1st investment property deal!

Well, here we are. Put up or shut up as they say. Here's the lowdown on our first real estate investment property.

2 bdrm condo located approximately 15 mins from downtown Ottawa, near numerous key amenities such as city transit, schools, daycare, shopping, library, skating rink and even a wave pool. The unit is already rented for a newly signed one year lease at $1000/mos with both first and last month rent paid up. The condo fees cover all utilities. The unit has indoor parking, pool, sauna, hottub, and a games room. Other 2bdrm's in the building are going for $120k - $140k, however they have had some work done to upgrade the units.

Asking price: 112,500
Condo fee: 394/mos
Properyt Tax: approx 100/mos
Insurance: approx 50/mos

As of August 2nd, 2007 a competitive 5 year fixed mortgage rate would be 5.79%, however the unit had a locked in rate of 5.25% for a 5 year fixed.

So, if we offered $105,000 then we'd have to decide between 0%, 5%, 10% or 20% down. Let's break down the numbers.

A. 0% -- I don't really like this scenario because my goal is get more equity in the next 2-3 years to reinvest again, and this would mean that my monthly payments are comprised of interest.

B. 5%
105,000 - 5250 = 99,750

99,750 mgt amt. @ 5.25 % = 594 / mos / 25yr amtz
99,750 mgt amt. @ 5.25 % = 494 / mos / 40yr amtz

$494 /mos
+394 /mos
+100 /mos
+ 50 /mos
---------
$988

That leaves $1000 (rent) - $988 = $12.00 profit (good for 1 foot long club, 2 cookies and large chocolate milk at Subway + tip)


C. 10%
105,000 - 10,500 = 94,500

94,500 mgt amt. @ 5.25 % = 563 / mos / 25yr amtz
94,500 mgt amt. @ 5.25 % = 468 / mos / 40yr amtz

$468 /mos
+394 /mos
+100 /mos
+ 50 /mos
---------
$962

That leaves $1000 (rent) - $962 = $38.00 profit.


Both B. and C. show minimal profit, however they are a profit and the initial price point of the condo is fairly affordable for the Ottawa market. Three key features for me are the locked in rate of 5.25%, the initial price point, and the fact that it is rented and in my opinion a rentable area of town.

Evaluation: This property meets my financial evaluation and I'm also prepared to take a monthly rental loss if required. This would go against my net income and the expected monthly loss is manageable for 2-3 months if some unforseen situation occurs.

I've decided to proceed with my second viewing and continue my evaluation of the area and the building itself.

In our next post I'll introduce a quick calculation to help you evaluate real estate investment deals.