Photo: Flickr user ellievanhoutte

For a while there things were going pretty well.  I had evicted a troublesome tenant, I was fully rented, and most importantly I was collecting rent from everyone more or less on time.  In December when I went by to collect rent, one of my tenants informed me that she’ll be moving before the end of the month. First, off she didn’t give me the required notice period (her lease does not expire until June 2010), and second she didn’t even pay me a full month’s rent.  She thought she only needed to pay 1/2 rent and I just keep the damage deposit.  Great.

This is a real pain because this particular unit is the hardest of all my units to rent.  It’s a decent apartment, but it is a basement unit and on the small side.  Because of that I can’t put a more mature family in there as it’s really too small for any more than two adults and a couple of young children. Also most people are put off by basement units, even though this one is quite bright, clean, and dry.  On top of this, Christmas is around the corner and it’s really hard to rent a place at this time of year; I’m busy with my holiday running around and prospective tenants aren’t that inclined to look either.

So even though my tenant technically owes me rent until the end of June, I know I’m likely not going to collect it.  My best bet is the get the place rented as soon as possible and limit my losses.  I can pursue the tenant for rent (and she may yet pay) and even take her to the tenancy board, but its unlikely worth the effort.  Right now I’m still trying to collect the 1/2 month’s rent she still owes me, but of course she’s no longer answering her phone.  Even better she now lives about 45 minute out of the city (if she gave me the right address) and to show up at her door will be really time consuming.

So for now the unit is vacant.  I’ve done a few touch ups painting doors that had peeled and generally cleaning it up and it shows very well now.  I do have someone interested in renting for February, but I’d like to recover some rent from January so I’ll continue and try to rent it before I commit to a February lease.  At least I’ve got a buffer with my new mortgage.  This vacancy will not cost me money as it has in the past, instead I’ll break even.

I recently signed the paperwork to purchase a 1,375 square foot 2 bedroom (plus den) condo in the King’s Wharf development in Dartmouth, NS.  The unit I bought is a corner unit on the water side of the Keelson building, which will be built in the first phase of this massive development.  The floor plan on my unit is below.

Phase 1 includes The Keelson, and a high end apartment building, both with commercial/retail space available on the ground level.  Phase 2 is expected to include a 33 story tower that practically sits out in the harbour.  Quite stunning indeed.  Over the next 10 years this development is going to significantly change the landscape of downtown Dartmouth, which is what should make this a good investment.

So, how much did this lovely condo cost?  A whopping $419,000!  This would definitely be out of my price range if I were to live there and manage the mortgage payment.  But I’m into this for an investment.  At the moment I’m only required to put a $5,000 deposit on the condo with a further $5,000 due once the condo bylaws are approved (likely in January 2010).  The plan is to sell the condo just before the completion of construction so I do not have to actually assume the mortgage.  Hopefully I can realize a 10% – 15% capital gain on the value of the unit over the next 2.5 years when construction is scheduled to be completed.  After real estate fees, that leaves me with a net return of 5% – 10% or $20,950 – $41,900.  My cash on cash return for my $10,000 down-payment would be anywhere from 109% – 319%.  No bad huh?

When selecting my unit, my biggest concern was balancing the  price vs the size/location of the unit.  I wanted limit my exposure to being stuck with a large mortgage, but also ensure I bought a unit was easy to sell.  In the end I opted to choose the ‘best’ suite over cheaper, and smaller units that were also available.  The way I see it, it’s like following the first 3 rules of real estate: Location, Location, Location.   Hopefully its the location that will sell it, not the price.

Of course, there’s lots of things that can happen which could prevent me from making any money at all:

• Other investors might be planning on doing the same thing and there’s a possibility that there’s a glut of other condos on the market at the same time, forcing sale prices downward.
• Potential buyers may be more interested in other units available in other parts of the develop (the tower in particular) which could affect demand for this unit.
• The economic picture in the region can change and the development may not be completed to its full potential.  It’s entirely conceivable the only the first phase of the project is completed and I’m left with a lovely condo on an industrial site.

I’ll be sure to keep you posted on developments as the building gets under construction and the development takes shape.  Fingers crossed.

Photo Flickr user: inacentaurdump

This dream scenario is possible because I bought the building with 100% financing three years ago.  That meant I traded a down-payment for an exorbitantly high interest rate of 7.35% with Xceed Mortgage.  This is a self-insured mortgage, meaning that CMHC didn’t provide the insurance for this high-ratio mortgage, Xceed did.  I still had to pay an insurance of sorts in the form of a ‘fee’ that roughly equaled what I would have paid CMHC.   This high ratio mortgage, on a 3 unit rental property, that was not owner-occupied would never have met

CMHC’s tight financing rules.  I was lucky to buy this when I did, because these kind of mortgages don’t exist today.

As you know, this is a great time to acquire debt.  Interest rates are as low as they’ll ever be with the Bank of Canada Prime rate at just 0.25%.  So my mortgage broker was able to secure a mortgage from Street Capital Financial that consists of:

• 90% financing based on a market value of $255,000
• 2.40% variable interest rate(Prime + 0.15%)
• 5 year term
• 35 years amortization

After I pay off my current mortgage, that leaves me with roughly $25,000 in cash and increases the profitability of the building from about $300/month to $715/month.  It’s a win-win scenario.

Now, I know many of you are probably cringing at the thought of amortizing your mortgage over 35 years.  I’m well aware of the fact that I pay down very little principal over the next 5 years.  But that’s OK with me.  Cash flow is key here and the interest on the mortgage is a tax deductible expense.  Also, I know I can expect my mortgage rate to march pretty consistently upward over the next few years as the economy improves.  This will affect my profitability, but I’m a believer in variable rate mortgages being cheaper in the long-run (more on that another time).

So, my plan is still in effect.  I want to ‘sell up’ and get into bigger buildings, but I’m going to do it a little differently.  I’ll use the money from this new mortgage to spruce up my own house a little bit, put the rest aside, then re-finance my house and pool as much cash as I can so I can go shopping for a flip.  This way I can keep my rentals, continue to grow my equity, collect some monthly passive income, and do a flip.  We’ll see how it goes…

Photo: Flickr user blhphotography

I’m going to try and stay away from my recently favourite topic about evicting a tenant.  In fact, the outcome of evicting this non paying head-ache is that I’ve just landed a new tenant who’s going to pay me on regular basis (at least hopefully).  I don’t know why I didn’t follow through with this eviction sooner, because for the first time in more than six months I don’t have to wonder if I’m going to get paid next month.

Since I knew my eviction would be in effect for November 1, I advertised the unit for rent and the first person the responded took it.  This is great, since you all know I rent in a tough neighborhood and its hard to find good tenants.  Hopefully I’m not jumping the gun on this post, since I’m set to sign the lease and collect the damage deposit tomorrow evening, but what a weight off my shoulders.

In another development I may not sell the apartment buildings after all.  One of my mortgages is coming up for renewal at the end of December and I may be able to take out enough equity to make it worth my while to

keep them.  In fact, I may be able to take out more equity than I could have made from the sale of both buildings.  When you consider that I won’t have to pay capital gains taxes on the new money, it’s pretty much a no-brainer.  Oh, and did I mention that my new mortgage will have such a low interest rate, the profitability for the building nearly doubles!

The application is with my mortgage broker now.  I’ll certainly be posting about this when I have the results.

Photo: Flickr user Hey Paul

Because I’m soft, I’m not out about $1,200 with an empty apartment to rent, I’m now sitting on about $1,200 worth of debt, an apartment I can’t rent until my lackluster tenant vacates (November 1), and potentially another two month’s of unpaid rent.  Stupid.

I have made an appointment with the local tenancy board for October 26 to pursue by debt and enforce eviction, but because the system is so shitty I’ve got to wait 6 weeks to even get in front of them and present my case.  I’ll win, then I have to wait another 10 days for the appeal period.  Then, if the tenant is still in the building I can give her 5 days to vacate.  This equals two months of unpaid rent, unless by some miracle she decides to pay me.

I doubt this will happen since she has no incentive left to pay.  She knows she’s moving, she knows I can’t forcibly remove her until November, and she knows collecting her debt will be difficult at best.  I fucked myself.

Oh, and on top of this one of my new tenants screwed up her second month of budgeting and still owes me a full month’s rent for September.  Supposedly I’ll get that payment on Sept 20.  Then she has a mere two weeks to come up with October’s rent; highly unlikely in my opinion.  We’ll see how this works out.

Lastly, another tenant (new again) owes me a further $95 for late rent.  I feel they’ll get caught up as they work hard and seem to take paying rent seriously.  I need to get everyone back on track because I can’t afford to keep floating mortgage payments while waiting for tenants to pay up.

I guess its hard ball from now on.

UPDATE:

I’ve collected the outstanding rent from all other tenants, with the exception of the one who’s leaving October 31.  I served that tenant with a notice to appear at a tenancy hearing scheduled for October 27, 2009.  She says she’s going to pay me ‘what she can’ but frankly I have little hope of seeing any money.  If she doesn’t pay anything by the end of the month I’ll give her a 15 day Notice to Quit and see if that encourages her.  Realistically, I can’t enforce it until the hearing, but it may get some money out of her.

I must tread carefully so she doesn’t cause problems with me trying to rent the place to a new tenant.  Or more likely so she doesn’t go crazy and make my life difficult full time.  I’ll be glad to have her gone.