THE POWER OF EQUITY

January 14, 2020

 

 

 

 

How did two immigrant factory workers buy 7 homes?

 

Sacrifice, Hard work, creative money management, partnerships, a smart realtor daughter, calculated risks and most important the power of home equity.

 

There’s no denying that the market has always been good in downtown Toronto. Many have chosen to hold on to their properties in hopes of increased future value or the ability to generate passive income via the active rental market – which in turn, has led to a lack of supply. The market has drastically changed from 10 years ago. Prices have doubled and the initial cost to buy a home is much higher as well due to the new mortgage qualification rules.

 

My parents and I began our partnership when they helped me purchase my 1 st pre-construction property with $15K down. They trusted that if I couldn’t afford the monthly payments, the option to rent or sell would be available as a backup plan. I rented out that property for one year and doubled the investment once it sold. After getting their feet wet and seeing the return of profit, they helped me purchase my second pre-construction condo in another pocket of downtown Toronto. After living in it as well as renting it out for a couple of years, this property was sold – this
time, more than doubling the initial investment.

 

After experiencing the purchase and sale of two properties, my parents were
confident enough to venture off on their own. At the time, I was working with a
brokerage and was working closely with a builder who had an amazing opportunity
on the table. Using their savings and the equity in their home, my parents
purchased 2 pre-construction properties (at two different locations) at once. These
lofts were set to complete construction in 2 years. They used two of my siblings
names to purchase and take advantage of their first time homebuyer tax incentive
and to save on other tax implications (I can explain later, taxes are a whole other
ball game that depends on a lot of factors. This is not illegal as all parties were aware
and gave consent). Their plan was since my brother or sisters could not purchase at
the time themself they would take advantage and reimburse them this amount of
$4250 when they were ready to make their purchases if they were not eligible. 4
years later they were able to sell and make 3x what they originally invested in net profit on each property
while both were tenanted with no issues covering all expenses. They knew pre-
construction was the way to go because it takes time to build which in turn
appreciates in value and also gives them time to save for closing costs.

 

As a Realtor in my beginner years, my income would show up a little low with all the
tax write-offs – which made getting approved by the bank to buy a place somewhat
of a challenge. My parents were able to be my bank by using the equity in their
home and lent me over $100K to purchase my condo. No questions asked or
paperwork involved since we had was trust that I managed the principal and
interest payments. Don’t we all wish borrowing money from the bank would always be this easy?

 

After selling their two big-ticket condo/lofts and getting close to their retiring age,
they decided to partner up with my uncles to buy themselves a cottage. They fully
renovated their asset bringing the value up even more if appraised. They also
reinvested into another pre-construction townhome project again with a builder
that I was working closely with in Barrie where the cost was a lot lower for an up
and coming investment boom.

 

My sister who has been renting for a little while now had her 2 nd child a couple of
years ago. A 2-bedroom condo is ok for right now, however, my niece will
eventually need her own room. Rent is climbing up every year to ridiculous
amounts. Her income is not enough to support what the market is dishing out for 2-
3 bedroom condos. While she was lucky to get into a unit early below market, the
owner (who was an investor) decided to sell – which forced her into an even smaller
space for what she could afford. My parents wondered how they could help her so
that she was in a more comfortable space and not have to feel the pressure of being
kicked out of her next property. That was all I needed to hear to make my wheels
start turning and I found the perfect 3 bedroom pre-construction condo across from
her current condo. This property required money from their savings and equity but
also this is a bit of an out of pocket purchase because my parents will still have to
cover a bit of the overage from what my sister can’t afford monthly. This still ends
up to be a win-win situation because of the location and project this will surely
increase in value which they will get back and my sister gets a brand new space in
the same area for the kids to finish their education and a return for her contribution on this investment.

 

My parents are the most unselfish people and did not want a penny from any of my
profits from any of the personal purchases they helped me make. I still want to owe
them back one day not to mention they also lent me money to fully renovate my
home that I currently live in to force the appreciation as well, I was able to refinance and owe them back in full with interest. They are proud of the moves I’m making towards my independence and being financially free. Although
they didn’t take profit or sometimes not even have their name on the properties
they played an integral role in securing the funds to help make it possible. I could
not have done any of this without them and most importantly they could not have
done this without owning an asset and leveraging the equity to invest. This proves
to be future goals for myself and my growing family and for you and your legacy.
They always say the best time to buy real estate was yesterday so why not get started today.