Mid-January I became the owner of my second ever property.
I bought a house back in 2008, a little Townhouse where I grew my family. And when I saw that our mortgage was about to finish, I thought why not get a new mortgage!
I like mortgages. They are a big pile of money a lender lends you, with a low interest rate (at least these days). In return you get an asset that increases in value and brings in some rental income!
Let me share with you my adventures in real estate and some lessons I have learned along the way.
A very clever fellow named James Clear once Tweeted “Instead of working toward retirement, work toward your ideal lifestyle. There is usually a path to get there in a few years instead of a few decades.”
My ideal lifestyle always included a house in the Toronto Beaches neighborhood and a condo downtown.
Yet, considering how hot the downtown market has been the past decade, a downtown condo was not a realistic purchase for us. My value conscious, immigrant mind, could not justify paying $600K+ for a one bedroom in Liberty Village.
So, focus was on the house at the beaches. That was tough but achievable. We had good family incomes; we were lucky to buy the first house right before the R/E frenzy. And our most expensive years, two little ones in daycare, were behind us.
But buying a new house was not supposed to be for another few years! The kids were still in part-time daycare and we had grand plans to travel the world. I expected to move into our Beaches dream house when my older son was in high-school and that was still over 5 years away.
Then Covid happened.
Day care, vacations and travelling all became a thing of the past. We stopped going out. We stopped spending money. And with the mortgage nearly complete, an investment property seemed like a good place to funnel the savings.
Assembling the Team
Key to all successful projects (missions or heists) lies in the assembly of the team. We kicked off our investment property project by engaging a real estate agent.
I find Real Estate agents are often unusually beautiful, impeccably stylish and highly driven (shout out to my mother-in-law). And our agent, Tori Nguyen, turned out to be one of the most beautiful, stylish and driven in the city (follow her on IG)!
Tori brought a wealth of Real Estate experience to the table. She knew all about renovations, noticed details we missed and was a master at seller psychology. She was also super generous, hard working and always prepared. Attending showings, even when the city was in lockdown, was easy and painless thanks to her.
Tori was just persuasive enough to help us overcome the fear of making big decisions. She helped us by asking questions, being totally honest, moving quickly, pivoting when needed and by being available.
Second member of the project team was my brilliant friend Quyen Taylor, who is a mortgage broker. This woman knew her mortgage products inside out and without her expert advice I doubt that we would have gotten so far.
Quyen’s real estate and financing lens is unique. She came to us with financing options normally unbeknownst to a layperson.
An independent mortgage broker is helpful for all buyers but can be especially invaluable for a second property or exceptional cases.
Finally, I downloaded an awesome little app called HouseSigma to browse real estate.
HouseSigma shows the listing, provides high level market analysis and provides past listings on the property, including leases.
The user interface is delightful and easy to navigate. If you are browsing real estate in the Ontario market, I recommend this app.
Next step in the buying process was understanding our financial current state.
Buying a house 12 years ago was so much simpler as we had no money and only two bank accounts. Now we are a mess of checking accounts, savings accounts, RRSPs and Credit Cards and digging through all of that was not fun!
On the bright side, reviewing our finances did motivate me to get my RRSPs organized, so that was a bonus!
Armed with all our financial info, Quyen was able to strategize the best way to fund our new purchase. She showed us how we can pay off our current mortgage six months earlier than expected. And how we can use a combination of our home equity line of credit and savings to manage the down payment and closing costs.
On our side we created a spreadsheet with a detailed breakdown of our income and expenses and added easy ways to evaluate the affordability and profitability of potential properties.
We set an absolute maximum budget of $750,000 based on what we could afford comfortably.
Initially it made little sense to buy an investment property that did not generate a profit. And as homes in Toronto were hella expensive, Tori suggested we look to Durham region to find a “deal”. We investigated purchasing a small detached house, turning it to a duplex and collecting two rents.
Oshawa seemed perfect. It was a developing town with a bright future. Houses were reasonably priced. It was still a short commute from Toronto. As a bonus, Tori was experienced in the rental market in Oshawa and we trusted her judgment.
However, shortly after our first evening of showings, the Oshawa market skyrocketed. Properties started selling for $200K over asking and even before renos they were already outside of the budget.
Oshawa market was too hot, and the pressure showed me that I was not ready to bet it all on Oshawa. Yes, it had good potential to make money, but the cost of buying, renovating and managing the rentals was still high. A house in Oshawa brought nothing but the possibility of a positive cashflow. And it really did not seem enough.
I was ready to wait.
But as the Oshawa market heated up, the downtown Condo market was cooling down. Inventory was piling up as people exited the city. Rental demand for small condos were dwindling with everyone working from home and sellers were ready to offload.
The more we looked at the downtown condos, the more it felt right.
Sure, it would not get us the positive cashflow that two units in Oshawa would, but it would be a step towards our ideal lifestyle. A condo at the heart of Toronto would be an investment in our future. I found it was easier to decide when the value was more than just monetary.
We narrowed our search based on a few criteria:
- Close to subway
- New building (under 7 years)
- Low monthly maintenance
- Has a parking spot, a good-sized bedroom, more than one room and a balcony.
We landed on two possibilities: first was on Richmond, few blocks east of Yonge. This condo was a bit cheaper, a bit bigger. But with no balcony and the location was still developing.
The second was on Adelaide, near John, it was a smaller unit, higher floor, more expensive but with a beautiful balcony and the most perfect location.
Now I must pause to express my love of Adelaide street.
Adelaide street, from Church to Spadina, is my downtown Toronto. Adelaide is humble and unpretentious. It does not have the edge and angst of Queen West, nor does it have the corporate coldness of King. Adelaide is full of heart, charm and innovation and merely blocks away from everything important.
Once we saw the location and the building, decision was super easy. I wanted it.
I could see myself living there happily if I were alone. And even if we made little in rent, it was worth it to own a piece of a street that I love.
The Offer & Aftermath
Sellers were asking for $689,000. With Tori’s expertise, we put in an offer, and after some minor negotiations we settled on $675,000 with condo fees of ~$480 a month.
I felt good about it.
We asked for a 4-week closing period to get everything in order. Selected First National as our lender. Engaged a lawyer and an appraiser etc. Now we are mere weeks away from getting our keys.
Making the Decision
Looking back, I basically used three questions to make my decision.
First question was Can we afford it? Not just in the best-case scenario but under some stress.
I am naturally risk averse and for me this was the most important question (may not be for everyone).
We evaluated our incomes, expenses, debt repayment and additional expenses of owning the condo. Then we ran our calculations through three possible scenarios:
1a. Can we afford it if we did NOT have a tenant for a period of time?
1b. Can we afford it if we temporarily became a one income household?
1c. Can we afford it If 1 & 2 happened at the same time?
With our primary mortgage paid off, the answer to all three question was yes but with various degrees of belt tightening.
Second question was Is the property worth the price?
We relied on Tori’s expert judgment to determine a good price for the condo. An appraisal following our purchase concurred with the price we paid.
We additionally looked at historical price of similar condos in the same building. We tried to envision the value of the amenities in a post-Covid world. We invested in features we felt were valuable, like a bigger bedroom, a giant balcony and a parking space. We chose a location that was most likely to recover quickly (compared to other downtown pockets).
Overall, we bet on the city returning to pre-Covid vibrancy eventually and that the property will appreciate.
And the final question was am I getting something beyond just money when investing in this property?
Whenever I envisioned my future, I always saw a house in the Beaches and a condo downtown. And this little condo fulfilled a part of that vision. When I think of future moments in this place, even if we rent it out for the next few years, it makes me smile.
I can see one or both of the boys living in that condo when they go to school or start their first jobs.
I can see date nights or girls nights downtown ending with cocktails at the condo.
I find myself already call the building, our building. It feels right.
In summary, here are the key lessons I learned from the process of buying a second property:
- You have thousands of options available in a place like the GTA. Take time to dream about your future and explore different options. Let your imagination guide you to what is possible and eventually you’ll land on something that fits.
- When ready to start the purchase process, assemble a good team first. I recommend an experienced real estate agent and a knowledgeable mortgage broker, especially for an investment property.
- Know what you can afford. Spend the time to dig into your own finances and be hyper realistic about your budget. When buying real estate, going too cheap is not necessarily a good idea. But maxing out your budget can be even worse.
- Be reasonable with your fears. When evaluating your worst-case scenario, try not to think of catastrophes. The only decision when faced with a catastrophe is to do nothing. Conversely, you will own this property for a few years, so account for realistic set backs.
- Trust the experts to guide you. Be very selective when assembling your team of experts, but after that trust their judgment and ask for recommendations. If you feel the urge to second guess your expert, ask a lot of questions instead. It is very likely they know something you don’t.
- Give yourself time and be patient. It can take months to find the right property.
- But decide quickly when you find something you want. All the preparation you have done up front should help because real estate moves quickly – be decisive and stick to your criteria.
- Make sure your team compliments your blind spots. I am naturally very risk averse, so I appreciated a real estate agent who was bolder. On the flipside, I knew little about the mortgage world, so Quyen’s vast knowledge of mortgage products filled me with comfort.
- Aim for the best you can afford. Think in dimensions of what can you comfortably afford versus what is the best you can afford. Buying a slightly cheaper property in a shittier neighborhood or without the things you truly value is probably not that great. You get what you pay for.
- Finally, buying an investment property can be exciting and fun. Try to enjoy the process and learn along the way.