Invest in Edmonton

[Jesse6605]

Hi real estate investors,

If I have 200k cash to deploy today , is it possible to create 2k cash flow monthly, with potential upside on capital gain, given the current Edmonton/Calgary market? If so, what will be your strategy?

Thank you

 

[Cory Sperle]

Well if it were that easy everyone would do it!

Is 12% cash on cash return achievable with real estate in Edmonton/Calgary? If you consider hypothetical options with 200K, like a 1M levered 80% property, or a 500K property that is 60% levered, both will have very little if not $0 spendable "cash flow" after expenses, and eventual repairs and upkeep on the property. Even large REITs that pay out about 5% distributions are not levered that high. Even an all cash paid townhouse could potentially 'net' you $1000 per month, but even that is iffy. There are some folks on here that may have had numbers like this buying cheap south of the border, and today values and cash flows up, but unlikely in Alberta.

There are some dividend income funds that could pay this high, and in theory you could get upside and capital gains. I was naive enough to try this once, and watched the dividend get slashed and the share price plummet, losing money way faster than I ever could on RE.

You could earn 12% on a second mortgage strait interest from a motivated investor short term, but this is for more risk adverse folks out there as well.

My two cents. Don't invest in real estate for cash flow purposes unless you have deep pockets, buy in cash and you are happy with a 5% return (5 CAP), which is about as good as you can do these days. It beats GIC's and bond funds, but not a strategy for starting or growing a portfolio.

 

[Martin1968]

I would be able to achieve that with 200K, minimum cashflow 2000 and increase a prop in value.
Just not in Calgary or Edmonton. You need to look at markets 8000-100.000 population.
And finding that right property that gives you that will take time. But doable.

 

[Jesse6605]

Well if it were that easy everyone would do it!

Is 12% cash on cash return achievable with real estate in Edmonton/Calgary? If you consider hypothetical options with 200K, like a 1M levered 80% property, or a 500K property that is 60% levered, both will have very little if not $0 spendable "cash flow" after expenses, and eventual repairs and upkeep on the property. Even large REITs that pay out about 5% distributions are not levered that high. Even an all cash paid townhouse could potentially 'net' you $1000 per month, but even that is iffy. There are some folks on here that may have had numbers like this buying cheap south of the border, and today values and cash flows up, but unlikely in Alberta.

There are some dividend income funds that could pay this high, and in theory you could get upside and capital gains. I was naive enough to try this once, and watched the dividend get slashed and the share price plummet, losing money way faster than I ever could on RE.

You could earn 12% on a second mortgage strait interest from a motivated investor short term, but this is for more risk adverse folks out there as well.

My two cents. Don't invest in real estate for cash flow purposes unless you have deep pockets, buy in cash and you are happy with a 5% return (5 CAP), which is about as good as you can do these days. It beats GIC's and bond funds, but not a strategy for starting or growing a portfolio.

Cory,
Thank you for sharing your insight and your experience with dividend income funds.

I had bought 1 new townhouse in calgary for 270k back in 2013 and 1 new half duplex in Edmonton for 350k back in 2015. Both with 20% down. Today, the townhouse in Calgary is renting for 1500/month and the half duplex in Edmonton is renting for 1600/month. I use PM, so both units have some cash flow on paper. But after count in repair/maintenance, replace floor, transition b/w tenants etc, I have close to 0 spendable cash flow as you mentioned. If I extend my payback period at next mortgage renewal I will be able to get more cash flow but I dont consider my first 2 purchases good investment.

I would like to buy units with more cash flow. Now I am looking at older (1960's to 1970's) raised bunglows with potential of a basement suite, with 3 bedrooms upstairs and 2 bedroom downstairs. Theoritically if I can buy such unit(fully renovated) for 400k, with 100k down, 3% mortgage and 30 years AT period. And rent 1700 upstars and 1000 for basement suite, 1000/month cashflow is achievable on paper. So buy 2 such units will yield 2000/month cash flow on paper. Is this practical?

Thank you

 

[Jesse6605]

I would be able to achieve that with 200K, minimum cashflow 2000 and increase a prop in value.
Just not in Calgary or Edmonton. You need to look at markets 8000-100.000 population.
And finding that right property that gives you that will take time. But doable.

Hi Martin,
Thanks for sharing your view. I guess you are talking about satellite cities around Edmonton and Calgary?

 

[Martin1968]

Sure, that could be satellite cities, however prices in Calgary and Edmonton GA will still make it very tough to (significantly) cashflow. Think more the appr 100.000 population cities in Ab outside those areas, as well as smaller centres with a strong regional function.

 

[Cory Sperle]

I would be able to achieve that with 200K, minimum cashflow 2000 and increase a prop in value.
Just not in Calgary or Edmonton. You need to look at markets 8000-100.000 population.
And finding that right property that gives you that will take time. But doable.

Sure you could potentially find something 10%+ CAP and 1.5+ DCR in smaller centers, but there is inherent risk to that as well, namely:

- liquidity - plan for a long time to sell as there are fewer buyers.
- who will manage in these remote locations?
- what happens if the local economy tanks, as smaller centers are often centered around a single industry?
- who will finance this type of property in this location?

I guess the broader question is why are you focused solely on cash flow? Real profit is made with long term equity appreciation in the form of mortgage paydown and appreciation. Increasing your amortization to get better cash flow is a questionable strategy these days as well. Sure you could buy one unit in a small town for income as a retirement strategy, but in my opinion your far better off in Calgary and Edmonton, refinance every few years or so and use the equity to purchase more property.

 

[Martin1968]

Cory,
I don’t deny there is some thruth to the risk named, but without risk there is no gain at all.

As it is often said, it is a 3 course meal, and for me to invest in a prop it needs to tick all the boxes.
Yes, to long term buy and hold, yes to appreciation, but a big fat yes to cashflow as well. The thicker the gravy the better it tastes. I do achieve targets on all 3 points. Only thing is that it takes a lot of time and effort to find such props.

By the way, not talking about buying props in such towns as the Caroline’s, Bassano’s or Forrestburgs.
Im also not buying single units. Purpose build rental units have my interest.

As for the risks, they are easily transferable to any town or city in Ab, big or smaller.
For example, that townhouse bought for 270 in Calgary, or the duplex for 350 in Edmonton, what do you think the appreciation has been so far since 2015? Zip, zero, likely even negative. Same for rents, in a strong economy it would have likely been 1800 and 2000 rents. So, no cash flow, no appreciation, only mtg paydown for Jesse. It goes to show that when the economy tanks, it tanks everywhere.

As far as refi, that’s everyone’s personal choice, I have never done that, didn’t feel the need, plus it depends maybe on what stage off life you are in. Personally, I’m not so sure leveraging is always a good thing, (also not saying it’s a bad thing) but one needs to decide for themselves. But I can tell you I’m a happy camper, my strategies have delivered, the pay off has been great, even in today’s economy.

Anyhow, the sun shines, just finished watching Tour de France, so it’s time to hop on my bike myself. Cheers!

 

[Rickson9]

I had bought 1 new townhouse in calgary for 270k back in 2013 and 1 new half duplex in Edmonton for 350k back in 2015. Both with 20% down. Today, the townhouse in Calgary is renting for 1500/month and the half duplex in Edmonton is renting for 1600/month.

That duplex and townhouse are glorified dead-money savings accounts

Personally I would look to sell them

If invested in the S&P500 index you would have made a tax deferred 14% a year since 2014. That’s doubling your money by the start of 2019

No leverage. No work. No taxes.

Cash flow makes you rich, appreciation keeps you rich

 

[Thomas Beyer]

Hi real estate investors,

If I have 200k cash to deploy today , is it possible to create 2k cash flow monthly, with potential upside on capital gain, given the current Edmonton/Calgary market? If so, what will be your strategy?

Thank you

No you can’t. You can make money but it’s not cash flow. Similar math here on $1M. http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/page-3

Feel free to read the chapter in my book “80 Lessons Learned” on “the cash flow myth”.

If you need free cash flow invest in a MIC or a REIT where 6-8%, per year, paid monthly is achievable ie $1000/month with $200,000.

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

 

[Jesse6605]

Sure you could potentially find something 10%+ CAP and 1.5+ DCR in smaller centers, but there is inherent risk to that as well, namely:

- liquidity - plan for a long time to sell as there are fewer buyers.
- who will manage in these remote locations?
- what happens if the local economy tanks, as smaller centers are often centered around a single industry?
- who will finance this type of property in this location?

I guess the broader question is why are you focused solely on cash flow? Real profit is made with long term equity appreciation in the form of mortgage paydown and appreciation. Increasing your amortization to get better cash flow is a questionable strategy these days as well. Sure you could buy one unit in a small town for income as a retirement strategy, but in my opinion your far better off in Calgary and Edmonton, refinance every few years or so and use the equity to purchase more property.

Cory,
I haven't seen any appreciation for both my properties in the last 7 years. In fact I think if I were to sell them today, I will lose 5% than what I paid plus agent fees. It might take a war in the Mid-East to fire up Alberta again.

There are some mortgage paydowns for sure. But that is roughly 5% on cash per year and all subjected to tax. When I need to sell those properties, the agent will likely consume a large chunk of my mortgage paydowns.

So, the reason I want to focus on cash flow is so that I get paid every months regardless of capital gain. That will enable me to build a rainy day fund for the property and reinvest.

 

[Jesse6605]

Cory,
I don’t deny there is some thruth to the risk named, but without risk there is no gain at all.

As it is often said, it is a 3 course meal, and for me to invest in a prop it needs to tick all the boxes.
Yes, to long term buy and hold, yes to appreciation, but a big fat yes to cashflow as well. The thicker the gravy the better it tastes. I do achieve targets on all 3 points. Only thing is that it takes a lot of time and effort to find such props.

By the way, not talking about buying props in such towns as the Caroline’s, Bassano’s or Forrestburgs.
Im also not buying single units. Purpose build rental units have my interest.

As for the risks, they are easily transferable to any town or city in Ab, big or smaller.
For example, that townhouse bought for 270 in Calgary, or the duplex for 350 in Edmonton, what do you think the appreciation has been so far since 2015? Zip, zero, likely even negative. Same for rents, in a strong economy it would have likely been 1800 and 2000 rents. So, no cash flow, no appreciation, only mtg paydown for Jesse. It goes to show that when the economy tanks, it tanks everywhere.

As far as refi, that’s everyone’s personal choice, I have never done that, didn’t feel the need, plus it depends maybe on what stage off life you are in. Personally, I’m not so sure leveraging is always a good thing, (also not saying it’s a bad thing) but one needs to decide for themselves. But I can tell you I’m a happy camper, my strategies have delivered, the pay off has been great, even in today’s economy.

Anyhow, the sun shines, just finished watching Tour de France, so it’s time to hop on my bike myself. Cheers!

Hi Martin,
Nice to hear your strategy has worked well for you. Hope you had a lot of fun in France. I visited Paris in 2016 and the food was fantastic.

 

[Jesse6605]

That duplex and townhouse are glorified dead-money savings accounts

Personally I would look to sell them

If invested in the S&P500 index you would have made a tax deferred 14% a year since 2014. That’s doubling your money by the start of 2019

No leverage. No work. No taxes.

Cash flow makes you rich, appreciation keeps you rich

Dead money savings accounts, well said. That's exactly how I feel.

 

[Jesse6605]

No you can’t. You can make money but it’s not cash flow. Similar math here on $1M. http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/page-3

Feel free to read the chapter in my book “80 Lessons Learned” on “the cash flow myth”.

If you need free cash flow invest in a MIC or a REIT where 6-8%, per year, paid monthly is achievable ie $1000/month with $200,000.

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

Thanks for the tips Thomas

 

[Martin1968]

Hi Martin,
Nice to hear your strategy has worked well for you. Hope you had a lot of fun in France. I visited Paris in 2016 and the food was fantastic.

Uhhhhh.......I was watching TdF on Sportsnet from my lazy chair here in Ab.......

 

[Thomas Beyer]

Sure you could potentially find something 10%+ CAP and 1.5+ DCR in smaller centers, but there is inherent risk to that as well, namely:

- liquidity - plan for a long time to sell as there are fewer buyers.
- who will manage in these remote locations?
- what happens if the local economy tanks, as smaller centers are often centered around a single industry?
- who will finance this type of property in this location?

I guess the broader question is why are you focused solely on cash flow? Real profit is made with long term equity appreciation in the form of mortgage paydown and appreciation. Increasing your amortization to get better cash flow is a questionable strategy these days as well. Sure you could buy one unit in a small town for income as a retirement strategy, but in my opinion your far better off in Calgary and Edmonton, refinance every few years or so and use the equity to purchase more property.

Cory,
I haven't seen any appreciation for both my properties in the last 7 years. In fact I think if I were to sell them today, I will lose 5% than what I paid plus agent fees. It might take a war in the Mid-East to fire up Alberta again.

There are some mortgage paydowns for sure. But that is roughly 5% on cash per year and all subjected to tax. When I need to sell those properties, the agent will likely consume a large chunk of my mortgage paydowns.

So, the reason I want to focus on cash flow is so that I get paid every months regardless of capital gain. That will enable me to build a rainy day fund for the property and reinvest.

You should be a lender then (directly or via a MIC or syndicated mortgage) or buy higher cap rate (but far more risky) assets like commercial properties in small towns in cash or a REIT.

A low risk 12%/yr does NOT exist.

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

 

[Cory Sperle]

Cory,
For example, that townhouse bought for 270 in Calgary, or the duplex for 350 in Edmonton, what do you think the appreciation has been so far since 2015? Zip, zero, likely even negative. Same for rents, in a strong economy it would have likely been 1800 and 2000 rents. So, no cash flow, no appreciation, only mtg paydown for Jesse. It goes to show that when the economy tanks, it tanks everywhere.

This is a momentary blip of a worst case scenario timing wise. I can look at the same 4 years (2003 to 2007) and say wow, I'm a genius! Go short and you'll either lose, win, or break even. Stretch this to any 20 year investment time-frame and it's a win, and chances are Calgary or Edmonton will have outperformed most smaller centers.

Cory,
I haven't seen any appreciation for both my properties in the last 7 years. In fact I think if I were to sell them today, I will lose 5% than what I paid plus agent fees. It might take a war in the Mid-East to fire up Alberta again.

Exactly my point, your unfortunately at the worst part of a 10 year cycle, things will improve and be much better in 2-5 years from now. Every decade looking back since the 80's has had a major downturn every 10 years, some uglier than others but they have always came back. It has been said many times on here, but leveraged real estate in general has no real cash flow at the end of the day. Your Alberta properties look like duds now, but they won't a few years from now.

Personally I would look to sell them

Your seriously stating you would sell these properties at the bottom of the market?

 

[Thomas Beyer]

Your seriously stating you would sell these properties at the bottom of the market?

What makes you relatively bullish on Alberta? Isn’t a minority Liberal government, supported by Greens and NDP a distinct likelihood in fall of 2019? How would this bode well for Alberta?

Or you expect a conservative gov plus major oil boom due to war with Iran ? Or more #ABGreenShoots as Alberta may emerge as a major lithium provider for the expected surge in electric batteries .. derived from abandoned oil wells and oil fields residue brines https://edmontonjournal.com/opinion...ilpatch-may-help-fill-global-lithium-shortage

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

 

[kfort]

Personally I wouldn’t use the word “boom” wrt oil anytime in the next decade. Possibly never again. I would expect almost any fed government going forward to be better than current one (for the west i mean). Is any future potential gov going to look at the current policy / performance and say “yeah, that gives us a real good chance of getting elected!”... not likely. I think I’ve said it before on here but politicians only have two jobs, 1. Get elected. 2. Get RE-elected.

So far this clown is at risk of screwing up 50% of his jobs.

Muted growth in most asset classes for ~5 years. Zero or slightly negative in some cases for others (Sask condo market).


Sent from my iPhone using myREINspace

 

[Thomas Beyer]

..

Muted growth in most asset classes for ~5 years. Zero or slightly negative in some cases for others (Sask condo market).

That is my current world view for W-Canada also, except retiree havens like V Island or Okanagan, esp South Okanagan with still lower prices, scenic beauty, no 0.5-2.0% speculation tax and destiny for many retiring boomers.

Thomas Beyer, Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca