Net Worth, Debt to Equity and Current Diversification - Feb 2007

Property EIGHT - Our HOME

Don't know if we should even consider this on the chart, I mean, its our home. That being said, houses when you live in it don't cash flow. At all. Unless you rent out a room or something but that's not for us. Anyways, here's the chart on this one. My employment paycheques are covering this one just fine, but hopefully if we structure things property, we can eventually get the cashflow from the SEVEN other investment properties to spill over and pay the monthly payments on our home:Our Final Property Purchased was Property EIGHT: London, Ontario January 2007 - AGAIN THIS IS OUR HOME. So that's where we stand, this is our final real estate puzzle. We have the cash reserves set aside in case some of the atrocities in the US hit us hard here in Canada. Our objective is to protect these cash reserves as much as possible. However, we have given some though to putting this cash reserve to work and have it offset some of this negative cash flow in other properties...... but given our current leverage, we're happy to have it set aside as a means of "insurance".

Property SEVEN

Our Seventh Property Purchased: London, Ontario December 2006. I love this property. I know anyone looking at this would wonder why because it is so heavily cash flow negative. I would think that. However, I found this property located in London's most attractive neighbourhood. Right square in the middle of it. And the sellers needed to get out as they had committed to another purchase firm and absolutely had to sell. I watched as the price fell during the holiday slow season and made an offer.

We had no down payment though. That was our major obstacle. But we factored the current bank rates on the full 100% purchase price and it cash flowed well. And that was setting the rent below market as determined through our research on other SFH in the area and their current rents.

In the end, we got 100% financing through a risky higher interest trust company and we made the conscious decision to go cash flow negative for a couple of years until equity built up and we could move the mortgage to a better place with proper bank interest rates and thus lower payments. Plus, we figured that we'd be saving from our paychecks each month about $300 anyways as means for a down payment for the same type of opportunity. This just meant we got property ownership on a great piece of real estate earlier.

So our objective with Property SEVEN was/is to suffer through the negative cash experience for a couple of years, then transfer to a lower interest place with lower monthly payments where rent will service all expenses.

Property SIX

Our Sixth Property Purchased: London Ontario Duplex Aug 2006.

The $60,000 is an inter-alia mortgage that was done by a private lender who took equity from both Property One and Property Two. This was our down-payment for This sixth property. This duplex has been zoned as a duplex and has had a long-term tenant in the upstairs unit who pays all cash each month. We bought this when we first lived out West and negotiated a great deal on this place, mainly because the main floor was vacant at the time. Also, it was a good deal because apparently there were some nightmare tenants in which one died in a horrible accident within the house. The seller had enough of property, the management, and the tenants & wanted a quick sell.

This property is great for student rentals and is within walking distance to downtown and is on a quiet street. The idea of managing students made me sick, so I hired a property management company to properly manage it instead. Student rentals get excellent cashflow in London if one is ok with having to fix up the home after they leave (the above market rental income usually pays for it easily). We lived out West at the time anyways, so hiring a management company was the best move at that time. It was right before school started and London was crawling for students looking for a home. According to my property manager, they were looking everywhere but our duplex.

It sat vacant for 3 months. We were burning cash. It was a horribly stressful time.

I kept pressing the management company but got nothing but excuses in return. Finally, after making the permanent move to Ontario, I drove up to it and took my first look at the home's condition. It was disgusting. The lawn had grown so high that it was covering the windows. The place looked like it was falling apart. Weeds were all over the place. A latern on the front porch was broken and dangling upside down. Anyways, I spent the week hiring painters, landscaping it myself and adding curb appeal.

We rented it in no time and the tenants were so excited we got a multi-year lease. Need less to say, we fired the awful management company. It felt great to have control over the stressful property ourselves and steer it back in the right direction.

Since then we've been in business with this home and very happy with the property and the way it fits into our portfolio.

Property FIVE

Fifth Property Purchased: London Ontario Duplex February 2006. Unbeatable location in the heart of London's best neighbourhood, great cashflow & fantastic appreciation potential that's already been realized in just one year. Undeniably the gem of our real estate portfolio.

Upper tenant's rent is below market rent as the tenant is a dream tenant - quiet as a mouse, very kind and considerate, pays on time etc... given those characteristics we've decided to leave the rent as is instead of jeapordizing the relationship and putting at risk the possibility of tenant leaving.

Property FOUR

Fourth Property Purchase: Toronto Ontario Duplex December 2005. Originally, we had to put down a massive downpayment to purchase this property which at that time consisted of $60,000 worth of stocks and REITs that we had invested wisely in.

Our Mortgage broker forced us to put that much down, which annoyed us.

Recently, we used that same equity, that basically had now more than doubled in a short period of time, to finance our Home, Property EIGHT via equity take out on this mortgage. Long-term tenant, keeps property very clean and pays on time without problems.

Property THREE

Third Property Purchased: London, Ontario June 2005. Classic cash flowing condo... with little expectation for serious growth appreciation. Purchased for $99,000 in London Ontario, Canada. Unlike Properties ONE and TWO, the original objective of Property THREE all along was to have the positive cashflow from tenants pay down our mortgage. That's it.

Property TWO

Second property bought - Western Canada December 2003. One year after purchasing and closing Property ONE, we were living in Property ONE as owner occupied residences as stated on our mortgage application when we decided to invest in a second presale unit in an adjacent building being built. It was December 2003, over one year after our first ever purchase.

Our intention all along with Property TWO was to rent it to tenants - at that time fundaments were pretty good in Western Canada, unlike today. Market rent for this 685 square foot unit was $1150 a month and at purchase price of $171,000 it pretty much covered mortgage expenses, condo fees and property taxes. Like Property One, there was equity take-outs to make use of the equity to invest in other better cashflowing opportunities. Properties ONE and TWO represent the growth component of our real estate portfolio.

Property ONE

First property ever bought: Western Canada in 2002. This was where it all started back in 2002. Several subsequent purchases were leveraged off of this original property. We purchased a pre-sale unit for $149,000 in Western Canada after saving diligently for 5% of the builder's purchase price.

We recently renovated the 659 sq foot unit adding beautiful hardwood flooring and slate tiling, along with crown moulding and baseboards. We re-mortgaged it once, and did some equity take-outs recently to create down payments for other better cash flowing properties elsewhere. Our tenant actually did the renovation work, and we discounted his rent to below market value for the tenant for one full year.... by crediting the tenant $100 each month for 12 months for the work (and managing the unit while he resides in it entirely by himself).

We opted to go negative cash flow on this property as the objective was to use the equity as means to transfer it to a cash flowing property in a smaller market elsewhere in Canada. The negative cashflow was offset by positive cashflow in a smaller Canadian city in Ontario. Note the negative cashflow, this is becoming a challenge.... would love to see positive cashflow soon.