Me? Partner with my bank? How? Can’t be….
For a minute, please humour us and go along with this scenario:
- An investment property/ condo unit in the Bay corridor of downtown Toronto
- Purchase Price (including closing cost) at pre-construction: $278,000: One bedroom, approximately 613 square feet, no parking, no locker.
- A down payment of 20% of the purchase price: $74,799
- A mortgage for 80% at 2.79%, 25 years Amortization: $203,925
- Monthly Rental: $1,850 or $22,200 per year
- Monthly Expenses (Taxes, Condo Fees, Insurance): $559 or $6708 per year
- Net Operating Income per year: $15,492
- Debt Service/Mortgage Payments: $944 per month or $11,328 per year
- Cash Flow: $4,464 per year or 5.96% on your total investment of $74,799.
5.96% doesn’t sound so exciting as your money may do better in other investments. But wait, there’s more…
- Your tenant is paying down your mortgage: $5,446 goes to interest but $5,882 goes to principal
- Total Return: Cash flow of $4,464 + Debt reduction of $5,882 = $10,346
- 13.83% return on your actual investment of $74,799…now, that’s better!!!
- Assume that you rent it out for 5 years. Mortgage balance by the end of 5 years will be $173,595 so you've gained $30,330 with your tenant paying off the mortgage of your property. This is a return of 41% on your initial investment of $74,799.
- Assume that properties in downtown Toronto increase by 5% per year after the initial jump to $420,000. By the end of 5 years, the value of your property would be $536,000, leaving you with a profit of more or less $195,000 from appreciation, mortgage pay down by tenant and small positive cash flow of $22,320 for 5 years.
Not bad for an initial investment of $74,799!!! What do you think?