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Creating Choice Through Real Estate - The 4 Risk Factors, and How to Mitigate them!

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Matthew Lee Presentation - Feb. 29, 2016

Published in: Real Estate
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Creating Choice Through Real Estate - The 4 Risk Factors, and How to Mitigate them!

  1. 1. Working on my 1st Investment Property Have 1 or more Investment Properties
  2. 2. Matthew Lee, Managing Partner matthew@volitionprop.com (416) 937-5251 [Volition (vō-ˈli-shən): the power to make your own choices or decisions; free will.]
  3. 3. Tonight’s Meetup is brought to you by… 416.410.9905 clientcare@calumross.com
  4. 4. 15 MINUTE NETWORKING BREAK Find one person and share one real- estate related WIN in the past month that you’ve achieved!!
  5. 5. Creating Choice Thru Real Estate Importance of Holding For The Long Term 4 Risk Factors in Real Estate Multiplier Effect Understanding The Fundamentals
  6. 6. The Importance of Holding For The Long- Term
  7. 7. $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Property Value Mortgage Balance Purchase: $500k Initial investment: $100k Mortgage: Standard 25yr, 3% Assume: $1M value (double in 25 years) $100k $385k $765k Years Initial investment of $100k is now worth $765k Importance of Holding For The Long Term
  8. 8. Creating Choice Thru Real Estate Importance of Holding For The Long Term 4 Risk Factors in Real Estate Multiplier Effect Understanding The Fundamentals
  9. 9. The Multiplier Effect From $60k to $6M & $200k cashflow in 20 years
  10. 10. Year 3 Year 6 Year 9 Year 12 … and then you wait. ACQUISITION PHASE
  11. 11. Creating Choice Thru Real Estate Importance of Holding For The Long Term 4 Risk Factors in Real Estate Multiplier Effect Understanding The Fundamentals
  12. 12. The 4 Risk Factors in Real Estate
  13. 13. The 4 Risk Factors in Real Estate (and How to Mitigate Them!) •  Don’t just buy because it’s “CHEAP” •  Don’t spend your cashflow!! Build reserve fund for unforeseen problems. Property Risk •  Buy in markets with strong economic fundamentals •  READ: “Secrets of Canadian Real Estate Cycle” Market Risk •  Know your tenant profile, attract a high-quality tenant •  SCREEN, SCREEN, SCREEN!! Tenant Risk •  Educate yourself & keep up-to-date •  Build your “Real Estate Dream Team” Investor Risk ExternalInternal
  14. 14. The 4 Risk Factors in Real Estate (and How to Mitigate Them!)
  15. 15. The 4 Risk Factors in Real Estate (and How to Mitigate Them!)
  16. 16. Creating Choice Thru Real Estate Importance of Holding For The Long Term 4 Risk Factors in Real Estate Multiplier Effect Understanding The Fundamentals
  17. 17. Investment Property Case Study 14 Symington
  18. 18. 14 Symington Ave Toronto Ontario M6P3W1 Sold: $700,000 List: $589,000 Taxes: $2,559.58 / 2015 For: Sale % Dif: 119 SPIS: N Last Status: Sld Plan M23 Pt Lot 10 DOM: 8 Att/Row/Twnhouse 2-Storey Irreg: Fronting On: W Acreage: 14.67 x 125 Feet Rms: 7 + 3 Bedrooms: 3 + 1 Washrms: 3 1x4xGround, 1x4x2nd, 1x4xBsmt MLS#: W3279329 Seller: Jamaal Joseph And Bertram Evingston Joseph Occupancy: Partial PIN#: ARN#: Contact After Exp: N Holdover: 90 # Room Level Length (ft) Width (ft) Description 1 Living Ground 12.96 x 11.64 Laminate Window 2 Kitchen Ground 12.30 x 11.32 Ceramic Floor Ceramic Back Splash W/O To Yard 3 Dining Ground 11.32 x 8.36 Ceramic Floor Large Window 4 Br Ground 11.64 x 10.00 Hardwood Floor Window 5 Living 2nd 14.27 x 10.99 Hardwood Floor W/O To Balcony Window 6 Kitchen 2nd 11.32 x 8.36 Ceramic Floor W/O To Balcony 7 Br 2nd 11.32 x 9.02 Hardwood Floor Closet Window 8 Living Bsmt 16.24 x 10.00 Vinyl Floor Combined W/Dining 9 Kitchen Bsmt 9.02 x 6.72 Vinyl Floor 10 Br Bsmt 11.32 x 7.05 Laminate Closet Window Toronto W02 Dovercourt-Wallace Emerson-Junction Toronto 114-14-Q Dir/Cross St: Bloor / Symington Kitchens: 2 + 1 Fam Rm: Y Basement: Finished / Sep Entrance Fireplace/Stv: N Heat: Forced Air / Gas A/C: None Central Vac: Apx Age: Apx Sqft: Assessment: Laundry lev: Exterior: Brick / Insulbrick Drive: Lane Garage: Detached / 2.0 Park Spaces: 1 UFFI: Pool: None Prop Feat: Fenced Yard, Park, Public Transit Zoning: Cable TV: Hydro: Gas: Phone: Water: Municipal Water Supply: Sewer: Sewers Waterfront: Retirement: Farm/Agr: Oth Struct: Spec Desig: Unknown Client Remks: Ideal Investment Opportunity In A Great Location!! Minutes To Subway And Go Station!! Great Curb Appeal! Victorian Style House With Three Self-Contained Units! High Ceilings On Main & Second Floor; Lovely Front Veranda; Second Floor Balcony; Deep Lot With Fully Fenced Yard, Storage Shed, And Detached Garage; Separate Front Entrance To Basement. Steps To Bloor Street - Close To All Needs! Don't Miss It! Extras: Electric Light Fixtures; 3 Fridges; 3 Stoves; Gas Burner & Equipment. Brkage Remks: Offers To Be Reviewed Tuesday, August 11th @ 7:00Pm, At Lb Office. Please Register By 5:00Pm. Attach Schedule B & Form 801 To Offers W/ 24 Hour Irrevocable. Deposit Cheque Must Be Certified & Herewith. Prepared by: MATTHEW RICHARD LEE, Salesperson RIGHT AT HOME REALTY INC., BROKERAGE 895 Don Mills Road Suite 112, Toronto, ON M3C1W3 416-937-5251 Printed on 01/21/2016 4:07:02 PM
  19. 19. 14 Symington Ave Toronto Ontario M6P3W1 Sold: $700,000 List: $589,000 Taxes: $2,559.58 / 2015 For: Sale % Dif: 119 SPIS: N Last Status: Sld Plan M23 Pt Lot 10 DOM: 8 Att/Row/Twnhouse 2-Storey Irreg: Fronting On: W Acreage: 14.67 x 125 Feet Rms: 7 + 3 Bedrooms: 3 + 1 Washrms: 3 1x4xGround, 1x4x2nd, 1x4xBsmt MLS#: W3279329 Seller: Jamaal Joseph And Bertram Evingston Joseph Occupancy: Partial PIN#: ARN#: Contact After Exp: N Holdover: 90 # Room Level Length (ft) Width (ft) Description 1 Living Ground 12.96 x 11.64 Laminate Window 2 Kitchen Ground 12.30 x 11.32 Ceramic Floor Ceramic Back Splash W/O To Yard 3 Dining Ground 11.32 x 8.36 Ceramic Floor Large Window 4 Br Ground 11.64 x 10.00 Hardwood Floor Window 5 Living 2nd 14.27 x 10.99 Hardwood Floor W/O To Balcony Window 6 Kitchen 2nd 11.32 x 8.36 Ceramic Floor W/O To Balcony 7 Br 2nd 11.32 x 9.02 Hardwood Floor Closet Window 8 Living Bsmt 16.24 x 10.00 Vinyl Floor Combined W/Dining 9 Kitchen Bsmt 9.02 x 6.72 Vinyl Floor 10 Br Bsmt 11.32 x 7.05 Laminate Closet Window Toronto W02 Dovercourt-Wallace Emerson-Junction Toronto 114-14-Q Dir/Cross St: Bloor / Symington Kitchens: 2 + 1 Fam Rm: Y Basement: Finished / Sep Entrance Fireplace/Stv: N Heat: Forced Air / Gas A/C: None Central Vac: Apx Age: Apx Sqft: Assessment: Laundry lev: Exterior: Brick / Insulbrick Drive: Lane Garage: Detached / 2.0 Park Spaces: 1 UFFI: Pool: None Prop Feat: Fenced Yard, Park, Public Transit Zoning: Cable TV: Hydro: Gas: Phone: Water: Municipal Water Supply: Sewer: Sewers Waterfront: Retirement: Farm/Agr: Oth Struct: Spec Desig: Unknown Client Remks: Ideal Investment Opportunity In A Great Location!! Minutes To Subway And Go Station!! Great Curb Appeal! Victorian Style House With Three Self-Contained Units! High Ceilings On Main & Second Floor; Lovely Front Veranda; Second Floor Balcony; Deep Lot With Fully Fenced Yard, Storage Shed, And Detached Garage; Separate Front Entrance To Basement. Steps To Bloor Street - Close To All Needs! Don't Miss It! Extras: Electric Light Fixtures; 3 Fridges; 3 Stoves; Gas Burner & Equipment. Brkage Remks: Offers To Be Reviewed Tuesday, August 11th @ 7:00Pm, At Lb Office. Please Register By 5:00Pm. Attach Schedule B & Form 801 To Offers W/ 24 Hour Irrevocable. Deposit Cheque Must Be Certified & Herewith. Prepared by: MATTHEW RICHARD LEE, Salesperson RIGHT AT HOME REALTY INC., BROKERAGE 895 Don Mills Road Suite 112, Toronto, ON M3C1W3 416-937-5251 Printed on 01/21/2016 4:07:02 PM
  20. 20. Exterior Main Floor
  21. 21. Main Floor (cont) 2nd Floor
  22. 22. 2nd Floor (cont) Bsmt
  23. 23. Bsmt (cont) Backyard
  24. 24. Other stuff to consider:
  25. 25. Other stuff to consider:
  26. 26. 2nd Floor (After reno)
  27. 27. PRO FORMA EXECUTIVE SUMMARY Initlal Investment Overview Net Investment After Reno/Refinance Property: 14 Symington Purchase Value: $750,000 # of Units: 3 Original Mortgage (80% LTV): $600,000 Purchase Value: $750,000 After Repair Value: $825,000 After Repair Value: $825,000 After Repair Value Mortgage (80% LTV): $660,000 Length of Investment (Years): 7 Equity Takeout: $60,000 Downpayment Required: $150,000 Initial Investment Required: $226,250 Closing Costs & Reserve Fund Required: $26,250 Net Investment: $166,250 Renovation Costs: $50,000 Initial Investment Required: $226,250 DETAILED SUMMARY Projected Income & Expense Projected Returns over 7 year timeframe % Monthly Annual Cash Returns Income Total Cashflow $106,790 $119,276 $132,181 Gross Rental Income $4,750$57,000 +Total Mortgage Paydown $115,314 $115,314 $115,314 +Initial Reno Equity Lift $12,500 $25,000 $37,500 Expenses +Total Y/Y Appreciation $122,666 $189,646 $260,644 Monthly Mortgage ($660000, 30yr) 2.25% $2,523$30,274 Total Profit $357,270 $449,237 $545,639 Property Taxes $250 $3,000 Insurance $150 $1,800 Hydro $150 $1,800 Annual % ROI on Net Investment Gas $125 $1,500 Cash-On-Cash ROI % 9.18% 10.2% 11.36% Water $75 $900 +Equity-On-Cash ROI % 9.91% 9.9% 9.91% Property Management 0% $0 $0 +Initial Reno Equity Lift ROI % 1.07% 2.1% 3.22% Maintenace 5% $238 $2,850 +Y/Y Appreciation ROI % 10.54% 16.3% 22.40% Vacancy 4% $190 $2,280 Total Profit ROI % 30.7% 38.6% 46.9% Total Hard Expenses $3,700$44,404 Profit Scenario Analysis Cashflow $1,050$12,596 Conservativ e Target Optimisti c Contingency Fund (savings for Maintenance & Vacancy) $428 $5,130 Annual Appreciation 2.0% 3.0% 4.0% Mortgage Paydown $1,285$14,272 Annual Rent Increase 2.0% 3.0% 4.0% Annual Appreciation 3% $2,063$24,750 Investor Partner Total Profit: $357,270 $449,237 $545,639 Projected Gross Income $4,398$52,770 Investor Annual ROI: 30.7% 38.6% 46.9%
  28. 28. 1.  Investor-focussed Real Estate Agent 2.  Advisory/coaching/mentorship for Real Estate Investors 3.  Joint Venture Partnerships Matthew Lee, Managing Partner matthew@volitionprop.com (416) 937-5251 Services we offer:
  29. 29. If you take your financial goals seriously and are looking for a mortgage team who understands the big picture – we would love to serve you! 1-855-410-9905 or 416-410-9905 www.CalumRoss.com
  30. 30. 1) •  Next meetup is March 31. Put into your calendar. (Location TBD) 2) •  Leave review on Meetup.com •  Fill out Feedback Forms. 3) •  Contact Calum if you want to talk financing. •  Contact me if you want to buy your next investment property

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