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Today I’m excited to tell you about our friends who just bought their house and it’s their first investment property! This is called House Hacking, where you live in a property with more than one suite, rent out the other units, and live there for free or at very low-cost. They are really happy with it, and we’re glad to have been able to help them with the purchase.
They bought exactly what Patrick and I should have bought 10 years ago, instead of buying our condo. We just didn’t know any better back then! At least now we can use our experience to help others shave years off their investing journey.
What’s also interesting is that they ended up buying something completely different than what they had originally thought they wanted.
Buying our condo, we really had no idea what we were doing… we didn’t use a realtor (we thought we could save money but that was the wrong mindset). Instead, we just heard that some friends of friends were selling a condo, and barely looked at any other options.
We didn’t get an appraisal, so luckily we didn’t overpay too much. I don’t think we even reviewed condo documents, so thankfully there were no special assessments on the building!
Back to our friends… they just got married last year and they were renting a basement suite in Edmonton. They were interested in real estate investing and had learned a bit through podcasts and books, but they had never bought a property, ever. They went from living at home to renting. It wasn’t just that, but they weren’t familiar with the process or what to buy. They also worked out of town most of the time, which meant it would have been really tricky to go through the buying process on their own.
They originally wanted to buy a 4-plex in Edmonton, as they knew they might be able to put as little as 5% down, as long as they lived in one of the units. That was a good plan, as you can make your money go further that way.
However, since they worked out of town, they didn’t want to have to manage the other 3 units, so we agreed that this would make a good joint venture – essentially we agreed that we would buy the building together.
We would help them acquire the property and manage it, and they would provide the down payment and qualify for the mortgage. A joint venture is basically 2 parties coming together to buy a property, that neither party could do on their own because of either lack of time, experience, money, or credit.
I set out and started looking for a 4-plex that we could buy. I analyzed the numbers on many buildings, and we looked at a quite a few, but none of them we really liked.
A lot of the buildings were not well maintained and would have taken quite a bit of money to repair and upgrade, which our friends didn’t want to do. The cash flow wasn’t very good, and they just couldn’t really see themselves living in any of them, especially long term.
In the end, I realized that maybe a 4-plex wasn’t the best option for them, even though they thought that’s what they wanted. I forgot about 4-plexes and just looked for a great investment property.
I reached out to my network of realtors and real estate investors, and I ended up finding a bungalow with a basement suite, which had just finished being impeccably renovated by Pivott Property Solutions. It wasn’t listed yet on MLS, so they would have never found it themselves. These types of good deals often get sold privately to investors before ever reaching the public market.
When they saw it, the girl turned to her husband and said, “When can we move in?!” They couldn’t believe that they could afford something so beautiful and it also be a good investment. It had 3 bedrooms and 1 bathroom upstairs and the downstairs was a legal basement suite with 2 entrances, 2 bedrooms, and 2 bathrooms, which is quite rare.
It made a lot more sense for them than an older 4-plex.
1) They could see themselves living there for a while.
2) All the upgrades meant that they wouldn’t have to worry and save up for any big repairs in the near future.
3) It was in a great neighbourhood (Forest Heights) and would attract a good quality tenant, who would be easy to manage.
4) They could get above average rent for a basement suite, which would cover most of their expenses.
5) They could still put down 5%, so they literally bought a half-million dollar property for only $25,000 cash out of pocket.
They ended up buying it, and they are now living upstairs with 2 roommates, and are renting the downstairs for $1645/month. So they are living there for probably $400 or $500/month in housing expenses. That’s amazing!
The process went really smoothly for them because I was able to introduce them to our lawyer, mortgage broker, inspector, and tenant manager… all of which pulled through for us.
Though we were originally going to buy it together as a joint venture, they didn’t need us to manage one tenant, so they hired a tenant manager to find a tenant and manage that tenant, as they worked out of town a lot.
It was so gratifying to be able to use our experience and our connections to help another couple get into a fantastic property. We really wish that we had bought something like that 10 years ago for our first home!
When they eventually want more space, they will easily be able to move into something bigger while keeping this property as a rental and make money off of it every month.
The take away is this: Don’t try to buy a property on your own like we did for our condo! Whether it’s a rental or your own home, please, let us give you some tips, or leverage someone else’s knowledge, like a realtor’s. The commission you save by not having a realtor is not worth it. There’s quite a bit involved, and when you’re making such a big purchase like a house, it’s worth having some guidance!