Summary of my first â€œlearning experienceâ€ in real estate:
Purchased a townhouse condo in 2002 for $103K as a primary residence. Home was 4 bedroom (very small rooms) 1.5 bath, with unfinished basement.
I put down $7,000 of my RSP savings (401K for US reference) under a 1st time homebuyer plan (ie: allowed to withdraw from the plan without paying taxes provided it is paid back within X # of years).
My financial situation at the time wasnâ€™t all that great:
Income $45K / year
Mortgage $800 / month
Condo fees $300 / month
Utilities/taxes $400 / month
Car payment $500 / month
Total $2,000, and I think my take-home bi-weekly was about 1,200 maybe 1,300
So that left me with about $400 to $600 for living expenses (food, gas, insurance) and whatever was left was fun money. It was a bit tight.
House 103K Mortgage 86K
Car 15K Car loan (LOC) 15K
Stuff 5K Equity 22K
Total 123K Total 123K
I decided to rent out a room (take on a boarder) for $300 per month. I used that for fun money.
Part 2 - Getting in the game, kinda
I read RDPD soon after purchasing the house, maybe even before I picked up the boarder. I lived there until 2005, and by that time the situation had changed. The original boarder had moved out and I advertised his room for $350. I got lots of calls, but most didnâ€™t pan out because the rooms were REALLY small (9X9).
I finally picked up this one guy who turned out to be a really good roommate. He was recently divorced (oddly enough so was the first boarder), and really just needed a place to crash.
He eventually introduced me to an acquaintance of his who was really down on his luck. His wife was having serious alcohol and drug problems and he wanted to get his two kids (two beautiful girls 5 & 8) out of there, and I had the room. I wrote a letter to his social worker stating that I had two available rooms for them, which would rent out for $450 per month. This would keep the social workers from taking the kids away, you see.
So now I was brining in $800 per month extra (all under the table), which was really good as I was finally able to start paying down my line of credit (car loan).
Part 3 - disaster
Things were working out really great. I had a full house â€“ 3 bachelors, 2 dogs & 2 kids. It was the perfect scenario for a sit-com. Then a friend of mine came to visit one weekend after not seeing each other for about a year and we were engaged by the end of the weekend.
She lived in Alberta, and I was in Ontario so there were some decisions to be made. In the end, I resigned from my job packed up my car and drove out to Alberta with my fiancÃ©.
I left the two guys living there with an increase in rent to $600 each which somehow I calculated to be break even on the house. In winter, I would have negative cash flow due to utilities, and in summer I would positively cash flow to cover for the winter utilities.
The two roommates stopped getting along because one of them got stuck doing the cleaning. It got worse and worse each month until finally they decided that the guy with the kids would leave.
The existing tenant didnâ€™t have enough to cover payments, and the other tenant left without paying for his last monthâ€™s rent. Existing tenant found another roommate, but that didnâ€™t work out, then found another which started working again.
Unfortunately by the time this was resolved, summer was over and we were back in winter, negative cash flowing again. I missed all of the positive cash flows that I needed in order to get through the winter without putting money into the house account. My wife wasnâ€™t impressed, but at least rent was being paid.
Part 4 â€“ the last straw
Skeletons have a way of catching up on a person. The new tenant after getting his life in order had his accounts frozen by the government for non-payment of child support in March 2006. This was not expected even from him because he was under the impression that when he and the girlfriend split, that he would have nothing to do with the child. Seven years later, there was a change of heart.
So now I was out rent again and my original tenant was tired of chasing down people to pay him to pay me. I went to Ontario in early July (my wife was 7 months pregnant), kicked out the tenants and sold the property. Son was born a week after I got back.
Sold the property for $140K, and that was the only good thing about this project since the gains out-weighed the losses.
Incidentally, my wife purchased her starter house in 2003 for $105K and sold it in 2006 for $205K. With these two gains we were able to purchase a larger / newer home for $275K. And itâ€™s where we are living now.
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