How many realtors help their clients stress test their portofolio?

[ROI]

I found it is so hard to find properties with positive cash flow in Edmonton.



A typical townhouse will cost $185k. Suppose rent $1250. The expense would be $620(condo fee $250, tax $120, management $125(10%), vacancy $62(5%) and repair $62(5%)). Assume 20% down with amortization 25 yr at 5% rate, it will be -$235 negative per month.



Isn't this a scenario everyone should consider?



I see so many REIN realtors use the current rate 3%, 30 yr amortization, lower vacancy(3%) and repair(3%) to manufacture the numbers to present the best scenario to make it work, still it might just break even.



Are there any real good realtors here to find good deals? If you can, I want to work with you.

 

[robertmcleod]

There's numbers and then there's the "real" numbers. Would I buy negative cash flow, no... neutral cash flow, yes... remember there's your cash on cash return and then your net returns with mortgage reduction, then there's your pie in the sky returns with all that plus growth. We develop and syndicate large tracks of investment property in Alberta with real tenants, real leases and real numbers. Feel free to drop me a line and I'd love to help learn more about your goals and filling in the gaps.



Best!

Robert

 

[Rickson9]

Don't rely on anybody but yourself to find good deals.

 

[Thomas Beyer]

Finding cash-flow positive properties with only 20% down and a 5% mortgage with a 25 year amortization is indeed very very rare in a high growth, healthy & big town like Edmonton. However, finding properties with 30% down with a 30 year amortization and a 3 to 3.5% mortgage is not so hard.



There are economies of scale when you buy a whole building.



Other folks buy up/down houses with 2 or sometimes 3 income streams (up + down + garage).



If it were easy no one would need an education and incubation environment such as REIN and everyone would be rich.



Keep looking deeper and harder, and pick a realtor that specializes in investment properties. Quite a few properties are out there, but the highly levered 20% cash-flowing deals are extremely rare so don't build your expectations on it please !

 

[smmcguire]

I have to agree with this thread, from all of the above. Cash flow properties are getting difficult to find, it's the creativity that's needed to find the gem. If you find a property that on first glance looks negative, but can be made to be positive in a short time frame, perhaps, it requires another look. Perhaps today it the property is neutral or negative for a few months until all your work is completed, then it becomes positive and the cash on cash return is fantastic. What would an investment such as this look like in 5 years or even ten. Two of the properties I bought were in this category, and both properties are doing fantastic, so far they have a combined net of 280K and cash flow combined 1200. / mo. Did it happen overnight, no. Did I carry it a few months, yes. Was it a good buy, well my wife and I think so, and after careful evaluation, so do my investors. In fact, one has done his own project with his new wife and they are very happy with the returns.

My point is, don't discount everything because at first glance it fails the basic stress test, if you do, you will discount everything and when your 60 and sitting on a property you live in, then risk was not your strong point.



As a professional pilot, risk is part of the business. Every trip has risk and it needs to be managed, otherwise no one gets anywhere. (and if anyone tells you don't take off until the chance of risk is zero, they are idiots ) RE is the same.


Even Rickson9 and his comment is true, you do need to be responsible for your decisions, however, just because a Realtor sends deals you don't like, doesn't mean all of them are garbage. Run the numbers and see if a Reno, addition, better financing or even a bigger DP is required. I have 2 properties that can make extra income from parking, and maybe I will take advantage of it, when I can Reno the driveway. My neighbour rents on his lot and makes 150/mo. for 3 cars. Now think, if I was only cash flowing 50 bucks and added 150 more, then accounted for principle pay down, tax benefits, appreciation (over a X-time period) etc. and in ten years it doubled in value. What kind of an idiot would one be to balk at it on day 1., because it looked like it "sucked" at $50/mo.


Try looking at 5 of those in your life, and see how your sitting at age 60. You would be one of the few in Canada who had the "berries" to take a little risk, managed their risk and came out ON TOP... By the way, it's always clear and/or sunny on top.

 

[Lucas]

Good thread...



This business is all about grinding out a win. Capitalizing on all the possible streams of income is essential if you want to make money in Edmonton. It takes patience, persistence, creative thinking and quick action.



I'm a Realtor in Edmonton and I've been helping REIN members find good deals in Edmonton for the last 7 years. If you'd like to chat, call me direct at 780.965.7029.



Thanks ans I hope to hear from you soon,



Lucas Fausak

Remax Excellence

 

[RedlineBrett]

[quote user=ROI]A typical townhouse will cost $185k. Suppose rent $1250. The expense would be $620(condo fee $250, tax $120, management $125(10%), vacancy $62(5%) and repair $62(5%)). Assume 20% down with amortization 25 yr at 5% rate, it will be -$235 negative per month.


The answer lies with your expectation of risk vs. return and how you want your real estate investment to perform for you. If you need to make positive cash flow with a very conservative 'stress test' then you shouldn't be investing in real estate, or at the very least you need to consider a different asset class. If you are too nervous to buy without a property that satisfies all the 'stress testing' then you aren't ready for the risk.



The reason it is hard to find properties that work with tough numbers like that is because the vast majority of purchasers don't share your conservatism, and hence the prices have been bid up to reflect how the market sees the risk of ownership within your asset class.



The numbers you are using in your analysis are very conservative. 5% money is very expensive and you won't have to pay it. You can get 5 years fixed at 2.94%. So why use five?



Also, you are building in most of the costs, but you are not including the other two sources of investment return that add to your overall equity position. These are principle paydown and equity appreciation. In order to truly see the overall return you can expect you need to roll in all the factors - good and bad - and look at the investment 5 years out, not 1 month out.



You need to make it to year 5 though... and cash flow is important. What I tell my clients is if you need to have cash flow no matter what then you need to put more money down. It will decrease your overall rate of return, however it will give you the right balance of risk/return for your risk tolerance.