Happy Investiversary! My first investment property – one year in.

One year ago I bought my first true investment property. It was the 3rd piece of real estate I’d ever purchased, but this one was an actual investment. Here’s why:

• 1. Land content. This single-family home is on a 50’ x 150’ lot. That’s a decent sized chunk of dirt for a city property! If you really stop to think about it (and very few people do), buildings depreciate over time…they wear out, they break down, they deteriorate. This is why you can depreciate a property’s capital expenses on your taxes. But then why does real estate APPreciate over time? It’s the LAND content! You can see this clearly when someone buys a ‘tear-down’. They aren’t paying good money for the boyish excitement that comes from watching a bulldozer knock over a building, (though that is pretty cool to watch),…they are paying for the LAND and what can be built on it in the future! My first 2 real estate purchases were a condo in a 3-story building, and a semi-detached townhouse (not freehold). Neither had much land-content, which limits both my long-term appreciation, and my control over how that land can be developed in the future.
• 2.Cash flow. Both of my previous properties did NOT cash flow. Sure, there were some months where they made money. But when I accurately tracked every dollar I earned and spent over a longer time frame (think years, not months)…they were alligators – I had to feed them every month (on average)! If not for appreciation, I would’ve been LOSING money in the long run. Thankfully, in the years that I owned them, appreciation saved my butt and I made money. But that is not a strategic position to be in for the long haul. If there was a market price correction, I’d be in trouble. But on top of that…if there are opportunities out there that can appreciate AS WELL AS cash flow – I’d be crazy to hold on to a lame alligator piece of real estate! For a breakdown on the cash flow of my 1st TRUE investment property – see future blog posts.
• 3.Development Potential. I bought my first single-family home because of its development potential. I was specifically searching for a property where I could add a basement suite, effectively making it a 2-unit cash-flowing machine. That meant I needed:

a.Separate side entrance -private access to basement

b.Enough frontage to expand the driveway for tandem parking

c.Enough ceiling height in the basement to meet building codes

d.Enough windows in the basement to meet building codes

e.Workable layout for building a suite

***Stay tuned for future blog posts about building code requirements for basement suites, and legal duplexes vs. legal non-conforming

• 4.Economic Fundamentals. I chose the city based on macro-economic factors that would protect and grow my investment in the long-run. My 1st piece of real estate was bought as my primary residence – I was thinking more about my own lifestyle and preferences than anything to do with economics. This time, I chose to invest in Hamilton, Ontario because of the job market, population growth, transportation infrastructure and expansion, (GO stations & future Light-Rail Transit), property values vs. rent rates, solid student populations from McMaster University & Mohawk College…etc. Hamilton has consistently been rated among one of the best real estate investment destinations in Canada because of the economic fundamentals, and I’m confident it is a good place to put my money to work.

It’s my first investiversary, and the future is bright! 

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