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.
Hi Martin,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: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.
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.
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
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.
Hi Martin,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!
Dead money savings accounts, well said. That's exactly how I feel.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
Thanks for the tips ThomasNo 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
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.
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.
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.
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.
Personally I would look to sell them
Your seriously stating you would sell these properties at the bottom of the market?
..
Muted growth in most asset classes for ~5 years. Zero or slightly negative in some cases for others (Sask condo market).