conflicting information however if you read enough, you`ll get good info to move forward. Sign up for the Home Depot how to days. They fill up fast but are generally pretty good. Why? Because that kid who doesn`t have his shoes tied up that you waited for 45 minutes to answer a simple question and he doesn`t even know the answer @ the Home Depot is not an "expert" like the TV tells you. He is working for beer money and that`s it. Ask a tradesman or at the very least get some help from a handyman. Therefore - Weekend course.

I did the following:
Painted
laminate flooring throughout
tile flooring in bathroom
all light fixtures
fireplace surround (marble tile)
counter top (granite tile)
shower tile surround
new bathroom sink/vanity
knobs on the cupboards (will reface at some point i think)

All for well under $1000 dollars worth of cash. Realistically, it added at least 5 times that to the resale value. I did all the work myself, learned a ton doing it, and MOST of it was fun... I`m a teacher by trade and as such have blocks of time off to do such things. I certainly did things wrong such as choosing paint I liked vs. appeals to all etc and I should have done the marble surround a bit differently but results are not bad at all. I am by no means an expert at any of it, but I added value on the cheap with some sweat equity. There certainly will come a time where your time is better spent on other matters but I am/was not there just yet.

Kris

 

[bizaro86]

QUOTE (kfort @ Dec 9 2010, 01:51 PM) knobs on the cupboards (will reface at some point i think)

You can also put new cabinets together and install them yourself. Anybody who can build Ikea furniture and use a level can do it. It`s not that expensive, and looks phenomenal. I`ve bought mine at Home Depot, but lots of places sell them (Ikea, etc)

Michael

 

[Victor Pidkowich]

Well, I couldn`t have been in a more common position. Im earning 40k annually and Im 20. My Girlfriend is still in University here in Regina, SK. We were renting but decided that we needed a better solution and also wanted to immediately get going on investing.

What we did was spend 2-3 months examining the Saskatchewan and Regina market and whether we even wanted to own anything here or just continue renting. After concluding that yes it fit our plan and that yes the right property in Regina would work we hunted for something to fit our plan. If there is any advice you take away from my post it is that you must decide based on your plan. We searched for a property that we could live in and rent to cover the expenses and have a future of strong cashflow.

We just purchased that property. We are able to rent half the property which covers all expenses and slightly more. We did a purchase with improvements and were able to complete a lot of renos our selfs while having most of them be placed right into the mortgage which is being paid by the tenants anyways. Also take advantage of the energy grant if there is one there. By working with what is outlined in the grant much of our renos for the purchase with improvements will be kicking back a check from the Govrnment - ot an expert yet but id say thats free money.

We are in for 5 years and plan on holding it after that. Its giving us lots of practice and familiarizing ourselves with management and the entire environment of the business of real state. Before purchasing this property we went in knowing what we wanted from it.

a) Practice and understanding. It was our first house purchase and we had much to learn.
b) To begin building equity and a track record. Both mine and my girlfriends credit scores are fresh. A mortgage paid consecutively works great.
c) Solve our current monthly out cash flow by significantly reducing our expenses.

In summary, my advice is to first formulate the plan, then what steps you need to take to initiate that plan. Everyone starts and learns differently, find what works best for your situation.

 

[Thomas Beyer]

QUOTE (vpidkowich @ Dec 9 2010, 06:25 PM) ... Im 20 ... girlfriend ... We did a purchase with improvements .. We are in for 5 years and plan on holding it after that...

Allow me some comments.

First of all: WELL DONE. You own a house when you are 20. When I was your age I didn`t even know how to spell "real estate" let alone knew one could own it ! I was still trying to tie my laces .. and figuring out the next term .. and next year was a looooong way off ..

A 5 year view is noble .. but it is 25% of your life thus far .. a tad long for someone this young. 2-3 years might do it.

Living with a girlfriend in a house. Possibly a BIG MISTAKE. Do you have a 5+ year plan with the girlfriend too ? If so, why are you not married? If not, why do you live together ?

Did you know that in Canada, if you live together for over a year (or 2?) the GF is entitled to 50% of the equity .. it is like getting married.

Unclear which venture will end before 3 years is up .. the GF or the house .. stay tuned !

Hope it turns out well for you !

 

[invst4profit]

Thomas makes a very valid point regarding young investors. Relationships are very unstable making investing combined with co habitation extremely risky.
This is not a slight on your relationship simply a reality of today`s world.

If your girlfriend is a financial partner then splitting 50/50 is acceptable but if she is not 50% vested financially you should very seriously be taking action on Thomas`s advice. A relationship split up could leave you deep in debt.

A failure of your relationship at this point in your life could set you back 10 years or more with your future plans.

 

[bizaro86]

QUOTE (invst4profit @ Dec 10 2010, 06:29 AM) Thomas makes a very valid point regarding young investors. Relationships are very unstable making investing combined with co habitation extremely risky.

I`m not sure I agree with the comments regarding youth. I bought a house in Edmonton when I was twenty, and it was like adding rocket fuel to my finances, since Edmonton had a good couple of years after that. I was certainly responsible enough to manage a house, and it worked out great. I don`t see any reason why this poster couldn`t handle it as well.

Actually, buying that house was probably the 2nd best decision I`ve made in the last ten years, with the best one being getting married (that same year) to my wife. Having someone deeply commited to go through life together with is a huge blessing, so I`d agree with Thomas`s point about marriage and cohabitation.

Regards,

Michael

PS Those who sign their posts "regards" need to be careful, as the `t` and `g` are very close together on the keyboard, so I just about had a les polite sign off

 

[Thomas Beyer]

QUOTE (bizaro86 @ Dec 10 2010, 08:29 AM) I`m not sure I agree with the comments regarding youth. I bought a house in Edmonton when I was twenty, and it was like adding rocket fuel to my finances, since Edmonton had a good couple of years after that. I was certainly responsible enough to manage a house, and it worked out great. I don`t see any reason why this poster couldn`t handle it as well.

Actually, buying that house was probably the 2nd best decision I`ve made in the last ten years, with the best one being getting married (that same year) to my wife. Having someone deeply commited to go through life together with is a huge blessing, so I`d agree with Thomas`s point about marriage and cohabitation.

Regards,

Michael

PS Those who sign their posts "regards" need to be careful, as the `t` and `g` are very close together on the keyboard, so I just about had a les polite sign off

re: commitment - yes that always helps in life .. but this is hard when one is young (at least that is my personal experience .. I was unable to commit until my late 20`s .. when my now wife stated "Shape up or ship out" .. or s.th. like that )

re: Regards - a bit like being retired is close to being retarded, too !

 

[bizaro86]

QUOTE (ThomasBeyer @ Dec 10 2010, 10:36 AM) re: commitment - yes that always helps in life .. but this is hard when one is young (at least that is my personal experience .. I was unable to commit until my late 20`s .. when my now wife stated "Shape up or ship out" .. or s.th. like that )

Committment is necessary both for real estate success and success in life. But different people are ready for different levels of committment at different times, and age isn`t the only factor that determines this.


QUOTE (invst4profit @ Dec 10 2010, 01:03 PM) My point being why gamble on such high odds of failure. Rather than go forward blindly take action to protect yourself as one would with all other aspects of investing.

This could be a good test of the relationship. If she gets offended and walked away that will answer the ultimate question. Worth knowing in my opinion.

I think the real estate portion of the plan, outside of any relationship is sound. Buying a cashflow positive property (which it sounds like this probably is, although we have limited data) is a good move for an employed person, even if they are young.

As to the relationship, I agree that it many relationships fail. My point was, a committed relationship is a fundamentally positive thing, and marriage is a great way of signalling that commitment.

________________________________________________________________________________

Basically, there are a lot of people out there who are ready to tell a young person what they can`t do. I truly believe this forum is a place for helping people make good decisions, and so their age should really only be a secondary consideration. There have been many people who have told me throughout life that I couldn`t do something because of my age, and I would deeply regret it if I`d listened to them. I`m not saying real estate is easy, but it isn`t so difficult as to be unattainable for a young person.

Regards,

Michael

 

[kfort]

QUOTE (ThomasBeyer @ Dec 9 2010, 10:59 PM) Did you know that in Canada, if you live together for over a year the GF is entitled to 50% of the equity .. it is like getting married.

I do not believe this is an accurate statement. I am in a similar situation and asked my uncle, who has practiced law here in SK for over 30 years. His comment was to qualify as "common law spouse" all it needs to be here in SK is a relationship of 2 years or greater. Living locations do not matter after that time. I believe this is provincially governed. Many couples are now signing documents which basically state that upon relationship being dissolved they will each retain their prior assets and only divide those which were purchased/gained mutually.

Kris

 

[Thomas Beyer]

QUOTE (kfort @ Dec 10 2010, 01:47 PM) .. "common law spouse" all it needs to be here in SK is a relationship of 2 years or greater. ..
you may be right .. I am not a (divorce) lawyer !

QUOTE (kfort @ Dec 10 2010, 01:47 PM) .. Many couples are now signing documents which basically state that upon relationship being dissolved they will each retain their prior assets and only divide those which were purchased/gained mutually.
and many more don`t ..

As stated the real estate portion is sound !!

 

[bizaro86]

QUOTE (ThomasBeyer @ Dec 10 2010, 02:51 PM) As stated the real estate portion is sound !!

Interesting how the group gets on tangents sometimes, and the real estate gets left behind!

Michael

 

[RobMacdonald]

QUOTE (StartingInBC @ Dec 4 2010, 04:41 PM) Let me introduce myself. I`m a 25 year old recent university grad with a modest gross income of 52k a year. I expect to have between 18 and 20k saved up by April for a down payment. This is where I differ from everyone here. This is my first property and not an investment property... yet. Due to my living in the greater Vancouver area, housing is very expensive. Considering that, I`m limited to looking for a condo in Surrey or Langley. I don`t intend to live in this condo for longer than 5 years, and the sooner I could trade-up my living arrangements the better. To speed up this process I will get a two bedroom and rent the second room out. Ideally I see my next step in the property ladder as a modestly priced home with a rentable basement suite.

What I want to ask the experts is how they would approach this scenario to best position themselves for an investment property down the line. Some of the ideas I`m floating in my head :



1)Buy a cheaper unit, small upgrades, live in it, rent the room, have high payments and build equity until it can be refinanced to cashflow upon buying a new place to live in.

2) Do all the above but try to sell it for a modest profit instead of holding it. (This assumes that the condo would be too difficult to cashflow and/or I wouldn`t be able to get a mortgage on my new home while holding the mortgage of the first place)

3)A strategy of selling and buying sequential trading up in value of the home I own and live in. (This might be a more realistic strategy due to the extremely high house prices in my area) With the money I`m not investing in the housing market, I could put elsewhere (LP?).

Any comments or advice is greatly appreciated.


The advice to buying a house rather than a condo is right on target!

If I had to do it all over again, I certainly would have taken a separate path. What I`ve learned through the property ladder of each home I`ve bought is, that while it seemed like such a stretch to afford the bigger and better property at first, it ended up being quite manageable. After it was done my family quite easily settled in to the bigger commitment. So in my case, rather then buying the condo, then the townhouse and then the house, I can now see how much better I would done if I went with a suited bungalow in my first home, done some repairs and upgrades myself and then moved up to a bigger house, with a suite as well, and so on.

There are some great programs available now where you can use a significant amount of the suite income to assist in qualifying. Also, there are some significant strategies to consider on your first purchase in order to save you some money on subsequent purchases. My advice to you is meet with mortgage broker ASAP to discuss your options. For a potential April completion, you can be pre-approved and guaranteed your rate from almost right now.

Give me a call, I`d be happy to tell you a little more about my experience.