What Do I Do For You?
There are numerous kinds of investments and strategies. After researching for a year and half, I have chosen a Dividend Growth Fund first for myself and for my clients who have accomplished purchasing either their own houses or investing in rental properties, benefited greatly from the real estate golden age from 2000 to 2009.
If you bought your 4 bedroom house with yard and pool at a small price of $120,000 in 2003, it is now worth at least $450,000. Even a 6-plex bought with $350,000 in 2006 is worth about $650,000 now. It is very understandable that people refinance their property and use the equity from the market value increase to purchase other properties as investment, because traditionally, the charm of real estate is that the properties are tangible and immovable (will always be there, if there are no fire or flood).
The charm of real estate investment can be very much an illusion when the debt ratio of the property rises too high to yield any profits for the investor, leaving only problems of property management. Let’s study together a property investment case:
Investing in a 6-plex:
- $650,000 (conservative price)
- $47,600 / year
- Funds needed as down payment:
Investment conditions (standard):
- 20% of down payment
- 25 years
- 5 years
- Interest rate for 5 years:
- 3.5% (historical low)
- Mortgage payment:
- $2,596.20 / month, $31,154.4 / year
- Municipal taxes:
- Property Insurance:
- Snow removal:
- $1,200 (garbage, corridors cleaning)
- Lawn mowing:
- Regular maintenance:
- $1,900 (about 4%)
- Necessary improvement:
- Inoccupation rate:
- $1,200 (conservative rate 2.5%, it increases with higher rents)
Total Expenses: $45,104.4
After all the expenses, the rent in your hand is: $2,495.6
So, the return on the investment is: $130,000 / (47,600 – 45,104.4) * 100 = 1.92%
You can see for yourself that the investment is not profitable. In addition, you have all the troubles of management and potential dangers of putting money up for repairs if anything bad happens. Plus, please do not forget that the appreciation of property value can not be anything bigger than that of the inflation per year from now on.
If you hire a company to manage it for you, then the management fee is 5-6% of the gross revenue, which eats away completely the rest of the rent, leaving your profit to a big zero!
Of course, if you are good at renovations and repairs, you can buy poor quality properties and spend your time employing your skills to make a profit.
- Can we do better than this?
- Can we help you invest and grow your family value over time without being requiring your time?
- Can we help you profit from leveraging?
- Can we help you benefit from Canadian and Quebec Taxes advantages?
- Are there risks?
- Do we have measures to reduce risks?