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Now that you've been able to successfully buy, rehabilitate, rent out, and refinance your first investment property, let's see what happens when you repeat the process and start growing your real estate portfolio. For Part 1 click here.
5. Repeat the process - Repeat
When you're ready to start the process over again things will be a little different. Although the steps for buying your next property will look the same, the cost for your existing property will be a bit more since you refinanced into a now more valuable property. As a result, your next steps could look something like this:
New Purchase:
Purchase price: $320k = 2 unit house
Down payment: 20%* on $320k = $64k
Mortgage/financing: on the remainder = $256k
Interest rate: 5.78% on a 5 year term amortized over 25 years
*Note you can put as little as 5% down if your next property becomes your primary residence, but you would need to leave 20% in your original property to do this. Otherwise, your next property could be an investment property, but this would require 20% down.
Cash flow:
So in terms of costs and revenue here is what you might see:
Mortgage 1: $2,244/month + Mortgage 2: $1,605/month = $3,849/month
Property taxes: $1,994/12 = $166/month x 2 = $332/month
Insurance: $120/month x 2 = $240/month
repairs/maintenance: $200/month x 2 = $400/month
Total cost: $4,821/month
Total revenue: $1,800/month x3 = $5,400/month
Profit: +$579/month
Mortgage Equity:
$6,652 + $4757 = $11,409 during the first year, or $951/month.
So now compared to renting, you're actually ahead by $1,530/month when accounting for equity, and on top of that your rent is free! Just like the first time, you can refinance your new property and leverage the new cash out refinancing and additional cashflow to do this again and again for a third, fourth, fifth property, etc.
Also keep in mind as mentioned before, you can do this in any market, and you don't necessarily have to invest in your own backyard. Let's say for example that you own your home in Victoria or Nanaimo, and now you're looking to diversify into a different market. You can purchase in a different city on the island, somewhere on the mainland, or a different Province if you're comfortable with managing a property from a far.
Now that we've looked at the numbers and the enormous potential of this investment strategy, here are a few more factors to consider for your long term success.
6. Diversify your portfolio.
Remember that it's good to avoid putting all your eggs in one basket. When you diversify your investment portfolio, you spread the risk making your real estate portfolio more robust against market shocks. If the Alberta market is struggling while the BC market is performing well, you can use the cashflow and equity from your properties that are doing well in order to float your other properties that might be struggling. Since no one can perfectly predict how well any market will do over time, diversifying your investments can help to safe guard your wealth against shocks and disruptions. Economists have also shown that diversfying your portfolio tends to produce higher overall returns in the long run while simultaneously reducing your risk.
7. Focus on long-term growth.
Investing in real estate is a marathon, not a sprint. It's important to focus on long-term growth potential rather than quick flips. By holding onto properties for the long haul, you'll be more likely to see significant appreciation without incurring huge transaction costs by constantly buying and selling (i.e. taxes, legal fees, real estate commissions, etc.). Fortunately, by following the BRRRR approach you can still unlock capital from each new purchase in order to assist you in future ventures.
8. Have realistic expectations.
Investing in real estate is not a get-rich-quick scheme. It takes time, patience, and hard work to build wealth through this asset class. But if you have realistic expectations and are willing to put in the work, it can be an incredibly rewarding experience.
With these tips, you'll be on your way to building wealth and retiring early. Real estate is a smart investment that can help you create long-term financial security. So what are you waiting for? Get started today!
I am a Victoria based local realtor with eXp Realty. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.