Variable Rates going to 2%!

[luckyluciano]

I appologize, I did not mean to imply I am buying these T/Hs in Toronto. I would recommend buying in smaller cities/towns nearby.
I have offers in on 4 brand new T/Hs, I have added some nice upgrades which will attract the best tenants and at interest
rates of 4% the break even with a small positive cash flow at 100% financed. I am putting 20% down an intend to pay them off Aggressively so I only will work because I want to not have to. I have been selling Real Estate for 24 years, I should have bought 1-2 per year & paid them off. I would be cruising right now. I was in a Master Mind group when I strarted in the business. This collegue of mine said her financial plan was to buy 1 per year. I rescently read in the Toronto star that she had 33 rental properties. That was a learning lesson for me! I should hvlave been doing the same and I should have married her. Just kidding! So now I am aggressively playing catch up as in 20 years I will be 67 and don`t want to wait that long for financial independance.


QUOTE (invst4profit @ Sep 20 2009, 12:29 AM) I can not believe that a new townhome in the Toronto area is capable of positive cash flow in real dollars. When Toronto investors talk of cash flow it is mainly smoke and mirrors. The real numbers are never shown to support there claims. They seldom look at real numbers and mostly depend on appreciation to make money.

 

[invst4profit]

Why would you want to pay them off. That is only slightly better than holding your cash in a savings account. There are better investment vehicles than tying up cash in a mortgage.
It is far wiser to gain the appreciation on a property with as little cash in it as possible than to have say $300,000 in cash tied up and realise the same appreciation.
Throwing cash at a property does not increase the cash flow it simply hog ties your return on that cash to the rental income.
This is the main reason investors refinance when the mortgage starts to get paid down so they can redirect the cash to higher return investments.

 

[luckyluciano]

QUOTE (invst4profit @ Sep 20 2009, 07:55 PM) Why would you want to pay them off. That is only slightly better than holding your cash in a savings account. There are better investment vehicles than tying up cash in a mortgage.
It is far wiser to gain the appreciation on a property with as little cash in it as possible than to have say $300,000 in cash tied up and realise the same appreciation.
Throwing cash at a property does not increase the cash flow it simply hog ties your return on that cash to the rental income.
This is the main reason investors refinance when the mortgage starts to get paid down so they can redirect the cash to higher return investments.

I understand the refinancing part.....what would be a higher return investment? It has been stated many times here on this forum that one should not count on property appreciation! I noticed on your profile you are 55 years old...I am 47 years old. My goal is to have 20-30 townhouses paid off to REPLACE MY INCOME so I don`t have to work. My parents replaced their income by double and were able to retire at 57 years young. They have been saving approx $100k per year because of this. Both they and I know know that had they continued to stay leveraged they would have made more money and had more net worth but at what cost, what risks, at what stress levels? One of my mentors...who used to sell real estate....(he now developes land and build houses...he has build over 450 homes on land that he purchased in the 80`s, has several commercial plazas-paid for, and several hundred acres with over 2000 feet frontage on highway 400-paid for- etc, etc. you get my drift?) said to me in the late 80"s that the first thing I had to do is to "REPLACE MY INCOME!!!!." I`m not talking 5 figure incomes either, as they are alot easier to replace than a large 6-7 figure incomes.

If you are 55 years old and you want to replace your current income it will take 20-25 years at typical ammortzation rates. You`ll be 75 years old if you start to pay down today. I`ve told you my plan & that of one of one my mentors, what is your plan to replace your income?

 

[invst4profit]

My plan is to retire Dec. 31 2009.
My income property presently has a monthly income of approx $5800 before any expenses. This monthly income is increasing each year by about $250-$300. Income presently after expenses and debt payment about $2000 to $2500 per month. The property is about 95% leveraged with a 30 year mortgage. Once retired I will pull enough profit to supplement my pension so as to sustain my pre retirement standard of living. The remainder is invested monthly in various vehicles (mutual funds etc.) that have fairly consistently given a return of 8-14% over the past years (last year excluded). This will probably be converted to GICs at about age 65. Over time I am also shifting the mortgage to my HELOC so as to give me more flexibility. My plans do not include paying it off or down any significant amount however if things change dramatically I do have the option.

Tying my cash up in a investment property does not provide me with a high enough return (2-5%)or the flexibility I require so is not a option in my opinion. Plus the mortgage is tax deductible.

 

[luckyluciano]

How does this property cash flow at more reasonable interest rates of 6-8%? Many investors are cheering over posiitive cash flows with long ammortizations.....it`s almost epidemic.

QUOTE (invst4profit @ Sep 21 2009, 02:32 PM) My plan is to retire Dec. 31 2009. My income property presently has a monthly income of approx $5800 before any expenses. This monthly income is increasing each year by about $250-$300. Income presently after expenses and debt payment about $2000 to $2500 per month. The property is about 95% leveraged with a 30 year mortgage. Once retired I will pull enough profit to supplement my pension so as to sustain my pre retirement standard of living. The remainder is invested monthly in various vehicles (mutual funds etc.) that have fairly consistently given a return of 8-14% over the past years (last year excluded). This will probably be converted to GICs at about age 65. Over time I am also shifting the mortgage to my HELOC so as to give me more flexibility. My plans do not include paying it off or down any significant amount however if things change dramatically I do have the option. Tying my cash up in a investment property does not provide me with a high enough return (2-5%)or the flexibility I require so is not a option in my opinion. Plus the mortgage is tax deductible.

 

[invst4profit]

75% of my mortgage is at 7.25% locked for 5 more years so the future only looks better for me.

Plus I have the ability to generate additional cash flow from the property after I retire if I chose to.

Unlike too many investors in the market I have not overextended myself as I have plenty of available cash reserves. That is the flexibility of not paying down a mortgage but rather investing in something more accessible. When mortgage rates are low you make even more money. When the market changes you have options.

Many see 100% financing as somewhat high risk but the fact is any investor using a JV partner for cash is doing the same thing. My mortgage is simply OPM the same as many use JV partners. I simply prefer to work alone.


NO worries.

 

[EdRenkema]

lucky your plan only works if you have a hi income.
Greg gets it, many REIN members also leverage their knowledge to purchase as many properties as possible in a positive cash flow scenario.

Simplest scenario: buy one house for cash for 100K, hold for 5 years at 5% annual appreciation = $127,628.15 gain of $27,628.15
Or buy 5 houses at 20% down each and hold for 5 years = gain of $138,140.75.

The key is finding and analyzing the correct properties to cash flow and minimize time inputs but the point is optimizing the opportunity costs of your funds.
Personally I direct all of my cash toward personal costs/debts and 100% finance my properties.
Those 100% financed properties are now providing a nice additional income while my `job` has become almost non-existent.

 

[luckyluciano]

I agree my srategy works better with high income or bigger downpayments. Invest4profit is an unusual case where he is positive cashflowing with 7% mortgage. I`d like to know if there are any others who have properties that cashflow with 6-7% rates as even Thomas recommends as the prudent strategy (100% financed). Banking on 5% per year apreciation after watching Real Estate appreciate for almost 13 yrs without taking a breather all the while watching interest rates declining to emergency levels seems quite unrealistic .
QUOTE (EdRenkema @ Sep 22 2009, 12:30 PM) lucky your plan only works if you have a hi income. Greg gets it, many REIN members also leverage their knowledge to purchase as many properties as possible in a positive cash flow scenario. Simplest scenario: buy one house for cash for 100K, hold for 5 years at 5% annual appreciation = $127,628.15 gain of $27,628.15 Or buy 5 houses at 20% down each and hold for 5 years = gain of $138,140.75. The key is finding and analyzing the correct properties to cash flow and minimize time inputs but the point is optimizing the opportunity costs of your funds. Personally I direct all of my cash toward personal costs/debts and 100% finance my properties. Those 100% financed properties are now providing a nice additional income while my `job` has become almost non-existent.

 

[housingrental]

I have properties that cash flow with 7% mortgage`s
Student housing in Waterloo
The problem is hard to finance and even harder to find good deals unless patient,


QUOTE (luckyluciano @ Sep 22 2009, 03:29 PM) I agree my srategy works better with high income or bigger downpayments. Invest4profit is an unusual case where he is positive cashflowing with 7% mortgage. I`d like to know if there are any others who have properties that cashflow with 6-7% rates as even Thomas recommends as the prudent strategy (100% financed). Banking on 5% per year apreciation after watching Real Estate appreciate for almost 13 yrs without taking a breather all the while watching interest rates declining to emergency levels seems quite unrealistic .

 

[luckyluciano]

QUOTE (housingrental @ Sep 23 2009, 11:15 AM) I have properties that cash flow with 7% mortgage`s
Student housing in Waterloo
The problem is hard to finance and even harder to find good deals unless patient,

No offence.....but Rooming Houses, Student rentals, multi-family, legal/illegals, multi-level marketing are what most would consider high maintenance and just another job. Not sure I would give up a good paying career for the P.I.T.A. I had something more in mind like.... playing the best golf courses of the world with passive income. Anyone have a stretegy for this???

 

[GarthChapman]

QUOTE (luckyluciano @ Sep 23 2009, 12:05 PM) No offence.....but Rooming Houses, Student rentals, multi-family, legal/illegals, multi-level marketing are what most would consider high maintenance and just another job. Not sure I would give up a good paying career for the P.I.T.A. I had something more in mind like.... playing the best golf courses of the world with passive income. Anyone have a stretegy for this???

Absolutely- Get educated, buy wisely, manage well; then wait.

 

[housingrental]

Or you could hire a manager and have no involvement with your property. No rental, no phone calls, no emails, never going to the property, no bookkeeping - less work than owning a single family house as it`s no work. (I"m also a property manager). I have clients who live out of country and see there property every few months / year etc... actually I think I have a few clients who`ve never been to their property at all.


QUOTE (luckyluciano @ Sep 23 2009, 03:05 PM) No offence.....but Rooming Houses, Student rentals, multi-family, legal/illegals, multi-level marketing are what most would consider high maintenance and just another job. Not sure I would give up a good paying career for the P.I.T.A. I had something more in mind like.... playing the best golf courses of the world with passive income. Anyone have a stretegy for this???

 

[luckyluciano]

IT JUST KEEPS GETTING HOTTER AND HOTTER! HOW HIGH CAN SHE GO? RBC just announced variable rates at 2.10%.

 

[Thomas Beyer]

QUOTE (housingrental @ Sep 23 2009, 03:32 PM) Or you could hire a manager and have no involvement with your property. No rental, no phone calls, no emails, never going to the property, no bookkeeping - less work than owning a single family house as it`s no work. (I"m also a property manager). I have clients who live out of country and see there property every few months / year etc... actually I think I have a few clients who`ve never been to their property at all.
indeed !

Real estate is heavily scewed to work UPFRONT: educate yourself, find the area, find the micro-location in a city, find a property, negotiate a deal, find a decent mortgage broker, find a decent lawyer, find an accountant, get the mortgage, find a property manager, do the right initial improvements, find JV partners .. MOST WORK IS UPFRONT (90% or so) .. but then it is downhill from there !

Similar to an airplane: 90% of the fuel is burned on the first few kilometers to get it to 30,000 ft .. then soaring / gliding for the next 1000 km .. then a bit more work / fuel for landing !

Some properties I (co)own provide thousands of dollars per month cash-flow plus mortgage paydown plus at least some inflationary appreciation .. with perhaps 1-2 h / month now .. but most of the heavy lifting happened 4-6 years ago !!

You reap what you sow !!

So, sow away big time now .. and reap lots later !!!

It`s not a "get rich quick scheme" .. it`s a "get rich for sure" game if set up properly with win/win for team members, investors and yourself !

 

[JoefromTO]

Expect that interest rates will rise next year. Plan for it.

 

[tbarcier]

So you profit from over inflated pricing and low interest rates, yet complain that the gov`t his setting people up for disaster. And BTW I cash flow at 6% no students.

 

[luckyluciano]

I profit regardless. I am 100 % commish, sink or swim. As long as people need to sell I will profit. Inflation or deflation, I will be there. I just feel sorry for those who will get hurt if rates double. I don`t agree with over stimulation. It`s the cause of this bear trap. I remember selling in the 90`s, it was not pretty.
As for you cash flowing at 6%. Care to elaborate with some details?

QUOTE (tbarcier @ Oct 5 2009, 05:51 PM) So you profit from over inflated pricing and low interest rates, yet complain that the gov`t his setting people up for disaster. And BTW I cash flow at 6% no students.

 

[luckyluciano]

Wise words! I have definitely planned on it. And planning on prices adjusting down 10-20%. Although I thought this party should have slowly ended in 2005. But the stimulation just kept on coming. Sometimes I feels the policy makers must have a big plan to inflate us all out of this. Then I realize they are now officially out of bullets with BOC rate at .25% and billions & trillions in stimulous. Oh well! Only time will tell)i

QUOTE (JoefromTO @ Oct 5 2009, 05:06 PM) Expect that interest rates will rise next year. Plan for it.

 

[tbarcier]

QUOTE (luckyluciano @ Oct 5 2009, 08:31 PM) As for you cash flowing at 6%. Care to elaborate with some details?

I still think you are out to lunch, but whatever, everyone is entitled to their opinion. As far cash flow goes, its pretty basic. If the interest rate I was paying right now was 6% I have positive cash flow. More in depth example property was bought for 230,000. Income is 2500 per month. Expenses 800. and that`s taxes, utilities, PM, insurance. So for giggles lets just say this was 100% financed at 6% the mortgage would be around 1400 with fees leaving 300. Make sense? Basically this property will cash flow up to 8%. It`s not some big mystery, it`s done everyday.

 

[housingrental]

Hi Lucky,
Why not respond to my previous post ?
You seem to have prejudiced opinions without base.


QUOTE (luckyluciano @ Oct 5 2009, 04:06 PM) IT JUST KEEPS GETTING HOTTER AND HOTTER! HOW HIGH CAN SHE GO? RBC just announced variable rates at 2.10%.