Why Am I Having A Hard Time Finding A Property? Options

[aiden1983]

If you're having a hard time finding a rental property, why not create a rental property? i.e., find a big, old house with lots of space, then create a duplex or triplex out of it? Perhaps more cost up front, but could net stellar cash flow. Does anyone have experience doing this?

I think this would be very hard to do in Calgary due to all the red tape you have to go through in order to get another suite in a house.

[wgraham]

Wow that is better than I would have ever though for a garage. Is it legal or illegal? Very jealous of your deal .

There is nothing to be jealous about and I didn't post the numbers to brag. I simply wanted to show what is possible and real out there at the moment.

Yes I buy both legal and illegal places. With the illegal ones I have certain boundaries and make sure my investors are informed of the risks and how we will manage them.

You would be amazed what you can get for a good garage!

Good luck with your search!

[RedlineBrett]

I have been looking for a while now (over 8 months) to find a property (SFH ~1000 sqft bungalow with 15.2m lot in SE or SW Calgary) and cannot find one that is cash flow positive.

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

How much are you putting down?

[aiden1983]

How much are you putting down?

I would like to put down 5%

[RedlineBrett]

I would like to put down 5%

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

Well you are putting very little down and have a lot of 'safe' assumptions in there.

with a 'safe' rental income of 2200/month (1300 up, 900 down plus utilities) you would need to purchase a property for under $300,000 to make this work with your planning assumptions. Most of the buying public is not doing their math with your variables they do them with current actuals so these properties get snapped up fast.

They are available in some 'shady' areas of town... but if you're going to owner-occupy this place as your realtor I would try and talk you into spending a bit more. What good is $1M/yr if you have to live in a cardboard box?

To get a decent place in the SW you are looking at $425k. To get a decent place in the SE you are looking at 350-400k but these are VERY RARE with both 15M of frontage and proper zoning for a suite. There are more properties in the SW and they're better communities too. Most times in real estate you get what you pay for.

Here is what I would change

1. Get on a 35yr am. Reduce your payments as much as possible. When you have a good month you can pay more principle. When you have a bad month you have a wider safety net. No risk other than the extra 0.2% of CMCH premium which I think is worth it.

2. Your 5% rate . Get on the variable rate of prime minus 0.2% (prime-0.3% is available too). If you are going to live in the property for three years you can bank up significant savings. If you assumed a 3 year average rate of 3.25% you would bank a total of $428/mo assuming a loan of $412,467 at 5% which would include your CMHC premium at 5% down. Since you're going to live there for 3 years that's 36 x $428 = $15,408 in savings vs. a rate of 5% that you're using. That's at 3.25%. Prime is still at 2.25% so that's a FULL POINT they have to go up for your 3 year AVERAGE to hit 3.25%. Bottom line 5% is more than safe enough for a 3yr timeframe and you'll bank so much money while rates work their way up that if it hit's it in year 5 you'll have a nice fat cushion to deal with.

3. Your vacancy rate of 10% should reflect that you'll be occupying the main floor for three years. Basement suites rent the fastest and to be honest our basement suite vacancy rate has been less than 4% in the worst of times over the past three years. Other than that an 8% rate (one vacant month a year) is more than enough.

4. 10% maintenance. If you're going to include maintenance then you need to include some of the other upside on the property. So principle paydown and estimated appreciation rates should start to come into play. That's why no one wants to be a renter right? so you need to give that some credit as well.

5. Rents will be higher in 3 or 5 years than they are now. As interest rates move up more buyers will be priced out and the demand for rentals will increase. Everyone seems to agree that rates are going up so make sure you're looking at this double-edged sword from the landlord side of the equation.

Bottom line - there are quite a few nice places in the SW that you could buy for $425,000 - $450,000 at 5% down, rent out your basement suite and your garage and live for less than $500/mo. Even if rates DOUBLED you are still less than $1000/mo and this includes tax and insurance. Read that line again. Basement suites in these areas rent fast and you can get them within walking distance to the West LRT when it comes in. Get your realtor to show you some of that stuff and ask yourself what risk is greater - having a property that doesn't meet all of your criteria yet costs you $500/mo to live in right now or waiting around for your ideal property to come along and find you've been priced out or CMHC goes to 10% down for first time buyers?

[MikeMilovick]

I sit down with all my investor clients and set market expectations and give them examples of real deals - so they know what to expect in my market place.

I would have heart to heart with your realtor. It sounds like what you are looking for may not be available in your market place.

Mike