Moving past first property

[Walid Zaibak]

Hello,

I've been lurking around here for almost a year, and I really appreciate the the wealth of information everyone shares around here.

A little background info on my specific situation. I was previously in school studying software engineering, and then switched to art history (much more interesting imo). I've always wanted to be an architect and tried to get into an architecture program, but I was unsuccessful, I assume because of my comparatively worse artistic technique than other applicants...

Anyhow, I wanted to stick to the domain of real estate since it interests me, and having previous construction experience, I thought I could handle all the world had to throw at me. I did my research and due diligence on the market locally, as well as learning more about the industry as a whole over 9 months, and finally put in an offer on a 4 unit multifamily in downtown Ottawa last February. I closed escrow on the place on the 4th of June.

Upon closing I got electricians to redo the electical of the home (property was built around 1870, and electrical was outdated). I also carried out all necessary repairs needed to meet current fire code (which was changed months before I closed, just my luck!). The next major project will be to redo the roof. Unfortunately, the previous owner decided to build a beautiful outdoor terrace for one of the units over a ****** roof. That is getting redone this month, so long as the stars align.

Onto the actual units. It is a 4 unit walk up property, almost all occupied by university students. I renewed the leases on the top two units for another 12 months, to give me time to focus on the bottom two units and the exterior of the property.

The ground floor unit tenants wanted to leave at the end of their lease (July 31st), and since their rents were below market value, I increased them and got new tenants to move in on September 1st, giving me a month to do necessary work on the unit.

I started by gutting the kitchen, installed new cabinets, hardware etc...., new flooring to replace the old linoleum tile, fixed up the bathroom, as well as the rest of the unit. Since the units are rather large (1500sqft for a 2br1bath) I felt that I could make the unit a little nicer than what it should be for the rent they are paying, but ultimately I will readjust the rent on that unit once the tenants leave, which shouldn't be hard to do.

Once September rolled around, tenants moved in the ground floor unit, and the basement unit went vacant. Since the rent on the unit was significantly lower than the rest of the units (1/3 the price of upstairs), and I was cashflow positive I decided to keep the place vacant for a few months and used it when I needed to stay in the city (I live a town over from my property).

Last month I rehabbed the bottom unit, fixing small things, building out closets etc... I didn't want to sink too much money into it, since due to the low ceilings, it will probably attract less picky tenants who can't afford nicer. I relisted it last month hoping to fill the vacancy on November 1st, but my price was clearly way too high for what the market will pay for such a unit. I had a few viewings, but did not convert any to interested parties. I have relisted it at a lower price which I feel is more aligned with market value, and is still almost double the income of the unit previously.

Now here is my little conundrum. I have done most of the work that could be done to turn the unit around, so I would like to focus my efforts on purchasing a second property.

I have consulted the bank about buying a second property and they want a 25% downpayment for a commercial property (>4 units). Now from my research I was under the impression, that with experience (albeit short at this time) and after my first property, I can get a greater LTV value, allowing me to leverage myself into bigger/more properties. This hasn't seemed to be the case so I figure I must be looking for financing the wrong places, I'm curious as to what avenues are currently available to get into a property with a smaller downpayment (are there even any available), and without astronomical interest rates.

As for how to raise this capital, my most obvious option is to refinance and pull the equity out of my current property. I'm not sure if maybe I would be refinancing too early. My understanding of the process is that a new appraisal of the property is done, have I done a significant amount to affect the value of my property in a short amount of time? I guess the most logical answer would be to wait till September when I can set up new leases and increase the rents. This would increase my NOI and therefore increase property value.

I guess I just don't want to wait and do nothing for the next few months, waiting for September to arrive, and so that's why I'm looking at ways of getting a second property in the mean time. It just seems that there aren't many options out there.

So far I'm having tons of fun in this new career path, as a 19 year old university dropout, I obviously have made some mistakes, and I continue to learn every day. There are people here that have gone through similar hurdles and I'd love to get some feedback on ways I could move forward.

Thanks,
Walid