Successful Refinance Investment

[James Ma]

Figure its time for me to write up a win post for the community. I started out in late 2017 in rentals and this was the second unit I ended up buying in early 2018. Earlier this year I was up to 6 rentals and decided to sell this one.

Investment Info:

2bd2ba buy & hold investment condo in Chilliwack, BC, Canada

Built in 2009

Purchase price: $209,000
Cash invested: $209,000 from Refinance. Rather than invest into stocks, wanted to take a safer play in cash flowing real estate.

Rented for $1400/mo for most of the hold period

What made you interested in investing in this type of deal?

Cashflowing property where the rent covered all of the expenses such as mortgage payments, HOA fees, property taxes, insurance etc. including 5% vacancy rate and felt safe even if there was no appreciation or the market downturned I would still be covered as long as rent didn't drop much.

How did you find this deal and how did you negotiate it?

My realtor had showed me around Chilliwack and some of the cashflowing opportunities. This was a building we had looked at but I didn't buy on my first go. This unit popped on the market and seemed underpriced (should have been selling for around 230K) so I called my realtor and told him to buy it same day offering up to over 10K asking if needed. He was able to close it that day and before the weekend came for $1000 under asking which was great as this was a hot market where units were going into multiple cash only bids selling over asking. 

The one hangup about the deal was this was a probate property which meant I had to wait until the executors approved the sale by the deceased owner's family. I was a bit worried about this as I'd be paying interest on the refi but my realtor assured me the probate was already in progress in the courts so should be done soon and if it went longer than a few months he would cover the interest payments for me. I decided we got the property at a steal purchase price so was worth the risk especially with the interest getting covered by my realtor and the probate ended up finishing after a couple of months and didn't drag out.

How did you finance this deal?

Fully funded from refinancing my primary at 3.24% on 30 year amortization 

How did you add value to the deal?

Self managed the property.

What was the outcome?

The property appreciated from the purchase price of 209K to 300K (peak price point) in a year where I thought about selling and cashing out but decided to stick to my plan of buy and hold as it was still generating cashflow. 

In 2020 with COVID, insurance crisis and strata (HOA) fees going up, and my tenant giving notice, it seemed like a good time to cash out as the property would no longer cash flow and I feel like there will be some decent opportunities in stocks that could come up in the near term. I asked my realtor to put the place on the market.

Unfortunately they announced HOA fees would rise from $300/mo to $500/mo while I was selling the property which impacted the final sale price a bit (I think I would've got 270K) but was able to sell for $262.5K

After paying capital gains taxes, realtors and notaries, it resulted in a total profit of about $43K or a total of about 20% ROI after 32 months. I also had the benefits of writing off expenses (ie. interest, property taxes etc.) and depreciation which added greater profitability during the hold period which I didn't add into the above calculations.

Lessons learned? Challenges?

The total ROI wasn't as much as I would've hoped for compared to investing in stock market indexes but I felt was a much safer route. Interesting to see though if it would have been a 20% downpayment with conventional mortgage, it would've been over 100% return.

The refinance strategy made sense at the time though since it was a hot market and most offers accepted were cash only. It also did allow me to sell the property without having any mortgage penalties to pay out since it was clear title thanks to the refi cash purchase.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My realtor was great, still work with him to this day.