Investing in real estate in Canada is perhaps one of the most rewarding ventures that one can undertake today. With the growth in the Canadian economy in recent years, real estate has become one of the best areas of investment, specifically in the Hamilton, Ontario region. After receiving an inheritance of $400,000, this paper simulates a sample investment plan in real estate in this area. The purpose of this investment is to grow the cash flow and provide financial stability following the inheritance. As part of the plan, this investment will involve obtaining properties that are capable of earning a rental income by considering different factors, including demographic information and the income status of individuals in this area.
A single property was selected for this investment plan – one mid-priced property listing. When selecting the property, different factors were considered, including listing price, rental income capacity and home attractiveness to potential occupants. The option selected is a 1-bedroom, 1-bath condominium in St. Catharine’s, Ontario (Realtor Canada, 2018). A significant number of people in this area are single, with a university education and are in the sales and service industry. This means that a 1-bedroom condominium would be an attractive choice for their current lifestyle. The listing price is at $189,900. In this investment plan, a 50% down payment would be made and the rest of the payment would be made in either ten or fifteen years. A simulation of these two scenarios was conducted using Microsoft Excel to determine the required mortgage payments that would satisfy this property and still maintain the capability of earning a small rental profit. The two scenarios for the mortgage payment are considered below:
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Table 1 : Simulations Table
|
St. Catharine's |
||
|
Scenario A |
Scenario B |
|
| Listing Price | $ 189,900.00 | $ 189,900.00 |
| Principal | $ 94,950.00 | $ 94,950.00 |
| Rate |
12 |
9 |
| Months |
120 |
180 |
| Monthly Rate |
0.0100 |
0.0075 |
| Compounding Interest Rate |
3.30038689 |
3.83804327 |
| Repayment Rate |
0.01434709 |
0.01014267 |
| Monthly Repayment | $ 1,362.26 | $ 963.05 |
| Land Transfer Cost | $ 1,624.00 | $ 1,624.00 |
| Ten Year Condo Fees | $ 54,813.60 | $ 54,813.60 |
| Average Annual Rental Income | $ 16,800.00 | $ 15,600.00 |
| Return on Investment |
8.7717% |
8.1452% |
| Rental Profit after 10 years | $ 2,905.20 | $ 38,810.47 |
From the above simulations, we considered a ten-year mortgage repayment period at a rate of 12 percent and an alternative 9 percent rate for a 15 year period. The monthly repayments stood at $1362.26 and $963.05 respectively. Due to the relatively higher repayment for the first option, a higher rental price of $1400 was selected compared to the second option’s $1300 rental price. Although the higher rental price had a higher return on investment, there was a higher monthly profit for the second option – an alternative that could eventually yield over $38,000 in profits in the ten-year period. Furthermore, the rental unit would comfortably pay for its own mortgage within the ten years. This investment is even more attractive because of affordability, as the remaining amount is capable of paying for the mortgage in cash should there be a shortage of tenants. Moreover, no renovation is required for the unit. It presents a very attractive option.
In conclusion, the above investment plan shows a competitively priced real estate option that could earn rental income in a sought-after area. With a $38,810 profit at the ten-year period having considered the costs associated with the property, this is an attractive option.
References
Realtor Canada. (2018, July 11). 359 GENEVA Street, St. Catharines, Ontario L2N2G5 . Retrieved from Realtor Canada: https://www.realtor.ca/Residential/Single-Family/19638660/603---359-GENEVA-Street-St-Catharines-Ontario-L2N2G5#v=n
