Quote:
Originally Posted by Wormius
So were you happy with the choice of investing in a property? The way I kind of see it, is that you'll end up with an asset at the end of it, whether you paid for the whole thing or a renter contributed to paying the mortgage down. As long as I am comfortable paying the mortgage on a property and bills on a property even if I had no tenant in it, then I don't mind. But I'd like to feel comfortable knowing that I could walk away from it and not suffer a large loss.
We don't have anything huge in terms of investments outside the house. There's probably about $100k in RRSPs, mostly from the wife because her company did the 100% matching and so she always maxed hers out every year.
Without going into all of the huge details here is a bit of a snapshot for my wife and I so feel free to pick away. So as of next year, the mortgage payments will be gone, and one kid will be out of daycare, so that's an additional $900, which will probably go into some after school activities and stuff.
Income before taxes: ~$170,000.
RESP contributions: 2 kids * $210 / month.
RRSP contributions: $1200/month total.
Expenses:
Mortgage: $2000 / month
Childcare: $1800 / month
Bills (phone/internet/tv/enmax): $500 / month
Vehicles (gas): $300 / month.
Assets:
2 vehicles
1 house
RRSPs value ~$100k.
RESPs value ~ $20k.
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I am happy with the decision. For me as well, because the alternative was to sell the house I didn't want to pay all the fees involved with selling. The house was in great shape and fairly new so I hope there won't be any big expenses over the first 5-10 years. My take is that you won't see a positive cash flow on a revenue property for at least 10 years unless you are willing to do a ton of work yourself and make sure you find a great place at a cheap price. Even in the first year though I had a positive increase in my net worth as a result of the rental. I have to pay some money towards the principle and my tenant contributes about $2 for every dollar I put in at the moment.
Diversity is important though and really should be considered. If you live in Calgary and work in the oil and gas industry then house prices are loosely tied to the oil and gas industry. It is possible that the industry could tank causing you to lose your job at the same time that the value of both your house and your revenue property drops in value.
Your best bet I think is to continue to siphon off the mortgage amount that you were paying into a savings account and start drawing up a few scenarios. One option to consider is re mortgage and use the money to buy dividend paying stocks.
ex. You borrow $200000 and invest it in solid dividend paying companies collecting about 5% a year in dividends in addition to the growth in value of the stock.
The mortgage will cost you $1000 a month with a 25 year 3.5% loan. The stocks should pay a dividend of about $850 a month and you will be able to write off the interest on the loan which works out to be about $175 a month putting you ahead $25 a month in the first year. The stocks should also increase in value over the years increasing your dividend and adding to the monthly gains. At the end of 25 years you own the stocks outright and have made money most months in the process. If you were always comfortable making the payments you can continue doing that and reinvest the dividends to grow your portfolio faster or you can use the dividends to top up your mortgage payments and own the stocks outright.
*** The above example has a few assumptions and nothing is guaranteed so make sure to do your own due diligence and likely meet with a financial planner.