Just my 2 cents.

[...] For me,  I will most likely keep the existing HELOC balance (and portfolio) but use the freed up cash flow to invest with instead of increasing the investment loan.  Perhaps it’s my conservative side coming out, but why leverage if cash is available to invest with?  I may, on occasion, dip into the HELOC balance to invest in opportunities that require large amounts of cash, such as an investment real estate transaction. [...]

that 200x the monthly rental income sounds very scary :)

but if it works on paper and works well then 200x could be ok.

FT is right about the 10x rule. (All these rules seemed so silly to me at first, now they leap out of my mouth at every opportunity.)

Basically it goes that when scanning prospective properties to see if you should look at them in more depth they need to have a sale price of NO MORE than 10x the ANNUAL GROSS RENTS.

To make it more simple, mulitiply the monthly rent by 120x and it should be GREATER than the sale price. If this is true then you should look at the property in more depth.

So 200x seems out of the ballpark but….others things can come into play.
You should get yourself a good analysis spreadsheet and work it out like that.

I hear alot of talk about people accepting negitive cashflows on multi-units so that they can get the capital gain. I am of the school cashflow is King. Capital gain is excellent but I personally prefer the nice 4 extra paychecks that I get every month, especially considering our current economic situ.

So if this deal doesnt work, just keep looking.

To quote one of the best investors par none:

Be fearful when others are greedy
Be greedy when others are fearful.

I just found this blog and read brent’s rules and Ottawaguy’s response.

I am looking at buying a triplex. I have about 33% I could put down (but plan to hold some back for contingency and immediate expenses). With the mortgage at current (low) rates, I would have a +ve cash flow for 5 year. I plan to live in one of the 3 units. The purchase price is about 200x the monthly rental income.

Does that sound scary??

I live in a place where vacancy rates are super low – about .3%, and the triplex is in an area that is highly desirable.

Thoughts?

Thanks.

.For buying income properties:

1. stick with multi-unit properties (avoid single residence units)
2. purchase price of no more than 100 times the gross monthly rent.
3. living in one of the units makes it more manageable
4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus down payment)

I own 4 rentals and I don’t completely agree with what he said:

1. stick with multi-unit properties (avoid single residence units)

Avoid Multi units, buy single families freeholds or condos, especially when you are new. Multi’s are considerably more hassle, if a crime is committed in or near your multi it affects all your units within a multi, not true with singles in different locations. Single can be bought at wholesale and sold at retail. Multi’s are bought by investors and sold to investors, investors as we all know are looking for a deal ALWAYS.

3. Living in one of the units makes it more manageable

Only if you are single. As a married person, I would not want my tenants coming down to my unit to bother me for every little thing that is wrong. A clogged toilet, a wasp in the kitchen, another tenants loud music…etc, etc.

Living away from your tenants means that they have to solve problems on their own, if it is a big problem they will call. The type that you would want to be involved with anyways.

4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus down payment)

I partly agree with this statement, 20% plus as a down payment is very important (20/20/35 Rule: 20% down min, 20% under market value (not asking price) and 35 year mortgage).

The right time to buy is NOW. look for deals, they are everywhere. My last 2 deals net $900/ month each and they are both condos under 200K in Ottawa. Don’t try to time the market get in there and do your homework and your will find a deal.

1. stick with multi-unit properties (avoid single residence units)
2. purchase price of no more than 100 times the gross monthly rent.
3. living in one of the units makes it more manageable
4. be weary of buying when prices are high (relative to income) and interest rates are low (prefer a regime where prices are historically low relative to income, interest rates are moderate, and you have a 20% plus downpayment)

With the present economic turmoil, there are strong indicators that the Canadian market place will continue to outperform. Real estate is a long term game and should be viewed with a telescope not a microscope. Keep it simple and boring and you will build an empire.

[...] some of you know, I purchased a cash flow positive rental property a few years ago. What you probably didn’t know is that the tenants were interested in [...]

To sum it up:
I have not invested anywhere near $2M of my own cash – it has just grown into that over time (and will continue to do so throughout my retirement).

I believe in “steady as she goes” and don’t rip off your tenants – there are more good ones than bad ones – so find them and keep them.

When you are starting out – don’t bite off more than you can chew – with my regular job, I always had enough income that (if I lost EVERY tenant – I would be eating Kraft Dinner but I would not have defaulted) As I gained more “suites”, the strain has lessened dramatically – one of the posts here mentioned not buying a “single unit (ie house) as a rental – I absolutely agree
because if you lose one tenant you still have part of your expenses covered by the other tenant(s). (11 unit building with a couple of empty suites is nowhere near as stressfull as a 2 unit duplex that is without tenants – don’t ya think)

Anyway, I’ve said enough. Feel free to comment – I’d like to hear your thoughts.

Renting properties out has always interested me, as I am very handy, and believe that I have found properties that are worth the investment. A local person in the town I reside in currently is selling their rental properties that include 24 houses for a total of $1.4M currently. Each unit is rented, and the annual income of properties is around $255,000. The properties when sold, all have the current units rented for another year lease. As I am young, this seems to me like it could pay its self off quickly since I am accustomed to a low level cost of living.

As for maintance I would take care of it all myself, as I have a high level of knowledge in construction, in all aspects.

Since it seems that you know alot about rental properties, I was wondering if you could point me in the right direction. Some questions I have are, does this seem like a good investment, and how would I go about financing this. The seller is selling the properties and considers creative financing.

Most people argue that a fund/savings for repairs and improvements should come out as an expense. $150 a month seems about right for putting in to a maintenance fund. So one could argue your cash flow is $0 or less since you said it was 150-200 combined.

mmastran; Something’s amiss. You say the house was bought well below market value, but you still can’t get it to cash flow at current rents, even with 20% down. That suggests that rents are waaay too low, or the price paid did not reflect the price that rents supported (even if it was selling cheaper than all others). I suspect you would have a challenging time selling the house, especially with renters. You might be lucky to escape with some of your downpayment, but perhaps not all of it. Realizing that home prices will drop across the country at various rates and at various times, and that rents might drop as well as people lose jobs, well that is a tough decision.

If it’s any consolation, I’m in the same position with a condo I have. It breaks even with all expenses (incl maintenance), but who knows how long rents will stay at this level.

Property values have gone up since, which is good for me (more equity and net worth), but makes it harder to find properties that will cash flow.

If I had to put 10-30% down of my own cash, I probably would not invest in rentals.

If you do not like to deal with renters, DO NOT become a landlord. Or, be VERY picky about who you let into your property. Get the wrong person in, and they can ruin you.

Oh, another mistake that I’ve heard people make is to buy a property in an inflated market when interest rates are low, to later find that it doesn’t cash flow when interest rates go up. If a property doesn’t cash flow, then money is coming out of your hard earned income to support it.

To mmastran, I wouldn’t keep a house that was costing me $400/month. Refinancing might work, otherwise I would sell and use the profits to buy a cash flowing property or invest elsewhere.

The first home, which was purchased well below market value, and is being rented, still costs us about $400/month to cover mortgage/expenses.
My wife wants to sell it and purchase a more profitable rental property that actually makes money. My problem with this is the current market conditions. I believe we should keep this rental ,even though we lose monthly, b/c in the end we stand to make more when we sell it in a few years. The tenants are a family that maintain the home well enough.
I was wondering what others would do.

Here are the particulars:
$322K to buy, we put 20% down, we currently have 249K left over around 20 yrs amortized @ prime – 0.6 (5 yr variable, first 3yrs closed MCAP mortgage, 4 yrs left on our term)

Worse case scenario, could we not just re-amortize the loan to 25 or 30 yrs to reduce the monthly payment?

Happy renting