Owning her financial future
A Mississauga woman’s retirement plan included buying homes - lots of homes
When Lisa Nagy’s marriage ended in 2014, so did her secure financial future. Her adviser suggested she buy houses.
By 2017, Nagy owned six homes.
“In three years, I’ve lived through bounced cheques, four basement floods (one caused $40,000 damage) and interest rate hikes,” she says of the various stress factors. “But there is a long game here and it is my future.”
Her first purchase as a newly single woman in 2014 was a $460,000 house in Mississauga she bought as her own residence with cash from her divorce settlement. Rising home prices put buying a second house in Mississauga out of range, so in 2015, Nagy looked to more affordable real estate in St. Catharines, Ont. She attended a Rent to Own (RTO) seminar and wanted to try the concept of being a landlord with the option to sell in three years. With RTO, tenants either make a non-refundable deposit towards the purchase of the house, or pay a higher rent with a portion going towards the purchase.
Nagy found an older bungalow in St. Catharines and bought it for $270,222 in May 2015, with 4 per cent down and a mortgage on the rest. (Investment properties now require a 20 per cent down payment.) She got 3,000 responses to her ads seeking a tenant. Within eight days, she had rented the house to a woman who had gone through bankruptcy due to divorce and needed a place for her and her mother to live.
“The ideal RTO person is someone who maybe had a rough patch in their financial history and aren’t quite out of the rough yet, but in three years should be able to qualify for a mortgage,” says Nagy.
After consulting with her mortgage broker, Daniel Patton of Butler Mortgage in Toronto, she bought an $180,000 townhouse in Niagara Falls as an RTO, in September 2015.
Both RTO tenants each gave her a non-refundable deposit of $5,000 to put toward the purchase of the houses at agreed-upon 2018 prices, based on 2015 Canadian Real Estate Association data projecting that a 4.5 per cent annual increase was reasonable for the Niagara area.
Nagy bought a second St. Catharines bungalow for $319,000 in 2016, putting the down payment on her line of credit and mortgaging the rest. With her retirement finances in mind, she rented it out while the property’s value climbed.
“I call this the ‘GO Train house,’ because once the train goes to St. Catharines, the price of this house will skyrocket,” Nagy says.
In 2017, she researched other Ontario markets and found Windsor offered potential, with a new bridge under construction, a large new hospital and proposed high-speed train. She bought two homes in Windsor in 2017 for $187,000 and $167,000. She used her line of credit for the down payments and took out mortgages.
“The Windsor houses rent for $1,400 and $1,276 each,” she says of the properties she describes as “my most profitable homes.
“My mortgage payment (for both houses) is $700 a month, so I have an $800 surplus a month (after property management and insurance costs) that pays off the line of credit,” she says.
In St. Catharines, Nagy is selling her first RTO home after the tenants didn’t qualify to buy it. “Between when I bought it and now, the price has gone through the roof.”
Her second RTO tenant qualified for a mortgage and Nagy turns ownership over to them this month, realizing a profit of more than $55,000.
“I’m happily looking forward to selling my second and third houses (the RTO purchases in St. Catharines and Niagara Falls). My financial planner says the money from those sales are my fun money and I should buy whatever I want, as the remaining three properties will fund my retirement.
“So, I’m putting in a pool at my own house next year … and my daughter and I are going on a pretty fantastic trip.”
Nagy has two pieces of advice for others considering property investments: 1. Trust everything will be okay. “There is always fear; it’s like jumping off a cliff and trusting that your parachute will open;” and 2. Have people you trust, including your real estate agent, financial planner and mortgage broker. Ask them “If this was your money, what would you do?”
Nagy’s mortgage broker, Daniel Patton, says successful real estate investing starts with having a detailed meeting with a financial adviser to fully understand your finances and to get financing preapproved. A banker or broker should explain about refinancing, lines of credit and the ins and outs of adding a mortgage.
“It is tougher to qualify for financing now, and you need to understand the differences between a banker and broker,” Patton explains.
Patton also notes that financial institutions have different views of rental income: one bank factors 50 per cent of rent as income when approving loans; other banks will look at 80 to 85 per cent.
Successfully owning multiple properties, Patton adds, is about having a passion for real estate and putting time into it. “If you work 40 hours a week at another job, you need people who are going to help manage your properties - but you are still going to have to do your research. For any return, you have to put in some work.”