Contact : Greg 416 625 3668 greg@georgetownrental.net
Residential Property Management Mississauga Georgetown Brampton Milton Oakville Etobicoke Toronto GTA
Case Study
Many people ask me are rental properties a good investment.
I always reply by recounting the story of my first property purchased in 1994.
This case study is based on that.
I always reply by recounting the story of my first property purchased in 1994.
This case study is based on that.
In 1994 I purchased my first rental property. It was a semi detached 30 year old house with a basement apartment.
Purchase price was $147,000.00.
I used only $20,000.00 of my own money and used CMHC for the rest. CMHC insures high ratio mortgages like these with
less than a 25% down payment.
I was able to rent out the upstairs for $900 and the basement for $600 giving me positive cash flow on a monthly basis with
a small surplus to use for maintenance and repairs. I have owned this property for 15 years and have had positive cash
flow every year, never had it vacant for longer than a month (usually done on purpose to renovate or upgrade), and have
been very lucky with all my tenants (some more than others).
Additionally the rents have gradually increased over time and my mortgage payment has reduced. So much so that these
surpluses helped to finance my second property purchased in 2002. I have never put another cent of my own money into
the property. All repairs, upgrades and maintenance have been paid by rent surplus, or put on a line of credit and paid for
from future surpluses.
Today this property is worth a conservative $245,000.00 a gain of $98,000.00.
My initial mortgage of $127,000.00 is now at $85,000.00 a gain of $42,000.00
Total gain is $98,000.00 + $42,000.00 = $140,000.00 over the last 15 years.
This $140,000.00 gain is on an initial investment of only $20,000.00 and represents an average compound annual return
of 14%.
I do not have another investment that has increased at this rate. Conservatively you can expect an increase in value of a
property of 3-5% annually and if your mortgage is being paid down 3-5% annually by your tenant then you can expect a
return of 6-10% annually.
However if you get lucky and have great property increases as we have been enjoying the last few years, combined with
low interest rates as we have had it can be a lot more.
Bottom line......rental properties are a great investment!
Purchase price was $147,000.00.
I used only $20,000.00 of my own money and used CMHC for the rest. CMHC insures high ratio mortgages like these with
less than a 25% down payment.
I was able to rent out the upstairs for $900 and the basement for $600 giving me positive cash flow on a monthly basis with
a small surplus to use for maintenance and repairs. I have owned this property for 15 years and have had positive cash
flow every year, never had it vacant for longer than a month (usually done on purpose to renovate or upgrade), and have
been very lucky with all my tenants (some more than others).
Additionally the rents have gradually increased over time and my mortgage payment has reduced. So much so that these
surpluses helped to finance my second property purchased in 2002. I have never put another cent of my own money into
the property. All repairs, upgrades and maintenance have been paid by rent surplus, or put on a line of credit and paid for
from future surpluses.
Today this property is worth a conservative $245,000.00 a gain of $98,000.00.
My initial mortgage of $127,000.00 is now at $85,000.00 a gain of $42,000.00
Total gain is $98,000.00 + $42,000.00 = $140,000.00 over the last 15 years.
This $140,000.00 gain is on an initial investment of only $20,000.00 and represents an average compound annual return
of 14%.
I do not have another investment that has increased at this rate. Conservatively you can expect an increase in value of a
property of 3-5% annually and if your mortgage is being paid down 3-5% annually by your tenant then you can expect a
return of 6-10% annually.
However if you get lucky and have great property increases as we have been enjoying the last few years, combined with
low interest rates as we have had it can be a lot more.
Bottom line......rental properties are a great investment!
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