Value investing

by Shane Buckingham04 Oct 2011

Buying undervalued homes isn't a strategy for everyone. Whether it's a foreclosure, a tax lien or just a fixer-upper, these investments typically require a certain level of technical knowledge to get the repairs done correctly. Sure it would be easy enough to hire contractors to do the upgrades, but for many beginner investors, the numbers simply don't work.

And paying for a bunch of renovations could turn what was once a profitable investment on paper into a money pit in reality. So to save costs and maximize returns, investor Andrew Brennan decided to use his own handyman skills to fix up his first income properties.

In the early days

In a short investing career of just five years, Brennan and his wife Sheryl have already amassed a portfolio of 16 properties. The couple began like most investors do: with an opportunity they just couldn't refuse.

When the two met, they both owned a house. So to cut down on costs, Sheryl moved in with Brennan. But instead of selling her home to use the capital gains for spending money, savings or other investments, such as RRSPs, stocks or bonds, the couple's Realtor had a better idea in mind. "He convinced us not to sell it and to, instead, hold it as an investment," Brennan says. "After sitting down and doing the numbers, I then realized that real estate was a fantastic way to achieve wealth."

So Sheryl moved in with Brennan, leaving her single-family home in Wasaga Beach, Ont., to their new tenants. It wasn't long until the couple was receiving $1,365 in monthly rent, and nearly $400 a month in net income. Sheryl already had $55,000 in equity invested into the property when she bought it for $202,000 in 2006. But today it's worth $240,000, a capital gain of $38,000 in five years. With returns like these, they were both hooked.

Increasing the numbers

Still working as the director of operations for NSK Ltd. in Mississauga, Ont., a company which manufactures bearings for automobiles, appliances and even Rollerblades, Brennan knew his already busy schedule was about to get a lot busier if he continued investing. Still, he preserved, poring over several books by Canada's leading real estate authors and purchasing five more income properties, as well as his principal residence, in just a little more than two years.

The couple scouted out an excellent deal when they found a beautiful single-family home in Wasaga Beach for them and their five children to live in. In fact, the previous owner invested more than $700,000 to have the home custom built, a price well beyond the property's worth, Brennan says.

When he and Sheryl found the listing on (now just referred to as, the home was priced at only $399,000 and had sat on the market for more than two years. The couple knew it was time to make a deal and purchased the property in 2007. After only nine months, their home had appreciated by more than $110,000. With such a large capital gain, the couple knew they could use this money to launch a successful real estate investment career.

So they got a home equity line of credit on the property and pulled $60,000 out to reinvest into two single-family homes on Innisbrook Drive in Wasaga Beach. They put 25% down on the first of the property, which was worth $205,000 at the time of purchase. But with the second property, they were a little riskier.

In 2008, the government still had fairly lax regulations for mortgage lenders, so Brennan purchased the second house, then worth $208,000, with just $8,000.

Brennan says he didn't think too much about the risk of the investment at the time, since he was still working in Mississauga. "I wasn't worried at first, but that was just a lack of education and not understanding what the impact could be. Still, I was making a six-figure salary then."

Nonetheless, the gamble paid off. Both properties today bring in more than $1,300 a month in rent and with a few thousand dollars' worth of renovations, Brennan forced both of them to appreciate roughly $30,000 in about three years.

In October 2009, when the Canadian manufacturing sector was still reeling from the recession, Brennan got a pink slip from his employer, NSK Ltd. He says it was at that time that he knew real estate investing was going to become more than a part-time job; it was going to become his full-time career.

To learn the rest of Brennan's winning strategy, pick up a copy of our October issue, on newsstands until Oct. 12.

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