A Tale of Two Cities – An Investor’s Story


This story takes place in modern day times! The story is about a real estate investor who has to decide between two properties. One property is in the bustling and over-priced city of Toronto and the other property is in a smaller community to the west known as Kitchener.

The Toronto property is in Guildwood – a sought after area of Scarborough but backs on to a Go Train track. The home is beautiful and offers a main floor with the potential for a basement apartment but it would need renovations to make it happen. The price is $749,000.

The property has been sitting on the market for 31 days in a sought after area because of it’s close proximity to the train tracks. What happens in a few years when my client wants to sell this property – will he have the same issues as the current owner? Even in a seller’s market? Probably!

The Kitchener property is in a sought after area with schools and shopping nearby and also has the potential to add a basement suite but the separate entrance would have to be built-in. The asking price is $325,000.

Seems like a no-brainer right? But let’s look at the numbers to see what makes more sense!

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I’ll base both scenario’s on the same interest rate of 5 year fixed of 2.59% with 30 year amortization. However with the Toronto property he would require a hefty 25% down in order to make the debt ratios work and with Kitchener only 20% down.

Toronto Property:

Purchase Price $749,000
Down payment 25% $187,250
Rate 2.59%
Amortization 30 years
Term 3 years

Monthly Mortgage $2,241.89
Property Taxes $350
Rental Income $1,850 + Utilities

Net Rental Income -$741.89
In order to give him the positive cash flow he needed he would need to finish the basement for another $30,000 – $50,000 and be able to rent it out for $950-$1,000 which would give him approx. $258 in cash flow.

Pros and Cons of this property:
• PRO -Close to highways
• PRO -Good area
• PRO- Higher appreciation
• CON -Backs onto Go Train
• CON-Needs to complete basement in order to cash flow
• CON -Needs 25% down to purchase this property – a hefty $187,250

Kitchener Property:

Purchase Price $325,000
Down payment 20% $65,000
Rate 2.59%
Amortization 30 years
Term 3 years

Monthly Mortgage $1,037.64
Property Taxes $275
Rental Income $1,450 + Utilities

Net Rental Income $138

The basement is finished – he just needs to build a separate access, which will cost approx.. $20,000 and he can then rent out the basement for an additional $900 in that area, which means he cash flows $1,037.64 – exactly what his mortgage is – he doubles his mortgage payment!

Pros and Cons of this property:
• PRO -He can easily build the access for 2nd basement suite
• PRO -He can cash flow even without adding the 2nd suite
• CON -Lower Appreciation
• PRO -Lower Downpayment needed
• PRO -Ability to Purchase another property with savings from down payment

With the Toronto property in ordinary circumstances he would have no issues renting it out but there is the train track to consider and not every tenant would be willing to live near a train trace, even if he was.

The Kitchener property although in a nice area, would not appreciate as much as the Toronto property. However with this property he would only be required to put 20% down, he would have twice the rental income (once he put the entrance to the finished basement in) and he would have enough money left over (in his budget) to purchase a second property within a few months.

When you are out there looking at properties I know you are doing a full analysis but also consider the pros and cons of the property itself. Look at it with the eyes of your potential tenant!

Happy shopping and I hope if you come across a Tale of Two Cities of your own, you will share it with us! I would be interested to know how you made the decision to purchase your rental property – was it as difficult for you as it was for my client? Please write and share your story!

I can be reached at amina@aminas-ms.ca or 416 697-5443.
To Your Wealth! Amina

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