Property #1: 4 Lessons Learned

This is not a property that I talk a lot about because it wasn't our best purchase, however if I were given a shot to do everything all over again I don't think I would skip it. The lessons we learned every step of the way were well worth it.

We bought this property straight out of college. We were so eager to move in together that I don't even think we had received our diploma yet. We only had a total of 5,000$ between the 2 of us, our credit was so-so but we had 0 debt since we had both worked part time throughout college and paid for school ourselves while our parents had helped us with our living expenses. We considered renting a budget friendly place to start but this would of meant living in an older run down place. We decided to meet with the bank before making our move.

Lesson #1: Should not of agreed to a high interest rate

We got approved for up to 200k but with a catch: we had to buy through the CMHC (Canada Mortgage and Housing Corporation) which is a mortgage insurance required when a qualified buyer has less than 20% down. It's a crown corporation that was created after WWII to help veterans find homes but now it serves all Canadians in need of housing. Don't get me wrong, it's a great government program but it's not free. At the time the going mortgage rate at a traditional bank was about 3%, instead it cost us a 5.4% fixed rate for 5 years... Ouch. Don't forget this is on 25 years since we don't have 30 year loans in Canada anymore. As newbies we didn't know any better and we didn't care, we just heard "approved" and leaped of joy.

Lesson #2: A condo was not right for us

When we started shopping, we decided to buy a property below budget. We found a builder in a smaller town outside of the big city that had brand new condos under constructions. We immediately fell in love, especially since we could buy a unit for 185,000$, 15k under budget. What we failed to realize was that condos come with strings attached: 1. the fees NEVER stop increasing (by the time we sold it we were paying 225$/mo),

2. you deal with annoying condo boards and meetings

3. the neighbors get WAY too involved in every little detail

4. and having to ask permission for everything we wanted to do in our own home was frustrating.

We lived in this condo for a year before renting it out and we sold it 5 years later.

Lesson #3: A negative cash flowing rental is not good

After a year we tried to list the condo on MLS, but unfortunately since the market wasn't hot and it was a less desirable dwelling type, we had 0 visits. We eventually put it up for rent and found a tenant within 2 weeks at 1,200$ a month + utilities which was well priced. Taking into account our mortgage structure, add the 175$ monthly condo fees that we were paying at the time, the 40$ hot water tank rental fee and the 200$ property taxes, this unit was definitely not cash flow positive. Even though we were paying down our capital, our monthly cash flow was negative 300$. If we would of had a normal 3% interest rate however, the negative cash flow would of just been about 67$. (Lesson #1). You want to avoid having a portfolio with negative cash flowing properties because it affects your approval rating with lenders, your day to day and your energy to service this property well as a landlord. Having just that 1 in our portfolio wasn't a huge deal especially since the market kept increasing, but it's still something we will definitely avoid in the future.

Lesson #4: the importance of value in housing type

Condos can be a great investment if purchased in a big city, but not in smaller towns because less people want to live in condos when they're shopping outside the city. They're generally looking for more privacy and more space which means your target market isn't as big. In 2019 the market was on a super hot streak, so we took the opportunity to list it again. It finally had some action but it still sold for only 20k more than what we paid for it 6 years before! It wasn't a bad unit either, it had all the upgrades imaginable: great specs, low utility costs, turn key, in a desirable neighborhood near schools and parks, etc. It's just the value for this housing type in that area wasn't worth it.

In the end however, if you take everything into account: the capital that got paid down during 6 years, the fact that we didn't have to pay a dime in capital gains since it had been our primary residence at one point and even with the realtor and closing fees, we still walked away with about 40,000$ to reinvest. So I guess the bigger lesson here is that investing in real estate is generally a safe bet!

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