50 Doors Annual Results as of Jan 2020

2020 is the 7th year on my road to 50 doors!

The journey started in 2014 when my husband and I decided to go after passive cash flow and financial freedom. Without any prior experience, we set out to get 50 rental units within five years. Each unit would theoretically give us $200 of passive income. Overall, we aimed to achieve 10K/month cashflow.

Here we are seven years later! Happy to share actual results and lessons learned as of the end of 2019.

Financial Freedom Strategy

• Invest in Assets, which put money in my pocket
• Eliminate Liabilities, which take money away
• Until the positive cash flow from the assets covers my family's day to day needs aka we are Financially Free

BIG DREAM and THE DREAMLINE

I am working towards September 2022 deadline.

Or should I say DREAM-line? Ba-dam-shh...

The plan is to go away on a sailing trip during the 2022/2023 school year.

Timing will be perfect. Our little guy will still be in middle school. We'll do some sailing and sight-seeing and come back for his first year of high school in 2024.

My two oldest sons will be independent by then. Ha-ha, we'll see how that goes! As a side note, I would have never thought that handling teenagers can be A LOT TRICKIER than real estate investing! But this is a topic for a different type of blog.

WITH THIS IN MIND, MY BIG 2020 GOAL IS TO GET THE BOAT!!!

Status as of the End of 2019

KEY POSITIVES

• Our portfolio now has 17 assets. We added one in 2019.
• The total door count is 20! Only 30 more doors to complete the original 50 Doors plan
• I'm thrilled that our cashflow has bounced back up to 15K from the 2018 dive down to 3.9K.Tight hands-on asset management definitely paid off.
• I am most grateful for the caring, responsive, and responsible tenants and their families, as well as reliable and easy to work with property managers, handymen, trades, advisors, and partners.
• However....

THE KEY LESSON LEARNED

My biggest 2019 takeaway is EASY DOES IT!

Continuous rapid expansion can be emotionally exhausting and extremely stressful.

Every new asset you add to your portfolio requires resources - time, money, skill, energy, etc. Ever since we started, all equity and cash flow from older assets were going right back into the growth funnel and used to acquire new assets.

Too many times over the past year, my safety cushion was too thin. I relied on pure luck to make ends meet, juggle, and balance all the in-flows and out-flows.

Choosing the right pace is crucial in the long run. Giving myself ample cushion room yet still making great headway is the art I'd like to master.

Update on Objectives for 2019: Mostly Complete

1. Eliminate a big chunk of my most costly liability, Bad Debt. This will increase my overall cash flow. With less debt, I'll attract other people's money on better terms. Done!
2. Acquire assets that put money in my pocket at a reasonable pace without getting new bad debt. This will increase positive cash flow as well. Done!
3. Sell non-performing assets in Spring 2019 to improve cash flow. Kind of done! I was able to improve operations without selling the assets.
4. Acquire liquid assets. You can't buy groceries on real estate equity. Liquid assets will be my rainy day fund to protect me from a fire sale in case of an emergency. Great progress! Lots done and way more still to be done!
5. Plan ahead for the sailing trip! Budget, research, and make sure my husband gets his sailing license. Getting there! Break your leg, Anton! :) Good luck on your skipper exam in a couple of months

Objectives for 2020

1. Double revenue & double cash flow! Not sure how yet... don't ask.
2. Take it easy & enjoy life - read, yoga, meditate, be active, have fun, help and support my loved ones, and give back.
3. Last but not least - Get The Boat!   

Numbers

Link to My Portfolio 2019 is here.

Link to My Portfolio 2018 is here.

A Landlord Toilet Story with Numbers

When a tenant calls, I expect an issue

It's been almost five years since we acquired our first rental property. Still, every time a tenant calls, I hesitate before picking up the phone. I know that they wouldn't call me if everything was going smoothly. 

Tenants only call for two reasons:

1) They can't pay the rent on time
2) There is a repair or maintenance issue

Either way it's not a happy call. So I dread picking up the phone. I look at the phone display with the tenant's name. I count down in my mind.

Five, four, three, two, one. Then, I pick up the phone.

My skin is getting thicker.

After five years, I know that whether I pick up the phone now or listen to the voice message a bit later, the issue will need to be addressed. I also know that the sooner I resolve it, the least costly it will be. Rarely, I see issues resolving themselves. Unfortunately, most of the issues not only stick around but also worsen rapidly whenever I procrastinate.

However, I also learned that there are always different ways to resolve an issue. The easiest way is often the most costly.

Let me give you an example.

What's the Issue? 

O-oh! Hard water, ruined tap

A couple of weeks ago, my tenant called and let me know that they have a few problems: the shower tap is broken, kitchen and laundry room faucet leak.
I scheduled a local plumbing company. They visited and gave me a quote....

I always expect the worst. So I wasn't even in complete shock. But still... this specific quote made me nauseous.

It's January - the first month of the new year - and the cost of this repair basically wipes out most of my profit for the entire year. 

Any future maintenance issues at this place would eat away cash flow from other properties.

How is this possible? All it takes is a broken tap and two leaking faucets?

I reviewed the quote:

Service Charge   $49.99
Kitchen Faucet   $599.45
Laundry Faucet  $368.31
Shower Valve Remodeling Plate $192.33
Handle Wall Mount Tub & Shower w/ Valve $911.50
Become an Advantage Plan Member $99.99 and get 15% off
Member Discount ($248.60)
Tax $256.49

Grand Total: $2,229.46

We thought we could
handle the easy stuff 

That was the worst case. The best case quote was for $1,420.13. Better, but still bad.

The quote seemed high. I just got my own new bathroom faucet for $47 off Amazon. $599.45 for a new kitchen faucet seemed absurd in comparison!

I checked with my property manager. Does the price seem reasonable? He'd quote around $1,200 for the worst case. I called a different local plumbing company. They quoted $1,500 for the worst case.

My husband and I went to our favourite store. You guessed it right - The Home Depot.

We decided that we'd at least be able to get the easy stuff done on our own. Then, call the plumber for the hard stuff and save that way.

We showed the tap picture to a Home Depot staff member.

How do we go about it? 

In the best case, they told us, we'd be able to buy the parts and replace what's been broken. We just had to know exactly the brand and type of the faucet and taps.

In the worst case, we'd have to call a licensed plumber. They didn't recommend that we'd attempt to cut the tile on our own. We didn't look handy enough...

This time we were lucky!

My husband was able to replace just the broken parts. We decided not to worry about the laundry faucet for now as the issue seemed to be very minor when we examined it up close. So my husband fixed the kitchen faucet and the shower tap.

Actual Costs

Aaawwww....
My husband fixes our tenants faucet

Manor faucet    $79.98
HANDLE         $13.49
FLANGE          $5.92
FLANGE          $5.92
WASHERS       $3.94
CARTRIDGE   $9.56

Tax: $15.45

Grand-total: $134.26

Problem Solved!

All I can say is: Tenants are happy! We are happy! 

Vacancy: Landlord's Worst Nightmare

Vacancies Keep me Awake at Night!

A few days ago we filled our last vacancy.

What a Relief!

The search took about three weeks. Our property manager began advertising the unit on November 19th. 

We started with $1,650 asking price, which was higher than the average for similar units in the area. There were barely any inquiries at that price. 

December and January are typically slow months for tenant search. People are busy with holiday prep and after holidays they go into hibernation-mode for the remainder of the winter. I was worried that we'd have a vacancy until Spring.

Vacancies Keep Me Awake at Night

The reason I am so afraid of vacancies is because they are very costly. Every month of vacancy, I'd have to come up with money to pay the mortgage, property taxes, utilities and, in case of this specific property, property management and condo fees as well.

Ouch!

Typically, they recommend that you include 2-5% vacancy fee in your cash flow calculations.

Given 5% vacancy, my annual cash flow would be $1,280. Or $100 a month.

In reality 5% only works if you manage to go without vacancies for a while. Actual losses are a lot higher!

For example, my annual loss for a year with one month of vacancy is about ($1,660). That's because:

I will not get a month of rent of $1,600
Pay about $300 for the utilities during that month
Pay about $2000 for tenant search and making the unit ready - fresh paint, minor fixes, etc. add up
Pay all regular expenses of $16,960...

If my property is vacant for two months, the loss will be ($3,560).

With three months of vacancy, I'd lose ($5,460).

Once I do find a tenant, it will take a l-o-o-o-o-o-o-o-o-o-o-o-o-ng time to catch up.

I'd need the tenant to stay for almost 2 years, to catch up after one month of vacancy.
The tenant will have to stick for over 3.5 years to catch up after two months of vacancy.
Lastly, the tenant will have to stay for almost 6 years, to fully catch up after three months of vacancy.

My math is simplified, of course. I don't take rent increases into account at all, for instance. Still, you get the idea why I hate vacancies. Vacancy losses are horrific.

The danger is on the flip side as well. If you rush and get a BAD tenant, you can end up with thousands and thousands in losses... See my blog post here for details - My $30,000 Mistake.

Here is a chart with the numbers in my examples above:

	Projected: 5% Vacancy	Actual:    1 month    Vacant	Actual:     2 months     Vacant	Actual:     3 months     Vacant
Gross Rent	$19,200	$19,200	$19,200	$19,200
Less Vacancy	($960)	($3,900)	($5,800)	($7,700)
Rent Income	$18,240	$15,300	$13,400	$11,500
Expenses
Financing Cost	$6,860	$6,860	$6,860	$6,860
Condo Fee	$5,304	$5,304	$5,304	$5,304
Property Taxes	$1,961	$1,961	$1,961	$1,961
Other	$1,200	$1,200	$1,200	$1,200
Property Management	$1,094	$1,094	$1,094	$1,094
Insurance	$540	$540	$540	$540
Total Expenses	$16,960	$16,960	$16,960	$16,960
Net Profit (Loss):	$1,280	($1,660)	($3,560)	($5,460)

Success! Got a Great Tenant

Needless to day, the pressure was on.

We lowered the price by $50 to $1,600. Luckily, the interest picked up! 

The ad generated over 230 views, 15 inquiries, three viewings, and a great application on December 9th. 

Our property manager uses Naborly for tenant screening. I've never seen a Naborly report before and was quite impressed. The multi-page document covered most of the information that I typically review for a candidate and gave some additional insights. Here is what the report covered:

• General info about all occupants
• Previous addresses and address verification
• Equifax credit summary and score
• Debt summary including monthly debt payments
• Rental history
• Financial information
• Employment history
• Analytics showing the likelihood of key tenancy risks (late payments, eviction, property damage) 
• Analytics showing the likelihood of a successful tenancy during the entire term.

Our property manager also collected a photo ID, a full credit report, and a letter from the employer. They conducted a face-to-face interview and verified employment and personal references. My property manager summarized their findings including possible risks.

I reviewed all the information as well and did my own due diligence. I typically research every piece of factual information and make sure all facts align and make sense. The way I do it is very simple: research every name, every address, every company name, every email, and every phone number that the candidate provided; look in Google and on all social media platforms; contact all references and chat with them; verify income.

In this case, all checks were successful. I accepted the application and to my delight, the tenant confirmed that they'd like to go forward as well.

No Vacancies!!!!!
Overwhelmed with JOY and
will definitely sleep like a baby :)

The property manager impressed me very much! This was the first time when they found a tenant for me and I loved how smooth the tenant on-boarding process was. 

As soon as this last vacancy was filled, I started sleeping like a baby again! 

Financial Freedom Blueprint Gets You There Faster!

Financial Freedom Blueprinting! LOTS to think about!

Do you ever wonder if you are on the right track? 

Do you ever question your past decisions? I do!

Recently I partnered with a company that creates professional Financial Plans.

Working out the first draft of my financial plan took a lot of pondering, discussion, questions, answers, assumptions, frustration, and so forth.


Once all data has been gathered and finalized, we entered it into the financial planning software.

The program ran through hundreds of calculations and applied a few algorithms to project the value of our estate, upcoming tax obligations, assets, liabilities, cash flow, savings, etc. for years to come.

Within seconds, I got to see:

• how much money I'll have when my kids grow up
• upcoming periods of cash surplus and shorfalls
• the size of my future estate 
• my future TAX liabilities!! 

Amazing! The Financial Plan instantly gave me a visual summary of my financial future. It also helped me assess my progress towards my goal to be Financially free.

Just to give you a taste - below are some sample charts I pulled out. This is using dummy data.

What Will my Net Worth Be?

Here's a sample graph that shows a Net Worth forecast.

Red bars show liabilities. Black bars are total assets.

What will my Estate be when I turn 80?

Here's a sample estate summary  - you can see it for any point in time!

Analyzing Financial Plan

The next step is to review the initial outlook. Analyse it. Consult with experts, run through a few scenarios, and create an action plan.

The biggest and most obvious issue in my personal financial plan is insufficient liquidity.

Most of our assets are hard assets. Therefore, our long term plan shows that we should work on a strategy to acquire liquid assets, and focus on creating additional streams of passive income, as well as converting some of the hard assets into liquid.

This is not a surprise! In fact, we are currently approximately 66% done with our original passive income goal, so there's definitely room to improve. 

However, it was surprising and rewarding to realize the long-term effect of our efforts so far. Even though there's still lots to do - the plan shows that we've accumulated a lot of value, which will continue to grow with time.

Financial Freedom Blueprint

I'm so-so happy to continue to work with the Financial Planning team to build out a few scenarios for the future and incorporate upcoming actions: acquisitions, re-finances, exits, addition of new asset types, and so forth.

There are a few forks in the road when it comes to building wealth. 

Each of the scenarios we've prepared shows me a different path forward. 

So all of these scenarios together become a part of my financial freedom blueprint. 

Having an accurate and validated plan adds a LOT of clarity to my action plan. 

There's no reason to constantly question myself - the road ahead is clear.

In The Landlord Paradise

I love flowers on the side of the house!

In the last post, I shared that I've been tolerating an eight-month long vacancy because of fear, which wasn't even my fear to begin with, but it still paralyzed me.

Now, determined to fix the issue, I set out to find a great tenant ASAP.

Determining Price

To determine the price, I analyzed all for-rent ads on Kijiji. There were 39 of them.

Out of 39, only eight were listed under “House Rental” and the rest were in “Apartments and Condos”.

Even though my unit is an apartment in a duplex, it comes with a basement and a backyard, and takes up a larger part of a two-story house. I decided to put my ad under “House Rental”. It seems to be fair and puts my ad into a bucket with less competition.

Out of 39, the majority of 21 ads were two-bedroom places like mine.

In some cases, prices included all utilities, some covered only some of the services, and some were with tenants paying for everything in addition to the rent. In my case, utilities must be included because meters are not separate.

During my analysis, I made the following big assumptions about the monthly cost of utilities:

• ·         Water = $100
• ·         Hydro = $200
• ·         Water + Hydro = $300

I used these assumptions to calculate all inclusive price for all ads.

Next, I looked at two bedroom units by price and saw that out of 21,

·         6 were below $900

·         4 were between $900 and $1,000

·         6 were between $1,000 and $1,100

·         3 were between $1,100 and $1,200

·         2 were over $1,200.

Aiming to be in the middle and also making sure cash flow would be positive, I decided to price my unit at $1,150.

Placing the Ad

Kitchen Looks Great!

I placed the following ad:

Big 2 Bedroom Duplex for rent $1,150 all inclusive

$1,150.00 URGENT

Looking for responsible tenant(s) for this Spacious Move-In ready Duplex!

INCLUDES:

- Lots of Parking

- Large Patio & Backyard

HOME:

- Bright living and dining rooms

- Great functional kitchen

- 2 bedrooms with large built-in closets

- You'll love the spacious Bathroom (pls see pics)!

OTHER:

- Lots of storage space

- Central AC

- Appliances: Fridge, Stove, Dishwasher, Washer / Dryer

UTILITIES: all inclusive

Please text/call or email Anna at MY_PHONE / MY_EMAIL to book your viewing.

We'll be showing the unit this week on THURSDAY, FRIDAY and SATURDAY.

Please reach out to me now to book your viewing: MY_PHONE

Unreal Number of Inquiries

Living + Dining Remind me of Spain Villas - lots of white tile

I got a gazillion responses, mainly through texts!

I booked 31 viewings over four blocks of time: Thursday afternoon, Friday morning, Friday evening, and Saturday morning. Only two people are scheduled for Saturday morning.

So far, as of the end of Thursday, 20 people showed up out of 29.

Landlord Paradise

Since the level of interest turned out to be super high, I started to wonder if I’ve set the price too low.

I asked a few applicants how my unit and its price compare to other apartments they’ve seen. Most said that they are comparable; and only a couple of people said that I could charge a bit more. I checked with my property manager and he thought the price was right as well. It’s what people in the area can actually afford to pay for this size and type of a place.

It appears that the market is very landlord friendly. Lots of demand, and lack of units. Landlords get to choose from a large pool of applicants.

It’ll be a long time, before I forgive myself for an 8-month long vacancy in this landlord paradise type of market. Unreal. I’m such a la-la.

Finally! A movie STAR!

Red Carpet Time!

As some of you may already know, in the past I attempted to become a movie star!

Like many aspiring stars, I signed up with a couple of agencies.

This was a great experience with some lessons learned!

On the positive side, I did feel great going to a couple of photo shoots, where a professional make up artist made me look amazing. The pictures turned out awesome as well.

On the reality side of things, I went to about 20 auditions and then gave up.

At the auditions, I felt seriously average and slightly worn out when applying for youth roles. When trying to go for Canadian parent type of roles, I felt puppy-ish and unqualified. It wasn't a surprise to have never been called back.

The biggest lesson I learned during my brief acting career was when taking a course in acting. Our acting academy teacher said one day:

"Guys! If you want to be in a movie, the easiest way to go about it would be to make your own movie!"

Since then, this is one of my core principals. If I really want something, it's on me to make it happen.

I think that this idea is one of the simplest concepts of life, which took me a long time to grasp.

Most of us probably agree with this concept on the subconscious level. This is why we often hear and believe expressions such as:

"Whoever needs it, does it",

- my Mom

"Remember, if you ever need a helping hand, it's at the end of your arm, as you get older, remember you have another hand: The first is to help yourself, the second is to help others."

- Audrey Hepburn

"Sink or swim",

- Wise people, often parents

Long story short, last week I partnered with a Canadian feature film producer and became one of the associate co-producers (aka investor) in his upcoming Canadian feature film.

This project is very exciting! It will be amazing to learn more about the entertainment industry from investor stand-point as the project develops. Here are some reason why I love this opportunity:

1. Learn about a new industry
2. Observe a production and launch of a new asset from start to finish 
3. Acquire an asset 
4. Differentiate into a field with great demand and lots of room on supply side
5. Partner with an ambitious experienced team of people who have been successful in the past
6. And lastly... have my name in movie credits and attend various film festivals!

Risks are everywhere of course! In this case, I strongly believe that the probability of success times reward greatly outweighs the probability of failure times loss.

If you are curious and would like to learn more, please let me know. There is still room for several film lovers to join the project.

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.

Purchase

• Asking price: $225,000
• Purchase price: $218,000
• Found by a really awesome Real Estate agent Realtor.ca 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

Investment	Amount
Downpayment/Closing	45,214
Capital Improvements	10,448
Total	$55,662

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 Years	Average Annualized
Income
Rents (@100%)			17,400	17,463	34,863	17,432
Vacancy			1,800	2,196	3,996	1,998
Total Gross Income			15,600	15,267	30,867	15,434
Expenses
Taxes			2,449	2,864	5,313	2,657
Insurance			1,379	1,480	2,859	1,430
Repairs/Maintenance			743	1,229	1,972	986
Utilities			533	0	533	267
Admin/Advertising			30	0	30	15
Total Expenses			5,134	5,573	10,707	5,354
NOI			10,466	9,694	20,160	10,080
Mortgage - Interest Payment			3,656	4,336	7,992	3,996
Mortgage - Principal Paydown			3,608	4,033	7,641	3,820
Cash Flow			3,202	1,325	4,527	2,264
Net Profit (Loss)			6,810	5,358	12,168	6,084
Cash on Cash Return			5.75%	2.38%	8.13%	4.07%
ROI			12.23%	9.63%	21.86%	10.93%

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. 

History

2018

• 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.

2017

• 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.

2016 

• 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

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 

Purchase

• Asking price: $239,900
• Purchase price: $231,000
• Found on Realtor.ca
• 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

Investment	Amount
Downpayment	$47,687
Closing Costs	$8,857
Capital Improvements	$39,121
Total	$95,665

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 Years	Average Annualized
Income
Rents (@100%)	2,900	17,400	20,000	40,300	13,433
Vacancy/Non-Payment		1,365	2,250	3,615	1,205
Total Gross Income	2,900	16,035	17,750	36,685	12,228
Expenses
Taxes	585	2,395	3,003	5,983	1,994
Insurance	311	1,512	1,406	3,229	1,076
Repairs/Maintenance	446	170	3,745	4,361	1,454
Utilities	373	287	1,641	2,301	767
Admin/Advertising	45	0	0	45	15
Total Expenses	1,760	4,364	9,795	15,919	5,306
NOI	1,140	11,671	7,955	20,766	6,922
Mortgage - Interest Payment	796	4,712	4,594	10,102	3,367
Mortgage - Principal Paydown	683	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%
ROI	0.36%	7.27%	3.51%	11.15%	3.72%

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.

History

2017

• Spring 2018 - Tenant is behind on rent. Got an eviction court order and agreed to a payment ctach up plan with the family. Yay! They are fully caught up on past rent now. Hooray!! 👍
• 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

2016 

• 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 💪

2015 

• 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.

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

Purchase

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

Investment	Amount
Downpayment	$68,000
Closing Costs	$5,500
Capital Improvements	$8,389
Total	$81,889

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 Years	Average Annualized
Income
Rents (@100%)	18,335	31,750	34,200	35,200	119,485	29,871
Vacancy			1,300	300	1,600	400
Total Gross Income	18,335	31,750	32,900	34,900	117,885	29,471
Expenses
Taxes	3,824	3,768	4,319	3,858	15,769	3,942
Insurance	1,217	2,148	1,961	1,926	7,252	1,813
Repairs/Maintenance	1,157	1,997	1,463	5,109	9,726	2,432
Utilities	1,946	2,201	5,616	5,496	15,259	3,815
Admin/Advertising	34	45	30	0	109	27
Total Expenses	8,178	10,159	13,389	16,389	48,115	12,029
NOI	10,157	21,591	19,511	18,511	69,770	17,443
Mortgage - Interest Payment	4,364	6,145	5,670	6,105	22,284	5,571
Mortgage - Principal Paydown	4,147	6,347	6,502	6,661	23,656	5,914
Cash Flow	1,647	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 Return	2.01%	11.11%	8.96%	7.02%	29.10%	7.28%
ROI	7.07%	18.86%	16.90%	15.15%	57.99%	14.50%

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.

History

2017

• 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.

2016

• 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

2015 

• 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! 💦

2014 

• 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.

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

Purchase

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

Investment	Amount
Downpayment	$37,000
Closing Costs	$3,196
Capital Improvements	$15,450
Total	$55,646

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 Years	Average Annualized
Income
Rents (@100%)	7,200	14,400	17,700	17,700	57,000	14,250
Vacancy		4,250	1,400	0	5,650	1,413
Total Gross Income	7,200	10,150	16,300	17,700	51,350	12,838
Expenses
Taxes	3,815	2,475	2,381	2,464	11,136	2,784
Insurance	323	730	1,412	1,018	3,483	871
Repairs/Maintenance	93	1,456	3,184	42	4,775	1,194
Utilities	495	832	0	49	1,376	344
Admin/Advertising	0	0	47	0	47	12
Total Expenses	4,726	5,493	7,024	3,573	20,816	5,204
NOI	2,474	4,657	9,276	14,127	30,534	7,633
Mortgage - Interest Payment	1,832	3,350	3,131	3,330	11,643	2,911
Mortgage - Principal Paydown	1,972	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%
ROI	1.15%	2.35%	11.04%	19.40%	33.95%	8.49%

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.

History

2017

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

2016

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

2015

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

2014

• Purchased in May - Our second rental income property
• Christmas - Shooting at the house