25 M earning 70k wants to invest on first property

[Sami Ibn Jamil]

Hi guys, im a new grad 25yo M, living in Milton and working in Guelph. I earn about 70k per year. I am interested in investing on my first property. Any suggestions how do i start with? My current rent is about 1200, how much down payment do I actually need? What should be my budget? What should be a location? I dont have much saved, what options do i have to save the down payment. Can my parents gift me some money? How does that work legally ? I am also interested in vacation homes which i can airbnb out. Wher efo i look fornit and anyone who can be my mentor?

[Stevo Sun]

Quote from @Sami Ibn Jamil:

Hi guys, im a new grad 25yo M, living in Milton and working in Guelph. I earn about 70k per year. I am interested in investing on my first property. Any suggestions how do i start with? My current rent is about 1200, how much down payment do I actually need? What should be my budget? What should be a location? I dont have much saved, what options do i have to save the down payment. Can my parents gift me some money? How does that work legally ? I am also interested in vacation homes which i can airbnb out. Wher efo i look fornit and anyone who can be my mentor?

 Let's see if I can answer your question as a fellow Canadian. Milton and Guelph are not cheap markets where your salary can qualify for much. My first suggestion is you have to work on getting your income up higher to around at least 100k per year. You are young so you can definitely do it. When I was 25 I was making 52k working for PwC, by the time I was 30 I hit around 100k. So focus on your earning potential, this will impact how much debt/leverage you can get (ie. how much money the bank is willing to lend you). 

For down payment in Canada, for a owner occupied property the minimum down payment is 5%. You will have to pay for CMHC (or equivalent) insurance on the mortgage at sub 20% down payment. For investment property, it is usually 20% down minimum (due to the fact these mortgages are not insured). 

Your budget and location is up to you and what your goals are. As well as how risk tolerant are you. All this is going to be something you have to figure out for yourself. I'm happy to chat with you more if you want my experience.

Your parents can definitely gift you some money for down payment. I think like 1/3 of Canadian first home buyers get a gift of some sort (this number is probably wrong, but it is a very high number). The gift will basically be a gift. Your parents will have to sign a gift letter declaring to the bank that this money is a gift and there is no expectation of repayment. This is a fairly standard practice in Canada and you shouldn't have any issue with that.

For Airbnb (or any STR), you should treat it as a business. It is quite different from long term rentals. Airbnb/STR are much more active and you have to be involved in the day to day on a pretty frequent basis. If you want to hire that out, companies usually charge 20% to 30% of the nightly rate (from my own research, your area might be different). This is eat into your profit margin significantly. As well vacation homes are typically seasonal and the best times when you want to use the vacation home is also when everyone else want to go there. So it is likely that you will not be able to enjoy the best vacation seasons. During the off season your mortgage doesn't stop, so you'll have to either save money from the peak season to cover or come out of pocket.

As you can probably tell, the Canadian real estate market is drastically different than the US. There will be a lot of information on here that does not apply for Canada, which is unfortunate.

TLDR

1) Focus on your earning potential, get your income to 100k and above

2) Figure out where you want to invest and what you can comfortably afford to invest

3) Gift from parents is very common in Canada and basically it will need to be a true gift

4) Know what you want to do with real estate (ie. is this going to be your main job/business, or a side hustle)

Good luck and feel free to reach out if you want to chat more!