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just1time

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Am a young dude....relatively speaking that is. 2 yrs away from 30.
long term goal is to own nice investments across the city... preferably a positive income generating rental complex.

Bought a townhouse in North York (weston/sheppard) last year before construction for $340k. Only $20k down. Upon completion 6 months ago, I put 20% down at closing to avoid chmc fees. Requested a list of sold units in the same complex from my agent friend. My model are selling for $420k-$440k.
Have a tenant there now(friend of mine). He does not even have furniture there and uses it as a guest house....wealthy dude. been renting it since completed.

I currently have 2 properties besides the one being discussed: 1 condo townhouse i live in and a pre-construction condo due for completion in early 2015.

My thought is the prices of the townhouses cannot go higher than what they are right now for another 5-10years and as such I should sell it and invest the profit in other pre-constructions that I have interest in.

What do you think? hold on to it or cash out?


Thanks

olddog
 

OolloO

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I would recommend keeping it. Mortgage principal is being paid, houses appreciate faster than existing condos (not including pre construction) and you already have a good tenant.

1.
Refinance and reinvest in new properties.

OR

2.
If you want to play it safe and are carrying a mortgage on your current property, you can minimize taxes. I would recommend refinancing and paying down you principal home's mortgage. You can deduct the interest paid against your investment property, but you cannot deduct the mortgage interest on your principle residence.

Just my two cents
 

cdr108

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Am a young dude....relatively speaking that is. 2 yrs away from 30.
long term goal is to own nice investments across the city... preferably a positive income generating rental complex.

Bought a townhouse in North York (weston/sheppard) last year before construction for $340k. Only $20k down. Upon completion 6 months ago, I put 20% down at closing to avoid chmc fees. Requested a list of sold units in the same complex from my agent friend. My model are selling for $420k-$440k.
Have a tenant there now(friend of mine). He does not even have furniture there and uses it as a guest house....wealthy dude. been renting it since completed.

I currently have 2 properties besides the one being discussed: 1 condo townhouse i live in and a pre-construction condo due for completion in early 2015.

My thought is the prices of the townhouses cannot go higher than what they are right now for another 5-10years and as such I should sell it and invest the profit in other pre-constructions that I have interest in.

What do you think? hold on to it or cash out?


Thanks

olddog



with 20% dp, does your rental income cover all your expense? is there positive cashflow, and if so, based on what type of term and rate?

the problem with frequent buy/sell is the lost capital from realtor fees and associated costs ($~25K in your example).
in addition, there will be capital gain taxes ($20-25K) to be paid, so the $80-100K profit will be reduced to only $35-50K.

i would NOT recommend 1) refinance and reinvest in more properties, unless you will still be maintaining positive cashflow.
as an aside, how much income would you normally get for the unit if it wasn't rented to your wealthy friend because it doesn't sound like he's concerned about $$$ so he could be paying more than market rent.
what is your ROI, NOI?

option 2) is a better suggestion as principal residence mortgage interest is not deductible.
this way, the majority of your interest payments will be deductible and attributed to the investment property since you're going to be paying it anyways.

btw, do you have enough cash to put 20% dp for the condo in 2015?
DON'T over-extend yourself !
 
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OolloO

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with 20% dp, does your rental income cover all your expense? is there positive cashflow, and if so, based on what type of term and rate?

the problem with frequent buy/sell is the lost capital from realtor fees and associated costs ($~25K in your example).
in addition, there will be capital gain taxes ($20-25K) to be paid, so the $80-100K profit will be reduced to only $35-50K.

i would NOT recommend 1) refinance and reinvest in more properties, unless you will still be maintaining positive cashflow.
as an aside, how much income would you normally get for the unit if it wasn't rented to your wealthy friend because it doesn't sound like he's concerned about $$$ so he could be paying more than market rent.
what is your ROI, NOI?

option 2) is a better suggestion as principal residence mortgage interest is not deductible.
this way, the majority of your interest payments will be deductible and attributed to the investment property since you're going to be paying it anyways.

btw, do you have enough cash to put 20% dp for the condo in 2015?
DON'T over-extend yourself !

For the conservative individual, I would definitely suggest option 2, but since his intention are

Am a young dude....relatively speaking that is. 2 yrs away from 30.
long term goal is to own nice investments across the city... preferably a positive income generating rental complex.


He should consider option one, especially if the number crunching suggested by cdr108 looks good.

I never believed that positive cash flow was necessary, just close enough was good for me, since your losses are tax deductible too. Your return of initial investment would be better on the homes appreciation as well and you can't get a better loan anywhere else with current interest rates (don't flame on me on this, lol).

My main reason for being an aggressive investor would be to accomplish his ultimate goal and because of his age. He is still young and can take these risks. Although, he would have to decide for himself considering family, work, responsibility, etc...

Once again this is just my opinion.

This thread and several others have got me curious as to how many investors are in their 20s. I personally started when I was 24 and everyone thought I was crazy at the time, especially my peers...
 

daveto

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As I understand, not only are you 100% invested in one asset class (currently at an historical high), concentrated in one area and in one currency, but you are also currently leveraged 5-to-1?
Ugh.
 

interested

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^^^ My thoughts exactly. Agree with Daveto and CDR. I suspect we are all older and have seen a down market.
Unless you are a "young dude" with an exceptionally high salary and hopefully a profession where you are very secure, read not likely to be fired, I think this is frankly not investing but speculating. Can you carry3-7 years and even 10 years or more of prices dropping and potentially being below what you paid. Can you afford to renew mortgages at higher than present historical low rates. I ask because this happened in 1989 in Toronto and took to 1992 to continue dropping, to 1996 without much movement and price increases starting in 1996 and returning to 1989 level around 2001-2002.
Your approach will make you a very rich man if things line up, and also risk on the downside of a forced sale at distressed prices.
Those of us advising caution have been shown to be wrong (even the 2008-2009 mini correction was short lived but it was still a 15% drop in some areas). What if you mortgage came due when property prices were near the short lived bottom. Nothing stop the market from dropping 15% again should any shock hit the larger economic system. If you can live with the above, then by all means, invest and hold all properties.
 

Eug

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I would cash out.

If it were your primary home, it would be OK, but to be so heavily leveraged in your 20s for a rental property when people are wondering about coming real estate price pullback? That's not such a great idea.

But then again, I tend to have a relatively conservative approach to my finances.
 

James

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Am a young dude....relatively speaking that is. 2 yrs away from 30.
long term goal is to own nice investments across the city... preferably a positive income generating rental complex.

Bought a townhouse in North York (weston/sheppard) last year before construction for $340k. Only $20k down. Upon completion 6 months ago, I put 20% down at closing to avoid chmc fees. Requested a list of sold units in the same complex from my agent friend. My model are selling for $420k-$440k.
Have a tenant there now(friend of mine). He does not even have furniture there and uses it as a guest house....wealthy dude. been renting it since completed.

I currently have 2 properties besides the one being discussed: 1 condo townhouse i live in and a pre-construction condo due for completion in early 2015.

My thought is the prices of the townhouses cannot go higher than what they are right now for another 5-10years and as such I should sell it and invest the profit in other pre-constructions that I have interest in.

What do you think? hold on to it or cash out?


Thanks

olddog

In this market, $80-$100k in one year is unheard of. If you are confident of these numbers are representative of your unit, I would list it before the 2nd quarter of 2012. Despite the associated costs, you will come out with a good amount of liquid cash which you can then re-invest or put into your own mortgage.
 

TheSpeculator

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If your goal is to generate wealth, I agree with Oolloo with being aggressive. And selling only cuts into your plans with commissions and taxes. I do believe in diversification but investing in oil, gold, Asia, Europe, Canada and USA for past 10 years via mutual funds have netted me absolutely nothing.
I started investing in real estate, namely Toronto condos since I was 24 and have purchased approx 1 unit per year for the past 18 years and holding on to each and everyone of them on a 80K salary which was much lower before.
If I use the philosophy of selling real estate because it went up, I would have sold my first condo on Yonge and Wellesley which I purchased for $78K because it was worth $110K about 5 years later as my friend did. My friend netted about $20K, waited about a year to make his next purchase at much higher rates, and put some $$ into a shiny car.
My unit is now worth $215K and I’ve refinanced it 3 times. Yes I am aggressive but have the same thought process as the poster
Will the markets drop, maybe, but maybe not? With today’s interest rates, I wouldn’t be surprised if market prices are even 3-5% higher next year.

Would I sell? No.
Would I buy? Selectively based on many factors but primarily lowest price ppf in a high demand area, and what you can afford.
 

interested

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Your title "theSpeculator" is very appropo. I am not trying to pick a fight or insult you but
a rising tide raises all ships. Buying 1 condo a year in an up market has been an absolutely winning philosophy and I commend you. In fact, in hindsite, you should have bought 3 a year. However, your success if I might suggest was as much blind luck as savvy investing. What if, and I only propose the question; 1989 had been there to 1992 as 4 years in which you had held real estate. Would you have been able to withstand the 40% decline from the peak. If the answer is yes, then great but I am old enough to remember this and I saw people all around me losing their condos. In fact, I bought in 1994 for $285K a condo that was $425K in 1989.
Please appreciate that I am not trying to insult you. I am concerned however that using the past 16 years, an extraordinarily long period of growth occurring because of a falling interest rate environment (with little room for interest rates to go down but lots to go up....yes yes, I realize they just announced the lowest 5 year mortgage closed rate at 2.99% in history at BMO), to apply the same logic going forward in my view is not even speculating but gambling. You have clearly become very well off and I congratulate you.... but anyone who bought anything in condos or real estate in the past 16 years has looked like a genius.
I bring this all up as I am frankly very worried that OtolloO if he follows this advise going forward the next 5 years is doing so at the very long end of the tooth and he must appreciate the very real downside risk.
And as they always say: past performance does not assure future performance. It is akin to the roulette wheel having come up "black 16 straight times". You just have to believe at some point it will be red ( or green ).
With these caveats, I wish OtolloO well and I congratulate you on your obvious success.
Oh, and should you think it, it is not jealousy. I am very happy things worked out so well for you.
 

interested

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From the Globe and Mail today: http://www.theglobeandmail.com/repo...ome-sales-rise-18-in-december/article2303868/
home sales rise 1.8% in December
Ottawa— The Canadian Press
Published Monday, Jan. 16, 2012 9:49AM EST
Last updated Monday, Jan. 16, 2012 11:39AM EST

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National resale housing activity continued to rise in December, up 1.8 per cent compared with November, the Canadian Real Estate Association said Monday.

CREA says the December figures represented the fourth consecutive monthly increase in home sales and pushed annual sales to almost 457,000 units, up 2.2 per cent over 2010.




However, the price increase on a national basis in December was relatively modest, up just 0.9 per cent compared with December 2010.

Meanwhile, CREA said the number of newly listed homes on its Multiple Listing Service increased 3 per cent from November to December, but that the national resale housing market remained in balanced territory.

The latest read on the Canadian housing market, while in positive territory, was below the expectations of some analysts on both sales and prices.

However, BMO Capital Markets economist Robert Kavcic wrote in a report that the December numbers were likely to presage a cooling market.

“Looking ahead to 2012, cooler housing activity should prevail as elevated household debt levels, shaky confidence and a weakened job market counter extremely low mortgage rates,” Mr. Kavcic said.

Late last week, some of Canada's biggest banks began advertising promotional ultra-low mortgage rates as their battle for customers intensified.

The Bank of Montreal (BMO-T58.25----%) began the marketing race with a special discount five-year fixed rate at 2.99 per cent for a limited time and with limits on payment options.

TD Bank (TD-T77.65-0.10-0.13%) responded with a four-year special fixed rate at 2.99 per cent available until the end of February, pointedly noting that takers would still be entitled to all the bank's usual early payoff options.

Meanwhile, the Royal Bank (RY-T52.280.190.36%) later matched those offers with its own four-year 2.99 per cent rate offer, along with a seven-year special fixed rate of 3.99 per cent.

Royal LePage Real Estate Services has predicted the price of homes in Canada will continue rising this year, but the hottest markets in Toronto and Vancouver will grow much more slowly than in 2011.

The country's largest real estate broker said low mortgage rates will continue underpinning housing demand despite the weakening economy.

The International Monetary Fund has suggested that Canadian homes on average are 10 per cent overpriced and warned it may be a factor that puts the country's economic recovery at risk.

The Bank of Canada has also repeatedly cautioned prospective buyers to guard against being lured by low mortgage costs because interest rates and therefore monthly payments, will eventually increase as the economy gets stronger.
 

Kenny

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My thought is the prices of the townhouses cannot go higher than what they are right now for another 5-10years and as such I should sell it and invest the profit in other pre-constructions that I have interest in.

What do you think? hold on to it or cash out?

I'd sit down and do the math. Calculate the ROI and compare it to other similar risk investments. I'd also try and figure out what amount of risk I'm comfortable with and whether my investments are above or below that level, then making adjustments to match it.

It's not rocket science.
 

cdr108

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If your goal is to generate wealth, I agree with Oolloo with being aggressive. And selling only cuts into your plans with commissions and taxes. I do believe in diversification but investing in oil, gold, Asia, Europe, Canada and USA for past 10 years via mutual funds have netted me absolutely nothing.
I started investing in real estate, namely Toronto condos since I was 24 and have purchased approx 1 unit per year for the past 18 years and holding on to each and everyone of them on a 80K salary which was much lower before.
If I use the philosophy of selling real estate because it went up, I would have sold my first condo on Yonge and Wellesley which I purchased for $78K because it was worth $110K about 5 years later as my friend did. My friend netted about $20K, waited about a year to make his next purchase at much higher rates, and put some $$ into a shiny car.
My unit is now worth $215K and I’ve refinanced it 3 times. Yes I am aggressive but have the same thought process as the poster
Will the markets drop, maybe, but maybe not? With today’s interest rates, I wouldn’t be surprised if market prices are even 3-5% higher next year.

Would I sell? No.
Would I buy? Selectively based on many factors but primarily lowest price ppf in a high demand area, and what you can afford.


if you don't mind telling, how leveraged are you considering the number of units you have and you've refinanced some units, presumably to purchase more.

what kind of NOI are you returning?
 

interested

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I'd be intrigued too. My suspicion is that not as leveraged as one might think as he has had rent paying him for up to 18 years. Interest rates have continued to drop so he refinances the less expensive properties earlier purchased at lower prices. If we average out 9 years ago; and assume about an 80-100% increase in prices on average over 9 years; and I am sure he has at least 25% equity if not more and up to 40-50% per property. I can't begin to guess the NOI.
However, the reality is that he has simply done what every great real estate investor has done. The problem is a lot of them go bust. Eg. Reichmann's, Trump, etc. and then make money again because they bet big. The problem is that if the market downturns significantly, they lose. The past 16 years; in fact since 1992; almost any real estate purchase has been a winner. This is just the market. Good investing would look at how much the real estate market in Toronto as a whole returned and then how did you do compared to the market. If you did the market return, excellent, but it just shows that one road the real estate market up and more so than ever, if one is only doing comparable to the market, not to ride it down if that in fact is what happens.
 

TheSpeculator

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Addressing the original poster on whether you should sell, I would stick with my answer of No.
I am not saying we should all go out and buy in this market, but I don’t recommend selling either.
Yes I am leveraged more than most people can handle at about 60%. I do not recommend this for anyone except if you have the stomach to go through the ups and downs. Yes, I have only gone through the ups, but I know what it is like when things go down.

To comment on poster “interested”, I agree with just about everything you said, and I am not here to brag about anything, just state facts. I agree there was a lot of luck involved over the past 16 years, but a lot was effort, dedication and keeping my Honda since 1998 so I can get another property. Would I do again if I had to start all over at today’s prices, yes. I am not blindly saying yes.
I bought my first condo at a time when my dad’s one and only $200K investment condo was purchased at the worst time (1989), it dropped in half between 1989 -1994 and went sideways until 1998. He thought I was crazy when I bought in 1994, like everyone else.
I had a plan to dollar cost average on real estate rather than stocks. I took majored in finance and risk. I crunched numbers and studied the markets over the past 50 years and realized you don’t need to take courses to invest in real estate. My dad’s first house in Toronto in 1971 cost him $13000, he sold it for $26000 in 1976 and rented until 1985. I learned from his mistakes. The house would have been worth over $500000 today despite the crash we had experienced between 1989-1996. His one and only investment condo that he despised so much because it dropped in half to $100K in 1994 is now paid off at worth $265K. Moral of the story, buying at the worst time in the past 50 years still turned out to be a great investment as long as you buy and hold.
If you have the stomach to ride out any downturns, unintentionally like my dad or like Trump did it, it will all come back and then some.
 

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