Real Estate

Repay or Invest in second property

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  • Dec 29th, 2020 5:45 pm
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes

Repay or Invest in second property

Hi All ,
Newbie here and will appreciate suggestions/advice on weather I should pay out my existing mortgage ( outstanding mortgage balance 282k , property price is around 560k , will be coming up for renewal/ refinance in April 2021 ) as I am sitting on some 125 k cash or should I invest this cash as down payment to buy another property looking at low interest rates. Also what should be approach for buying second property -precon or anything available? Also is there any link to calculate cash flows ?
26 replies
Deal Addict
Jan 15, 2010
1114 posts
1304 upvotes
Toronto
You have 125k in cash in addition to the equity in the property? Are you currently invested in anything besides real estate?

Is the first property your primary residence? Also, where are you located and are you willing to be a landlord?
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
Yes that’s correct 125 k cash + equity in the property. I am moderately invested in tfsa , rrsp and equities ( through esops from my US employer) but not maxed out my limits yet.
First property is my primary residence . I am currently based out in Montreal, QC but looking for property outside preferably in Ontario Ottawa is my preference looking at its proximity to Montreal.
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Feb 8, 2014
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Being house rich but cash poor is not a great place to be when expenses come along.
And with interest rates lower than the rate of inflation you are investing in a strange way by paying down the mortgage.
That said over leveraging is not ideal either.
As for rental property being a landlord can be a cake walk or excruciating and expensive. Its a risk you are taking.

That said i don't have specific advice at this point because your age and income and family status would affect my advice.
In fact in Rand McNally they wear hats on their feet and hamburders eat people
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
I am in tech and so is my spouse we are in late 30’s and make more than 200 k annually. I am not able to find any good reference to run numbers which can help us in making so calculated decision
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Feb 8, 2014
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digibytes2020 wrote: I am in tech and so is my spouse we are in late 30’s and make more than 200 k annually. I am not able to find any good reference to run numbers which can help us in making so calculated decision
That changes things.
I don't know if you have kids but at 200K it should not be a huge deal.

I would renegotiate the mortgage with the best rate you can find but make sure you can pay it off in total without penalty (none of that 10% per year nonsense, at least 20% per year so a 5 year term at rates below inflation means you can slap money on it and never have to pay a higher rate if paid off within 5 years). Frankly at this time you could put the money into one of 2% promos and make more than the mortgage interest, guaranteed.
I would max out your RRSPS, TFSAs and so forth. And a healthy job loss fund and liquid savings to draw on. You may even consider going for FIRE.
You might consider this 125K your multi use fund, in case of job loss or slap on the mortgage after 5 years of interest accumulated plus whatever else you pay off assuming your jobs let you pay above the monthly minimum. This keeps cash liquid but doesn't cost you anything, in fact you come out ahead.
You could invest it for 5 years but if your thinking of mortgage paying off you probably want something more guaranteed.

As for rental property do you want to be a landlord if you have a headache property?

In Ontario its very tenant oriented, they can almost get away with murder. The law assumes all landlords are corporations with billions of dollars and infinite time on their hands to fix problems and money to throw at them (hoping to make a profit someday). This is not an exaggeration, a tenant who knows how to play the laws can do everything short of burning down the house and your on the hook for it (and perhaps you can garnish their wages if they decide its worth working and paying you). You actually have to count on tenants who don't know the laws in and out and are not interested in screwing you. Hence its a big gamble. I have no idea how it works in Quebec.
But if all the stars align you can make decent money being a landlord, but one bad apple and your screwed. On the flip side you can buy REITs that aggregate the risk and have employees who handle problem tenants and you own a basket of properties hence one bad apple has limited downside effects (and they probably have lawyers on staff).

So my general advice is meet with a fee based financial planner, live below your means (but well), renegotiate your mortgage but be able to pay it down quickly (hash this plan out with the financial planner), consider having substantial savings so you can retire early if you wish (and if you don't you will be setting yourselves up for having a very healthy portfolio) and i would personally skip the income property bit at this stage and invest elsewhere, if you both work full time then you don't need the headache. But if you want to try it anyways consider if Quebec law works in your favour vs Ontario law and find other resources (such as online message forums) for landlords in the province you wish to invest in and ask them for advice.
In fact in Rand McNally they wear hats on their feet and hamburders eat people
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Feb 8, 2014
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digibytes2020 wrote: Many thanks and Appreciate your suggestions!
Your welcome.
I'd be happy to hear what you decide upon.
In fact in Rand McNally they wear hats on their feet and hamburders eat people
Sr. Member
Oct 21, 2016
904 posts
664 upvotes
digibytes2020 wrote: Hi All ,
Newbie here and will appreciate suggestions/advice on weather I should pay out my existing mortgage ( outstanding mortgage balance 282k , property price is around 560k , will be coming up for renewal/ refinance in April 2021 ) as I am sitting on some 125 k cash or should I invest this cash as down payment to buy another property looking at low interest rates. Also what should be approach for buying second property -precon or anything available? Also is there any link to calculate cash flows ?
Are you invested in the stock market maxed TFSA and RRSP or have a non regisrered account if not then I would diversify . This has been a great run last couple years for the stock market particularly US equities don't miss out. If you don't know much about stocks then throw it into a growth oriented ETF research QQQ , VGT , ARK , ICLN as a starting point
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
Sure I’ll keep forum posted first thing I am planning to do is to take appointment of mortgage consultant!
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
Thanks for your suggestion , We haven’t maxed out our tfsa or rrsp yet have started with Vfv , xeqt and planning to invest at least 75% max of my tfsa in coming years I will definitely look into the ones suggested for sure...
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digibytes2020 wrote: Sure I’ll keep forum posted first thing I am planning to do is to take appointment of mortgage consultant!
Bear in mind the consultant will tell you what makes him the most profit, though i don't know how their fee structure works.
This is why i recommended a fee based financial planner, they have no conflicts of interest because they sell no financial products. But research whoever you choose carefully.
In fact in Rand McNally they wear hats on their feet and hamburders eat people
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Feb 8, 2014
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I just saw this thread, i only read part of the first page but i suspect its enough to get your feet wet as to what could happen.
eviction-professional-tenant-2424361/
In fact in Rand McNally they wear hats on their feet and hamburders eat people
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
That’s scary .... i was reading about tenants law in QC and they are similar to Ontario
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Feb 8, 2014
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digibytes2020 wrote: That’s scary .... i was reading about tenants law in QC and they are similar to Ontario
That sucks, so its not only an Ontario phenomenon then :facepalm:
In fact in Rand McNally they wear hats on their feet and hamburders eat people
Sr. Member
Jun 14, 2018
952 posts
1039 upvotes
Invest the money in index funds. Late 30s, $200k total income and only $282,000 left on your mortgage. I think you're well on your way to a comfortable retirement without having to deal with the headaches of being a landlord.
Jr. Member
Sep 19, 2018
133 posts
242 upvotes
MarinersFanatik wrote: Invest the money in index funds. Late 30s, $200k total income and only $282,000 left on your mortgage. I think you're well on your way to a comfortable retirement without having to deal with the headaches of being a landlord.
There’s definitely merit to this argument. Absolutely nothing sexy about it but with that income and that time horizon topped out rrsp and tfsa plus some additional invested will compound nicely.
Member
Oct 14, 2010
217 posts
133 upvotes
Toronto
If you think RE will go up and you can stomach handling tenants then I would do both investing and a rental. Don't forget the leverage play with RE.
[OP]
Newbie
Jun 17, 2020
24 posts
8 upvotes
Thanks all for your suggestions...all of them make lot of sense . It seems most of the asset classes RE /ETF’s/Equity will all come with its merits and demerits. I am now thinking first to analyze my current exposure to each of these asset classes . Trying to understand cost of management for each of them and associated taxation on higher level without going into nitty-gritty’s and how much time and attention each will need in future from my end ....
Jr. Member
Dec 5, 2020
104 posts
106 upvotes
Pay off your mortgage and set up a line of credit and then decide what you want to do.

Interest on your line is tax deductible for investments so that offsets some of the cost of capital.

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