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Off to a frustrating start!

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Hello! First post!

On the weekend I purchased Don's book and I just finished it. After reading the book I was very excited to commence a solid, long-term real estate investment plan! My area of focus is condos in the Pickering-Oshawa corridor in Ontario (as this meshes with my own lifestyle goals, as per Don's suggestion). I have followed the guidelines of the ACRE system and have done the following:

- I calculated the housing affordability statistics in the cities I'm looking in. Thankfully Pickering to Oshawa housing affordability numbers are in the 35-40% range, unlike Toronto at 60%. This fits the guidelines of the ACRE system.
- Analyzed the economic fundamentals in the cities and gained an understanding of the economic drivers.
- Noted addresses of all major transportation hubs, universities, and other areas of interest.
- I created a map of all the major highrise towers from Pickering to Oshawa.
- I cross-referenced these towers with current and historical rental advertisements to get a feel for the Cash Flow Zone of each highrise tower.
- I found that from Pickering to Oshawa a two bedroom gets $1,500-$1,800 per month in rent and a 1 bedroom gets $1,100 to $1,400 in rent.
- I have reached out to several brokers to introduce myself and express what I'm looking for.
- I had a meeting with my banker to discuss my GDI and TDI ratios. Obviously I wasn't 'pre-approved' for anything but I have a solid understanding of what I could purchase without running into any "walls."
- I arranged for my home to be re-appraised to potentially give me more funds to work with.

Unfortunately my enthusiasm and excitement has all but died. After looking at dozens of buildings I found just one property that was on the border of passing the Cash Flow Zone test. Upon closer examination this property would be breaking even every month.

Is this just the reality right now? Every single property seems to have a gross yield of 4-7%. There is no way anyone (with 20% down) is making money on these properties after accounting for maintenance, taxes, insurance, etc.

Should I be switching to houses? The ongoing maintenance, surprise problems, and extra time requirement makes me a bit less enthusiastic.

Any advice for a wannabe ACRE master would be appreciated! If anyone out there is also looking in the Durham region I'd greatly appreciate any opportunity to chat about real estate.

Thanks!
 

Sherilynn

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When we started investing in 2006, Edmonton's boom was in full swing. Cashflowing single family houses in decent areas would be hard to come by, but I would rather purchase nothing than have no cashflow, so we tailored our strategy to the market.
We purchased older, suited houses where one suite needed upgrading. We put low money down and lived in one suite while using more of our capital to upgrade the other suite. The end result was a handful of renovated, legally-suited houses that have paid us since day one. And even when the market corrected, those suited houses were still worth more than we paid because of the added value from the upgraded legal suites.

Another option is to consider other markets. Find a market that is starting to rise rather and is still affordable, and consider investing there. Many successful investors own no rental properties in their own city or province.
 

Thomas Beyer

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If it were easy everybody would be rich.

Cash flowing with 20% down in major cities is very very difficult. Try 25 or 30% down or go further out. Try a TH or SFH with a basement suite as opposed to a condo.
 

Rickson9

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Reality bites

Houses won't help. They have worse ROI numbers. Better tenants tho. In general.

Real estate in some major US cities are still a far better deal than anything around Toronto.
 

Stephanie3745

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Your are still learning, creating a solid team. You are figuring out what not to buy, thats fantastic. Challenging markets cause creativity which is a beautiful thing. Your journey is just beginning, I think all those folks that have created amazing things, enormous wealth, failed, failed and failed again. Your are in exploration mode, enjoy the process it will get easier. You can do this:)
 

Thomas Beyer

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Money is cheap, very cheap, inflating anything real such as oil , shares, gold or real estate.

Canada's large cities are just now catching up to the rest of the world where houses in big cities are generally very expensive and do not cash flow with only 20-30% down. In fact in many European nations you can't even buy a house without at least 35-40% cash down. As such expectations have to be aligned with today's reality not that of the 1990's or early 2000's.
 

23994

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I agree with all of your points here, nowadays in Toronto or even GTA, it is almost impossible to find the cash flow with only 20% down payment, no matter it is SFH or Condo...if you want to do it in GTA, you have to either increase the down payment or accept the no cash flow or even negative cash flow now...
 

Ahilan Thurairajah

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My suggestion is to get connected with other investors in REIN. An investor in REIN cannot buy every single good opportunity he comes across. With proper networking, they may be willing identify good opportunity and pass it to you.
 

dpeacock

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I've found the same issue in Calgary. Buying thru a realtor, off the MLS gave me very very few buying opportunities. What we did was focus on several neighbourhoods that fit our profile, and identify all the duplex or legal R2 homes. We then sent out 100 letters each week to the homeowners. We received many calls. 90% wanted more than the property would support. Eventually, though, we were able to find sellers who, for one reason or another, were willing to sell well below list, or give us favorable terms. We then renovated, increased our equity and rented them out. If they cash flowed 100-300 mo after all expenses, we were happy. The markets rose, then fell in Calgary, but we've been able to maintain positive cash flow, due to buying below market and renovating. It just takes a lot of searching, we found.
 

Sherilynn

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The markets rose, then fell in Calgary, but we've been able to maintain positive cash flow, due to buying below market and renovating. It just takes a lot of searching, we found.

Well done! It pays to be creative.
 

Quantized

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Hi everyone,

Thanks for all your responses--and apologies for the delayed response!

Another option is to consider other markets. Find a market that is starting to rise rather and is still affordable, and consider investing there. Many successful investors own no rental properties in their own city or province.
Other markets may present opportunities but I'd be uncomfortable purchasing something I can't see, especially for my first rental property. Later down the road I'd definitely be open to something in another province/city.

Your are still learning, creating a solid team. You are figuring out what not to buy, thats fantastic. Challenging markets cause creativity which is a beautiful thing. Your journey is just beginning, I think all those folks that have created amazing things, enormous wealth, failed, failed and failed again. Your are in exploration mode, enjoy the process it will get easier. You can do this:)
Thanks for your words of encouragement! I am enjoying the process very much!

I agree with all of your points here, nowadays in Toronto or even GTA, it is almost impossible to find the cash flow with only 20% down payment, no matter it is SFH or Condo...if you want to do it in GTA, you have to either increase the down payment or accept the no cash flow or even negative cash flow now...
Actually I have a question about this. I have found a few properties with a Cash Flow Zone yield of 8% which gets me to about break even on a net basis. If I assume property appreciation of 1.5% per year the 10 year internal rate of return (IRR) would be ~10%. I know I'm venturing beyond one of the key commandments of the ACRE system (cash flow!) but is the assumption of property appreciation equal to the inflation rate that speculative?

My suggestion is to get connected with other investors in REIN. An investor in REIN cannot buy every single good opportunity he comes across. With proper networking, they may be willing identify good opportunity and pass it to you.
Thanks. So how do I find these REIN investors in my neck of the woods?

I've found the same issue in Calgary. Buying thru a realtor, off the MLS gave me very very few buying opportunities. What we did was focus on several neighbourhoods that fit our profile, and identify all the duplex or legal R2 homes. We then sent out 100 letters each week to the homeowners. We received many calls. 90% wanted more than the property would support. Eventually, though, we were able to find sellers who, for one reason or another, were willing to sell well below list, or give us favorable terms. We then renovated, increased our equity and rented them out. If they cash flowed 100-300 mo after all expenses, we were happy. The markets rose, then fell in Calgary, but we've been able to maintain positive cash flow, due to buying below market and renovating. It just takes a lot of searching, we found.
Wow, that's quite a strategy!
 

Ahilan Thurairajah

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-- Thanks. So how do I find these REIN investors in my neck of the woods?
Send me an email with your contact details to [email protected].
In our next REIN meeting, I can introduce to a few others who helped me. Also I'll be glad to help with the little I know.
 

stephenjones

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I am a REIN member and investor focused Realtor operating in the Durham Region. Many of my clients have done well in this area. Drop me a line if you would like to have a chat 905-706-2517.
 

Quantized

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Well, I have good news and bad news. I found a property that fit all the criteria of the ACRE system. Bad news: it sold last night.

Gives me hope that there are properties out there!
 

Matt Crowley

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Hi everyone, Actually I have a question about this. I have found a few properties with a Cash Flow Zone yield of 8% which gets me to about break even on a net basis. If I assume property appreciation of 1.5% per year the 10 year internal rate of return (IRR) would be ~10%. I know I'm venturing beyond one of the key commandments of the ACRE system (cash flow!) but is the assumption of property appreciation equal to the inflation rate that speculative?

Good! I'm glad you learned this lesson sooner than later.

Cap rate = yield = maximum productive capacity of the property. If find the property makes 4 - 7% yield that is all it will do.

Anyone in REIN who is talking about making tons of money using the REIN system is a speculator. Period. There just isn't much money to be made at 4 - 7%. If you want to get to 10 - 20% returns, you must buy into a market going gangbusters. PPD is just not going to get you there. You are better off to buy a long-term GIC through an RRSP...not being facetious, you will actually make more money with an RRSP in a flat market.

Paying yourself $0 for renovation labour work and then calling it a return is not a return. It is deferring sweat equity payment. The payoff is in the speculative increase in the home price.

Get familiar with the speculative part of real estate investing. If you are not a speculator, you will make 4 - 7% and put in a whole lot of equity and time and have $20,000 to show for it in 5 years.

Real estate investing is a place where you put a big wad of money once you have made a bunch of it. The returns are very, very tiny. It is the speculation piece of the return only that you are basing your excitement on. If you haven't reached this realization yet, you need to find yourself a real set of financials on a property and run the numbers.
 

RE123RE

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Hi,
Cash flow is only 1 source of RE income, often only around 25% of your total income!
(closer to 33% in high CAP cities. lower than that in GTA)
The more important number is your total 'income' = cash flow + property appreciation + principal reduction.
I suggest learning this formula and how to calculate/estimate each source of income.
Note, for example, how the more you buy/the bigger the property, the higher your monthly principal reduction is.
$1 in Cash flow is worth a bit more than $1 in principal reduction or appreciation. The last are less liquid - you can not buy a meal using your principal reduction. However, thanks to the option to refinance and take out equity from your property without selling (thanks to appreciation and principal reduction), all 3 sources of 'income' are almost of the same importance.
I wouldn't buy condos. Appreciation is usually higher on other types of properties, not to mention the high condo maintenance fees.
Thanks
 
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