Have you been giving thought to purchasing some affordable rental properties to get a kick start on your retirement fund? Of course you have:-)
Suited half duplexes can make great investments. Mainly because they can be much more affordable then a stand alone home and can often generate the same amount of rental revenue as a full standalone home.
Want to know how to make this work? Lets do some simple math.
Lets imagine you picked up a suited half duplex for 300k (you can find cheaper ones out there too!)
You can get into a home with as little as 5% down, so 15k out of your pocket as an upfront cost. Then if you are a first time home buyer you will be on the hook for about another 2k to cover legal fees and home inspections. If you are not a fist time home buyer add another 4k to the cost to cover BC property transfer tax. So for a move in ready home costing 300k you will be out of pocket roughly 17k-21k.
Your monthly cost to run the home will be around $400 per 100k of mortgage payments owing. So if your mortgage is 300k it will cost you around $1,200 a month for your mortgage cost. Add to that around $150 a month to cover the property tax and why not toss another $100 a month on just to cover some incidentals. This will be a monthly cost to you of $1,450.
So your costs are $17k-21k up front and $1,450 a month (approx)
Now lets look at your cash flow. Currently we have less then a 1% rental availability in Kelowna. That means there is really not much for rent out there. You should be able to rent out the basement suite in a 300k home for around $700-$950 a month and the upper level for between $1,000-$1,500 a month deepening on number of bedrooms, bathrooms, size, location and quality of finishings. On the low end of things…if you rent the home out for the least amount of money possible you would be bringing in $1,700 a month…whoa…wait…so even if you rent the home out for the LEAST amount you are likely to get you are MAKING $250 a month PLUS you are building equity in the home by paying off the mortgage…seems crazy huh. Well its true and possible and to be fair you would likely give the house a nice paint job and do a small amount of 'gussying' up so you can as a bit more money from the tenants. If you get the middle of the road amount of rent from the place you are closer to MAKING $575 a month…that's close to 7k a year of cash in your jeans!
Now look at the big picture. Lets say you own the house and have it rented for 10 years. After 10 years of renting out the property you will have made nearly 70k in rental income, paid off close to $175,000 worth of mortgage and there is a better then good chance that your property has appreciated in value. Lets say not by much because you did not spend much money on keeping the home super up to date so lets say the house is now worth 375k. Lets also say, to be fair that you did spend 10k on keeping the house running over the years. So what does that look like profit wise?
Well on your original investment of 17k-21k and over 10 years, after you sell the house for 350k (cuz you want it gone!) you just made a grand total of around $285k!!!!!!! seriously…that just happened.
Now imagine you did that two or three times over the years…borrowing against the original homes built up equity to cost you less money….I think you just became a millionaire!!!
I love having Millionaires as friends so give me a call if you want to start down the road to a happy retirement!
Trever Florko - REALTOR®