Absolute Newbie Looking to Jump Into Rental Properties

[Tyler Cruz]

Hello everyone!

This is my first post here as I am brand new to both BiggerPockets and property investments.

I have some money lying around in my bank account that's doing absolutely nothing (was made from my business), and so I was looking to build some (relatively) passive income and turn that liquid cash into property assets.

I am prepared to invest up to $150,000 CAD ($140K USD) into rental properties.

I would like my investments to be as passive and hands-off as possible, and so I would definitely be hiring a property management company.

I have endless questions, but I guess my first would be whether it'd be better to buy off properties in whole first, or to take on mortgages. Please excuse my complete naivety in this matter - everyone has to start out somewhere!

In the smallish city where I live, apartments on the cheapest end of the spectrum are listed at around 69K (all prices from hereon out are in CAD) and renting out for around $650/month. Moving up to $125K list price and they're renting out for around $825. At $150K list, they're around $875. It seems the lower end of the market has a better cost:rent ratio.

Taking the $69K - $650 rent as an example (there are a bunch of these units for sale; they're in a complex with a lot of units for sale), let's say I bought 4 of those (although I wouldn't want to put all my eggs in one basket buying all in the same building, but this is just for samples sake).

Using a 15-year amortization period with a 3% rate (I'm in BC, Canada), and a purchase price of 65K and down payment of 30K (46%) on each place, that would work out to a $241 monthly mortgage on each. That's $650/month rent on each. Say 10% for property management, and another 15% on top of that for vacancies, repairs, etc. which I believe to be conservative (but am just pulling out of my ***), and that leaves me with $487.50. I do not know the strata cost of that building yet, but let's just say $100 (they're pretty cheap). So that's $387.50.

Subtract the mortgage and that's $146.5 positive cashflow per unit. Times 4 units that's $586 net profit before taxes a month and it's building equity each month. This is not taking into consideration the closing costs of the purchases.

That's a $120K investment. Or, for roughly the same price I could buy two of those units completely and profit $775 a month (that's factoring in the expenses too) and hold full equity...

Hmm... assuming I did the math right, it seems I may have answered my own question right there? The major downside to mortgaging to me seems the fact that you don't know what interest rates will do.

My business is in an industry that is extremely volatile and unpredictable. I can go from making virtually nothing one month to making $50K profit the next. As a result, I am looking to parlay the income I do make from it and put it into more passive means of generating wealth.

Therefore, my plan at the moment is to take the money I'm making from my business and throw most of it into income-generating property. So in some ways, I may have a somewhat faster path in rental property growth as I won't be relying solely on a slow growth formula of the renters paying off my mortgages.

I need to get my feet wet first though and take the plunge. That is the hardest part, I'm sure...

Comments, suggestions, and advice is greatly appreciated!