In my second year of Theatre School, I was broke and had no knowledge in the personal finance world. I stumbled into a book store and picked up Rich Dad Poor Dad. I’d say that was the beginning of where it all started. In my book, I discuss more about that part in my life.
Lets fast forward to 2018. By then I was more experienced and my appetite for risk had also increased. I was looking for another income property. I had a small budget, and I have not yet tried the syndication strategy like I am doing today.
Anyway, I found a duplex up in Northern Ontario. The asking price was $55k. I only had a $60k line of credit. I thought to myself, okay, this is perfect. I called the listing agent and worked out the preliminary math. It cash flowed about $800 a month after my debt service and operating costs. Then, I found a triplex where the lender took back the property because the borrower defaulted on it. I found out this information by asking them why they were selling. I decided to travel up there to view both properties.
The duplex was a little rough on the edges. But I decided that I would fix it over time and collect rent from it. The triplex had tenant issues where the occupants were affecting other neighbours. But I know how to handle this situation.
Originally, I was going to purchase one of the properties, but after seeing them, I wanted to buy both of them. They were asking for $110k on the triplex and $55k on the duplex. I only had $60k line of credit.
How can I leverage my money further I thought to myself. Can anyone guess? For the triplex, the agent said that the lender owned the building with no mortgages on it. I naturally asked if the owner would finance the property for me. He seemed motivated to sell as the property has been sitting on the market for a long time. The current owner specialized in lending, not property management. The tenants caused a lot of issues for him.
Once I got back home, I started the negotiations with the sellers. I ended purchasing the duplex for $50k and for the final $10k left over from the line of credit, I used it for downpayment on the triplex. The triplex owner agreed to let it go for $90k. The seller will give me $80k as a loan and I’ll pay him $600 monthly to borrow his money. Thus, by using debt from my line of credit, I was able to purchase these two properties with no banks involved. I was also able to leverage my funds by asking the seller for a loan. Over the next few years I focused on turning the properties around. To be honest, it was an up hill battle. The objective was to fix any units during a turnover, collect rental income and sell at year five. The rental income in total netted me around $3k a month on paper.
However, this income was quite inconsistent, the project is more difficult than first anticipated. The tenants constantly had integration issues in addition to constant maintenance problems. The cost of updating the units can be blown over budget in a matter of seconds if I was not careful with the spending. Also, the cost I spent on a unit, may exceed the value of the actual property at the end. I’ve struggled for four years. I’ve seen very little income from these two properties, however, I held on to it. Persistence is the key. Never give up I thought to myself.
I’m planning to sell in 2023. It would be my fifth year into it. The agent told me that the duplex and triplex should be worth $170k and $200k respectively as of 2022. I’m expecting to net around $230k including legal, agent fees. That would equate to a ROI of 21% per annum when I take capital improvements into account. I think I recall the bank tried to offer me a 0.5% on a GIC account?
These two projects taught me a lot about myself, about managing people and sourcing contractors to help maintain the properties. You need to build a team. It is difficult for an investor to do it all on their own. Almost every investment I dealt with, required more energy, more money and more time than anticipated.
For people starting out in the industry, I’d recommend that you beef up your budget and don’t sell prematurely, hold on to it according to your plan. Perhaps find an equity partner that has the means to inject cash into the deal to survive in the meantime. The longer you hold, the better off the owner will become.
Today, I’d like to continue my syndication deals and perhaps form a fund in the near future. If anyone is interested in working on a project please contact me.