In this episode, Quentin talks with a member who has been investing close to home in single family properties. We explore different ways to convert his portfolio to multifamily properties with a positive cash flow.
The member shares that he started real estate investing in 2016, when he got occupancy of a pre-construction condo that he had bought in 2011. Unfortunately for him, his property is cashflow negative. The reason was mainly because he acquired the property with 10% down, so he had to go with the unconventional mortgage and get CMHC insurance which was only 25 years amortization. Now, they have 20 years left of the of the amortization. He adds that he has a full-time job as a construction project manager, and he had obtained his real estate license in 2017 mainly because that property was cashflow negative and he needed to supplement his income and that worked out fine.
Two years later and after the mortgage rate changed, the negative cash flow went from $200 to $800. He adds that he made the mistake of going with the fixed interest rate. In the meantime, he sold a condo in downtown Toronto, took the money and purchase a detached home in Etobicoke. Right before the pandemic he was thinking about refinancing his home, and managed to get a high appraisal. $250,000 in line of credit, he ended up purchasing a condo townhouse in Mississauga, and it came with a tenant who was paying market rent. After that, his net on his investment properties became positive by $50. Quinton notes that what he has essentially done is that he has created an income stream from his second mortgage, with his mortgage money in order to cover off the negative cash flow on the two assets.
The member adds that before joining the course, he wanted to stay in the bigger cities and his decision to invest in the property in Mississauga was short term. He was looking to flip it, take the money and purchase a detached home. Quinton notes that his yield is negative on the York Region property and his yield is negative on the condo townhouse by itself, but together by using the lending, he is able to come up positive on both of them. Talking about his next course of action, Quentin suggests that he should take a look at his property and do a return on equity calculation on both properties. Then, do the same thing on another property that is like a duplex that are cashflow positive while putting 20% down. So that could be looking in a little bit out further than the markets that he has been considering.
He adds that the member needs to do his own due diligence to see what makes sense for him. He also suggests looking at historical data and talking to the realtors in the area, adding “you can find appreciation and cash flow in lots of different markets, you just have to work harder, right, and you have to get out of your comfort zone from where you're, you're comfortable right now.” Quinton also says that most of the time a single-family home is not going to cash flow anymore in Ontario, it's very challenging. He should not get stuck by being a Toronto person, because there there's money to be made everywhere, further adding “you want to get the most yield that you can, so you can get a return on equity.”
On the subject of the member looking to use the Section 85 Rollover, Quentin says that “you won't be able to do that unless you find a lender that's willing to put the corporation on title, what you might consider doing is figuring out whether you can do it the day before you, like sell the property, like, but then you'll have to come up with cash or some other private loan in order to close on it maybe like a bridge loan for a day or two.” additionally he will have to pay land transfer tax, legal and accounting costs. So it adds up in Toronto, because you got the Ontario tax, and you get the Toronto land transfer tax. The...