House Wisdom: Part Three

Here's our house story: For few years Jobina and I had been looking for a 2nd house to buy as an investment. In October of 2006 we made an offer on an older 5 bedroom home in Transcona for $95,000. We settled on $97,000 and I got a mortgage on the home for $100,000 so that I would have some spare money to make repairs. We got a 25 year mortgage (2 year term) at 4.89 percent which has monthly payment of $575 a month. Because the home is in Transcona (which doesn't have a lot of rental space), and since the home is about 1600 square feet and has a nice garage, we were able to lease it out (for year) for $1150 a month. Here's what it looks like on paper:

Cash Put Into Property

Down Payment $0
Closing costs paid by me $2000.00
Repairs Paid by me $1000.00
Total: $3000.00

Monthly Cashflow Analysis

Rental Income: $1150.00
-Vacancy Loss (5%) $57.50
Total income: $1092.50

Monthly Expenses:
Taxes $143.94
Insurance $75.92
Repairs/Maint (6% of rent) $65.55
Reserve (5% of rent) $57.50
Manage. Fee (5% of rents) $57.50
Mortgage Payment $575.00

Total Expenses: $975.41

Net Monthly Cashflow: $117.08

Annual Cashflow $1405.05

We actually pocket about $176 a month from our property since we manage it ourselves. Anyway, as you can see it's important to put money aside for repairs/maintenance and a reserve. We also have a vacancy loss of 5% just in case we eventually have a month or two when we are between renters. I conservatively estimate that the house is worth about $120,000 now, a profit of $20,000 grand in less than a year! Now if we can do it, what's stopping you?

May Light increase!