The Road Ahead: Investment Goals

For the next part in this series, I would like to discuss my investment strategies over the coming 12 months. First outlining investments over the past 2 years, followed by my aspirations for 2007.

In 2005 we purchased our first rental property for $143,000 CDN. The property rents 5 bedrooms at $400/month for a cap rate of 16.8%. This, I figure, is a pretty good investment. Unfortunately, it has been a struggle to find student renters for 12-month leases and thus, the property has under-performed over the summer months. However, we have consistently made money off of it to the tune of approximately $5-6000/year.

In August of 2005, we purchased a new primary residence which included a 3-bedroom basement apartment. The rooms are again rented for $400/month. The cap rate of 4.36% on this home is not as nice, but we have the added benefit of living in a nice house, in a very desirable neighbourhood.

Then in May of this-year, we purchased a second rental home. This time it was a 5-bedroom, 2.5 bathroom condominium for $145,000. Leases were already signed from May 2006 – May 2007 for $395/month. Thus, the cap rate is 16.3%. Overall, the property nets about $600/month plus the principal payments which is about $10,000/year.

So… 2007. Since I invest with my wife, it is a bit more difficult to plan perfectly, however I’ll take a stab. We should be able to save $30,000 this-year and I would like to pour that into one more investment property, a new Etrade account, and our 5% savings account. I’ve seen a few ads around for hard-money at 0% down, so I might investigate this, which would enable us to get another property with only 5%. Why 5%? I like to own a bit of the property off the bat just in case the market tanks, I don’t want to be stuck owing more money in uncertain times if I need to sell the property in a hurry. So, investigating my funding options is a primary task.

I also want to investigate starting a small REIT, or even a LLC selling shares to small-time investors. This way I can use OPM to really start getting into bigger, more diversified real estate holdings. I’d like to investigate commercial property opportunities.

My take on the impending housing burst, is I think that property values will not crash, but will correct. I hope that they will drop no more than 10-15%, and I hope this process will take a few years to pan out. If I’m lucky (i.e. correct), we will be able to weather the storm, and ideally will still be pulling in positive cash-flow throughout.

In my Etrade account, I’d like to get into some blue-chips, as well as some iShares index funds from Barclays. Hopefully the portfolio will do well, and it will balance my bond investments through my ESPP, and all of my real estate investments. There is a REIT iShare that I am very interested in as well.

I hope that my diversification strategy pans out, and most importantly, that the real estate market in London remains strong through 2007. The forecast looks good, but it really depends what happens south of the border.

Tomorrow: Organization… How can I conquer my natural tendency towards distraction?

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Part of the writing project over at BiggerPockets.

Tags: goals, finance, net+worth, real+estate, BiggerPockets Goals