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Apollo

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Hi all,

I am a young (late 20's) aspiring investor who is willing to put in time to make an educated investment and curb as many risks as possible.

Here is why I am writing this post;

1. To narrow down and ask for tips on how/where to efficiently research a (hopefully) upcoming investment.

2. To possibly connect with a "mentor" or an informational interview with a seasoned real-estate investor (dinner of your choice on me!) :)

Here is my plan; I would like to invest in a detached property in Toronto with a longtime friend with the following criteria/outcomes.

1. Un or starting-to-gentrify area (i have a few areas in mind.)
2. Buy the place, rent it out, have it carry. Sell/reno/demo when we feel the time is fit.

Things I would like to know more about;

1. Setup a corporation or just put two names on ownership of the property?
2. Is 20% down on the property the least we can go to avoid paying mortgage insurance etc.
3. Reno right away or hold and let renter carry?
4. Is next spring a good time to buy?
5. Borrow money off my current property? or are other options available?


Anyway, there are so many things i have to research and I hope to connect with someone that can put me in the right direction.

Thank you all in advance and I hope to hear from you soon.
 

marsh

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i am not an investor but given that you've had no response hear are some thoughts:

Corp v. holding the property personally -
I think you would use a corp if you were concerned about liability; a corporation is a treated as "person" legally, this means you are not personally for any acts of the corporation. The question is what liability would you want to be protected from? The other issue to consider is that any income earned from your propety (rental income/capital gains) will be earend in the corp and taxed in the corp. So you have two choices - leave it in the corp and use that income to finance other properties or distribute to its shareholders (you/your partner) - typically done through a dividend or by paying salary. Articles of incorporation have to filed - so you will need probably a lawyer/paralegal to do this (or at least consult one with one before doing it yourself). YOu may also wish to consider a shareholders agreement (which sets out the rights of the shareholders, e.g. can they sell your shares to anyone? what happens on death etc). Also a corporation has to file a separate tax return.
Also note for tax purposes if you sell an investment property and realize a gain, 50% of the gain is taxable. If you own your own and live in it, any gain is tax exempt. So factor that in to your investment returns.

If you hold the property personnally as partners, I think this means you would be co-owners and joint tenants. I would recommend you consult with a real estate lawyer to make sure you fully understand the legal implications of owning property in this manner. One of the big questions that comes up is what happens if one partner wants to sell but the other doesn't?

I would recommend you research landlord/tenant rights so you understand your rights and obligations as a landlord since say you are considering renting out the property for a little while. For example, its not easy evicting tenants. As a landlord you will have fix/make repairs from time to time (are you prepared to do this?) You could probably find some good general material by searching the City of Toronto or Ontario goverment websites.

With respect to the down payment, I believe the mortagage rules have tightened for investment properties. So consults with a broker and get advice on this point. Also with respect to borrowing against your current property, the amount you can borrow depends on how much equity you have (and I belive it is also subject to some caps). So again another reason to speak to a broker.

I would recommend you find a good trustworthy real estate agent who knows the area you are looking at buying. They can give an idea of market prices but you should also find out what homes are renting for in that area so you know whether or not your rent can cover your mortagage costs.

The biggest issue to consider - no matter how long you've been friends, things can happen. What happens if things don't go the way they are planned (i.e. your partner wants out or can't cover his share of the mortgage costs for example due to other financial circumstances that come up). You really need to think through these "down side" issues.
 

OolloO

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Hi Apollo,

I may be the two in one you are looking for. I am an investor in residential real estate properties since 2008, (currently have 3 investment properties) and have become a Realtor, just over a year ago. I am an agent on a part time basis. I actually do not look for clients, and come by them through friends and referrals. Your situation actually intrigues me since it remind me of myself several years ago.

I am aware of all the negative stereotypes against part-time agents, but to be transparent, it's not my bread and butter and only supplements my income. I don't really care if I lose a deal or need to spend more time looking for a home. I don't pressure my clients and like to make sure they are comfortable with their purchase.

I have investor clients like yourself and home buyers looking for family homes as well. I intentionally only carry approximately 2 clients at a time, so that I don't overwhelm myself or allocate insufficient time for my clients.

If you'd like get together informally for advice or discuss your ideas further. Feel free to contact me
 
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just1time

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Hi Apollo,

I may be the two in one you are looking for. I am an investor in residential real estate properties since 2008, (currently have 3 investment properties) and have become a Realtor, just over a year ago. I am an agent on a part time basis. I actually do not look for clients, and come by them through friends and referrals. Your situation actually intrigues me since it remind me of myself several years ago.

I am aware of all the negative stereotypes against part-time agents, but to be transparent, it's not my bread and butter and only supplements my income. I don't really care if I lose a deal or need to spend more time looking for a home. I don't pressure my clients and like to make sure they are comfortable with their purchase.

I have investor clients like yourself and home buyers looking for family homes as well. I intentionally only carry approximately 2 clients at a time, so that I don't overwhelm myself or allocate insufficient time for my clients.

If you'd like get together informally for advice or discuss your ideas further. Feel free to contact me

darrick.venegas(at)century21.ca


nice pitch...lol
 

James

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One piece of advice I can give you with regards to realtors when you're looking at investment properties is to choose a realtor that is an investor themselves, not one who just sells residential properties. Ask the realtor how many investment properties they have and where they are located. Buying, and more importantly, selling investment properties is quite different than buying and selling a residential single family home for oneself.
 

js97

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All good advice, but you've forgotten the biggest issue: Mixing friendship and business, especially in an asset that is non-liquidable (although in this market, it seems to be as good as cash)

I think there needs to be a serious discussion and possible contratual agreement in how long you guys hold it, when/if you guys plan to demolish/renovate/sell. And what happens when your business partner needs to liquidate/can't afford the payments, can't afford to make the appropriate upgrades/renovations.

Problem with homes is that unexpected bills can come in a hurry in the form of renovation costs and replacement costs. You both have to agree as to how to tackle these problems. Just like how many friendships and families have been broken over Time sharing a cottage, investment properties can also be a bit of a disaster if the right expecattions and procedures are not first established.
 

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