Our 2nd Investment Story is from yours truly again.
1) Please tell us a bit about your background. How old are you? Are you an active or passive (or both) real estate investor? Which strategies do you invest in? How long have you been investing in real estate?
Please see About Me.
2) Please describe one of your successful real estate investments (past or present). (i.e. REIT, MIC, Crowdfunding, Private Mortgage Loan, Private Equity, Joint Venture or other)
Today, I am going to discuss my investment into a “Turn-key” Triplex Property. “Turn-key” implies that the property requires no renovations, and is ready to be rented out immediately. This property has a 2 bedroom unit on the main floor, 1 bedroom unit on the second floor and 1 bedroom unit on the 3rd floor.
This is a Joint Venture investment with an active real estate investor who found the property and will manage the property. My role was to come up with half the down payment and closing costs, and to apply for the mortgage under my name.
3) Where is the property located (city/province/state)?
4) Are you the active or passive investor in this investment? How did you find this investment?
Passive investor. I found this investment through an active real estate investor who will be my partner in the Joint Venture.
5) How much was your original investment? What is the breakdown of your investment? Any fees?
Total purchase price of the the Triplex property was for $500,000 (2015).
Down payment (20%) = $100,000
Closing costs = $8,275
Total Investment = $108,275 ($54,138 from myself and $54,138 from my partner (active investor))
6) What was the risk of this investment? What was the security? Did you feel safe with this investment?
Security was the property itself. Rental income covers all expenses (including mortgage payment) with positive cash flow, therefore, the property safely carries itself.
7) What was the annualized ROI? What is the breakdown of the ROI?
Most sophisticated/savvy investors will include 4% vacancy and 5% repair rates in the calculation of expenses, and 3-4 % appreciation rate, in order to be conservative when calculating ROI (meal analogy)
Cash Flow/yr = $746/mth = $8,952
Mortgage Paydown/yr = $12,232
Appreciation (4%)/yr = $20,000
Total Return on Investment (ROI)/yr = $41,184 divide by $108,275 (original investment) = 38%
If this is your first time seeing ROIs on multiplex investment properties, you may feel surprised or be in disbelief that the returns are so high. I remember what that feels like, as I was in your shoes several years ago. Being accustomed to stocks/bonds/ETFs, these returns in real estate seem unbelievable, but trust me, these numbers are legit and reproducible. It comes down to simple math. Some properties can return much higher numbers, than above, due to forceable appreciation from renovations (BRRR), as I will illustrate in a future Investment Story.
8) When did/do you get your funds back?
Our original plan was to keep the property for 5 years, and then refinance. However, we were fortunate (? strategic) that after 1.5 years, the property prices had appreciated significantly in Hamilton and the GTA. Therefore, we went back to the bank and refinanced at a new appraised value of $600,000 (keep in mind that banks are conservative when appraising for refinances), to unlock the appreciated equity to invest elsewhere. A key strategy to real estate investing is to try to have your money always working at its full potential for you.
Including cash flow, mortgage paydown and appreciated value, my partner and I each received approximately $56,500 after refinance. Equity left in the property was $120,000 (20%, which translates into $60,000 per partner), which is still churning away at >30%/yr.
Therefore, I received my original investment ($54,138 + change) back in 1.5 years, with $60k equity in the property. I could now use the $56,500 refinance money to invest in another property. RInse. Repeat.
Calculating my actual ROI after 1.5 years: After refinance, equity in property was $60,000 + cash back from refinance $56,500 = $116,500
$116,500 – $54,138 (original investment) = $61,862 (profit)
ROI = $61,862 divide by $54,138 = 114% divide by 1.5 years = 76%/yr
9) What do you like or don’t like about this particular investment? What did you learn from this investment? Would you recommend this investment to your family members? Any advice to give to the readers?
I like owning multiplex rental properties, as the cash-flow is usually positive, depending on the location. “Turn-key” properties that do not require any renovations are great, as you can find tenants right away. However, Joint Ventures using the BRRR strategy is more lucrative than a Joint Venture “Turn-key” property.
This particular property is great, since it has high-end features in its units, and is located near the Hamilton hospitals. Tenants were easy to find and consisted of health-care professionals, including a nurse, 1 resident physician and his family, and 1 other resident physician. It feels great to not only own an investment property that makes money, but also feels great to provide a safe, comfortable home for fellow health care professionals to live in.
As you can see, the ROIs for multiplex properties can be fantastic. Refinance is an excellent strategy to get back your original investment/unlock appreciated equity in a property in order to invest in another property. Rinse. Repeat.
10) If any reader wants to contact you, what is the best way to contact you? (Please ignore if you wish to remain anonymous)
As usual, through this blog!