Losing money on rental property, any upside to this?

[Xtrema]

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For anyone that has developed infills, how much capital is required up front? Would it be 20% of the new mortgage total, if 2 infills cost $450K each, total $900K, would 20% of this be required for down payment? as in $180K up front? or is this way off?

2nd hand info, so take it with grain of salt.

- Infill cost $600K. You put in $600K cash to clear the title. You cannot tear down the building on the property if someone (lender) has a lien on it.
- Say you want to build 2x2000sqft, @ $200/sqft, you are looking at $800K to $900K to build. You will need to find funding for this if you don't have cash. Traditional lenders will probably shy away from this because your lot isn't remotely worth what you need to build the house with, so you will be looking at higher rates (could be double digits). Or if you can HELOC all of your other asset to get the money, that's another way to do this for cheap.
- Once build, either sell them or get a mortgage to pay off your lender.

Now I never did this, just got this summary from someone who did.

Remember, $200/sqft is pretty basic stuff and number I have been quoted at least 6-7 years ago. If you want luxury, you are probably start looking at $300+ and inflation may have increased these costs.

[Manhattan]

No disrespect to OP but building an infill on a bad investment is crazy talk. He should try to understand and master rental property 101 before throwing a cool million at this problem. One step at a time.

[Buster]

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No disrespect to OP but building an infill on a bad investment is crazy talk. He should try to understand and master rental property 101 before throwing a cool million at this problem. One step at a time.

What about going "all in" on Tesla?

hahhah

[timdog]

I've been losing $200/month on my rental property for a few years now, in terms of all of the costs vs incoming rent, and I dont really see it as a bad thing. I make enough money where the $200 deficit each month doesnt really impact my life, and i see it as my tenant is paying all my expenses/interest and some of my principal, and i'm just topping up the principal a bit myself each month. long term I think it will pay off. if it was losing as much as you, i might think about it differently but ultimately we are talking about the same thing relative to the size of our investments (mine is small condo worth half as much)

[dandia89]

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I've been losing $200/month on my rental property for a few years now, in terms of all of the costs vs incoming rent, and I dont really see it as a bad thing. I make enough money where the $200 deficit each month doesnt really impact my life, and i see it as my tenant is paying all my expenses/interest and some of my principal, and i'm just topping up the principal a bit myself each month. long term I think it will pay off. if it was losing as much as you, i might think about it differently but ultimately we are talking about the same thing relative to the size of our investments (mine is small condo worth half as much)

How long do you plan to hold on? Condo prices look like they will take a long time to recover

[R-Audi]

In a similar situation, I top up my rental unit expenses by $275 a month currently. My tenants have been there for around 2 years and are super low maintenance so I dont mind. When they leave I will likely sell, but currently my $275 turns into ~$525 worth of payments towards the premium.
Ive had the unit for ~12 years already and re-financed a few years back and taken out my original down payment and a decent 'profit'.

[Manhattan]

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I've been losing $200/month on my rental property for a few years now, in terms of all of the costs vs incoming rent, and I dont really see it as a bad thing. I make enough money where the $200 deficit each month doesnt really impact my life, and i see it as my tenant is paying all my expenses/interest and some of my principal, and i'm just topping up the principal a bit myself each month. long term I think it will pay off. if it was losing as much as you, i might think about it differently but ultimately we are talking about the same thing relative to the size of our investments (mine is small condo worth half as much)

Nobody is "losing" money on their rental property. You are cashflow negative but you still have a net income on the rental on which you're being taxed on at the end of the year. And to everyone who is cashflow negative on their rentals you could easily become cashflow positive each year by refinancing each year by taking the equity you've paid down and converting it to cash.

[cidley69]

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And to everyone who is cashflow negative on their rentals you could easily become cashflow positive each year by refinancing each year by taking the equity you've paid down and converting it to cash.

Could you give details on this process? Wouldn't the refinancing fees kill any advantage?

[ercchry]

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Could you give details on this process? Wouldn't the refinancing fees kill any advantage?

only fees would be in penalties for breaking term, you can do one year terms, but rate is not as attractive. depending on the lender penalties are not too bad right now with the raising rates as most products' 3 months interest is larger than the IRD penalty (unless you are with scotia or similar that have "special rates")

[ExtraSlow]

It's a good point that there's a big difference between being cash flow negstice vs actually loosing money.

Anyone truly loosing money should sell asap. Being cash flow negative isn't nearly so bad if you can handle the payments, or unlock that equity.

[Buster]

Dont you guys who do rental properties have an IRR spreadsheet built to assess the quality of your properties as investments?

[R-Audi]

Nope, mine started as a residence and then used as a rental with a HELOC to buy my 2nd property.. I was able to hold on to both so I continued to do so.

[themack89]

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Dont you guys who do rental properties have an IRR spreadsheet built to assess the quality of your properties as investments?

Don't like your IRR? Change your discount rate. lol

[cidley69]

I don't have one of these spreadsheets, but would love to see one.

Anyone have one to share?

[timdog]

honestly, at least 15 years, when the mortgage is paid off. I can ride it like this for a while, if the rental market gets significantly worse, then i'll reconsider but status quo is ok with me. to me it's not much different than putting $200 into a non-liquid savings/investment account for retirement/long term savings. I may even hold on to it until I die, and the rent will be extra income. then again if 5 years from now there is magically another massive boom in Calgary an the condo is worth $100k more than it is now, I'd probably sell, so it all depends.

[Buster]

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I don't have one of these spreadsheets, but would love to see one.

Anyone have one to share?

I'm too lazy to build a model for a residential rental property. i suspect lots exist that you can use anyway.

I'd probably do an MIRR model or something? Depends on if you are really pulling cash out to re-finance, etc