In the Canadian FI space index investing is favoured over rental properties. But real estate makes up a large chunk of our investment portfolio, and until now, I have been reluctant to write about investing in real estate here.
I’m not sure as to why.
It may have been out of fear of being judged because deep down, we all may have that fear sometimes. Or it may be that in sharing my story, I become less relatable to some. But it is my story, and if I believe in transparency, then it is time to share it.
Why We Choose to Invest in Real Estate
In 2014, after just 5 years, we paid off our mortgage. Doing so meant that during that 5-year time frame, we had diverted thousands of dollars every month towards our mortgage. Now that we were mortgage-free, we had a decision to make.
What to invest in next?
To be honest, we had given it some thought before becoming mortgage-free. But our investment plans were slightly on hold while we prioritized eliminating our mortgage.
The Great Courses
Back then, I knew nothing about the stock market, so I bought an online course (before they were as popular as they are now) from The Great Courses. The course was a series of video lessons taught, but someone much more intelligent than I am.
In the evenings, or on a day off, hubby and I would watch a few of the videos (and I would try to understand the information). I remember understanding things in general, but the specifics still confused me. What was a put? Why would someone want to short a stock? What did it mean to buy on margin?
Thinking back to those videos, I don’t remember them mentioning index funds or passive investing. After watching the whole series, the stock market still seemed so complicated.
Side note – although I understand the stock market a lot more now, I still don’t understand everything. But I do understand enough to DIY some of our investing.
Family Role Model
But hubby had an uncle that invested in real estate.
He was always trying to get us to invest, but I was not comfortable until we were mortgage-free. I never wanted to lose our home due to a risky investment decision. And I think that any investment you make without knowing what you’re doing or fully understanding it is risky.
As a teacher, I understand how powerful role modeling can be. And that’s what hubby’s uncle was, a real estate investment role model.
While visiting us, at one point, he pulled up his spreadsheets and showed me all his numbers. Now, this I could understand. Investing in real estate could be simple, buy a property, rent it out, sell it eventually. But it is not easy and is far from passive.
So we signed up for a weekend seminar to learn the ins and outs of real estate investing.
This seminar, as compared to the previous online course, became a pivotal point for our investing future.
By the end of the weekend, we had signed up for annual memberships with the group because we saw the value in the education and networking. Besides hubby’s uncle, we knew nobody who was investing in real estate.
So many family members and friends wanted to warn us about the dangers of real estate. And everyone seemed to know someone who had lost everything on a bad investment.
But when we were in that room learning, we sat with people who had hundreds of doors (properties) and who were using investing in real estate in building generational wealth.
It was very motivating during an impressionable time for me.
Sometimes I wonder how things would have been different if I would have stumbled upon JL Collins’ The Simple Path to Wealth or so many of the other investing blogs I now read instead of real estate. But that’s a story for another time.
After the Weekend Seminar
We left that seminar motivated and ready to take action. We had learned the basics and set some long-term goals. And we also recognized that we didn’t know everything (does anyone ever?). But we now had people to ask for help and guidance if we needed it. It was time for us to prepare to invest in real estate.
How We Started Investing in Real Estate
Now that we had decided to invest in real estate, we needed seed capital (money for down payments) and a team of professionals to help us.
We decided to take out a HELOC (home equity line of credit) on our home for the seed capital. And we made a list of professionals to interview to be part of our team.
Because we had no debt at this time, we could negotiate a HELOC at prime +0%.
Although I never wanted to lose my home, I was comfortable leveraging it with a HELOC to invest in real estate. In my mind, I always thought that if something catastrophic happened, we could sell the real estate portfolio and still be able to keep our home. I’m not saying that this is right or wrong, just what I thought at the time.
We were determined to learn what we needed to feel comfortable buying our first property.
You can never be 100% comfortable with something until you actually do it. I liken it to learning how to swim. No matter how much you read about it or watch videos, you will never truly understand swimming until you jump in the pool.
Once we were “ready,” it was time to jump into the pool.
Using the money from our HELOC and with the help of our new real estate team, we bought 4 properties in our first year of investing.
Creating Systems for Investing in Real Estate
With each purchase, we refined our process and were able to create a system for how we would do things. I carefully tracked every action we did and made a checklist for everything. Buying a new property? I have a checklist for that. Marketing or listing a property? Yep, a checklist for that too. Signing a lease with a potential tenant? You guessed it; I have a checklist for that also.
Systemizing the process was essential for me because it made things easier. Although we got pretty comfortable with the process of everything by the time we did it for the fourth time, we knew that it would be a while before we would be able to do it again. I didn’t want to forget anything, so I wrote everything down.
After our fourth property, we were now out of seed capital. Because we didn’t want to partner with anyone else for our investments, it was time for us to start saving again and paying down the HELOC. Once we had enough room, we would start looking for another property.
This “in-between” time was when we learned all about managing our properties. We were now responsible for 4 investment properties. And to save money and increase our cash flow, we self-managed all of them ourselves.
Our Growing Portfolio
The first year we bought 4, the second we purchased 1, 2 in the third year, and one in the fourth. That brought us up to 8 properties, and that the time I thought we were done.
Initially, our goal was 10 properties. But we had run into a few issues along the way, so we eventually settled on 8 rentals.
But then the market softened, and we decided to start looking for a new home for our family. We didn’t need anything much bigger than we had, but we needed it to be more functional. Our family was now 3, so we wanted something that we could continue to grow into.
The original plan was to buy a new (to us) home and sell our old one. But as the market had softened, that didn’t make financial sense to us. And after talking to our mortgage broker and finding out we could carry a mortgage on both, we decided to turn our previous home into a rental.
So after 5 years of investing in real estate, we owned 9 rentals.
And if you’ve never invested in real estate, 9 properties seems like a lot. But for us, it has become somewhat normalized, partially because we have owned them for a few years now. And partly because now our network includes people who own hundreds of properties.
We are fortunate to be where we are with our real estate portfolio. The timing and location lined up for us just so. So much so that if we were just starting now, in 5 years we probably wouldn’t own 9; we may not even own any.
To this day, we still own 9 properties, and there are continuously discussing potentially culling the herd a bit. I want to sell one if the market rebounds eventually, but hubby is reluctant. In the end, it will all depend on the numbers and the circumstances at the time.
Owning and self-managing 9 rental properties on top of working full time and raising a family can be extremely busy. But there are also some months when it’s really quiet. And besides collecting rent, it could be easy to forget about our real estate portfolio.
Just like buy and hold index investing, buy and hold property investing can be boring at times.
Now that Pandora’s box has been opened and I’ve given you a glimpse into our real estate portfolio, I plan on writing more about rental properties in the future. There is a lot of American content out there, but we could always benefit from more Canadian-specific information.
Leave a comment below and let me know if there is anything specific related to investing in real estate in Canada you would like to know. I am by no means an expert but am willing to share my experiences in future posts.