I am in a unique position – as well as being the editor and content manager of Real Estate Weekly newspaper and REW.ca, I am also a would-be Vancouver real estate investor.
I am in the fortunate position of having a good down payment from inheritance. And of course, because of my job, I have great contacts to help me land the perfect rental unit and find a great tenant. Otherwise, I am subject to the same highs, lows and vagaries of the property-purchasing process as all our readers.
Here I chronicle my journey and share all the lessons I learn along the way. I promise not to hold anything back, although names will be changed for anonymity!
I moved into my first Vancouver condo a year ago. When I diarized the entire buying experience on these pages, I got a lot of feedback from readers telling me how much they enjoyed the blog and how helpful it had been to them.
So, now that I begin the process of investing in a rental unit in our scorching hot spring market, as well as then hopefully becoming a landlord in this city, I thought I would also blog this journey. Hopefully my experiences, mistakes and lessons learned will empower others among you to do the same. As I did last time, I will change the names of my professional team so that I can write about their services freely.
As is the case for many people (especially Vancouverites whose elderly relatives have benefitted from the rise in property prices), the silver lining inside the sad death of my grandmother last year was a good-sized inheritance after her estate was disposed of. My inheritance was distributed in British pounds but, as I write, the funds are winging their way to my Canadian chequing account. With the Canadian dollar so low, it is enough for a strong down payment on a one-bed unit of up to, say, $450,000.
(Which makes me wonder, by the way, if that makes me a foreign buyer in many people’s eyes? I’m a Canadian citizen, I live and work here, but the down payment funds are from the UK, and the Canadian property expenses will be funded by the tenant. Hmm... A topic for another day, perhaps.)
Knowing as much as I do about buying real estate, my first port of call a couple of weeks ago was my mortgage broker. Although the broker I used last year did a stellar job, and I have a fantastic relationship with her, I had to put my sensible hat on and use a broker who is also a financial adviser. Real estate investing is very different from buying a home to live in. There’s a lot more complicated math involved, and moreover, the investor has to approach it from a holistic financial planning point of view.
My broker, let’s call him Kevin, explained to me that, instead of looking at the investment from a current viewpoint – ie, what I want to do right now – I first have to work out what ultimate goal I’m trying to reach, and work backwards. That means including all my other assets, RRSPs, TFSAs, etc, in my long-term calculations to work out whether my new real estate investment will help get me to my goal. We established that I’m a cautious, conservative investor looking for a long-term, low-risk property that is cash-flow-positive, or at least breaks even, so that by the time I retire I will have two mortgages paid off. I can live in my principal residence and add the investment property income to my retirement fund. That’s it.
It was only when we were able to identify that end goal and what was needed to get there, that we could pin down the right kind of investment for me. In my case, I’m not looking to speculate, to flip a property, I don’t even really care whether the market goes up or down – I just need a “buy-and-hold” investment unit that simply pays itself off over 25 years. It was great to know that this cautious approach would still give me enough income in retirement that, when added to my other financial plans, will give me what I need.
That agreed, Kevin and I calculated that I probably don’t want a mortgage of more than $320,000, as this would mean a monthly payment of $1,500 plus strata fees (let’s say $300), plus property tax (let’s say $100). That’s $1,900 in expenses, so if I went up to a mortgage of $330K, I’d have to be able to rent the place out for $2,000 a month. Properties above that are a bit out of my league. Of course, I could spend $100K less on the property and rent it out for $1,400. Or anything in between.
Next, all I needed to do was fill in my mortgage application, and I was pre-approved within a few days. Now I just need to make sure that I have all my funds ready in my Canadian account, so that I can move quickly with a deposit if need be. I’m ready to start looking at properties and making offers!