This is the second installment on how we bought our first income property. You can read the other posts here:

How we bought our first income property – Part I (The Preparation)
How we bought our first income property – Part III (Due Dilligence)

Everyone has heard it:

Location, Location, Location…

This holds true, and I would argue even more so, when it comes to income properties.  When we first started looking into markets we were still living at Yonge and Sheppard in Toronto.  If you’re familiar with Toronto you’re aware that real estate in that area can cost your first born.  Even though I’m convinced I will inevitably screw up my first born and would do better on a second attempt, I’m still hesitant to give him/her up for a piece of property… just in case they turn out alright.

So we looked elsewhere.  We started looking in Durham Region.  I was comfortable with that area having grown up in Whitby for most of my life.  Whitby had an established college (Durham College) and a new and growing university (UOIT).  Unfortunately, in response to some unhappy homeowners around the campus there were tight restrictions and heavy fees being implemented for student rentals in the area that limited the ability to have a 5th room in a basement or convert a single family dwelling into a duplex.  Both of those are key for that area in order to have a cash flowing property.

We turned our attention off the student market and looked elsewhere.  The only area we found with half-decent cash flow was in the slum areas of Oshawa which would’ve attracted non-ideal tenants (to put it nicely) and would of had us holding below average property.

We found similar results looking in surrounding Ajax and Pickering.  There may of been money to be made, but it was cutting the cash flow too tight for our liking.  It was time to move on.

We turned our focus back to student housing and started looking in affordable student neighbourhoods of Kitchener/Waterloo, Guelph, Hamilton, London, and Windsor.  We started to see more possibilities.  We looked at a few properties in Guelph that had some potential.  The cash flow was still a bit tight, but the quality of house was higher.  It would of attracted quality tenants and would be easy to sell when we wanted to as many of the properties could easily be single family starter homes (the most liquid homes out there are single family starter homes).

We seriously considered a place in Guelph, but at the end of the day a combination of lack of investment capital and a feeling of not being quite comfortable enough with the area caused us to move on.  We were being shown around the Guelph area by a family friend who has kids attending the university there.  We learned a lot about the area, but having not spent much time there ourselves it wasn’t enough.

Naturally, we felt much more comfortable in London.  We went to school there and knew the neighbourhoods.  We once again started out looking at student rentals.  Our focus was put there first as student rentals tend to cash flow easier than other rentals because you can charge a slight premium by renting the house out at a per-room rate split between a handful of students rather than a per-house rate covered by a single family.

The student market in London was changing though.  The “red brick” style apartments were popping up everywhere.  These were newly built, spacious townhouse-style rentals for students that were close to the university and on some great bus routes.  Houses that were always fully rented despite the clear lack of maintenance started to go vacant.  Students had options in and around the university now and if you wanted your house rented it needed to be more than four walls and a roof on a bus route.  We were still fans of student housing around the university but it was important to be picky on the properties.

Around this time I received a job offer in London.  We hadn’t really planned on leaving Toronto but both Maggie and I loved London and when the job was mine we decided to take the dive and go for it.  Now we were even more confident London would be where we focus our efforts on finding an income property as being in the area makes it exponentially easier (and more affordable) to manage.

Shortly after we moved we continued to learn the London market.  We became very familiar with the student market as well as the multi-family market.  London has a handful of areas where multi-family homes are available:

1. Wortley Village / Old South:Contained by Beachwood on the West, Ridout on the East, Horton on the North, and Baseline on the south this area had a nice diversity of multi-family properties mixed in with single family homes.  It is a mix of student and long-term renters with the trendy Wortley Village downtown area just steps away.
   
2. The Hamilton Road Stretch:Stretching from Adelaide to Clarke road, the strip along Hamilton contains many multi-family properties at affordable prices.  A few blocks north and south in either direction also have their fair share of multi-family properties.  This area is a bit more rough and while the cash flows can be quite strong its important to be picky.  Tenants aren’t always ideal in this area and it seems that previous owners with properties in areas like this don’t always seem to keep up on maintenance.  There are some gems in the area, but a lot of duds.  More suitable for someone with the cash to both purchase and do major renovations.
   
3. Richmond Row:Richmond and Oxford area stretching down to Richmond and Dundas.  From the river on the Wast to Colborne/William on the East.  This is a desirable area of London, and where I lived for three of my years at Western.  Historic properties, great access to amenities, always easy to rent.  The tradeoff is that this area is significantly more expensive and most properties here just don’t cashflow out of the gate without a significant investment.
   
4. Dundas and Adelaide Strips:Running from Richmond along Dundas Street and North up Adelaide you’ll find a variety of multifamily properties.  While there are always exceptions for certain pockets, these areas are not overly desirable by the type of tenants we prefer.  They are worth looking at, and the city is pouring a lot of money into the Dundas strip trying to revitalize that area.  So far we haven’t found anything along those two strips that appealed to us.
   

I did not cover all the areas, and within the areas I did mention there can be differences block to block – but you get the idea.  These are the areas we chose to keep a close eye on.  I check the listing feeds daily for new postings in these areas and monitor the sales of specific properties.

We were quickly becoming area experts and when the right property popped up its head, we were ready…

This is the second installment on how we bought our first income property. You can read the other posts here:

How we bought our first income property – Part II (Market Research)
How we bought our first income property – Part III (Due Dilligence)

The process of buying any type of property can be daunting.  Buying investment property adds a little more complexity.  Buying the property we ended up choosing resulted in more obstacles to overcome along the way.

At the time of writing, we are about three weeks from closing on the property that we have been working on since early June.

In the next few posts I’ll take you through our process and give you a look at how we prepared, why we chose this property, and the obstacles we encountered along the way.

Setting up the Company

We plan on building a portfolio of investment properties over time.  For a variety of reasons ranging from liability to tax benefits it made sense to incorporate a company to hold the houses rather than hold it under our own names.  The incorporation process wasn’t difficult but we decided to hire someone to take care of all the paper work.  This ran us about $600 and took care of all the filing with the government and the set up of all the initial documents (articles of incorporation) that specify name of the company, director roles, ownership percentages, purpose of the company, company charter, etc.

Once we had our articles of incorporation and our corporation number (you get this from the government after everything is processed) we were ready to open the business bank account.  We went with the small business account at RBC.  They charge $6/month for minimal transaction volumes which suited our needs nicely.

The next piece of the puzzle was some documentation to get us started outlining the terms of the Joint Venture deals we were planning on using.  We didn’t want to pay a lawyer to write the  legalese from scratch so we had been looking elsewhere.

In fact, in the months leading up to this we were doing a whole lot more than looking.  I started taking the necessary courses to become a Realtor in Ontario.  At the same time we were absorbing as much experience as we could from others who had walked the walk.  One of the best resources we found was Julie and Dave over at RevNYou.  They are seasoned real estate investors based out of BC that have a great starter package for JV partnerships.  We ordered the package, and used many of the templates they provided as the starting point for our own documents.  We also joined their mentoring program which provided a wealth of information through calls with experts and the simple act of sharing past experiences.

The company was incorporated, the bank accounts established, and our contracts prepared.  We were theoretically ready to purchase.  All we needed was a quality income property and the funds to buy it.  Minor details, right?