Where to invest?

[JoefromTO]

I have been looking at listings in Brampton and have a hard time believing its good to invest there. I understand why its on one of the top ten list with all the fundamentals that support the area, but when I look at property prices and what I can reasonably expect for cashflow...the numbers don`t seem to work.
Let me first paint a picture of what I have in mind. I`d like to buy a detach bungalow or semi detached bungalow. The upstairs and downstairs would be rented seperately.The upstairs would have 3 bedrooms and 1-2 bedrooms downstairs. The rent upstairs would be $1,200.00 plus utilities and downstairs would be $800.00 plus utilities. The utilities would be in my name but I would devide them either 60/40 or 70/30.

When I look at alot of the properties on MLS for Brampton, most seem very "tired" but still asking high prices, close to $300,000.00. Many probably don`t have legal basement apartments as well.

And one other thing Iv`e noticed is how many of them are being sold "as is"! What the hell is with that?!? If I`m not mistaken, that suggestes that you cannot apply any conditions to the offer...ya right!

The reason I`m considering this type of property is because I want to manage it myself and I don`t have alot of time to do so. So I don`t plan on cutting grass or plowing snow...that will be the responsibility of the upstairs tenants. I should also point out that I would prefer a house that does NOT have a sidewalk...for the iceing issues...

I currently manage my Tri-plex in Brampton and don`t have alot of work to do with it. Infact, very little. No problems collecting rent, great tenants, but I do visit when there is a big snow storm to help plow it. Something I`m going to work on in the near future. But for the most part, its been a great investment.

Anyway, if you look at general listings in Brampton, it just seems like they are overpriced AND in poor condition..so this begs the question...am I missing something? Am I looking at the wrong type of properties?

Iv`e spoken with a number of REIN members and many invest in more remote areas in Ontario, like Hamilton, KWC, etc because they cashflow alot better...That`s just to far for me for now. Brampton just seems like the best option for me but I`m having trouble finding properties that make sense.

Maybe I just need to be patient for the right property to come available.

Thoughts?

 

[Noel]

QUOTE (JoefromTO @ Jun 5 2009, 11:17 AM) I have been looking at listings in Brampton and have a hard time believing its good to invest there. I understand why its on one of the top ten list with all the fundamentals that support the area, but when I look at property prices and what I can reasonably expect for cashflow...the numbers don`t seem to work.
Let me first paint a picture of what I have in mind. I`d like to buy a detach bungalow or semi detached bungalow. The upstairs and downstairs would be rented seperately.The upstairs would have 3 bedrooms and 1-2 bedrooms downstairs. The rent upstairs would be $1,200.00 plus utilities and downstairs would be $800.00 plus utilities. The utilities would be in my name but I would devide them either 60/40 or 70/30.

When I look at alot of the properties on MLS for Brampton, most seem very "tired" but still asking high prices, close to $300,000.00. Many probably don`t have legal basement apartments as well.

And one other thing Iv`e noticed is how many of them are being sold "as is"! What the hell is with that?!? If I`m not mistaken, that suggestes that you cannot apply any conditions to the offer...ya right!

The reason I`m considering this type of property is because I want to manage it myself and I don`t have alot of time to do so. So I don`t plan on cutting grass or plowing snow...that will be the responsibility of the upstairs tenants. I should also point out that I would prefer a house that does NOT have a sidewalk...for the iceing issues...

I currently manage my Tri-plex in Brampton and don`t have alot of work to do with it. Infact, very little. No problems collecting rent, great tenants, but I do visit when there is a big snow storm to help plow it. Something I`m going to work on in the near future. But for the most part, its been a great investment.

Anyway, if you look at general listings in Brampton, it just seems like they are overpriced AND in poor condition..so this begs the question...am I missing something? Am I looking at the wrong type of properties?

Iv`e spoken with a number of REIN members and many invest in more remote areas in Ontario, like Hamilton, KWC, etc because they cashflow alot better...That`s just to far for me for now. Brampton just seems like the best option for me but I`m having trouble finding properties that make sense.

Maybe I just need to be patient for the right property to come available.

Thoughts?

I just ran your numbers on the deal above. Using a down-payment of $75K, you would have a mortgage of $225K. Your payments on that, given a 4% mortgage rate over 35 years, would be $992.

$2000 Total Rent - $992 Mortgage Payment = $1008 before taxes/insurance/maintenance. How much would property taxes be?

 

[invst4profit]

Your comments regarding your situation are very common. It is repeatedly posted on every real estate investment site I frequent involving individuals from all areas of North America.
The obvious fact is some areas are not appropriate for cash flow.

The response that every post of this type gets ranges from look elsewhere, look harder or change your criteria. In those areas there are always individuals that say they do have cash flow and that great deals are available but there numbers are usually suspect. Some however have found the gems.

There really are no other answers other than those that may suggest throwing more money at the deal to force cash flow or those that suggest you can manage with the numbers and hope the anticipated appreciation will bail you out.

If you truly do not want to look elsewhere then all you can do is continue to work hard and make plenty of low ball offers. Personally I have always felt that if I am not embarrassed by my low offer I offered too much.
It would also be far better for your numbers if you concentrated on older buildings and definitely avoid any building without individual metering.
Utilities included is a licence to abuse a landlord and unfortunately splitting the bill often leads to tenant disputes.
It`s Interesting to me that you are looking for something requiring minimum time and effort. This is probably the biggest factor contributing to your inability to find a cash flow property.
Although you could use a management company I have always felt successful real estate investment and being a landlord was hard work and time consuming for the small investor.

 

[JoefromTO]

QUOTE (Noel @ Jun 5 2009, 01:50 PM) I just ran your numbers on the deal above. Using a down-payment of $75K, you would have a mortgage of $225K. Your payments on that, given a 4% mortgage rate over 35 years, would be $992.

$2000 Total Rent - $992 Mortgage Payment = $1008 before taxes/insurance/maintenance. How much would property taxes be?

Property taxes are usually in the same ballpark number as the listing price, with the decimal moved to the left twice. So a $290,000.00 property would have roughly $2,900.00 in property tax.

The numbers can still work, but there might be less appreciation. Putting 25% down would make the numbers work to cashflow. I`m focusing more on the 10% rule. So a property listing for $290,000.00 purchased for lets say $265,000.00 should produce roughly $26,500 gross rent per year...divided by 12 = $2,208.33/ month.

It`s close, but a bit off, and to make the numbers work better for cashflow, would just require a bigger downpayment...which obviously reduces my ability to buy more properties...etc.

I started this topic just to see if what I`m finding is still decent in terms of numbers. The other reason I started this topic is to see if someone will point out a "Brampton" reason that I`m missing. Since its in the top ten town list...am I missing something? Is there likelyhood of greater appreciation than I`m anticipating? or something else?

 

[invst4profit]

What you are missing, probably, is the fact that may investors ignore, reduce or optimisticly predict expenses are going to be low enough to create positive cash flow. It boils down to manipulating the numbers to make them work.
One method is, as stated, to make a larger down payment, in which case the cash is creating the cash flow not the property.
This does not make more money it is simply the owner using smoke and mirror to fool themselves into believing they have a good investment.

 

[JoefromTO]

QUOTE (invst4profit @ Jun 5 2009, 01:56 PM) Your comments regarding your situation are very common. It is repeatedly posted on every real estate investment site I frequent involving individuals from all areas of North America.
The obvious fact is some areas are not appropriate for cash flow.

The response that every post of this type gets ranges from look elsewhere, look harder or change your criteria. In those areas there are always individuals that say they do have cash flow and that great deals are available but there numbers are usually suspect. Some however have found the gems.

There really are no other answers other than those that may suggest throwing more money at the deal to force cash flow or those that suggest you can manage with the numbers and hope the anticipated appreciation will bail you out.

If you truly do not want to look elsewhere then all you can do is continue to work hard and make plenty of low ball offers. Personally I have always felt that if I am not embarrassed by my low offer I offered too much.
It would also be far better for your numbers if you concentrated on older buildings and definitely avoid any building without individual metering.
Utilities included is a licence to abuse a landlord and unfortunately splitting the bill often leads to tenant disputes.
It`s Interesting to me that you are looking for something requiring minimum time and effort. This is probably the biggest factor contributing to your inability to find a cash flow property.
Although you could use a management company I have always felt successful real estate investment and being a landlord was hard work and time consuming for the small investor.


I have to admit, I like how direct your responses are. Cut and dry. It`s how I run my business (collision repair specializing in high end vehicles in the heart of King West in Toronto).

I am pretty good with managing my properties and the properties of my father and other relatives. I have learned from my mistakes and try to improve everyday.

My biggest issue has been figuring out my plan, so to speak. Where to invest has always been the biggest hurdle. I`m glad that Brampton is one of the top ten towns because logistically, its ideal for me.

Thanks for the comments.

 

[invst4profit]

Where is always a big question. Although many invest long distance that is something I would never do. I have never hired contractors to do any work for me, except some car repairs, so I have to invest close to home.
Top ten lists or any real estate studies for that matter are irrelevant to the vast majority of rental property owners as most buy where they live and normally manage to make out quite well. Large investors naturally concentrate on specific areas but even in my town we have corporations investing here so I do not see where you invest as being an issue.

I do believe you may be at a disadvantage being in the Toronto area. It is certainly not an area I would want to invest in what with high prices and difficult tenant issues.
Are there any smaller towns within an hours drive that would show better numbers.
Mine is an hours drive from home and although I usually only go once or twice a week I do not find it to far away to properly manage.

 

[manojsingh]

I have few townhouses in Brampton . May be you can go for townhouse which you will get in 160000 range and rent will be 1200- 1300. My townhouses are in this range and I getting 1250-1300 rent. Thanks

 

[Nir]

Joe, I think the top 10 list is a great summary of the top cities by expected appreciation among areas that at least break even (zero cash flow or higher).
That is how I believe the list has been prepared traditionally by REIN. However, in the current situation, more investors are looking for higher cash flow. Therefore, depending on how much weight you give cash flow, you may find some cities in the list like Brampton, no longer meet your expectation. I`m sure REIN too will update a new top 10 list next time a thorough analysis is done by their great team of researchers, considering the new environment.
(perhaps not significantly different but at least some interesting updates are expected). cheers.

 

[JoefromTO]

QUOTE (manojsingh @ Jun 5 2009, 10:03 PM) I have few townhouses in Brampton . May be you can go for townhouse which you will get in 160000 range and rent will be 1200- 1300. My townhouses are in this range and I getting 1250-1300 rent. Thanks


I have considered townhouses as well. I think of different property types needing different types of management. For example...a townhome is leased as 1 apartment. They take care of all the expenses except for property taxes. They also care for snow removal and grass mowing. A 2 apartment home, like a bungalow, has the upstairs people taking care of those same chores. Each apartment can be seperately metered so that each apartment is responsible for its own utilities.

When you get to 3 units or more is where thing could change. Who is going to be responsible for snow removal and grass cutting and who will make sure the garbage is put out and brought back from the curb...that`s where the need for an onsite manager increases, or simple a negotiated lease with 1 tenant to take responsibility for those tasks, or a company is hired to plow snow and cut grass...

I`m just generalizing here, but the bigger the property, the more the responsibility falls back on the landlord to care for those weekly tasks. He or she can hire someone to do it, but it obviously adds to the cost of doing business...just things to consider.

I currently own a semi detached purpose built tri-plex and my father owns the other 1/2, so technically we own a 6 plex. At the moment, 1 of our tenants has lived in his apartment for close to 10 years...he shows no signs of ever leaving. He cares for the property better than anyone could ever imagine...all I do is stop by with a case of beer and he is happier than pigs in sh...(poop).

When winter rolls around, my father and I both have snow plows, one at the apartments and one I have at home that is light enough for me to lift. The tenants do use the shovels to deal with the snow, but my father and I show up with our machines to clean up. I don`t really like that I have to go there to do it, but I commited to doing it for the first few years...just because I have been new to the business. It`s only a few times so I don`t mind too much, but I realize that if I had a few of these places, there`s no way I would do it. I would definitely higher a company to do it. Which by the way is the plan for this comming year. My father and I have agreed to try and find someone in the area to handle it for us...

But back to your comment. Townhomes are definitely something I considered. I`m curious to see if the townhomes your refering too are the ones I see listed online, because some of the ones I see online show like poor houses that will attract people on wellfare...can you show me the kinds or properties your refering too. I wouldn`t mind being enlightened.

And thanks again for the comments.

Oh one other thing...when you say in the $160,000.00 range, are those current market prices? What about condo fees...do they apply here?

 

[manojsingh]

They are listed today at 160000. May be you will need 3-4 thousand to remodel that. Location is Queen and Bramalea road. I am ok with renters as long as they are paying the rent . They are typical tenant just ok( I owe four townhouse in 475 Bramalea road and fleetwood crescent). The condo fee is 212 (Fleetwood) and 252(475 Bramalea Road). These are the best option available in Brampton. However being REIN member I was looking for better results and now I am investing in Hamilton .

 

[ChrisRichards]

Keep in mind that just because you might get $2000 in rent, the suites must conform to zoning in order for a lender to recognize all the rent (i.e. illegal suite rent can not help qualify the mortgage).

 

[BrianPersaud]

QUOTE (ChrisRichards @ Jun 7 2009, 11:10 AM) Keep in mind that just because you might get $2000 in rent, the suites must conform to zoning in order for a lender to recognize all the rent (i.e. illegal suite rent can not help qualify the mortgage).

There is no way you can get a legit triplex in Brampton for the prices you are quoting, so these are clearly illegal 3 kitchen properties.

5 Reasons to be careful:

1. As is usually means that the property is illegal. Brampton is focused on sending messages to people operating illegal properties. While most jurisdictions (like Edmonton, Toronto, KCW, Calgary) have a policy of hear no evil, see no evil and will only come enforce the rules if you they get a complaint. Brampton is proactive, especially 3 kitchen properties (don`t kid yourself...this is not a triplex). I`ve heard stories from realtors that they will go through MLS to see which properties are being advertised as 3 kitchens, go visit you, get their evidence and send you to court. I have never heard of another city doing that.

2. The reason why you are not finding quality properties is because 2-3 kitchens homes are usually done by do it yourself apartment builders. The 2-3 kitchen homes have been built by people that would make Mike Holmes go nuclear. You will see mold issues, crappy wiring, inadequate plumbing, poor fire protection, warped walls, weird layouts and quickly aged properties (because nothing was done right and its deteriorating fast).


3. Peel region is only allowing the two bag garbage limit. This means you will have to constantly buy garbage tags. Which really means more work for you if you have more than two apartments.


4. In any jurisdiction. If your tenants are ever pissed off with you, they could report you to the city and your leases may be unenforceable.


5. 3 Kitchens require a zoning change and will never be approved and if you get a 2 kitchen that hasn`t been registered you are SOL. As of 2007 Brampton is not allowing you to register properties as legal non-conforming.


Brampton`s policies are so anti-landlord because there is so much abuse. There are so many bad landlords. It`s a shame because there is such a lack of quality affordable housing in Brampton, and the people that they aim to protect will end up suffering.

Follow the REIN rule, set yourself up to limit chaos in future