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Millionaire’s Corner: Real Estate – My first foray into investing

Back by popular demand, QCash has graciously offered to provide more details into his financial life, particularly his investments. This time around, QCash explains his first taste of investing in real estate. For those of you who are new here, QCash retired at the age of 36 with a net worth of over $1.5 million.

When I first stated investing, I figured I would make my millions in real estate a la Donald Trump. However he declared bankruptcy shortly after I purchased my first property with my university roommate (who remains my good friend, he is still a business partner in other ventures and was my best man at my wedding – we have a David Radler/Lord Black partnership without the criminal leanings and backstabbing deals) in 1990 (great time to by real estate by the way) and we watched as the house fell in value to less than we owed over the first five years. However, I did learn an important lesson – Cash Flow is King.

Even though the house was falling in value, the 7 student rooms rented out generated more than enough to cover the costs (and back then our first mortgage was 13% and the second was 18%, we might as well have put it on our Sears Credit card at those rates). I still have that property today (listed as P3 on my list). We did the accelerated mortgage payments and paid the entire house off in 2004. However, since that time we have converted it over time to a duplex (legal non complying) and now only rent to a family of three and a mature student (fewer headaches as neither of us lives in the same city we went to university anymore).

Subsequent to that time, I have owned three other properties and sold them.

Currently, we own our own home (P1), another rental property (P2) and half the original property (P3). In addition, my partner and I formed a corporation and bought a multi-unit property (5 commercial units, 3 residential) in my home town that eventually I hope redevelop in the long run. I am working through the process and trying to figure out the costs. The structure of that corporation involves us both loaning money to the corporation (Q1).

To that end, my direct real estate holdings currently are:

P1 Personal residence:

  • purchase price: 2000 – $254,272.35 – current value as of 2007 $480,000
  • cash flow: $0.00

P2 Rental property:

  • purchase price: 2002 – $181,395.65 – current value as of 2008 $325,000
  • cash flow: $900 per month net (split between my wife and myself)

P3 Rental property:

  • purchase price: 1990 – $183,266.00 – current value as of 2006 $225 000
  • cash flow: $700 per month net (half mine, half my partners)

Q1 Shareholder loan:

  • loan amount: $249,600 (interest only at 6%)
  • cash flow: $1248 per month interest income

When I give my Net Worth updates, I only list the purchase price of the properties above and even then I only include 50% of P3 as I only own half.

The current values are based on the most recent appraisal and the year is given.

Next time – other ways I own real estate.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 10 comments… add one }
  • Marcie Leier September 18, 2008, 1:06 pm

    “The structure of that corporation involves us both loaning money to the corporation (Q1).”

    Can you please explain more about how that works? I have just incorporated a business and of course have had to use my own cash for start-up costs. I’m wondering how that might apply to me and what it could mean come tax time for me or my business.


  • Qcash September 18, 2008, 1:52 pm

    Hi Marcie

    In our situation, both my wife and my partner’s wife lent money to the corporation for the express purpose of purchasing an investment property.

    The corporation pays each of them monthly the interest on the loans and they are issued T5s and report it on their income.

    Our corporation gets to decuct the interest from our income.

    I am not an accountant and cannot specifically advise you on your situation, but essentially when you provide start up capital to a corporation, it can either be as share capital or a shareholder loan.

    Most banks like to see some shareholder capital on the balance sheet, but if you don’t need bank financing, a loan may be the way to go. It depends on your specific tax situation and requires a little advice.


  • Dividend Growth Investor September 18, 2008, 3:03 pm

    For a second I thought that Q1 was a loan from a bank with your properties as collateral that you have used to buy stocks :-)
    So basically your corporation deducts the interest expense and your wife declares interest income. Interesting way to game the system.

  • QCash September 18, 2008, 4:24 pm


    It is not overly “gaming” the system. We had to set up the paperflow so it was clear that the money was coming from my wife so as to avoid any concerns about attribution (my lawyer set this all up when we set up the corporation and purchased the building).

    The reality is that my wife is “risk adverse” and this becomes her equivalent of a GIC which is what she would normally invest in (ironic given her past involvement with the mutual fund industry).

    The loan for the bank is actually what I refer to as C3. It is a HELOC that I set up to purchase my income stocks (I2) and will be paid off as I reduce my growth stocks (I1).

    Hope that clarifies.


  • MultifolDream$ September 20, 2008, 10:09 am

    Your first property has been a good learning experience.
    What I see here in Quebec is a very challenging environment for the rental property investment as the strict regulations on the rent increases and the current high prices won’t let you have a positive cash flow if you carry a significant mortgage.

  • Chuck September 21, 2008, 12:03 am

    You don’t lose on real estate business because it never depreciate the only downside is that your money is frozen.

  • Chuck September 21, 2008, 8:22 am

    @chuck (not the same chuck as me)
    Real estate can deflate. In the early 90s the real estate bubble burst. We’re starting to see a lot of stagnation in the GTA market now. In our neighbourhood houses that would have sold in a week last year are taking 2-3 months to sell.

  • Kanggadin September 30, 2008, 3:41 pm

    Awesome Q cash.

    Great job. I have a quick question. Based on your experience both as a landlord and as a REIT investor,

    1. Which way do you recommend? I can certainly take the second job, landlord, if it is necessary but I am looking for passive income. In this case, REIT looks more attractive…But I do not want to sit and just pray for better management. What do you think?

    2. I think I can pay off my mortgage in 5 years if I can maintain my current speed. As a HELOC investor, do you recommend it to me to get more speed to pay off mortgage (like in 4 years or something)?

    Thanks for your advice in advance.

    Good luck with your life journey.

  • Olgs December 1, 2008, 12:52 am

    Anyone know where to find investing information, any sort of research, facts, trends, etc. I’ve been contemplating venturing into direct investing but not sure how good of an idea this is, anyone already do any of their own?

  • Scott December 1, 2008, 11:22 am

    You are looking at it — the INTERNET!

    Get ready to research!

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