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Thread: Investment property

  1. #1
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    Default Investment property

    Looking at my first investment property. My thoughts are condo DT, however the vacancy rate is crazy right now so don't want to be eating those costs for too long. Other option I was considering was a place by UofC, easy rental, on the cheaper end of the budget etc.. but not as much upside long term. Starter home is also in the equation...

    Where would you guys be looking if you had a budget of $300 - 400k.

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    My current experience:

    Rental in the keynote, 2 bed, 2 bath, fully furnished with high end furnishings and decorated professionally to maximize the space. In peak time was being rented for $3100, currently sitting vacant at $1800. Last tenant broke lease after 4 months.

    I’d wait unless you got something at a screaming deal.

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    Tough right now for sure, what's your current property like? Decent equity in it?

    Lowest risk would be to shop around for a tenant for that property and move into a new place yourself, which buying right now has potential for some decent upside as it's feeling like the bottom might be in (but rental market will probably lag behind for a while)

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    Almost none of the condo/apartment condos cash flow positive, unless you get a screaming deal. Not to mention that you never know what special fees you might get hit with or rising condo fees. Not a good long term, hold it and forget it investment IMO.

    I kind of like small houses where you get a nice low maintenance family in there. Not going to have as much potential for cash flow as a slumlord sort of deal, but it's much easier to manage. Regardless of house or condo, if you target the lower end, you end up getting lower quality people which require MUCH more effort managing.

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    Ya thats what I'm worried about...

    Won't be seriously looking for a few more months still. I'll have the option of living in it too since I'm coming from out of province, but that wouldn't be ideal.

    Feel like the housing prices have bottomed but renting will obviously still be an issue.

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    If you want RE exposure, buy a REIT.

    Residential RE is a hugely over-rated asset class for the average Joe. I honestly think it's so popular because it's one of the few ways that an Average Joe can participate in leveraged investments (try getting an investment dealer/broker to give you 5:1 leverage on your account). More leverage is more risk. And it is hard, even in decent times, to get actual cash flow on a property when you fully load the nickle-and-dime costs.

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    What's a realistic return on the typical REIT fund and how would it compare to just passively invest in the index?

    If you factor in equity and neglect appreciation, a properly managed (and chosen) residential rental should still exceed the returns you would get from a safely diversified index fund (5-7%).

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    Basically all lenders still let you get away with one rental, which if it started life as a primary is usually well worth it return wise if you put down less than 20% originally, plus having a few years of appreciation and equity into it. But I'd agree that having a portfolio of 20%+ down payment investment properties isn't always the best use of money, some markets sure... but after management fees and maintenance... blah

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    Originally posted by nobb
    What's a realistic return on the typical REIT fund and how would it compare to just passively invest in the index?

    If you factor in equity and neglect appreciation, a properly managed (and chosen) residential rental should still exceed the returns you would get from a safely diversified index fund (5-7%).
    That argument is MUCH harder to make if you adjust for risk and/or volatility. Or your labour to manage the place (the value of which cvaries widely).

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    Don't do it!

    Tenants are a pain in the ass. If you can even find one.
    You pay income tax on the monthly principal payment.
    You pay capital gains if property value goes up.

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    Default Re: Investment property

    Originally posted by oster
    Where would you guys be looking if you had a budget of $300 - 400k.

    $400K, 50% down, $200K mortgage, 30 years, 2.5%

    Mortgage Interest: $410
    Condo Fee: $500
    Property Tax: $180

    Your cost = $1090.

    $1600 rent - $1060 cost = $510 profit (but positive cash flow of only $140 since most of that is in mortgage's principle payment)

    Vacant for 2 months = $5100/year or a 2.6% return if you yourself works for free and nothing breaks.

    Here's the problem, condo and apartment is slowly reaching 9 months supply and will soon hit 1 year as more units comes on market. Job prospect isn't going to be great until 2018. There is no shortage or condos available.

    Not only you have to fight other landlord for tenants, you also can't off load the unit if you want to get out of the game.

    And I don't see how you would be cash positive if you don't have 50% down.
    Last edited by Xtrema; 02-01-2017 at 10:55 PM.

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    Default Re: Re: Investment property

    Originally posted by Xtrema



    $400K, 50% down, $200K mortgage, 30 years, 2.5%

    Mortgage Interest: $410
    Condo Fee: $500
    Property Tax: $180

    Your cost = $1090.

    $1600 rent - $1060 cost = $510 profit (but positive cash flow of only $140 since most of that is in mortgage's principle payment)

    Vacant for 2 months = $5100/year or a 2.6% return if you yourself works for free and nothing breaks.

    Here's the problem, condo and apartment is slowly reaching 9 months supply and will soon hit 1 year as more units comes on market. Job prospect isn't going to be great until 2018. There is no shortage or condos available.

    Not only you have to fight other landlord for tenants, you also can't off load the unit if you want to get out of the game.
    And you pay income tax on that $510/month. No more cash flow!

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    Default Re: Re: Re: Investment property

    Originally posted by 88CRX


    And you pay income tax on that $510/month. No more cash flow!
    True but that's next year's problem.

    May be op is taxed at lowest bracket.

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    Canmore

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    Default Re: Re: Re: Re: Investment property

    Originally posted by Xtrema


    True but that's next year's problem.

    May be op is taxed at lowest bracket.
    If he has a $200k down payment he's not lowest tax bracket lol.

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    Default

    ...
    Last edited by Sugarphreak; 08-17-2019 at 04:22 PM.

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    DT condos forget about it bro. You gotta be crazy in the current market.
    Originally posted by rage2
    Shit, there's only 49 users here, I doubt we'll even break 100
    I am user #49

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    Originally posted by Sugarphreak
    I've noticed that most condo's in Calgary have WAY too high strata fees

    IMO a nice investment would be a townhome/rowhouse in the Aspen Woods area for that price. Easy low-cost maintenance, and it should see the largest growth in price when compared to the rest of Calgary in the next couple of years IMO.
    Should checkout fort mac... townhouse fees there are on par with condo fees here

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    Here's my take on it.

    I bought an investment property back in 2013. Put down 20% on it with a low interest rate.

    This was during the boom times so it was very easy to get wonderful tenants (I didn't even have to show the place to my first tenant, that's how good of a candidate he was). During 2013-2014 the property actually cash flowed positive $300 a month (this is after paying condo fees, property tax, mortgage, HOA, insurance, etc.).

    With the current rental market/interest rates, the property is just breaking even ($0 cash flow after paying the items mentioned previously).

    If you account for the mortgage principal as a return on the 20% down, I've averaged about 15% annually over the last 4 years on the property. About 10% right now during bleak times, and as high as 20% during the good times.

    I’ve been lucky to have wonderful tenants and minimal maintenance on the property (newer townhouse). The property is also near a new development, so I’m hoping its value will pick up as the area gets more amenities (5-10 years time).

    My only advice is buy a place you would live in if you couldn't rent it out. That is my only regret currently. Either than that, it's not as much doom and gloom if you do your due diligence.

    Good luck in whatever you decide. Only commit if the numbers work out.

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    Default Re: Re: Investment property

    There is nowhere in Calgary that I think you can make money by buying a place and renting it out. Housing prices are just too high and rents too low.

    Originally posted by Xtrema
    And I don't see how you would be cash positive if you don't have 50% down.
    At that point, the advantage of leverage is mostly gone. Also you didn't factor in the opportunity loss on that 50% down payment sitting as dead money.

    Originally posted by Sugarphreak
    IMO a nice investment would be a townhome/rowhouse in the Aspen Woods area for that price. Easy low-cost maintenance, and it should see the largest growth in price when compared to the rest of Calgary in the next couple of years IMO.
    Based on what? The cost of a condo in Aspen Woods pretty much guarantees you'll never make a dollar...

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