Garret (00:05.755)

It's been quite a while since I've done what I call a solo episode on my podcast. I'm alone in my studio because I was kind of reflecting going back through a lot of the episodes and in light of some recent announcements, which I'm gonna go over in a little bit by our government here in Canada, I just wanted to kind of put some things together and really the topic of this show, this episode is going to be how to save for a rental property, how to buy your first rental property.

And I want to introduce the concept of house hacking. I know that might be an overused term, but I was going back through a lot of my episodes and the one that did extremely well, probably in January, February this year, right now I'm recording this in middle of September. So about eight months ago was a fellow by the name of Justin Peters, fellow podcaster reached out, we collaborated and Justin really focuses on pretty well anything to do with young people.

anybody in their 20s and he really has a really good segment on how to save money. So he came on talking about how to save money for a rental property. And so I wanted to put that concept together with what I call house hacking, specifically trying to move into a property, have either a room or something else rented out. So that's a little bit of a teaser. Let's get into the meat of the episode.

So the recent announcement, what I'm talking about here is the government introduced an announcement on a 30 year amortizations. Okay, so in August of this year, so about a month ago, 2024, the government announced a 30 year amortization for first time home buyers on new builds, okay, on new buildings. So what does increasing the amortization going to do for somebody?

Well, it means you have a longer period to pay back your mortgage, which means you're reducing your monthly mortgage payments. Of course, it increases the total interest paid over the loan's life. Now, this is meant to ease the financial burden on buyers, particularly those who are entering the market with lower incomes or higher property costs. So you have to think about that again, new builds only, okay?

Garret (02:28.795)

So when you're thinking, okay, that's great. How do I still save up for to buy a house? I mean, that's crazy, right? When you think, I don't know if you're listening to this and you wanna buy your first house, house prices are going up. Maybe you have to pay $300 ,000 for a house, 20 % down, $60 ,000 you have to save. So let's jump into a little bit of a summary of Justin Peters interview with me. And he talked about how to save for a down payment.

A lot of the strategies that he was talking about has to do with that B word, budgeting. So he was suggesting track your expenses for 30 days, categorize them, and then find areas to cut. He said, it's not rocket science. It's basically a very simple strategy, but you got to be honest with yourself. He talked about mentioning and taking small sacrifices like cutting unnecessary spending on fast food.

He said, even that can save hundreds of dollars a month. He talked about a high yield savings account. So instead of traditional savings, use accounts that are offering better interest rates. He was talking about an example where a high yield account generated a lot more interest than just a large bank account. He spoke about the concept of getting a side hustle, creating additional income through, I don't know,

he was actually reselling old furniture. I think it was him and his brother that were taking reclaimed furniture from a discarded pile, making them nice again, and then selling them for a profit. At that time, I think it was just for his pizza fund or something like that. But it really got to be the point where it was a significant source of income. So, you know, don't spend that side hustle money. What he's saying is put it into a high interest savings account.

so that you can get that down payment a lot faster. So side hustles that he was saying made him over $12 ,000 in a single year. You know, if you do that for four or five years, just from that, he would have had his $60 ,000 for his $300 ,000 house. He also mentioned though, that it's really important to celebrate small wins for every milestone you might hit. And of course you have to choose what that goal is, reward yourself.

Garret (04:52.205)

And this keeps you motivated for the long -term goal of home ownership. Now I mentioned house hacking. So what we've talked about already is the government has increased the amortization for new builds, which means a mortgage payment should be lower. Okay. We talked about how to save for a down payment. Let's put that concept together with house hacking. Okay. So the definition of house hacking means living in one part of your property

and renting out the rest to cover a significant portion, if not all of your mortgage payment. So why does this work? Well, it provides rental income while at the same time building equity, and then it also helps you cover your mortgage and living expenses. Okay, so what types of house hacking are there? Well, multifamily properties is probably the one that comes to my mind anyways, so you could buy a duplex or a triplex, live in one unit and rent out the others.

in a single family home, kind of a much simpler, maybe less private option, rent out rooms or the basement to tenants, okay? You can also do an Airbnb, okay? That's a short -term rental, can be an option where it's legal, of course, I believe at the time of this recording, you could have a room or two in your actual principal dwelling that you could turn into an Airbnb. So significant source of extra income. And then,

What I want to also talk about is take advantage of a first time home buyers incentive for the down payment, 5%. Now, if you haven't heard of this, I'll explain. A first time buyer, according to the government is defined as someone who hasn't owned a home in the past four years, okay? So if you were a homeowner, then maybe you downsize, you're living in a condo or an apartment.

and then you, sorry, not a condo, I guess that would be considered a homeowner. If you've downsized, went to an apartment or you're living with friends and family for at least four years, then when you come back to be a homeowner, you're considered still a first time home buyer. The government then gives you a 5 % down payment option for homes priced up to $500 ,000. So a lot of you might not have known that. I did a little bit of research before I...

Garret (07:13.499)

came onto the podcast, I wanted to make sure that I had my numbers. I thought it was just 5 % down. So for homes priced up to half a million dollars, you can buy with 5 % down. For homes priced between 500 ,000 and a million, you can put 5 % down on the first 500 ,000 and 10 % down on the portion above that. So very interesting. Now, if you're going to be doing 5%, which is called...

I guess non -conventional, because a conventional loan would be 20 or 25 % down. That's when you're going to a bank, you give them your 20 or 25%, they finance the rest in a traditional mortgage. There's something that you have to have, which is mortgage insurance, if you're going to be putting down less than 20 % down. The insurance premium, typically through something like Canada Mortgage and Housing Corporation, CMHC, the insurance premium is added to your monthly payments

but it allows lower down payments, of course, because you're able to stretch out that amortization. So let's talk about combining all of these strategies, okay? So one in itself, all the strategies I just mentioned, not bad, but let's combine them all to see what we can come up with as a strategy if you're listening to this and you wanna just go into your first rental property. So step one, save for your down payment using budgeting and side hustles, as Justin Peters advised. Step two,

utilize the 5 % down payment option for first time home buyers. It lowers the barrier up to entry for homes up to 500 ,000. So my example before $300 ,000 house, 20 % down, $60 ,000 that you have to save. $300 ,000 house, 5 % down, three times five, $15 ,000. $15 ,000 is a heck of a lot more digestible than 60 ,000.

So I'll back up a little bit again. Step one, safe your down payment. Let's say $15 ,000 using budgeting and side hustles, sacrifices, cut all of that fast food. Step two, 5 % down if you're a first time home buyer. Step three, combine that 5 % and buy something that you can house hack. So let's use a duplex as an example. You wanna buy a duplex, 5 % down. You're allowed to do this because

Garret (09:35.867)

you're living in it, you live in part of the property, you rent out the other portion. If you're single, maybe, you know, I want my sons to do this as well. So let's pretend that they move out of our house, the 20 and 22, get their 15 ,000, buy a duplex. They don't need to live in the larger part of that. They might want to live in the one bedroom. Let's say that you buy a duplex with a three bedroom and a one bedroom.

Well, that three bedroom is practically the same rent that's gonna be coming in for a full house. Maybe it's $2 ,000, 2 ,500. This is going to then lower your mortgage costs immediately, okay? And your other holding costs, property tax, insurance, the hydro bills, maybe you have to pay the hydro bills for both, okay? Gas, utilities, water, that type of thing. Now, step number four.

This is interesting and this is where that announcement comes in. Consider the new builds where the 30 year amortization applies and then you can go up to this and the longer terms mean lower monthly payments. So that means it makes it easier for the tenants rent to cover most of your mortgage. So without this step, let's pretend that you're not house hacking. Okay, great. You can save for your down payment. You can do 5 % down and you can take advantage of a new build.

and pay a lower monthly payment, but you're paying more in interest. Well, if you combine this into a house hack, that extra interest is actually paid for by the tenant's rent and you can write it off because this is now a business. If you were just living in your house as a mortgage, then of course you're not allowed to write it off. Now I will preface that by saying I am not an accountant and the way I believe it would work and

accountants, feel free to comment, know, send me an email if I'm completely wrong. I think the way it would work is if you are writing off the expense portion of your interest, you can only do it for the square footage or some kind of calculation for the portion in which you are not living in the house. So maybe if you're living in the one bedroom and the house is the tenants living in a three bedroom, let's call it 25 and 75 just for easy math because of bedrooms.

Garret (11:57.115)

25 % of that down, the mortgage interest would not be covered, but you could probably write off 75%. Again, not an accountant, okay? Okay, all right. So now you've saved for your down payment, taken that 5%, you have bought a brand new build in a duplex, you're living one part of it. So now you are actually living in a rental property and you're a homeowner, congratulations.

What's your next step? Scaling, okay? You don't just wanna start with one. I'm talking about, and hopefully you get from this episode, how to start into getting a real estate portfolio. So, how are you gonna scale? Well, the fact that you now own a duplex, an actual asset, that's building equity in two ways. Number one.

The tenant's paying down that mortgage for you. You're not doing it. So that's the mortgage is going down. So therefore you're owning more and more of that property every single month that you make a mortgage payment. Number two.

The.

Garret (13:07.471)

Zach, maybe cut that out there.

Number two, obviously the market value is going to be increasing over time. That's just property appreciation. It should be going up depending on where your market is. Of course, there's gonna be adjustments, but generally speaking, I think the Canadian average for Canada is 5 % per year. So your $300 ,000 property is going to appreciate at 5 % per year or $15 ,000. So if your mortgage,

principal decreases by $10 ,000. If you're in the middle of that amortization period and another 15 ,000, technically you're making $30 ,000 of equity every single year. So that's awesome. So scaling then, you can refinance part of that equity because now you have that equity, pull out cash for the down payment on your next property. So this is part of that.

BRRRR, buy, rehab, rent, refinance and repeat. Okay. You can see that I'm kind of putting together a lot of concepts of which I have had guests on the podcast and then you want to reinvest the rental income. Okay. So you're living in your own rental property, your tenant below you or above you and the duplex is paying your current living expenses. So you don't have any of that extra.

So you could actually reinvest the rental payment that you were planning on paying or the mortgage payment that you're planning on paying and save that as well as saving the cashflow from this other rental property for which you had just refinanced out of your duplex. Okay, so hopefully that's clear. I wish I had a whiteboard behind me. So any rental income you're earning can now be reinvested into future properties and then that is going to accelerate and speed up the growth of your portfolio.

Garret (15:07.707)

So conclusion, let's recap strategies again. Save with intention using side hustles and automated savings. Take advantage of the 5 % down program for first time home buyers. Use house hacking to generate rental income, lowering your living costs and considering buying a new bill to take advantage of the 30 year amortization option to reduce your monthly mortgage payments. So I'd encourage you to, you know,

Take action, start small, be consistent in your approach here. That's what Justin Peters would say. And the other thing is, if you like this type of content, comment below, let me know. I'd love to come on and do another solo podcast if you want me to take some core concepts from my guests and spin it into an application of real world. Thanks for listening and until next time, invest to win.