Wednesday, March 14, 2018

Real Estate Investing Tax Traps

I was at a great seminar last week. One of the speakers, a super knowledgeable tax guru and ex-CRA-auditor, shared several tips about potential tax traps real estate investors can fall into.

Taxes can get pretty fat, so it's always great to learn some ways to keep them skinny. Posting my notes here just in case you'll find them helpful.

Tax Trap #1 - House Flipping

Suppose, the following flip scenario: we buy at 400K, renovate for 100K and sell for 650K. This results in 150K capital gain, half of which is taxable.

Let's say our tax rate is 50%. We'd then pay 37.5K in taxes and pocket 112.5K of after tax profit.

DANGER: Flip with incorrect Tax on Capital Gain calculation -
larger profit than in reality


Most people don't realize that per Canadian Income Tax Act, there are two distinct categories of property:

1) Inventory, which creates business income or loss

2) Capital, which creates capital gain or loss.

The distinction is based on whether or not a property is acquired and used on account of income or capital.

Taxes Payable - Personal Name

It turns out that, when you purchase a property with the intention to renovate and flip, you put yourself into a business income situation.

Capital gain is not applicable since you have a clear intention of selling the property. In this case, your property is your inventory. So sales proceeds are your income. You have to pay tax on 100% of your income. You cannot take advantage of the 50% capital gain tax inclusion rule.

In the scenario above, if you purchased the property in your personal name (not under a corporation), your taxable income is 150K, tax is 75K and your actual after tax profit is 75K (not 112K).

If you are not aware of this tax trap, there is a HUGE risk of spending 112K profit and then being stuck with a large tax debt of 37K.

REALITY: Flip with Tax on Income - much lower profit

Please note that purchasing in corporate name can save you a lot of taxes. So this example and tax trap would not be applicable, if you manage your corporate taxes well.

Tax Trap # 2 - Condo Flip

On condo flips, investors can fall into an even deeper tax trap.

First, as in the previous example, all of earned income is 100% taxable since condo is considered to be inventory.

In addition, investor must repay GST, if he/she had received it when purchasing the condo from the builder. Even though GST repay is just a return of the money recently received, the danger is that one would have already spent it by the time they'd need to pay it back.

The next catch is that HST is applicable on new properties. Investor would have to pay 13% HST.

Lastly, as per the linked article, CRA is on top of improper tax payments (ie. capital income vs. business income issue) and would apply a penalty up to 50% of tax payable for tax avoidance to anyone who reports tax incorrectly on their new condo flip.

All in all, a condo flip may end up being a loss rather than a profitable deal, once all these adjustments are applied.

For example, if we purchase a new condo for 400K (including tax rebate) and sell it for 500K. Applying capital gain tax only, you might erroneously think that you'd only pay tax on 50% of 100K capital gain, which would result in 75K profit.

DANGER: New Condo Flip with Incorrect Tax Calculation
- looks like a profitable deal

In reality, after we apply all the adjustments that an investor might have missed, we end up with a loss of 12K.

REALITY: Loss on a New Condo Flip due to Taxation Error

Bottom Line

The bottom line is that many new investors might not know about these potential tax traps and might lose money. 

The only way to avoid these tax traps is to keep educating yourself and find a way to get advice from knowledgeable accountants and tax advisors, who have applicable experience and know exactly how to navigate around these and other potential tax traps.

Hope you find this post helpful. Please share, like or forward to your friends and fellow newbie investors if you did!!!


Tuesday, March 13, 2018

Me vs The Door. I win!

Old Patio Door - Brrrr! cold
Hurray! The door issue is finally resolved. I was VERY frustrated with it! Here's the story.

Mid November, a tenant notified us that they had very severe draft coming from under the front door and also from under the patio door at the back of the living room.

Within a day or so, we  had our contractor come out to the house to look into it. It turned out that there was an easy fix for the front door, but the patio door was too old to be repaired. It had to be replaced. The wind was hauling through and around every inch of the door surface.

Tenant is Freezing! Let's Replace The Patio Door

The contractor called and reported his findings. He had an estimate prepared and went over it with me over the phone. I roughly knew how much it would be to replace the door since we completed a similar project several months ago at another property. The estimate sounded reasonable and within what I expected. We agreed to go ahead with a new patio door!

The contractor ordered a new door at the local hardware store. The new door was supposed to be delivered to his shop within the next couple of days. He called and explained new door specs to me in a lot of detail! He was super excited that the new door was 3-panel and talked extensively about how warm the house would be, once the new beautiful door is installed.

And at the end of the call, he also asked for a payment. I often pay for materials up front and labour upon completion. So this wasn't a surprise.

I thought I knew the contractor well. He finished a couple of jobs for me before. All of them went great - work done quickly and well. Tenants were happy with the quality.

So, without thinking too much into this, I sent the payment for the new door and asked the contractor to schedule work dates directly with the tenant as soon as possible.

Mistake #1 - I have no idea what I bought...

I paid money for a phantom door without doing ANY due diligence to check that there was actually a door purchased on my behalf. I paid simply because I thought the contractor was a good guy based on  the two times he worked for me before.

Instead I should have:

  • Asked for a receipt
  • Asked for a picture of the door that I was buying
  • Checked patio door prices on

Now, when the door issue is behind me, I have to admit that I paid $1,275.77 for a new patio door. If you check at Home Depot, patio doors start at $565 + HST. There are 30 different doors that are cheaper than $1,275.77 and another 170 doors that are more expensive.

So, to this day, I don't know if I paid more than I should've... Was the door too fancy for my needs? Did I pay too much? Did I get a great door that will now last another 50 years? I will never know because I have no idea what I actually bought.

Mistake # 2 - Winter is NOT a good time to replace patio doors

No door - bad idea during Canadian Winter

Now, we had to wait for the weather to cooperate. This winter was brutal, especially in December and January. It was very cold and snowy. Contractor advised that we couldn't take out the door and keep the house open for a day or two when it was -30C outside.

In addition, the selected dates had to work both for the contractor who was always super busy and our tenant, who insisted on being present at all times personally. The tenant wouldn't agree that I come by and oversee the contractor instead, if they can't be home.

Eventually, after 3-4 weeks, everything got aligned: the weather, a couple of open days on the contractor schedule, and our tenant’s schedule.

Series of Unfortunate Events

Unfortunately, our contractor had a mild heart attack just a couple of days before the scheduled date. Obviously, health and life take precedence before the draft under any doors. Tenant was understanding of the situation. Luckily, our contractor recovered and got back on his feet over a few weeks.

Winter weather was still nasty! Once health issue was behind us, we all started watching the forecast waiting for a couple of warmer days. Finally, we scheduled the work. Yay!

On the day of the appointment our tenant had something urgent come up. They couldn't be home and asked to reschedule.

We now waited and watched the weather for the third time in a row... Finally, all good again: decent weather, tenant at home, and contractor is in good health and available. The new dates were scheduled! We set 3 days aside to make sure there is ample time to get the job done.

Mistake #3 - Don't Assign More Work When Previous Load isn't Done

Just  a couple of days before the appointment, the tenant got in touch. They asked us to take a look at several new items at the house:

  • A few outlets had no power on the main floor
  • Shower tap got broken and tenant (including their kids) had to use pliers to turn the shower on and off
  • A pipe leaked in the basement when they were using the washer

Since the contractor would be at the house anyway, I asked him to scope out these issues and let me know a quote.

The contractor called me back and explained that broken power outlets were a SAFETY concern and had to be addressed ASAP. Apparently, wires inside the electrical box were lose and several of them had signs of burning. He had to replace fuses, do some re-wiring, etc. I agreed that he should go ahead and address the safety issues, thinking that eliminating the risk of fire is a much higher priority than getting rid of the draft.

What I didn't expect was that these safety issues would take up ALL OF THE THREE DAYS. So by the end of the slotted time period, all of the new issues were addressed, but the contractor didn't even start on the door.... 

It turned out, that since the heart attack, the contractor wasn't aloud to drive a car. So the work took him longer than normally, because he had to take a bus to and from hardware store during the day every time when he needed some parts. His partner drove a truck, and gave him a lift when possible, but still capacity limitations became apparent. Tenant observed that the contractor only spent 2-3 hours a day working, while I was under the impression that he spent 3 full days onsite.

Anyways. New issues got resolved very fast! Old issue was still not started. 

We were now watching the weather again. Tenant started getting quite frustrated. The house was cold and they were concerned about really high heating bills. It was the end of January - 2.5 months have already gone by.

Mistake # 4 - Always be in Control. Excuses will NEVER end.

And for the fourth time, we scheduled several days. By this time the tenant was extremely anxious. They shared with me that they expected the contractor would find an excuse not to show up.

And he did.

Three days before the appointment, the contractor called me. He politely explained that, as he was preparing for the appointment and unpacked the door, he realized that the new patio door turned out to be welded rather than bolted. As a result, it would not go through the entrance door since it can't be taken apart. And since the front door is the only way to access the backyard in this town house, we'd have to postpone the appointment.... 

Well. This is when meditation practice comes in handy.

I counted 5 breathes in my mind before asking what he thought our options to overcome this hurdle would be... There were two options: 1) get a new bolted door which might be problematic, since manufacturer now makes all doors welded and we'd have to look for an older model; or 2) find a way to bring the door in through a neighbour's backyard.

I explained in detail that it was very important to finish the project and install the new door as soon as possible and that the tenant was not happy and I really needed all his help to get to a conclusion on this. I was offering help and asking if there was anything I could do to help. 

The contractor started calling hardware stores and by the end of the day he found an old model of the door, which could potentially be delivered early next week. Great! Let's do it. 

As a backup plan, we agreed that if there would be a hiccup or delay and the new door wouldn't be delivered early next week, we would implement a backup plan. 

Backup Plan

My husband and I went to check if there was a way to bring the door in through the back yard. We found out that one of the fences at the end of the backyard was only about 4 feet high. We thought that it would be possible, with enough man power, to bring the door in over that fence.

The neighbour was not home and we left him a note with our phone #. We also left our # and information with other neighbours. No response. Contractor told us that he also stopped by and left his card. No response. My husband and I went there again the next day at a different time of the day - no one home and no call back.

Contractor said that he wouldn't carry the door without the neighbour's permission since that would be trespassing. 

My husband and I made a decision that we would personally trespass and carry the door in, through the back yard. We clearly communicated this to the contractor: please, just bring the door, we will get it in for you, then please install it. We spent time on the phone re-iterating this plan. It seemed we all were on board with this backup plan.

Contractor assured us that he felt backup wouldn't be necessary since he already scheduled the delivery of a bolted door for Tuesday. Awesome! Even better.

By this time, tenant refused to pay rent. They explained that they paid hundreds of dollars for heating month after month after month and they were fed up with it. This was the first time ever when a tenant yelled at me. I hung up and submitted a court hearing application. I was very offended by the yelling. Draft or no draft, rent must be paid... However, I decided to find out how much extra heating costs my sloppy implementation of door replacement was causing.

Do You Know What Happened Next Tuesday?

You would not believe it. It was now mid February and winter started fading away. +7C outside. 

8:30 AM. 30 minutes before the appointment. Contractor calls. He'd have to postpone the appointment because it is pouring rain. It is very dangerous to work with power tools in the rain and since he'd be using power tools as he'd be installing the door, he can't proceed. He cannot risk his life and show up.

This time I was not even mad. I've become immune and emotion free. Having said that, all my dreams over the past few nights were strictly about patio doors.

I called the utilities company and found out that my tenants' actual heating consumption was super low through the winter. The service desk could only provide general averages to me, but it became obvious that if my tenants' bill was several times higher than average WHILE their consumption was several times lower than average, they hadn't paid their bills for a while. 

I no longer felt guilty. I knew that I just had to get to the end of this whole door situation. At the same time, it was obvious that I didn't have to worry about my tenants' high heating bill and reimburse them for extreme consumtion. Phew!

Grand Finale

I called the contractor a day later and realized that he still didn't have a new bolted door. Still, the biggest issue was that we couldn't carry the welded door in. Why I asked? I thought that a bolted door was supposed to be delivered back on Tuesday. Oh no - he thought that I didn't want it because I asked him to carry the welded door through the back yard.

Alright. I insisted that we schedule a day when he'd bring the welded door to neighbour's drive way. My husband and I would take full responsibility for trespassing and we'd have the door carried in.

In my mind, I set a deadline of the following Friday giving it final 9 days. I decided that if I wouldn't see a door by then, then that door probably didn't exist and most likely I had bought air for $1,275.77 . I already started asking my friends for trustworthy contractor referrals, so I could quickly find a replacement and start all over again. It wouldn't be the first time when I lose a deposit.

I discussed the situation with the tenants. We agreed to give this operation the last chance. We also discussed utility costs and rent payments and came to an agreement. Our court hearing was scheduled for March 26, just in case our verbal agreement wouldn't go as planned.

The End

Love the new door!
Super thick, 4-panel, warm home next winter :)
Drum roll!!! The following week, on Wednesday a new bolted door was delivered. The Contractor carried it in through the front door. He installed it and finished by Friday.

Somehow, there was a missing part on the lock of the new door, but at this point I was not going to worry about it. The contractor came up with a work around for it, so the door locked.

The bolted door, apparently, was $400 more expensive than the welded one. I asked the contractor to show me receipts for both doors and explained that I couldn't pay any additional money without seeing a receipt. He said that he'd gladly eat that cost given how many problems we ran into along the way. I told him that I appreciated it.

The contractor's computer mysteriously crashed and he wasn't sure how much labour costs we originally agreed to. The numbers in his journal were $200 higher than what my notes said. He agreed to go with the numbers I wrote down. I thanked him for that as well.

Door installed. After 3.5 months of struggling it was a Happy End after all. I am grateful and happy about it!

PS Lessons Learned

In future I will ALWAYS require:

  • a written work estimate including timeline and cost
  • a written agreement for full money refund if project doesn't get done by a pre-agreed upon date
  • receipts and a proof of purchase for all major purchases/materials before I pay for them 
  • invoice before I pay for the work done
  • myself to know market prices and key parameters of the most costly parts of a project.
I realize now that the best course of action would have been to use a specialized Doors/Windows company rather than a General contractor for this project. If someone changes doors every day, I'm sure they'd know about welded vs. bolted doors and how to deal with them. Even though this seems obvious, this realization only came to me after a couple of months of weather checking. 

I wish I could also make sure that no one ever gets sick and the weather is always great, but since that isn't an option, I'd just say that for all external work, I'd notify the tenants that they might have to wait till Spring. If I set expectations correctly, all the re-scheduling would've just been a part of the original plan.

You never know how the circumstances will play out and all the various factors that may work against you. So you need to have a planned way out of an existing engagement in case it fails. You shouldn't be making yourself a hostage of a contractor and/or a series of unfortunate events. 

Wednesday, February 7, 2018

Real Estate Income Property - Case Study #4 - Cash Flow Formula

Opportunity Awaits!
Two years into our 50 Doors adventure, we figured that it was much easier to have all our properties close together rather than scattered throughout Ontario. So we focused on Barrie, ON.

We were amazed at the crazy hot market and the speed at which housing prices were going up.

We were hunting for a new property where numbers would work and meet our cash flow requirements.

The idea was to keep repeating the same positive cash flow formula that had worked several times for us already.

It was very exciting that we started to understand the economics of the formula and could tell good deals from bad deals at least within the neighbourhood that we became familiar with.

Rental Income Property

One of the real estate agents who worked with us on a previous deal forwarded this listing. He knew it was a great opportunity and called houses like this "good bones". The structure and concept were great, but the place needed some TLC (aka tender loving care).

An elderly lady who owned the house decided that she no longer needed such a big place and wanted to move into a smaller home.

By the time we were looking at this property, we already owned two similar houses in the neighbourhood. Market was going up like CRAZY.

We got the first property for 185K and now, only two years later, similar homes were selling at 250K - 270K. That's 20% annual appreciation! Very dramatic change in a short time.

Rents went up by a lot as well from $1,200 per month to $1,450 (10% per year).

The increase of $250 in rent, given interest rates of ~3.25%, covered an additional 50K of mortgage. Or, if we put 20% down, it was enough to cover about 60K extra in property price. Meaning, if we got a property at about 240K (185K + 60K), we'd meet our positive cash flow goal.

We instantly saw the opportunity in this property! It was selling under market because it needed some cleaning: the owner smoked inside for three decades. Most local shoppers didn't want to deal with this even at a discount. 

Key features: 

  • Freehold town house  
  • Parking on driveway plus 1-car garage 
  • Main level: 
    • Entrance/hall 
    • Large living and bright dining room 
    • Kitchen including fridge, stove
    • Entrance to a nice, deep backyard with a porch
    • 1/2 bathroom 
  • 2nd Floor: 
    • Master bedroom 
    • 2nd bedroom 
    • 3rd bedroom 
    • Full bathroom  
  • Partially Finished Basement: 
    • Utility room with washer/dryer 
    • Family room with exit to backyard
  • An old shed takes up most of the backyard. It came with a dead squirrel.


    • Asking price: $225,000
    • Purchase price: $218,000
    • Found by a really awesome Real Estate agent who worked with us on a previous deal
    • Owner occupied at purchase
    • Expected Rent: $1,450/month
    • Expenses:
      • Utilities: paid by tenant
      • Taxes: $200 / month
      • Insurance: $100 / month
      • Misc repairs and maintenance: $100 / month 
    • Expected NOI: $1,050 / month
      • Financing: 80 LTV, 30 year amortization, 5-year term, fixed 2.55% interest
      • Expected Cash Flow: ~ $350 / month

      Total Investment

      This property required a 55K investment. This is in line with the original plan and includes 10.5K in renovation costs.

      Investment Summary

      Capital Improvements10,448

      Cashflow and ROI 

      • Initially cash flow was projected to be $350 / month
      • Actual cash flow averaged at about $200 / month. The shortage is primarily due to two month vacancy in 2017 during renovation. 
      • Net profit including mortgage pay down is approx. $500 / month or 6K per year
      • ROI is ~ 20% over the two years and 10% annually on average

      Year 2014 Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
      Rents (@100%)17,400 17,463 34,863 17,432
      Vacancy1,800 2,196 3,996 1,998
      Total Gross Income15,600 15,267 30,867 15,434

      Taxes2,449 2,864 5,313 2,657
      Insurance1,379 1,480 2,859 1,430
      Repairs/Maintenance743 1,229 1,972 986
      Utilities533 0 533 267
      Admin/Advertising30 0 30 15
      Total Expenses5,134 5,573 10,707 5,354

      NOI10,466 9,694 20,160 10,080
      Mortgage - Interest Payment3,656 4,336 7,992 3,996
      Mortgage - Principal Paydown3,608 4,033 7,641 3,820
      Cash Flow3,202 1,325 4,527 2,264
      Net Profit (Loss)6,810 5,358 12,168 6,084
      Cash on Cash Return5.75%2.38%8.13%4.07%

      Appreciation / Equity

      Based on MPAC assessments, the value of the property increased by 21K during the last two years. Once we include the equity gain in ROI calculations, return on investment becomes 30% per year:

      Total gain including appreciation: $21,000 + $12,168 = $33,168
      Total ROI including appreciation: 60% overall and 30% annually.

      This property is performing well and as expected. Knocking on wood... spitting three times over  my left shoulder. 



      • January - tenant is fully caught up on all payments. YAY! 😀  
      • January -  notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.


      • December - no rent and still not fully caught up with previous shortfall.
      • October - tenant renews lease for a year! Hurray! Rent increase of 1.5% by $21/month. 👊
      • September to November - Several fixes needed at the house. The biggest one being installation of a fan in the bathroom to eliminate moisture and potential mold problem. I pre-paid a contractor who never got the work done. Read full story here. The good news is that this led to me finding a great new contractor who finished the job brilliantly and now helps us regularly on various tenant requests. 
      • August - notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.
      • July - tenants is short on rent due to change in career and taking on study courses. 
      • June - dryer dies. Got new dryer.


      • October - Washer breaks. Got new washer.
      • September - New awesome tenants move in. Rent $1,450. 💪
      • September - New roof & new floors in bedrooms. Replaced carpet with laminate. Unit looks and feels gorgeous!
      • August - A tenant has been recommended by one of the neighbours. Very nice family! They agreed to wait until renovation is done and helped us picking colours for their new home. 
      • August - Painting throughout, cleaning throughout, minor fixes throughout. Power washed fridge door. Purchased and installed a dishwasher. 
      • July - One of the roommates finds a job in another city, the tenants move out a month early. Lots of garbage left in the garage and throughout the house. We discover a picture of a XL male organ on the fridge... in permanent marker. 👿
      • May - Young professionals and the student duct-taped an old window air conditioner to a 2nd floor window above the front door entrance. This was a disaster waiting to happen! Luckily, we mounted the AC unit properly before anything bad happened.
      • March - Two young professionals and a student move in. Six months term @ $1,350 rent. This was a discount of $100 from the $1,450 rent we aimed for. The reason this was good for us was because the tenants could move in right away on the 1st, so we wouldn't lose a month of rent. We planned to increase rent at the end of their term.
      • February - Major cleaning - 30 years of smoking - and minor fixes. This was when I discovered that if you try to wash smoked ceilings, you get rained on with brown nicotine drops. Cost < $500. 
      • February - Purchased the property

        Monday, February 5, 2018

        Real Estate Income Property - Case Study #3 - Bad Tenant

        Everyone makes mistakes. Unfortunately, this case study shows how my bad judgement and a poor choice of tenant resulted in two years of stress and big losses. The lesson I learned is - if you make a mistake, find the courage to fix it fast. I dragged my feet with the eviction for too long and, literally, paid for it.

        Rental Income Property

        Beautiful Home
        This beautiful semi-detached home is located in Barrie, ON.

        We were lucky to have met the seller, as she stayed at the house for a couple of months being our first tenant while finalizing the closing of her new home.

        The seller shared that she got the house at 20 and lived in it for 28 years while raising two amazing children.

        Based on her words, the schools and neighborhood were amazing. Neighbours were great and supporting: a lovely retired couple on one side, a professional woman and her son on the other side; and a couple with a sweet little girl across the street.

        The owner was certain that whoever would move in here next, would be happy. 

        Key features: 

        • Semi-detached house  
        • Parking on driveway plus 1-car garage 
        • Main level: 
          • Entrance/hall 
          • Large living and bright dining room 
          • Kitchen including fridge, stove, microwave and dishwasher 
          • Entrance to a nice, deep backyard with a porch 
        • 2nd Floor: 
          • Master bedroom 
          • 2nd bedroom 
          • 3rd bedroom 
          • Full bathroom 
          • Extra storage 
        • Finished Basement: 
          • Utility room with washer/dryer 
          • Family/exercise room 
          • Bathroom 


        • Asking price: $239,900
        • Purchase price: $231,000
        • Found on
        • Owner occupied at purchase
        • Expected Rent: $1,450/month
        • Expenses:
          • Utilities: paid by tenant
          • Taxes: $200 / month
          • Insurance: $100 / month
          • Misc repairs and maintenance: $100 / month 
        • Expected NOI: $1,050 / month
          • Financing: 80 LTV, 30 year amortization, 5-year term, variable 3.25% interest
          • Expected Cash Flow: ~ $250 / month

          Total Investment

          This property required a 95K investment, of which a big chunk of 40K was spent on renovation.

          Initial expectation for renovation cost was 10-15K. Unfortunately, we made lots of mistakes choosing the right tenant and sub-contractors, which led to a much higher spending than planned.

          Investment Summary

          Closing Costs$8,857
          Capital Improvements$39,121

          Cashflow and ROI 

          • Initially cash flow was projected to be $250 / month
          • Property has been barely cash positive over the first three years because of continuous tenant issues. 
          • Cash flow averaged $43 / month or 518K per year
          • Thanks to mortgage pay down, net profit is approx. $300 / month or 3.5K per year
          • Cash on cash return is practically 0% so far 
          • ROI is 4% over the four years and 11% annually on average

          Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
          Rents (@100%)2,900 17,400 20,000 40,300 13,433
          Vacancy/Non-Payment1,365 2,250 3,615 1,205
          Total Gross Income2,900 16,035 17,750 36,685 12,228
          Taxes585 2,395 3,003 5,983 1,994
          Insurance311 1,512 1,406 3,229 1,076
          Repairs/Maintenance446 170 3,745 4,361 1,454
          Utilities373 287 1,641 2,301 767
          Admin/Advertising45 0 0 45 15
          Total Expenses1,760 4,364 9,795 15,919 5,306
          NOI1,140 11,671 7,955 20,766 6,922
          Mortgage - Interest Payment796 4,712 4,594 10,102 3,367
          Mortgage - Principal Paydown683 4,160 4,268 9,111 3,037
          Cash Flow-339 2,799 -907 1,553 518
          Net Profit (Loss)344 6,959 3,361 10,664 3,555
          Cash on Cash Return-0.35%2.93%-0.95%1.62%0.54%

          Appreciation / Equity

          Based on MPAC assessments, the value of the property increased by 33K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 15% per year:

          Total gain including appreciation: $33,000 + $10,664 = $43,664
          Total ROI including appreciation: 46% overall and 15% annually.

          15% ROI per year is pretty good! This shows you that even in an absolutely horrible situation tenant-wise and after a streak of bad decisions, overall return can be fairly OK thanks to mortgage pay down and market appreciation. I got lucky!

          Appreciation is like lottery. Hence, we can't bet on it. Therefore, selecting a good tenant is a MUST going forward.



          • December - Hired a great snow removal company after avoiding a fraud contractor
          • September - all pipes updated. New tenants move in. Gross rent up to $2,100 inlcuding utilities 😁
          • August - Pipe bursts 20 minutes before the appointment with the new tenants 😡
          • August - New contractor found and finishes the job brilliantly 😁
          • July - False Bed bugs issue
          • July - Contractor disappears, floors not finished.
          • June - New AMAZING tenants found. They will wait until all work on the unit is done. 😁
          • June - Cleaning, Paining, and more cleaning
          • June - Tenant evicted. Total cost 30K as outlined in this post
          • May - Eviction confirmation sent to Sheriff/Enforcement office
          • May - Eviction requested at Sheriff/Enforcement office
          • April - Plumbing issue resolved at $950. Water leaked from upstairs bathroom, ceiling damaged on the first floor. 💦
          • March - Notice to end tenancy served (N8)
          • February - LTB court hearing. Mutually agreed to a rent catch-up schedule. Shook hands with tenant agreeing that this was her last chance.
          • February - Water bill payment late. Balance $232
          • January - Application to evict submitted (L1). 
          • January - Rent paid consistently late notice sent (N8)
          • January - Rent non-payment notice sent (N4). Balance $2,900


          • November - Water shut-off for non-payment. Balance per city $397. 
          • November - Rent non-payment notice sent (N4). Balance $2,200
          • October - Rent past due. Balance $750
          • August and September - Tenant caught up with rent as agreed.
          • June - Landlord and Tenant Board Hearing. Mutually agreed to a rent catch-up schedule.
          • May - Application to evict submitted (L1). Balance $2,470
          • May - Rent non-payment notice sent (N4). Balance $2,300
          • February through April - Partial or late rent
          • January - Rent on time 💪


          • December - real tenants moved it: a couple with two young children. Rent $1,450.
          • October to end of November - Previous owner stayed as our first tenant for two months while she was looking for a new home. We agreed to a discounted rent of $900. At the time, we had several other projects under way and we were running around like headless chicken, so getting partial rent immediately after closing was very helpful.
          • Purchased in October.

          Thursday, February 1, 2018

          Real Estate Income Property - Case Study #2

          If you ever wonder what it is like to own a rental property, read on! This post will tell you how we got a triplex, what the numbers look like and what sort of property management adventures we ran into over the past few years.

          Rental Income Property

          This beautiful century home is located near down town of Guelph, ON.

          Like many other homes on this quiet old street, the house has a gorgeous flower garden around it. You can sit down on a wooden porch and listen to the church bells ringing on the hour in the distance not too far. I love the peace and tranquility.

          Key features: 

          • Triplex: 
            • 1 bedroom in a side wing comes with a small back yard
            • 2 bedroom on the main floor comes with a nice back yard, washer/dryer/dishwasher, and lots of storage room in the basement
            • 2 bedroom on the second floor has an incredible feel to it, thanks to mezzanine like ceilings
          • 1 car attached garage
          • Corner lot


          This home is our very first investment. Stars aligned in a special way when we got it. You can read the full story at Our First Rental Income Property.
          • Asking price: $344,900
          • Purchase price: $340,000
          • Found by: Real Estate Broker on MLS
          • Zoning: Legal nonconforming triplex (sigh... I didn't know zoning could be an issue at the time)
          • Rent: $850 + $895 + $750 = $2,495/month
          • Expenses:
            • Utilities: ~$410/month
            • Taxes: ~ $280/month
            • Insurance: ~ $200 / month
            • Misc: ~$100 / month
          • Expected NOI: $1,505 / month
            • Financing: 80 LTV, 30 year amortization, 5-year term, variable 2.98% interest
            • Expected Cash Flow: ~ $400 / month

            Total Investment

            This property required a 82K investment.

            The biggest capital improvement so far was installing a new flat roof on the garage in 2017.

            This was an expected investment as problems with the original flat roof were brought up during pre-purchase inspection. We did not know at the time that flat roof installation can get pretty pricey.

            Investment Summary

            Closing Costs$5,500
            Capital Improvements$8,389

            Cashflow and ROI 

            • Property has been cash positive from the get go
            • Cash flow averages $500 / month or 6K per year
            • Net profit is approx. $900 / month or 11.9K per year
            • Cash on cash return is 7.3% 
            • ROI is 58% over the four years and 14.5% annually on average

            Year 2014 Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
            Rents (@100%)18,335 31,750 34,200 35,200 119,485 29,871
            Vacancy1,300 300 1,600 400
            Total Gross Income18,335 31,750 32,900 34,900 117,885 29,471
            Taxes3,824 3,768 4,319 3,858 15,769 3,942
            Insurance1,217 2,148 1,961 1,926 7,252 1,813
            Repairs/Maintenance1,157 1,997 1,463 5,109 9,726 2,432
            Utilities1,946 2,201 5,616 5,496 15,259 3,815
            Admin/Advertising34 45 30 0 109 27
            Total Expenses8,178 10,159 13,389 16,389 48,115 12,029
            NOI10,157 21,591 19,511 18,511 69,770 17,443
            Mortgage - Interest Payment4,364 6,145 5,670 6,105 22,284 5,571
            Mortgage - Principal Paydown4,147 6,347 6,502 6,661 23,656 5,914
            Cash Flow1,647 9,099 7,339 5,745 23,830 5,957
            Net Profit (Loss)5,793 15,446 13,841 12,406 47,486 11,872
            Cash on Cash Return2.01%11.11%8.96%7.02%29.10%7.28%

            Appreciation / Equity

            Based on MPAC assessments, the value of the property increased by 33K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 25% per year:

            Total gain including appreciation: $33,000 + $47,486 = $80,468
            Total ROI including appreciation: 98% overall and 25% annually.



            • December - Two great tenants renewed leases. Hurray!
            • Nov - Dec - Fixed stucco 
            • September - New garage roof and eaves repairs
            • August - New super-awesome tenants moved in. Rent up by $200 💪
            • June - Tenants moved out. They'd like a bigger place with parking.


            • December - Two awesome tenants renewed leases. Yay!
            • September - new washer 
            • July - New tenants! Rent is already at market, no change
            • June - One of the great tenants moved out. He is relocating to the West coast


            • November - Fixed a garage light. Turned out wiring issue. Cost $700. I couldn't believe it!
            • October - Found new great tenant! Rent up by $200 💪
            • October - Old furnace suddenly died. New furnace installed as a rental
            • September - Another good tenant moved out because he found lower rent closer to university.
            • September - Found a new awesome tenant via referral. Rent up by $200 💪
            • August - Amazing tenant moved out - engagement 💕
            • February - Pipe broke! 💦


            • October - New amazing tenant moved in. Rent up by $50 per month 💪
            • September - Tenant got engaged and moved out  💕
            • September - new dryer
            • June - First ever tenant request: clogged sink 💦 
            • Purchased in May - Our First Rental Income Property.

            Wednesday, January 31, 2018

            Real Estate Income Property - Case Study #1

            This post is a case study of one of our rental income properties from its initial acquisition to date.

            Hope you find it helpful!

            Rental Income Property

            This freehold town house is located in a nice family-friendly neighbourhood of Barrie, ON
            At purchase, the house was about 35 years old. Previous owner had it for over 20 years. She lived in it during the first 10-12 years, and then rented it out. 

            We were happy that the property came with tenants and had positive cash flow. We realized that the house would need to be updated eventually once the original tenant would move out.

            Key features: 

            • Freehold town home
            • Built in 1982
            • 3 bedrooms, 1+1 bathrooms
            • Finished basement
            • 1 car garage
            • Electric heating
            • Washer, Dryer, Dishwasher, Water Tank
            • No AC


            We got this house privately without a real estate agent. Click to read the full story at Our second rental income property
            • Asking price: 189K
            • Purchase price: 185K
            • Found on: Kijiji, private sale
            • Rent: $1,200/month
            • Expenses:
              • Utilities: Paid by tenant
              • Taxes: ~ $200/month
              • Insurance: ~ $100 / month
            • Financing: 80 LTV, 30 year amortization, 5-year term, variable 2.5% interest

            Total Investment

            This property required a 55.5K investment.

            A major renovation had to be completed in 2015 after tenant's Christmas party went really wrong. Renovation cost is listed as capital improvements in the investment summary below. Read full story about this renovation in Our House Was on TV blog post.

            Investment Summary

            Closing Costs$3,196
            Capital Improvements$15,450

            Cashflow and ROI 

            • Total return on investment (ROI) is 34%, or 8.5% annually
            • During the first two years, cash flow was negative
            • Cash flow was positive in Years 3 and 4
              • 2016: $217 / month
              • 2017: $598 / month.
            • Net profit has been positive every year
            • Annually, on average, the property runs with:
              • ROI of 8.5% 
              • Cash on Cash return of 3%
              • Cash Flow of 1.5K 
              • Net profit of 4.7K

            Year 2014 Year 2015 Year 2016 Year 2017 TOTAL All YearsAverage Annualized
            Rents (@100%)7,200 14,400 17,700 17,700 57,000 14,250
            Vacancy4,250 1,400 0 5,650 1,413
            Total Gross Income7,200 10,150 16,300 17,700 51,350 12,838
            Taxes3,815 2,475 2,381 2,464 11,136 2,784
            Insurance323 730 1,412 1,018 3,483 871
            Repairs/Maintenance93 1,456 3,184 42 4,775 1,194
            Utilities495 832 0 49 1,376 344
            Admin/Advertising0 0 47 0 47 12
            Total Expenses4,726 5,493 7,024 3,573 20,816 5,204
            NOI2,474 4,657 9,276 14,127 30,534 7,633
            Mortgage - Interest Payment1,832 3,350 3,131 3,330 11,643 2,911
            Mortgage - Principal Paydown1,972 3,446 3,530 3,615 12,563 3,141
            Cash Flow-1,330 -2,139 2,615 7,182 6,328 1,582
            Net Profit (Loss)642 1,307 6,145 10,797 18,891 4,723
            Cash on Cash Return-2.39%-3.84%4.70%12.91%11.37%2.84%

            Appreciation / Equity

            Market prices in Barrie increased dramatically between 2014 and 2017. Many believe that there may be a bubble, price adjustment, etc. Because of these concerns, I will use MPAC numbers for value calculations and not current market prices. MPAC approach is more conservative.

            Based on MPAC assessments, the value of the property increased by 42K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 27% per year:

            • Total gain including appreciation: $18,891 + $42,000 = $60,891
            • Total ROI including appreciation: 109% overall and 27% annually.



            • Great tenant renews lease. Hurray!
            • Bank of Canada increased interest rate. Mortgage payment went up. 


            •  Plumbing issues cost about 3K
            • Change of tenant - new great tenants moved in.


            • Major renovation from January to June.
            • Great tenants moved in July 1st


            Thursday, January 25, 2018

            How to Be a Successful Real Estate Investor in 2018

            Yesterday, I attended REIN's (Real Estate Investment Network) first meeting of 2018 in Toronto. I was invited as a guest of one of the long time REIN members and am very grateful to her for bringing me there.

            The event was very informative. I learned a lot. There were many great and like-minded investors in the room. We chatted and shared our latest achievements and new goals.

            "Open your eyes and let the future in. But be sure to look forward and up - because that's where the future lives" Richard Dolan

            Presentation topics included:

            • GTA housing market - detailed update on GTA housing and rental market by Dana Senagama of CMHC
            • What's Behind the Curtain - current view of economic fundamentals by Don R. Campbell
            • REIN Vest - how to be prepared for an emergency. I found advice and the toolkit presented by Richard Dolan priceless
            • The personal performance playbook - a guide on how to plan, prepare and perform in 2018. This was a wake up call for me, as I realized how much more I can do to stay on top of my own goals and make things happen this year as planned.
            Presentations were very informative and included a lot of data and insights. In this post, I'd like to share only some key takeaways that struck me the most.

            1) GTA Housing Market is Investment Ready

            Overall, GTA housing market was super hot in 2017 and is projected to stay relatively hot in 2018. The primary contributing factors include:
            • Price overheating - medium
            • Price acceleration - medium
            • Overvaluation - high
            • Over building - low 
            CHMC data supports high demand and insufficient supply, which pushed prices up. Even with recent policy changes, they estimate that price increase will continue. CHMC projects a slow down in growth to the level comparable with the rate of inflation of about 2%.

            Rental demand is high and is projected to continue to stay high. This is because millennials are starting to rent, baby boomers continue to downsize and rent, and immigrants continue to flow in and rent.

            On supply side, market is still short on purpose built rentals. Over 30% of condos are being rented out. Builders are focusing on small units, which may cause a shortage of bigger units in 5-10 years when millennials will start their families and will look for bigger units.

            2017 Vacancy rate was at all time low of 1.1% and even lower for condos. It is projected that vacancy rates will remain low.

            What amazed me the most was that average age of a first time home buyer in GTA is 37 years old. 

            I can't believe that it may be possible that my kids will not buy a place of their own until they are 40!!!

            2) Economic Fundamentals: Good Time to Become Real Estate Investor

            "Thinking is the hardest work there is", Don quoted Henry Ford's famous saying at the beginning of his presentation. 
            Don's key advice to all investors is to carefully consider which market they are in and what position they take before they analyze events and policy changes. Thankfully, groups such as REIN, do a lot of thinking for us and provide a recap in plain English.

            The way I understood the recap:

            From rental market and landlord perspective, things are looking up. Recent policy changes will push rents up, high demand and supply will continue to play in landlord's favour as well. It is essential to study markets and current economic influences and understand which real estate investment strategy will work best in the next 2-7 years.

            The great news is that

            "Housing was the world's best investment over the last 150 years" per Dan Kopf Quartz, Yahoo Finance, Jan. 2018 and it still is per Don R. Campbell. 

            The time is right for us to hop on and catch up to this success.

            Here's a link to Don's book on Amazon. Chapters 5 and 6 explain where we are at today:

            Secrets of the Canadian Real Estate Cycle: An Investor's Guide

            3) Be Prepared for an Emergency

            For me the most thought provoking part of the presentation was about being prepared for a personal emergency in life.

            Many of us, investors or not, have families, friends, and valuables.

            What happens if, God forbid, my house is on fire and I have only a couple of seconds to decide what to take with me and what should be left behind. Kids and the cat are a given of course. But what else should I grab?

            During the presentation it was sadly explained that in New Orleans emergency situation people suffered more than they should've because many came back to their houses for expendables, such as flat screen TV's.

            What happens if life throws in an accident, disability or death at me sooner than I expect? After all, the average life expectancy is exactly that - the average, meaning that some live more and some live less. I might end up on either side of the mid point.

            The reality is that there are many-many details that go into being prepared. And these details may help you in a small or big emergency.

            REIN provides a toolkit for its members to fill out and follow. In a nut shell, you have to be prepared and store all necessary items in a single fire/water proof box that you can always grab or open when needed.

            Make sure your family knows that they should look for this box, if you are not around to help them.

            Here are some items that should be placed in your emergency box:

            • Emergency contacts
            • Insurance info - Personal, property, casualty
            • Legal info - Wills, power of attorney, trusts, etc
            • Money info - investments, annuities, pensions
            • Benefits
            • Banking info
            • Medical info
            • Assets
            • Liabilities
            • Passwords
            • Keys
            • Valuables
            • Miscellaneous
            Having this emergency box set up will give you and your family piece of mind. I think it's a must have for every household.

            4) How to Plan, Prepare and Perform in 2018 - Your Personal Performance Playbook

            "Setting goals is the first step in turning the invisible into the visible" Tony Robbins

            No matter what your target is and which performance system you are using to get yourself there, setting goals is always the first step.

            At the meeting, we reviewed a 10-step personal performance playbook. The playbook resonated a lot with me because it brought up several aspects that I realize and agree with on the subconscious level, but have not been consciously paying attention to lately.

            Here's what I'd like to do personally for myself next:

            I. Review my target and Focus on It - 50 Doors

            II. Set My Goals:

            1) Debt repayment and re-consolidation plan by April 2018
            2) Acquire New Properties by August 2018
            3) Re-Finance Short Term Interest Only Loans by December 2018

            III. Plan My Actions

            1) Morning - top 3, Afternoon - top 3, Evening - top 3
            2) Week's Top 3
            3) 30-day Top 3
            4) 60-day Top 3
            5) 90-day Top 3

            IV. Lead Myself To Completion

            1) Choose my ways of being and be that way
            2) Set up my environment appropriately
            3) Journalize my time

            V. Review My Own Performance and GET REAL.

            So, my main take away from REIN meet up yesterday is to stay focused on my target and pull my stuff together. I have to be a lot more organized and determined to achieve my goal.

            The note that I posted a few weeks ago right in front of my face says:

            "Get ACTIVE
            Stay ACTIVE
            Be PERSISTENT
            MAKE a COMMITMENT".
            All I have to do now is do it. Hope you've set some goals for yourself as well and are on target so far!

            Here's another book I think you might like: Unshakeable: Your Financial Freedom Playbook

            Hey, good luck in 2018!