All Forum Posts by: Khaled Majouji

Thanks for the replies guys,

I actually messed up the numbers a bit, revenue will be 37 200$ so resale value puts me at roughly 521 000$

To be honest, I didn't really have a goal when I bought it 4 years back, my parents were divorcing and it was offered to me with a 100 000$ rebate, so I just jumped on it and told myself id figure something out.

221 000$ dollars of equity later and 1 year working in the middle east ( the 150 000$ coming in this year) put me in the financial position that I am in now, except that now I don't wanna stay passive anymore since this cash could work for me much more efficiently than it currently does.

Appreciation will keep being good for a while: 2 university campuses just opened 3 minutes from my places, 2 subway stations, 1 light rail line, access to major highways 1 minute away, and a whole new downtown area is also being built ( I live in a city of 350 000 people next to a major city of about 2 million)

My real concern is leaving 321 000$ sitting in a building and not working for me. You are right that the property currently cash flows, but thats only because of the huge amount of equity. I would ideally like to have only cash flowing properties, but those will never have the same appreciation as this one... So is it worth letting the money sit there or sell and reinvest elsewhere?

I can not do a 1031 exchange as I am in Canada (sucks!) so the closest i can do is refinance, pull some of the cash out to invest elsewhere, or sell and pay capital gains on the part I am not occupying (capital gains exemption on main residence is just like in the USA)

Ok this may or may not be long, so if it turns out to be, please bear with me :mrgreen:

I currently own a 3 unit building that I plan on converting into a 4 unit later this year (the garage will go and I will build a 2nd unit in the basement)

Buildings of this type on my street sell for about 14 times their revenues (yes you read that right!) and my revenues after building the 2nd unit will be at 36000$ per year. Vacancy rate in my area is below 1%.

This puts my building's resale value at about 504 000$. I currently owe 200 000$ on it. So my equity is 304 000$.

That beeing said, I would like to know if there is any value in holding on to such an expensive piece of property that will never cash flow. I've been keeping it because appreciation is good and will continue to be, but I can't help but tell myself that this equity may be able to earn me more if invested in cash flowing real estate.

I also have about 150 000$ in cash coming in later this year and would like to know the best way to invest it. My ultimate goal is to own hundreds of units but I'm a bit unsure as to how I should start.

I was thinking of buying 3 cash flowing buildings of about 8 units each.

Any input is very much appreciated!

Hey guys!

I need your help and experience once again! Most probably very easy for seasoned landlords but a headache for me. The bathtub in my rental unit is stained from some smart *** burning documents in it, so I have these brown/yellowish burn stains, does anyone know how I can go about fixing this without changing the tub or installing some kind of liner? It's an acrylic tub and the stains are spread over an area 8 inches by 8 inches and the rest of the tub is perfect. Any help would be appreciated!

Khaled

Again I'll give you a simple answer to a complicated question. It actually depends what your strategy is. If you are fixing and flipping, then yes it does make a lot of sense to refinance or borrow against equity, the interest rate will beat hard money anytime and that's good, plus when you're finished flipping the property you'll get your money back from the sale.

If you are a long term holder for cashflow purposes, then you'd be better off doing what MikeOh does, and that's buying properties that will cash flow with no money down and that have a chunk of equity in them already. Alternatively you could fix and flip some properties then reinvest the profits in rentals, although putting a down payment on a rental will dilute the returns, so this option is only second best to buying rentals that cash flow with no money down.

Hope this helps...

I'm with Tim on this one, in theory yes the property appreciates and you can refinance, but what if property values start to slide like we are seeing right now is the us? That equity is a safety cushion so that you don't find yourself in an upside down situation, where you have a mortgage balance that's higher than what the house is worth.

So yes it works in an appreciating market, but don't forget that refinancing will increase your mortgage balance and increase your monthly payments as well. You'll essentialy be paying interest on your own money, so you'd better be sure if you refinance it's to invest the money in something that does much better than the interest the bank charges you on this $$$. That's what's called beeing house rich, you have a huge pile of equity in a real estate asset, but the problem is you can't get this money unless you sell the asset. You can borrow against it's value, but that again will put you in an increased interest/principal paying position.

Just my 2 cents...

Here's my success story:

I bought a triplex a year and a half ago putting quite a large down payment on it, figuring I would end up spending the cash slowly if I didn't put it somewhere to work for me. I like the stock market but I was kinda feeling this economic slowdown coming and it got me scared.

The opportunity came with the divorce of my own parents. The triplex had to be sold quickly and there was no way I was gonna let an outsider buy it. I offered my parents 270k for it, market value was 306k at the time, since it's family I didn't want to eat out of their cake too much wich explains this abnormaly high offer.

6 months after I bought it the new subway stations opened 1 minute from here, value jumped 100k in about 6 months, then 50k in the following year. I'm now sitting on a property worth 420k that has a 154k mortgage on it. That makes a nice spread of 266k to play with, and that means more investing. No properties going down in value here, as a matter of fact Canadian real estate has been doing very good these last few years.

I don't get any positive cash flow but I do break even using the 50% rule, and that's with a LARGE down payment . I'm keeping it for 2 reasons:

1- major devellopement around here should bring me GREAT appreciation in the next few years
2-It's also my house, so it makes the situation acceptable from an investment point of view

I've got plenty of time left to build my empire, I'm only 25!

At 40% expenses the house cash flows but if you put the expenses at 50% it doesn't anymore. I'd be leery of doing such a tight deal, specially in this market. Overall your strategy is good, make sure the rents are 2% of purchase price including all costs/repairs and you should see a cashflow out of the property. Expenses should always be calculated at 50%, remember maybe this year they will be lower but at a point you'll need to change major items like roof furnace a/c etc etc etc If you buy a house for 100k it needs to pay 2k in rents every month, simple as that.

Let's say you have 100k in cash, you use 60k to buy a house that is really worth 100k and it rents for 1200$ (2% of 60k) and cashflows 150$ a month, your net worth has just jumped to 140k, your monthly income has just increased by 1800$/year. Then when you go to the bank to get financing for more properties, all they can see is that you are more rich than last time you went to see them, and that your investments hold themselves up so there is no limit to how many you can do/find. You should definitely read some posts by MikeOh he's the king of rental property around here and he's definitely got the recipe to make it profitable!

Thanx for your answer Wheatie, I've read a lot of posts written by you in the past and can tell you are a veteran of the business! I do realize 15% is not sustainable unless inflation goes mad, but it's always good to have the opinion of more experience investors.

I also realize how difficult this question is to answer, with all the variables involved. I'm guessing ill see about 8-9% for the next five years, wich is still very acceptable. Does anyone think I should acquire more land/properties in this area if ever I come across a well priced deal? I don't know how much they'll price the 900/700 units that will be built right next to the subway stations, but if the prices are not too outrageous, should I buy something for appreciation?

I do realize the speculative side of my endeavors, I'm lucky I've got a small mortgage left on this triplex, however I have not been in this business long enough to have stockpiled enough capital to step it up to the next level, unlike the seasoned investors that I really enjoy reading here (Wheatie, MikeOh, All_cash, Tim and the others). I'd like to get my net worth up to 400k before moving to the next level.

I have my brother who moved to Dubai a year ago, he's bought 2 condos so far, the appreciation is great, but the greatest part is all the plans that the government has in terms of development, tourism, economy and population. They have about 200 billion dollars worth of real estate projects to be completed by 2012, their immigration rate is staggering, fuel is extra cheap down there (26 cents a liter, translates to a little over a dollar a gallon). They have some major attractions down there that are unique to Dubai, the three man made palm shaped islands are a prime example of this. Considering that the eastern economies are getting more and more powerful I can only see a location like Dubai going up up and up. However I believe its those who bought over 2 years ago that are really making money. Keep in mind this market is pure speculation, you wont find anything that is close to cashflowing down there so people buying units as rentals will crash and burn if appreciation doesnt save their asses. Great potential rewards but great risks as well.

I am disappointed not a single person answered. I have not seen many topics covering public transportation and urban development and their effect on real estate value....