Here's my plan for 2014 - What would you do?

Question

Hi BP! In my introduction, I mentioned that this is the year for big changes, so I wanted to run my plans by the great minds on this forum.

Current State: I've got two student rental properties in Waterloo (university town 1h outside of Toronto), one SFR in Mississauga (suburb of Toronto) and a condo in Toronto. I'm fully rented currently.

The Plan:

• Complete the rehab work. It's basic stuff, kitchens / bathrooms / flooring. And slightly bump up the rents for the next round of students.
• Put most, if not of my places up on the market for sale. I'm selling my places in Waterloo mostly because I feel that the market is over-saturated there. Tons of new apartment complexes going up around me. I think it will be difficult for me to compete with my little multiplex. Selling the other properties would just be to raise more capital. Cap rates are dropping in Waterloo as well - which means it's time to sell.
• I should have in hand after taxes about $800k - $1.2M in hand to reinvest.
• I'm looking to buy a small apartment block in Hamilton or Cambridge (cities outside of Toronto). They range from $2-3M and are anywhere from 15-35 units.

Questions:

• Am I crazy? These properties all cash flow nicely. It's a bit of a pain managing students in a town 1h drive away from where I live. I'm there almost every weekend. I'd like to get out of student rental because they are so high touch.
• What would you invest in with around $1M? Maybe a smarter strategy would be to split my investments amongst multiple buildings? But I feel a single apartment would be easier to manage.
• Are apartments worth it? I've would really be stepping outside of my comfort and more importantly my knowledge zone. I'd likely need professional property management, need an entire new set of contractors (how do I get elevators repaired?). I would need to incorporate.

Let me know what you think, and thanks for reading this lengthy post!

Cheers,

Ming

Gary McGowan · Answer

I would hang on to the Students rentals for the time being. There are currently no lenders willing to lend on them at the moment in Ontario. Which would mean if you tried to sell them a buyer wouldn't be able to get financing on them unless they used a private lender. This one of the factors why the cap rates are moving in the KWC area.

Before I answer what would be the best strategy I think the bigger question is;

What are your long term investment goals with Real Estate? Anybody can sell or buy a property but if it doesn't take you closer to your goal then is it really worth it...?

Filipe Matos · Answer

I get around 15% cash on cash in Toronto, Canada, and over 45%ROI on my money.

In Hamilton , Canada you can probably get up to 20% cash on cash on big multi unit building with 20% down.

It depends on where and how you invest and how much money you have and hands on you want to be.

Filipe Matos · Answer

I think that is a good idea.

You do not need to buy a building with elevators, there is one now for sale with 21 units without elevator.

I was thinking to buy in Hamilton 6 plexes up to 12 plexes with 100% financing.

I would try to sell the current ones even if it is difficult to get financing. Maybe you can sell as non student rentals, or you do not need to specify to the banks that they are student rentals. If they are single family houses, you can sell as single family or duplex, whatever it is. If you can sell, you sell, if you don't, you don't.

It's easier to manage a 20 unit building than a bunch of small properties, you only have a maximum of 2 boilers and up to 3 water heaters to manage and you can get one manager to take care of it, its easie for him to supervise too. one trip, much less time to supervise.

Filipe

Dan Brewer · Answer

Ming -

I agree with @Cal C. for two reasons - diversify, and Canadian investment in the USA. I have many canadian investors that invest in the USA primarily because the USA offers better cash flow opportunties.

I also agree with @Gary McGowan - this needs to be tied to your investment goals and strategies.  Short term, long term, income vs growth, passive vs active, tax implications, etc.

Sounds like you are tiring of the commute, and the propertty management responsibiilties.  I sense that you would benefit from a more passive investment strategy, whihc I heaviliy preach for most investors.  You can easily get 10%-12% annual returns that are very safe.   Then you can go play golf or be with your family with the timefreed up.

I offer regular webinars on passive vs active investment. Let me know if you would like me to invite you to my next webinar on the topic.

Cal C. · Answer

Here are few quick thoughts.

1) I'd sell the student rentals to avoid over saturation and too much competition.

2) Make sure that exchanging your other properties is not simply because of grass is greener thinking.

3) Diversify!  Perhaps keeping your moneymaking closer properties would be a big part of that diversification.

4) Look at the US.  Many jurisdictions don't have the tenant friendly laws that I believe Ontario has.

Account Closed · Answer

@Ming Lim

Interesting discussion you had going on. If there is one thing I have learned so far is leverage. Borrow as much money from others as possible.

So what have you decided on? Any updates?

@Gary McGowan

Any indication if the lenders will start to lend for student rental? Especially with the amount of student rental complexes being developed all-around ON (Waterloo, Guelph, Brock, etc). Why aren't they lending on student rental? And I find it interesting that investors are still able to close on them...are they buying it on cash?

Hai Loc · Answer

First thing I would do is convert all that to USD when the cash is need for downpayment acquisitions costs etc..

Then I would look for a multi family foreclosure/short sale etc.. that needs rehab on vacant units and that is about 40-50% occupied that can at least cover your holding costs. You will be using hard money with crazy points and interest which may push your occupancy to even 60% to break even every month.

When rehab nicely you can ask for full market rent that will drive NOI increasing value. Its always easier to increase the rents on a newly renovated unit vs an already tenanted unit that had no changes done.

Having multiple ways to increase value on your property is always my best choice..

Gary McGowan · Answer

They buy with private lenders or cash. Also they can buy a single family home and convert it back to a student rental after they close.

Ming Lim · Answer

@Gary McGowan - Thanks for the offer Gary. I'm not set on Hamilton, heck I'm not even set on Canada! If the numbers work, then I'm more than happy to set my sights elsewhere. I'll be at your meetup on the 24th, you can fill me in then on all the wonders The Hammer has to offer an investor!

Filipe Matos · Answer

"Looking elsewhere now"

Not the first time I hear that:)

Here's my plan for 2014 - What would you do?

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