>So right now the plan is that I save up as much money as I can, and put up an emergency fund. Eventually I want to own a business, and right now I think that business would be in real-estate. I’m not an imaginative person, so I’ll just use the Monopoly formula that is explained in the RichDad books. You don’t need to be original to be rich, I hope.

What I’ll be doing now is looking at properties that are listed for sale online at the REALTOR website and at the Homefinder website. Step one seems to be the practice of looking at financial statements and the numbers that are the qualities of a security, that one can use to identify the security as an asset or a liability. I will be reviewing lots of these now, and will post the numbers of the ones that I feel would make good investments.

I will use Provincial and municipal (And some corporate) bonds as benchmarks to assess these properties next to. Right now the highest-yielding provincial bond is from New Brunswick (According to this site), and the yield is 4.9%. The 407-international company (That manages the 407 highway, a piece of infrastructure) pays around 6% today. So I will try to post only properties that I expect to provide a higher ROI than that.

The first property

This property is the first of many that I will be practicing my financial analysis on. It is MLS# 09607695 on www.realtor.ca. According to www.viewit.ca, 3-bedroom apartments go for more that $850 per month in this area. Since we have 2 units of 3-bedrooms each, this gives a total income of $1700 per month.

Presently, I do not know what landlord’s insurance costs are. Therefore, these have not been factored in when calculating the ROI.

Financials

Upfront costs:

• Down payment: 5% = $7,500
  
• Land transfer tax: $1225

Income:

• Rent: $1700

Expenses:

• Property management: $300
  
• Property taxes: $183.75 (The average property tax rate in Kingston is 1.47% of the price)
  
• Mortgage: $686

Net cash-flow per month = $530.25

ROI = Cash-flow per year / Down-payment = (530.25 * 12) / 8725 = 72.928%% per annum.

Lets compare this to bonds. To get an ROI of 10% per annum, the cash-flow will have to be $72.71 per month, which could happen if the income fell to $1242.46, or $207 per month per bedroom. This is a price that renters would line up for. So I’m feeling good about this property. Note that this is without factoring in landlord’s insurance.

Alternates

The Canadian government is going to be requiring a 20% down-payment on all non-owner-occupied property that is to be insured by the government (In effect on 19-AP-2010). This puts a monkey-wrench in the machinery. Lets see what impact this will have on the ROI.

New Down payment: $30,000 (20% of $150,000)

New expenses:

• Mortgage: $565

Net cash-flow = 651.25 per month

ROI = (651.25 * 12) / 31225 = 25.028% per annum. This represents a decrease of 63% of the ROI.

Even if insurance costs $100 per month, this will still give 21% ROI per annum. You get your initial capital ($31225) back in about 5 years, and you still keep the property.

Things to watch out for

Naturally, there are protections that need to be taken. One is a home inspection. If you are purchasing something that will give you a $120,000 mortgage, then a $300 home inspection doesn’t seem so bad. It comes to a 400th of the mortgage itself, and it could save you from making a fatal mistake.

Another thing to pay attention to is your property manager. If you know a good property manager, have them look at the property with you (Or if you are out of town, for you). They are the people who are going to be dealing with the property and the tenants there. They have experience in doing so. They would be able to tell whether they will be able to rent out the place, and at what price. They are who you should pay attention to.