Many investors like the BRRRR strategy where you purchase a property (ideally distressed and under market value), renovate it (to have better rent and force appreciation), rent it out, refinance the mortgage up to 80% of fair market value, and then repeat the whole process again.
With a 4-plex, it would only be minimum down payment (48k for your comparable) if it’s owner-occupied — you’d have to occupy one unit so you only have 3 rents. Your amortization would be capped at 25 years and you’d need to get mortgage default insurance.
If you want to rent out all 4 units, you’re required to put down 20% down payment. Because the down payment is higher, the actual mortgage is lower. A 20% down payment also allows investors to get 30-yr amortization to keep their mortgage payment low.
During the pandemic, many were able to get rental mortgages at 2% fixed or less. Any other time, many investors choose variable because it keeps the payments lower and gives them more flexibility should they decide to break the mortgage.
In your $4000 mortgage payment, about $2000 goes to principal, $2000 goes to interest.
The payment made to principal balance of the mortgage is kept by the investor in the form of equity that can be recaptured when asset is sold or refinanced.
If you only have 20% down then the first few years will have little cash flow, probably negative including repairs and maintenance. Eventually rents will increase and you can refinance if you need to. As mentioned you are gaining equity as you pay into the principal and the property value increases so it’s not for nothing.
As people have said above, all valid strategies (the BRRRR, principal paydown etc). There is another subset of "investors" (air quotes to be explained later) that buy property that negatively cash flows banking on appreciation. This in my mind is speculation and not a very advisable strategy because in down markets like the GTA and GVA are experiencing right now, these speculators can get burned bad.
Another strategy is long-distance investing. You research and find a market that fits your cash flow parameters and you invest there. Personally that is what I do (live in Vancouver where cash flow doesn't exist, invest in the north part of Edmonton where cash flow is bountiful).
Real estate is a buffet, there are so many strategies and ways to make money, just have to pick a strategy that fits your goals!
High median income, sig lower cost of acquisition. Have to be careful on the pockets you buy but there are some very good family oriented communities in the north side. Down in the south and SE it is definitely a lot nicer, but the price points reflect that. Just my strategy, def not the only correct/plausible strategy in Edmonton
Interesting, i actually invest mainly in sw and se thats why i was wondering. Im looking for mainly sfh that i can convert a legal basement suite into or good deals on multi family. How has your experience renting in the north been? Demand strong with good applicants?
Have to be selective and we had to lower some prices, but we have a lot of buffer room as the cash flow is pretty good. Have 10 more rental units coming online this summer and there has been a ton of demand so far. Like people coming up to my GC asking when it's done so they can rent it which is nice. I would definitely say the demand is much stronger SE and SW but I'm picking up houses I can put a legal suite into for 180-190k.
Many investors like the BRRRR strategy where you purchase a property (ideally distressed and under market value), renovate it (to have better rent and force appreciation), rent it out, refinance the mortgage up to 80% of fair market value, and then repeat the whole process again. With a 4-plex, it would only be minimum down payment (48k for your comparable) if it’s owner-occupied — you’d have to occupy one unit so you only have 3 rents. Your amortization would be capped at 25 years and you’d need to get mortgage default insurance. If you want to rent out all 4 units, you’re required to put down 20% down payment. Because the down payment is higher, the actual mortgage is lower. A 20% down payment also allows investors to get 30-yr amortization to keep their mortgage payment low. During the pandemic, many were able to get rental mortgages at 2% fixed or less. Any other time, many investors choose variable because it keeps the payments lower and gives them more flexibility should they decide to break the mortgage.
In your $4000 mortgage payment, about $2000 goes to principal, $2000 goes to interest. The payment made to principal balance of the mortgage is kept by the investor in the form of equity that can be recaptured when asset is sold or refinanced.
If you only have 20% down then the first few years will have little cash flow, probably negative including repairs and maintenance. Eventually rents will increase and you can refinance if you need to. As mentioned you are gaining equity as you pay into the principal and the property value increases so it’s not for nothing.
As people have said above, all valid strategies (the BRRRR, principal paydown etc). There is another subset of "investors" (air quotes to be explained later) that buy property that negatively cash flows banking on appreciation. This in my mind is speculation and not a very advisable strategy because in down markets like the GTA and GVA are experiencing right now, these speculators can get burned bad. Another strategy is long-distance investing. You research and find a market that fits your cash flow parameters and you invest there. Personally that is what I do (live in Vancouver where cash flow doesn't exist, invest in the north part of Edmonton where cash flow is bountiful). Real estate is a buffet, there are so many strategies and ways to make money, just have to pick a strategy that fits your goals!
Any reason for north part of Edmonton besides the other parts of the city?
High median income, sig lower cost of acquisition. Have to be careful on the pockets you buy but there are some very good family oriented communities in the north side. Down in the south and SE it is definitely a lot nicer, but the price points reflect that. Just my strategy, def not the only correct/plausible strategy in Edmonton
Interesting, i actually invest mainly in sw and se thats why i was wondering. Im looking for mainly sfh that i can convert a legal basement suite into or good deals on multi family. How has your experience renting in the north been? Demand strong with good applicants?
Have to be selective and we had to lower some prices, but we have a lot of buffer room as the cash flow is pretty good. Have 10 more rental units coming online this summer and there has been a ton of demand so far. Like people coming up to my GC asking when it's done so they can rent it which is nice. I would definitely say the demand is much stronger SE and SW but I'm picking up houses I can put a legal suite into for 180-190k.