5 Properties In 5 Years: A Complete Roadmap

For most of our clients, real estate investing doesn’t end with one property. Once you understand how real estate can build your wealth, you may want to expand your real estate portfolio. Buying one property is easy, but how can you buy more? In this guide, we’ll show you a roadmap so you can get 5 investment properties in 5 years!

YEAR 1

Property 1

The hardest part of real estate investing is taking the first step! Overcome your fears of the unknown by learning how to make money in Toronto real estate. Let’s start with an example, where we buy Property 1at $830,000. With a mortgage that covers 80% of the purchase price, we pay an initial investment of $273,650 for Property 1to cover costs related to the downpayment, closing, and renovations. Then, we renovate Property 1, lease it out, and start collecting rent!

YEAR 2

Property 2

We go back to the bank to ask for refinancing on Property 1. We find out we qualify for refinancing at 80% of the newly appraised value of $1,081,500.

After renovations, we gain a lot more value than we put in. Even though renovations only cost $80,000, we gain $251,500 in appreciation ($80,000 + $126,000 + $45,500), with a big portion of it coming from our value-added work.

After refinancing, we get can extra $201,200 in financing (80% x $251,500).

When we refinance, we incur fees related to cancelling the old mortgage, appraisal fees, and legal fees, which add to around $6,000 in this example.

So, the net cash-out from refinancing Property 1 is $195,200 ($201,200 – $6,000).

Now, we saved up some extra money and we want to buy Property 2 at a purchase price of $871,500.

With good credit and income and a 20% downpayment, we qualify for a mortgage for Property 2 of $697,200.

Without refinancing Property 1, we may not have enough money to buy Property 2. Because we got $195,200 from refinancing Property 1, we only need $90,810 to pay for the downpayment, closing costs, and renovations for Property 2.

So, we buy Property 2, renovate it, and rent it out!

YEAR 3

Property 3

At year 3, we are ready to buy Property 3, priced at $915,075. This time, it’s easier because we’ve done it all before.

We get a cash-out refinance amount for Property 2 of $205,260, and we saved up an extra $93,680.

Similar to Property 2, we go to the bank to get a mortgage for Property 3, and we get another 20% down payment mortgage.

So, we have enough the buy, renovate, and rent out Property 3!

YEAR 4

Property 4

The process repeats again for Property 4 with a purchase price of $960,829. We use $215,823 from refinancing Property 3. plus a savings of $96,644 to contribute to the downpayment, closing costs, and renovations for Property 4.

Note that the Property 1 & Property 2 have been generating solid rental returns for a few years. So, it is actually a lot easier to build cash savings for latter properties like Property 4.

Then, we buy Property 4, renovate it, and rent it out again!

YEAR 5

Property 5

We reach year 5 and Property 5, which we want to buy at $1,008,870. Property 4 is refinanced, and we get $226,914 cash out from it. Along with a savings of $99,705, we make our final property purchase for Property 5.

On top of getting solid rental returns from prior properties, Property 1 & Property 2 have appreciated more since the last refinancing round. This means it’s even easier to generate cash for Property 5 since you can take out equity from Property 1 & Property 2 again.

The process repeats again: We buy Property 5, renovate it, and rent it out!

Total Returns Over 5 Years

Through value-added work, we bring up the property’s value quickly. Then, we are able to refinance the existing mortgage to access gains without selling our properties.

Future properties are partially funded by previous properties, so our property portfolio grows quicker than the rate of our incremental paid-in capital.

In our example, the total investment in year 1 is $273,650, which is the highest annual paid-in capital in the 5 years. After that, we’re seeing additional paid-in capital of around $95,000 per year.

By buying one property a year, our cash flows and market appreciation in dollars are growing at a faster rate compared to our paid-in capital in dollars.

On top of this, we get a bigger jump in returns in the year that we upgrade the property.

In summary, our total return as a percentage increases as we refinance previous properties to grow our real estate investment portfolio:

Our paid-in capital ($) grows at a slower rate than our portfolio.
Our cash flows ($) and market appreciation ($) grows at the same rate as our portfolio.
Each property’s appreciation spikes in the year of renovations.

The main takeaway is that it’s the hardest to save up for the paid-in capital for first couple of properties. Once your initial properties generate solid rental returns and build up equity, it’s much easier to save up for more properties in your real estate portfolio.

How We Can Help

We’ve broken the steps down here, but it’s always helpful to have an expert to guide you throughout the entire process. So, we’re here to help you out!

We can find properties that fit your risk profile, and recommend value-added work to help you maximize your refinancing. Then, we’ll direct you to the right bank for your financing and refinancing needs.