Investing with $50k

This guide outlines an aggressive real estate investment strategy which maximizes working capital and takes advantage of loan programs available to Canadian home buyers.

In this example, we share how an investor with $50,000 can build up a $4-million portfolio over 20 years.

Starting out with $50k: A Real Estate Pros Guide to Empire Building

I met with an aspiring real estate investor in my Kelowna office for a planning session last week and the young man asked me a great question:

“If I have $50k in working capital to begin investing, what should I do and where would I start?”

I took some time to seriously consider his ambitious question and came up with a relatively simple plan to maximize his $50k of working capital while making the most out of the loan programs available to Canadian home buyers today.

This strategy takes advantage of the high ratio financing available to purchasers moving into a primary residence.

You will incur some Canadian Mortgage Housing Corp. fees, but the benefits of being able to control a $500k asset with as little as $25k plus closing costs is where the magic happens.  

Finding your first investment property

We are looking for a property valued around $500k that has a suite — or could be renovated to have a suite — and needs some basic cosmetic help.

Home renovation

Once you’ve found such a property, I recommend taking advantage of the Purchase Plus Improvements Program (PPIP), which lets you invest up to $40k of the bank’s money to make value adding improvements to the property.

The additional loan funds from the PPIP get rolled into one easy-to-manage mortgage. Things such as suites, kitchens, bathrooms, floors, and paint are the go to renovation items. 

The PPIP lets you to build sweat equity — or what we call ‘forced appreciation’ in the real estate world. This increase in your home’s market value will come in handy in the future when we’re ready to withdraw equity and use it to expand our real estate portfolio.

Renting out your first property

Once your first property is fixed up — perhaps with multiple suites — you’re ready to move out and find quality tenants. With two tenants renting your property, you should be cash-flow positive, which would allow you to reinvest all cash-flows into reducing your mortgage debt.

This slashes the amount of interest you’d pay over time, shortens the amortization period and rapidly builds up your equity.

New tenants

With this strategy in play, it becomes a waiting game. Over the next few years, the combined effects of the mortgage buy down and natural property appreciation can quickly increase your portfolio value.

Expanding your portfolio

Your first property investment will eventually give way to your second investment as you’ll be able to borrow equity using a Home Equity Line of Credit (HELOC).

For example, let’s assume your first property was purchased for $500k with a 10% down deposit of $50k. You then utilized the bank’s money to do a full cosmetic renovation to the property, which increased the property’s value from $500k to $600k.  

At this point in time, you’d owe $450k on your original loan plus $40k for the home renovation loan for a total of $490k.

Equity                                        Debt

$600k - house                            $450k - mortgage

                                                   $40k - renovation loan

Total Equity: $600k                     Total Debt: $490k                        Net Equity: $110k

As you can see your net equity position is now $110k.

While this is a handsome figure, $110k is not yet enough to utilize your Home Equity Line of Credit to finance a second investment property. The HELOC only lets you borrow on up to 80% of your home’s value, which in our example is $480k ($600k equity * 80%).

But let’s see what happens in three years.  Assuming you top up your mortgage by a couple hundred dollars every month, you would cut the amortization period down to around 20 years.  By year three, your mortgage balance would be about $435k.

Let’s assume the property value appreciates by 10% in this same three-year period — a very conservative estimate based on long term averages, but it does pay to be conservative here.

Now, the property would be worth $660k, which means your HELOC would let you borrow up to  $528k ($660k * 80%).

Business agreement

Here is how the math works on a potential home equity line: the bank will lend you the difference between your maximum available HELOC balance (in our case $528k) and your outstanding mortgage balance (~$435k), which nets to $93k.

You would then use this $93k loan as a down deposit on your second property — ideally repeating the exact same process as before: moving into the home, completing renovations, and then benefiting from both forced and natural price appreciation.

Duplex property

For the second property, I would consider moving up in price point and putting 10% down on a $750k suited duplex. After renovations this property could be worth $850k and you would owe $715k ($750k less your 10% deposit of $75k).

With two properties in your portfolio producing positive cash flows while increasing at the typical market average of 3.5% per year, you should have enough equity available to repeat the same process again — but this time in two years instead of three.

I’ll spare you the math, but I will point out that with three properties under your belt with a combined value of
$2 million, your net worth would now be approximately $500k and you would have used no additional savings along the way.

This is the power of real estate investing and the leverage available to us.

In conclusion:

This post describes the journey the vast majority of residential real estate investors take — myself included. It will feel like slow going at first but after about five years in this game things really start to take off. 

After 10 years and with multiple properties under your belt, you’re off to the races and will have essentially created a bullet-proof future for yourself.

Most people don't realize that by owning just three good rental properties, you can bring in enough cash flow to fund a very comfortable retirement.


Let’s say your three investment properties have a combined market valued of $2 million today and are bringing in $10k/mo in rental fees. Assuming 3.5% yearly price growth, in 20 years, these properties would be fully paid off, worth over $4 million, and bringing in $20k/mo in cash flows.

Not a bad retirement by most people’s standards.


A chance to make money

This post discusses Canada’s real estate market slowdown from the perspectives of both home sellers and rental housing providers.

While home sales are slowing down in B.C., rental rates are increasing. This situation is creating new opportunities for landlords and long-term real estate investors.

Canada’s Real Estate Outlook for 2019: A Tale of Two Markets
An Investor’s Perspective on the Central Okanagan Housing Market Slowdown

Canada’s real estate market is often described as being in either a “good” or “bad” state. These emotive, polarized adjectives typically come from either home sellers or real estate agents who are often the first ones to feel the brunt of a market swing.

I am going to depict the British Columbia housing market through two very different lenses:

  • that of the home seller
  • the story through the eyes of renters and rental housing providers.

The Seller’s Viewpoint

Here is one side of the story often heard from sellers:

  • sales have begun slowing down
  • housing listings are climbing
  • home prices are cooling off.  

Home listings have started to expire, to the frustration of both sellers and their agents, which leads to us hearing more and more colourful adjectives such as “bad” or “tough” to describe BC’s real estate market.

Housing markets typically slow down for one of two reasons: either market drivers like negative job growth and population decline cause demand to slide — much like Calgary after oil prices plummeted in 2011 — or market influencers like rising interest rates or changes to government policy put a damper on home sales.

The current slump in B.C.’s housing market was caused by market Influencers.

First, Canada’s banks have begun cautiously increasing mortgage rates, making home ownership and the associated mortgage payments a more expensive proposition.

Second, both our provincial and federal governments have introduced a new speculation tax and mortgage stress rules in an attempt to cool off the market.

And so far it’s working.

Because of these new legislative changes and rising interest rates, the average mortgage borrower in B.C. has had their buying power diminished by approximately 35 per cent, and we’ve seen a 40 per cent decrease in home sales over the past year.

While it’s easy to get swept into the doom and gloom rhetoric of the “bad” housing market, on the flip side of this same coin exists an entirely different perspective – that of the rental housing provider.

A Vantage for Investors

Now that we’ve illustrated the impact of these market influencers on home sales, what additional effects can we expect to see play out in B.C.’s rental market? How does this situation impact real estate investors and landlords?

First, in a slower housing market, the number of potential renters dramatically increases as fewer and fewer people can afford to own their own homes.

British Columbia and especially the Central Okanagan are currently some of Canada’s most desirable places to live in.

With the first sign of downward pressure on real estate prices, people migrating to this region will typically adopt a wait and see approach — opting to rent first rather than risk a possible negative home equity situation.

This risk-off mentality further increases demand on the rental housing market, exerting downward pressure on vacancy rates and causing leasing rates to rise.

New Opportunities Loom for Rental Housing Providers

While B.C.’s housing market is considered to be in a “tough” state for home sellers, rental housing providers now face a market ripe with opportunities.

Let’s assume you’ve wrapped your head around the effects of rising rates and government policy on B.C.’s rental market and you now have an appetite to add an income property to your portfolio to service this booming rental demand.

How does this so-called “tough” housing market affect you now?

With plenty of homes to choose from, properties selling at deep discounts and with favourable terms, is this not a fantastic market for real estate investors?

To quote a mentor of mine, “how you see, is how you hear.” - Don R Campbell

In other words, it’s all a matter of perspective.

Some may question your judgment for buying into the housing market right now.

Why? It’s the uncommon thing to do, which is almost always met with resistance. But taking the road less travelled can often be the road to success and financial freedom.  

To quote legendary investor Warren Buffett, “buy when people are fearful and sell when people are greedy.

While Canada’s housing market may be frustrating sellers, exacerbating realtors, and being labelled as “bad” by the media — from the vantage of the investor, an entirely different situation is unfolding.

Discover the newest investment properties in the Central Okanagan here.

Where we're going next

When you talk to most people these days, the prevailing attitude is that our real estate market has shifted from greed to fear.

Sellers and developers are fearful that they have missed out on the top of the market.

No matter what way you look at it, there is risk involved. If you take your property off the market or refuse to budge on price, you may kick yourself a few months down the road when more homes come on the market to compete with yours.

However, there’s always the hope that the market will suddenly turn into last year's and you’ll have a chance to realize an amazing sale price.

A crystal ball during these times would be helpful, but it’s almost impossible to time things perfectly.

The concerns of sellers are warranted, and buyers are fearful too. Those looking for property are often scared that they’re going to make a mistake and buy at the peak.

However, those waiting to buy and hoping that prices will fall would be well advised to consider other factors.

In the current market, the potential cost of delaying a purchase, namely interest rate hikes, is often overlooked. Even if housing prices dip five per cent, the would-be savings are more than gobbled up by a half a percentage point increase in interest rates.

Moreover, any significant drop in housing prices is highly unlikely as the economy, inward migration and demographics have all aligned to create a growth market. This multitude of market influencers will prevent a real estate crash.

For the time being though, we will continue to see an increase in housing supply and softer demand as the market continues to balance out.

In some sectors, particularly high-end properties, it will become a buyer's market.

That said, buyers compressed into lower price brackets due to changes in lending will continue to drive demand for property at lower price points.

For this reason, entry-level homes under $600,000 should remain strong.

For most sellers in this market, a good piece of advice would be to have realistic expectations on what price you will get for your home. Increased inventory is forcing those looking to sell to compete with their neighbours to impress the limited and somewhat skeptical buyers who are looking for a deal.

Trends in the market 18 months ago caused me to predict that prices would soften. I believe the shift in supply and demand is just now beginning and the market will likely move even more in the coming months.

How long will it last?

No one knows for sure as many factors come into play. Not the least of which, is what will happen with our provincial government in October.

If our elected officials decide to scrap detrimental policies, the market could rebound aggressively.

However, if those in power decide to continue down the same path, we’re likely to head into a slump phase of the market. Remember though, regardless of government policies, market volatility is natural.

It’s important to remember that with our strong local economy, the sky isn’t falling and we won’t see a devastating correction like the one we saw in 2009.


Want to be a millionaire?

Fill me in
Looking for a project that’s both challenging and profitable? AJ Hazzi of Vantage West Realty shares an advanced infill strategy that could turn you into a millionaire in as little as five years.

Infill development has become a popular way for small-scale investors and developers to add serious value to a small, manageable plot of land in the urban core. 

This works great in cities such as Edmonton or Kelowna.

Some infill developers are looking for the quick return of capital and a tidy profit by selling four-unit projects for a profit inside of 18 months.

These developers will take the hybrid between a short- to mid-term hold and a pre-determined, profitable exit. Both the sale price and the cash flow are amplified by 15-20 per cent due to the rent-to-own component of this deal.

Let’s take a detailed look at both the strategy and the returns it can generate, which should be pretty enticing to most investors.

I operate in Kelowna, so we’ll use the numbers from this still highly viable market lift and move on to the next venture in hopes of parlaying the new equity into another equally lucrative project.

Others are looking at these newly built four-plexes or row houses as a long-term, cash-flow property, aiming to generate wealth from the three-course meal that is long-term real estate investing:

  • cash flow
  • mortgage pay-down
  • capital gains.

There is, however, a third option that blends these two approaches into a sort of as a base.

The purchase of a small tear-down home in an infill area here will run you roughly $750,000. Constructing four new three-bedroom homes on that lot will cost around another $1.1 million, so expect to need a half-million in capital in order to get started.

These four, freshly constructed units will fetch $550,000 each, or $2.2 million in total. After soft costs, the project should net approximately $300,000.

If you were to take the purpose-built rental approach, you could expect each of these well located, newly built homes to bring in about $2,400 per month in gross rent, or $115,000 per year on your $1.85 million investment.

This is a solid cash-flow equation with a gross rent multiplier of 16, which is similar to what you would get by purchasing older rental stock, but with the added benefit of being new without the deferred maintenance of an older building.

As you can see, both are attractive options, but let’s consider a hybrid option – one that stirs in a rent-to-own component.

In a rent-to-own deal, the rents are based on market-value rent plus equity buildup. It’s also customary to tack on a pre-agreed rate of appreciation to the eventual purchase price.

I have had great success creating win-win deals using 3.5 per cent appreciation.

In a five-year deal, using a 3.5 per cent rate of appreciation, the sale price on the four units will be $650,000 each.

During that five-year window, your tenant-buyer will have been paying $2,900 a month, which includes market-value rent of $2,400, plus $500 worth of equity buildup, which will be credited back upon closing.

This will accumulate and become their five per cent down payment when added to their initial deposit of $10,000.
Returning to the three-course meal analogy, the appetizer in this scenario – cash flow – is very good.

You receive $11,600 every month in revenue to pay your mortgage (at a rate of $7,000 a month) and take care of your additional monthly expenses, taxes, insurance and water, which should total approximately $1,600 a month. That leaves you with a net $3,000 per month in positive cash flow, or $180,000 at the end of five years.

Now, on to the second course.

During the five years of your tenant-buyers making their payments, your loan went from $1,387,500 down to $1,197,000. That’s a significant reduction of about $200,000 in a very short period, if you opt for a bi-weekly payment plan and stick to it.

The dessert in this example is the capital gain when you sell: $2.6 million minus your base cost of $1.85 million leaves you with a gain of $750,000.

But don’t forget about the tenant’s equity buildup of $30,000, which was part of their original deal. Multiplied by the number of ecstatic new homeowners you’ve helped create, that $30,000 balloons to $120,000.

That’s not yours to keep – and also prepare to pay another $10,000 in legal and accounting fees. You will still be left with a million dollars in new wealth after only five years.

  • Profit from sale          $750,000
  • Mortgage reduction   $200,000
  • Cash flow                    $180,000
  • Total gain                    $1,130,000

More Investment Real Estate articles

About the Author

AJ is the owner of Kelowna’s downtown boutique firm, Vantage West Realty. The firm takes pride in breaking the mould when it comes to how they practice real estate. With a well-deserved reputation as a real estate renegade, Hazzi has been shaking up the Kelowna real estate scene since 2002.

Having been a student of real estate through two market cycles, AJ has come to see an absence of truly qualified professionals specializing in investment real estate. This has become AJ’s role within the firm and the community: To educate clients on how to achieve financial freedom through real estate.

Arming his clients with knowledge on where to find positive cash-flow, how to renovate for profit, and other creative avenues that most agents completely ignore, Hazzi has carved out his niche as a real estate investment advisor (REIA), and loves nothing more than educating people on the right strategy to capitalize on both boom and bust years.  AJ is a firm believer that the Kelowna market is rich with opportunity, if one knows where to look.

If you are in search of an advisor who practices what they preach, consider that AJ has built his own real estate portfolio up to include multi and single family cash-flow rental properties, development property, resort property, fix and flips, and commercial properties. By sharing the lessons learned from his own experiences, his clients get the knowledge and confidence to invest without having to make the expensive mistakes he and many new investors have made along the way.

His goal is to impart on people, especially of the X and Y generation, that depending on RRSPs and Government Pension Plans to look after us down the road is risky business. Most people don't realize that as little as one or two properties added to your real estate portfolio now, can secure a comfortable, even lavish, retirement.

Bringing a consultant's approach rather than the tired, old-fashioned sales approach, AJ and his partners offer a world class service from finding, pre analyzing, and negotiating your next acquisition, to property management, all tailored to today’s busy investor.

To hear what AJ Hazzi's clients have to say about his service view the testimonials.

Contact Information

For more details or to reach AJ Hazzi, please visit www.vantagewestrealty.com

Email [email protected] Cell 250.864.6433

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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