{"id":3218,"date":"2013-04-04T10:27:39","date_gmt":"2013-04-04T15:27:39","guid":{"rendered":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=3218"},"modified":"2017-11-19T20:07:54","modified_gmt":"2017-11-20T01:07:54","slug":"investing-in-real-estate-it-takes-money-to-make-money","status":"publish","type":"post","link":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=3218","title":{"rendered":"Real estate: It takes money to make money"},"content":{"rendered":"

\"\"<\/a><\/p>\n

Real estate broker Joyce Wong has seen several clients invest in secondary properties as an extra source of income.<\/p>\n

For most homeowners, paying off the mortgage is the top priority. It\u2019s almost counterintuitive to refinance a mortgage-free property and invest in another, but that\u2019s exactly what self-proclaimed money and life consultant Noreen Kho prescribes.<\/p>\n

\u201cEverybody has a dream of paying off their home, and I never understand,\u201d says Kho, a Home Loans Canada mortgage broker in Richmond Hill, Ont.<\/p>\n

She\u2019s seen it time and again. Homeowners eagerly pay off mortgages while credit card payments, car loans and student debt pile up.<\/p>\n

\u201cMortgage is actually something good,\u201d says Kho.<\/p>\n

With relatively low interest rates, mortgages force people to save through regular payments. By overcoming the fear of having a mortgage, Kho says people can put their money to work, rather than letting it sit in a mortgage-free home. It\u2019s an investment strategy she boasts as \u201cbulletproof.\u201d<\/p>\n

THE PLAN IN ACTION<\/b><\/p>\n

<\/b>For unemployed single parents like my mother, Eva Sze, a bulletproof money-making plan is hard to pass up. Sze was completely debt free and stopped working in 2000, but a divorce in 2005 made it harder to pay the bills. She says Kho\u2019s method of refinancing her house and investing in secondary properties sounded \u201cquite safe.\u201d<\/p>\n

\u201cMoney won\u2019t come by itself,\u201d Sze says. \u201cIt sounds right to use your money to generate more money.\u201d<\/p>\n

So began her five-year plan with Kho, taking out a $300,000 mortgage in 2007 to invest in stocks and real estate.<\/p>\n

Secondary properties are the way to harness market gains, insists Kho. Through time, she says home values rise, but homeowners only benefit if they have properties to sell.<\/p>\n

RIDING OUT THE MARKET<\/b><\/p>\n

Sze hired Joyce Wong, her longtime friend and a Toronto-based broker with Right at Home Realty, and purchased a townhouse and a pre-constructed condo unit.<\/p>\n

Although secondary properties can help build equity, says Wong, it only works with market upswings.<\/p>\n

A TD Bank report released in March however forecasts flat home prices for the next decade. Prices climbed seven per cent per year in the last 10 years, but are projected to grow just two per cent in the next decade. During downturns, as TD predicts will be the case until 2015, Wong says investors must be mentally strong.<\/p>\n

\u201cThis is quite stressful,\u201d says Wong. \u201cIt\u2019s your money you\u2019re playing with.\u201d<\/p>\n

Kho\u2019s plan relies on real estate appreciating two per cent annually, but it took Sze\u2019s townhouse three years to gain two per cent.<\/p>\n

Making matters worse, Sze struggled with a high tenant turnover. She had eight renters in five years between her two properties. Each stayed barely a year. Even then, rental income barely covered expenses. With every change, Sze paid thousands of dollars in closing costs, land transfer taxes and commission.<\/p>\n

CALLING IT QUITS<\/b><\/p>\n

Sze sold the townhouse after just three years. At $310,000, it was $13,000 more than she paid in 2007, but numbers can be deceiving.<\/p>\n

\u201cPeople always say, \u2018Yeah, I made a profit. It looks good,\u2019 \u201d says Wong, \u201cbut they don\u2019t tell you all the little fine print, all the other expenses you had to pay.\u201d<\/p>\n

After paying taxes and commission, Sze didn\u2019t even break even.<\/p>\n

The condo unit fared better. Sze kept it for the full five years before selling it in March 2013 for a $55,000 profit. But after paying off her own mortgage, Sze says she\u2019ll be lucky to make $25,000 in actual profit.<\/p>\n

Kho considers Sze\u2019s investment a \u201chalf failure,\u201d and says she should have kept the properties. Standing by her bulletproof strategy, Kho argues that Sze panicked and killed the plan too soon.<\/p>\n

\u201cWe are not flippers. We don\u2019t sell,\u201d says Kho bluntly.<\/p>\n

Given 10 or 15 years, she insists property value rises. Eventually, Sze would make enough money to refinance the properties and repeat the process with new houses.<\/p>\n

As a realtor, Wong also sees clients investing in secondary property for extra income. Her advice?<\/p>\n

Use extra money for investments instead of getting funds through refinancing.<\/p>\n

\u201cIf you keep refinancing,\u201d says Wong, \u201cyou\u2019re basically taking away from your property . . . You\u2019re always in the hole.\u201d<\/p>\n

WORTH THE WORRY?<\/strong><\/p>\n

While Wong agrees the market may recover given time, Sze isn\u2019t willing to wait and see. She lays her five-year plan to rest this year, saying the potential gain isn\u2019t worth the worry.<\/p>\n

\u201cWhat I\u2019m afraid of is after the whole plan, I will have a mortgage . . . instead of being mortgage free in the beginning,\u201d says Sze.<\/p>\n

In the end, Sze says the plan is only bulletproof for those collecting commission and taxes. Though Sze says she\u2019s happy to pay professionals for a service, she won\u2019t be taking another stab at property investment anytime soon.<\/p>\n

\u201cIt\u2019s always easy to see other people make money,\u201d says Sze wistfully. \u201cSeems easy. But when it\u2019s you, then it\u2019s not.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

For most homeowners, paying off the mortgage is the top priority. It\u2019s almost counterintuitive to refinance a mortgage-free property and invest in another, but that\u2019s exactly what self-proclaimed money and life consultant Noreen Kho prescribes.<\/p>\n","protected":false},"author":72,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44],"tags":[49,47,48,45,25,39,40,46],"class_list":["post-3218","post","type-post","status-publish","format-standard","hentry","category-personal-finanice-2013","tag-home-loans-canada","tag-joyce-wong","tag-noreen-kho","tag-ottawa-real-estate","tag-personal-finance-2013","tag-real-estate","tag-refinancing","tag-veronica-tang"],"_links":{"self":[{"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3218","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/users\/72"}],"replies":[{"embeddable":true,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3218"}],"version-history":[{"count":27,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3218\/revisions"}],"predecessor-version":[{"id":4494,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3218\/revisions\/4494"}],"wp:attachment":[{"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3218"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}