Yes You Can Build A Massive Real Estate Portfolio – Here’s How!

There is an old saying you’ve probably heard that says “Money Can’t Buy Happiness” but there was an article I read published by Global a few weeks ago that says the contrary: You can buy happiness, if you spend your money right: study

A study conducted in Vancouver out of the UBC showed that people who spent money on onerous tasks that they hated doing actually reported more happiness than those who bought material things with their money; but ironically most people do not do this.

Perhaps it is because they feel guilty paying for things that they could do themselves?

I am a huge believer in leveraging your time and focusing on things that make you happiest (and trying to outsource the rest).

I hated mowing my lawn, so I now have a company that comes and does this for me – and yes it definitely makes me happier not to have to go out in the scorching sun to deal with lawn care.

We used to find entertaining onerous because all we would be doing is serving our guests and working the grill during BBQ’s – we now have a great server who is able to come to our parties and grill our meats, serve our guests and help with the clean up.

It is so much more enjoyable!

But at the end of the day – there needs to be money to do this.  The cost of living in our city is only going up – and most people don’t get massive raises every year (infact most companies don’t even cover the cost of inflation with any increases they do give their employees).

Whenever we talk real estate (and yes it is my go to source for investing my money and creating long term wealth) – people want to know how it can be used as a vehicle to leave their jobs, retire early or just simply increase their wealth and grow their money.

So I thought I’d write a post on how to continue to grow your real estate portfolio- it always seems to be a hot topic!

I know having a pool of starting capital isn’t easy, but in today’s market with the increased value of home prices, I know many people who are able to refinance their homes or take out a Home Equity Line of Credit (HELOC) in order to start investing.

Others are just able to pull from their savings from over the years or partner with family member’s to pool their funds together.

However you do it – that is a great starting point.

So let’s start with the basics.

There are many options, and of course keeping in mind that everyone has different amounts of time to learn and implement investing strategies.

But here is the thing, Real Estate investing isn’t a completely hands free investment (like a mutual fund for example) and it requires getting yourself educated and involved (at least at the beginning).  But the rewards are also much greater.

And buying the first property is really a fantastic starting point  – I always recommend starting with a straight rental unless you are handy, or especially savvy with renovations.  Keep it simple and let time do the work.

Year 1

Purchase 1 – Price $375,000

Down payment – (20%) – $75,000 + closing costs = $80,000

Slight cosmetic renovations – $5000

Rental income – $1850 (gross) – $200/month net ($1200/yr)

Now this property will have a mortgage payment of approximately $1250/month of which let’s say $600/month goes to Principal Paydown.

Principal paydown/year = $7200

Appreciation (5%) = $18,750 (remember – some years we have had much stronger appreciation than this!)

Overall – your investment was $90,000 and your return was (1200 + 7200 + 20,000) = $28,400

That is over 30% Return on Investment (ROI)

Now in year 2 – you can either do it again or you can wait it out if you don’t have the capital.  I would say that by year 3 you have the potential to refinance this property and pull out enough cash to make another purchase.

The returns are great – there is no denying that.  The risk is minimal if you buy good properties in good neighborhoods and follow the formula for finding good quality tenants.

Yes you do need to get your hands dirty and do some work, especially at the start.

Once you run out of capital or if you want to grow at a much faster pace, there are some options:

1) HELOC – this is a great way to get access to cash, especially from your primary residence which likely has a lot of equity sitting in it even if you have owned it for over 1 year.

2) Renovations – this is where the BRRR (Buy, Renovate, Rent and Refinance) strategy comes into play – when you renovate a property, you create instant equity.  Once you do this, you are able to refinance it much quicker (you don’t have to wait for the market to appreciate – in essence you force appreciation).

3) Joint venture – especially once you have somewhat of a proven track record, you can start to raise capital.  There are many people who want to invest in real estate but don’t have the time or interest to get educated and do it right.  That’s where you can come in, and form strategic win-win partnerships.

There are always options – what is important that you have clarity about what you want to achieve and then you will find a way to get there!

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA