New West - Cash Flow?

Clinton R

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Mar 26, 2017
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#1
Hello everyone,

I've done a lot of research about New West for the past couple weeks and i love certain areas of New West and I believe they're quite promising in the next 5-10 years time period. However, i've been trying to crunch the numbers on different types of properties and have been unable to find cash-flowing properties. Many of these houses are older houses with smaller livable square footage on a bigger lot, which is not very favorable in terms of cash flow.

Does anyone have any experience on what type of properties provide positive cash flow in New West? It seems like the price of SF, suited houses have gone up quite a bit in the past 1-2 years. Rents in new west are still a bit on the lower side compared to other areas in the lower mainland, although i believe it'll slowly catch up soon.

Thanks in advance for the insights...
 

Clinton R

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#3
Thanks for the response @ThomasBeyer.

Are you saying that cities like New West will be more of a play of capital appreciation? Is there a way to predict rent rates 2-3 years from now?
 

Devin Roberts

Devin Roberts - Brent Roberts Realty
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Nov 17, 2015
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#4
Hi Clinton, you are definitely right about New West having rents on the lower side. Therefore, lots of potential for the near future. Prices definitely have gone up in the last 1-2 years, but similar to most areas in the Fraser Valley, there are still cash flow opportunities. I do agree, they are difficult to find, but there opportunities. Feel free to give me a call or email, I’d love to chat about what you are particularly looking for. Thanks


Devin Roberts — Brent Roberts Realty
Vancouver REIN Member
Cell: 604-354-7160
Email: Devin@DevinRoberts.ca
 

ThomasBeyer

Senior Forum Member
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#5
Thanks for the response @ThomasBeyer.

Are you saying that cities like New West will be more of a play of capital appreciation? Is there a way to predict rent rates 2-3 years from now?
Correct

Yes rents will be higher


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 
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Clinton R

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Mar 26, 2017
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#7
Have you considered any of the following:
  1. looking for a SFH with a basement suite.
  2. Multi Family Buildings
  3. JV partners
I'm here to support you at info@reincanada.com.

Have a great day.
@Tina Myrvang I've taken a look at SFH with a basement suite but so far the numbers don't add up nicely unless i'm relying on rent increases in 2-3 years to come. However, that would mean that i would have to be in negative cash flow for a couple years, like what Thomas says, and betting on rent increases to turn it to positive cash flows. Appreciation wise, New West seems quite promising!

I'm pretty new to Real Estate Investing and don't have the knowledge yet about investing in multi-family buildings and JV although i'm really interested in them. Would love to learn more about them in the next couple months! I'll shoot you an email Tina.
 

Clinton R

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Mar 26, 2017
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#8
Correct

Yes rents will be higher


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
Is it a good idea to get a SFH with basement suite with negative cash flow (-500 to -700) with the hope of rents increasing and hence making it positive cash flow in 2-3 years + good probability of higher capital appreciation in a city like new west?

What about comparing that to investing in a SFH with basement suite in a city like edmonton where it generates positive cash flow with 3% appreciation (not as fast of an appreciation as new west for example)?
 

Clinton R

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Mar 26, 2017
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#9
Hi Clinton, you are definitely right about New West having rents on the lower side. Therefore, lots of potential for the near future. Prices definitely have gone up in the last 1-2 years, but similar to most areas in the Fraser Valley, there are still cash flow opportunities. I do agree, they are difficult to find, but there opportunities. Feel free to give me a call or email, I’d love to chat about what you are particularly looking for. Thanks


Devin Roberts — Brent Roberts Realty
Vancouver REIN Member
Cell: 604-354-7160
Email: Devin@DevinRoberts.ca
Hi Devin,

I'll shoot you an email!

Clinton
 
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ThomasBeyer

Senior Forum Member
REIN Member
#10
@Tina Myrvang I've taken a look at SFH with a basement suite but so far the numbers don't add up nicely unless i'm relying on rent increases in 2-3 years to come. However, that would mean that i would have to be in negative cash flow for a couple years, like what Thomas says, and betting on rent increases to turn it to positive cash flows. Appreciation wise, New West seems quite promising!

I'm pretty new to Real Estate Investing and don't have the knowledge yet about investing in multi-family buildings and JV although i'm really interested in them. Would love to learn more about them in the next couple months! I'll shoot you an email Tina.
That is normal. High appreciation markets have low low cap rates thus poor cash flow. Flat markets have far better cash flow, say rural BC or NB or deep N-TX in the middle of nowhere.


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

angelapeng

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Aug 19, 2011
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#11
Hi, Clint,

Don't know about your personal investment goals, are you going to invest more rental properties? If not, focusing on the capital appreciating will be fine as long as you can serve the loan and expenses, if yes, ideally you want to invest in positive cash flow properties, because most banks will like to see DCR at 1.1 in order to fund future properties, that includes your existing investment properties and future investments as well. Thus, to invest in positive cash flow serves two purposes: keep the DCR at 1.1 and above, and lower the cash pressure you personally have to support them.

As to whether the rent will increase in 2-3 years, it is very hard to predict right now, because it really depends on the future supply of the rentals and demand of the tenants. To estimate it will breakeven in 2-3 years will be a bit risky.

Just a few thoughts to share with you, hope it helps.
 

Clinton R

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Mar 26, 2017
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#12
That is normal. High appreciation markets have low low cap rates thus poor cash flow. Flat markets have far better cash flow, say rural BC or NB or deep N-TX in the middle of nowhere.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
Thomas, will that mean that there's no right/wrong or better/worse option in regards to choosing which strategy (negative cash flow, high appreciation potential VS positive cash flow, lower appreciation potential) to use in real estate investing?

It would depend on what type of investor / what's your goal in investing ya?

Thanks for your insights!
 

Clinton R

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Mar 26, 2017
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#13
Hi, Clint,

Don't know about your personal investment goals, are you going to invest more rental properties? If not, focusing on the capital appreciating will be fine as long as you can serve the loan and expenses, if yes, ideally you want to invest in positive cash flow properties, because most banks will like to see DCR at 1.1 in order to fund future properties, that includes your existing investment properties and future investments as well. Thus, to invest in positive cash flow serves two purposes: keep the DCR at 1.1 and above, and lower the cash pressure you personally have to support them.

As to whether the rent will increase in 2-3 years, it is very hard to predict right now, because it really depends on the future supply of the rentals and demand of the tenants. To estimate it will breakeven in 2-3 years will be a bit risky.

Just a few thoughts to share with you, hope it helps.
Thanks for your insights Angela. Yes, investing in positive cash flow properties are important to increase our ability to obtain mortgage on future investments (DCR 1.1+). Angela, do you know when does a lender use a TDS calculation and when does a lender use a DCR ratio calculation?

I thought of that too! it's pretty hard to predict rent increase especially when at times there'll be government interventions on rent controls for example.
 

TangoWhiskey

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#15
Thomas, will that mean that there's no right/wrong or better/worse option in regards to choosing which strategy (negative cash flow, high appreciation potential VS positive cash flow, lower appreciation potential) to use in real estate investing?

It would depend on what type of investor / what's your goal in investing ya?

Thanks for your insights!
You hit the nail on the head there Clinton. I can tell you've been doing some reading and research :)
The third parameter I'd add to your very accurate description is neg cashflow high appreciation places are also high price vs low price good cashflow low appreciation. As always, a function of the desirability of ownership.
I'm actually at hard at work on an e-book about this very issue, there seem to be few real estate investing books that actually capture the dilemma starting investors face of having to identify this choice in the first place (most books go on about cashflow only without addressing the fact there are lots of investors who don't need cashflow and have a horror of owning anyplace that isn't internationally heard of :)) and then weigh up the pros and cons. You are bang on when you say it comes down to your goals and what type of investor you are - which should all ultimately flow from a clear understanding of your highest values. Start with the end in mind always and be sure you have thought about the mgmt of a portfolio in the long term, very few people want to manage their properties themselves for long. High cashflow areas usually entail more management challenge and that goes for small towns or big cities - tough to find good managers for the lower east side rooming houses because no one wants to do, and small remote towns are equally tricky unless you can pay someone well and you can put time into finding and training them.
Freedom being my top value I went with the approach of picking one regional market to build scale in and take management in-house after trying a few different strategies and finding the ones that worked best for me.
Good luck.
 

angelapeng

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Registered
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Vancouver
#16
Thanks for your insights Angela. Yes, investing in positive cash flow properties are important to increase our ability to obtain mortgage on future investments (DCR 1.1+). Angela, do you know when does a lender use a TDS calculation and when does a lender use a DCR ratio calculation?

I thought of that too! it's pretty hard to predict rent increase especially when at times there'll be government interventions on rent controls for example.
Clint, different banks have different rules, a few lenders (TD and CIBC) that I deal with use DCR, but their ratio is different and their allowable rental properties financing varies too. For example, CIBC currently allows 5 rental properties using DCR 1.1, whereas TD allows 4 rentals. Check with the lenders specifically for your own needs, they change policies quite often.
 

Martin1968

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Jan 22, 2017
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#17
Clint, different banks have different rules, a few lenders (TD and CIBC) that I deal with use DCR, but their ratio is different and their allowable rental properties financing varies too. For example, CIBC currently allows 5 rental properties using DCR 1.1, whereas TD allows 4 rentals. Check with the lenders specifically for your own needs, they change policies quite often.
This is correct, however there is a difference in what they allow in actual rentals (doors) and actual props. (This is from SFH to 4 plexes). There are banks that allow 4 rentals plus your primary residence, counting a 4 plex as 4 rentals so they wouldn't finance more then 1 4 plex plus your residence. (ATB, Dominion-Paradigm etc)
At the top end I found RBC allowing 8 (!) plus primary residence, with 8, meaning actual properties so they would count a 4 plex as 1 prop. You could build up a nice portfolio that way.

Having said all that this was in 2015/16 and as mentioned policies change constantly.