Break Down of an Investor Giving Circle

13 07 2009

By: Ryan

Currently you can purchase a 3 bedroom apartment at around $200,000 in Port Coquitlam so this is the price we will use to run though this example. We would need a 25% down payment so that we would not require any CMHC insurance so that makes $10,000 from each of our five investors.  The interest rate used is below the current interest rate on mortgages but we will be able to source this through a bank that is willing to help our cause.

  • 3 bedroom apartment – $200,000
    • 25% down – $50,000
  • Interest Rate – 4.5%($710)
  • Yearly Taxes – $1,700
  • Yearly Insurance + Maintenance – $3,400
  • Monthly Total Payments – $1,135

With 3 homeless people combining their allowance of $375 a month for rent it provides a total of $1125 which can be used to cover the monthly payments that have to be made.

}3 Bedroom Apartment   $200,000
25% Down  $50,000
}
}Interest Rate  4.5% ($710)
}Yearly Taxes  $1,700
}Yearly Insurance + Maintenance $3,400
}
}Monthly Total  $1,135
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6 responses

13 07 2009
maniebrahimi

Ryan,

I really like this idea. But I have some concerns. The first one has to do with relying on the individuals receiving the assistance to make their mortgage payments on time. I would assume that the investors who are contributing the funds for the down payment will be guaranteeing the mortgage, as most banks would not offer a mortgage to someone who is living on government assistance.

Furthermore, If one of the homeless individuals misses a payment, it would be up to the mortgagors of the property to make the payment. These potential defaults on the mortgage payments would detrimentally impact the mortgagor/investors credit rating. These would be just a few hurdles to overcome when implementing this solution.

20 07 2009
Ryan

Yes i see your concern. But this is the risk with property investment. If you rent an apartment to a member of the public you run the risk of missing rent payments and you can also have vacancy on your property which means you must pay the mortgage with not help from collecting rent.

The advantage of this is that the homeless people get help from rent form the government so this money is guaranteed. In this respect the investors have to worry less about being able to collect rent than they would if they rented it out to people who are paying from their salary.

22 07 2009
Annie Mendoza

Interesting break down of the figures, its numbers like this that will make your idea more concrete. I am interested to know where you got the $200,000 figure from?

23 07 2009
Ryan

Well Annie its based on the average property price for a 3 bedroom apartment, the survey was from 2008. I also did some of my own research on 3 bedroom apartments and I found some as low as $169,000. So I combined both the average from 2008 and my findings and $200,000 is a general figure of how much you would expect to pay.

25 07 2009
mattbaril

Hi Ryan,

I really like your project and I think you guys are really bringing a new perspective. I’m a bit concern over your figures however. I think Mannie brought up a good point in which the chances of these people defaulting their rent if higher then let’s say here in Burnaby. I mean this in itself is not a problem if you guys have a backup plan for when this will happen. Like Annie, I find your $200,000 estimate to be extremely low. From the quick research I did, $350,000 seems the average for a 3 bedroom flat and even though it’s possible to get one at $200,000, it usually means there is renovation to be undertaken or very high maintenance cost.

Speaking of maintenance cost, you have to keep in mind that those people are more likely to have health disease, sanitary problems and so on, and bed bugs and holes in walls are likely to be common which leads me to believe that the maintenance cost has been underestimated.

So what I’m thinking is maybe it would be financially more sustainable to buy something else than a condo. Maybe a house trailer on a cheap land, or a bigger house that could accommodate 5-6 people? I’m not sure what would be realistic and sustainable, but this is food for thoughts.

Would you guys have a partner that could backup your project? It seems like it’d be way less risky and solve many of your problems? Also, I know there is only a $10 difference per month between what you will get and what your expected expenses are, but who’s taking the lost?

27 07 2009
Ryan

Lots of concerns Matt, thanks for you input. First of all we are looking at housing that is going in foreclosure or does need rennovations, as we have business who are willing to donate their services to help get them up to a good standard. This is why we are able to use a lower figure like $200,000.

Secondly maintenance cost in apartments does not mean maintenance of the actual apartment, it is a set fee that must be paid in order to maintain the apartment building. This is standard when dealing with apartments.

We also don’t want to house large numbers of homeless people together as it makes it harder for them to break out of the homeless cycle if there are lots of them together.

Finally yes we have several organizations who are interested in the project. Hope for Freedom Society have said they would be interested in partnering with us providing we meet several requirements.

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