Rental potential for brand new condos?

[zzebian]

I saw an ad in Condo Living for a new condo project up by the university that advertises 60 new condos under $199,900.
If I bought a two bedroom condo for around $200k, what are the odds that one could cash-flow a unit like this?

Anyone know what rentals are going for near the University? They`re calling the project University City. www.universitycity.ca

 

[Thomas Beyer]

QUOTE (zzebian @ Sep 29 2010, 01:19 PM) I saw an ad in Condo Living for a new condo project up by the university that advertises 60 new condos under $199,900.
If I bought a two bedroom condo for around $200k, what are the odds that one could cash-flow a unit like this?

Anyone know what rentals are going for near the University? They`re calling the project University City. www.universitycity.ca
200K would buy the worst unit probably overlooking the parkade entrance facing north with no sun.

cash flow @ 50% down .. is this an OK investment with 100K invested ?

condo fees: $200
management: $80
taxes: $100
rent: $1000
vacancy: 10% ..
so net rent: $900
minus op cost of $380
NOI = $520

150K mortgage at 4% for 30 years = 720 i.e. negative cash flow of $200


100K mortgage at 4% for 30 years = 480 i.e. slight positive cash flow .. not counting upgrades to interiors after a 5 year ownership of $5000 .. so another $1000/year !

so assume no cash flow for 5 years .. an appreciation play even with 50% down !!

 

[Rickson9]

QUOTE (zzebian @ Sep 29 2010, 04:19 PM) I saw an ad in Condo Living for a new condo project up by the university that advertises 60 new condos under $199,900.
If I bought a two bedroom condo for around $200k, what are the odds that one could cash-flow a unit like this?

Anyone know what rentals are going for near the University? They`re calling the project University City. www.universitycity.ca

No chance.

 

[bizaro86]

QUOTE (zzebian @ Sep 29 2010, 02:19 PM) I saw an ad in Condo Living for a new condo project up by the university that advertises 60 new condos under $199,900.
If I bought a two bedroom condo for around $200k, what are the odds that one could cash-flow a unit like this?

Anyone know what rentals are going for near the University? They`re calling the project University City. www.universitycity.ca

Do you have any information indicating that the condos are two-bedrooms for 200k? I would kind of assume the cheapest ones are studios or small one bedrooms. I also suspect that parking would be at an extra cost, into the tens of thousands of dollars.

If you start from the hypothesis (which I doubt) that a reasonable sized, new construction 2 bedroom condo in a highrise near the c-train can be obtained for 200k, I suspect it would at least break even with 20% down.

Assumptions:
Rent: 1200/month (higher than Thomas` estimates, but I`m sure I could get that for new construction on the train)
Condo fees: 250 (higher than Thomas as well)
Property Tax: 100
Vacancy 60 (5%)
Management 50 (I self manage, so you may want to estimate higher here)
Mortgage $707 (3.99 fixed, 35 year amort, 20% down)

Cash flow: $32/month

This is a <1% cash-on-cash return on your $40,000 invested, so you`d be relying on mortgage paydown and appreciation for essentially all of your return.

Michael

Edited to add: I also think I could get more than $1200 for a new construction 2 bedroom on the c-train in that location, but I`m not positive, since I`ve only dealt in older construction buildings in other areas.

 

[invst4profit]

Something else to keep in mind is that very often condo fees increase considerably within a couple of years following completion of
the building.

 

[Berubeland]

QUOTE (invst4profit @ Sep 29 2010, 03:40 PM) Something else to keep in mind is that very often condo fees increase considerably within a couple of years following completion of
the building.

I agree totally with this.

I don`t know anyone who owns condos that breaks even on them. Once you do break even, the maintenance fees go up. I`ve rented quite a few and manage a few more. It really sucks for the owners.

 

[zzebian]

If it`s not built for 2 years, how does that effect appreciation over 2 years?

 

[Thomas Beyer]

QUOTE (zzebian @ Sep 30 2010, 08:22 AM) If it`s not built for 2 years, how does that effect appreciation over 2 years?
yes, it may go up in value .. or it may go down (unlikely, but possible) !

The builder may also go into receivership or it may take 3 years.

 

[zzebian]

I see your points, but receivership is possible with any business.

I`m going to go to the University City opening to see what it`s all about and then make my decision from there.

 

[bizaro86]

QUOTE (zzebian @ Oct 1 2010, 09:54 AM) I see your points, but receivership is possible with any business.

I`m going to go to the University City opening to see what it`s all about and then make my decision from there.

I walked around near Brentwood Station yesterday evening, and I couldn`t find a piece of land I thought someone could reasonably build an 18 story concrete tower on. Does anyone know where this project will actually be (address)? Either I missed the location, they`re ripping something down, or "at Brentwood Station" is an over-exaggeration of their actual location.

Michael

 

[zzebian]

I also walked by and googled some address`. It looks like the old KFC and some retail bays behind it are mostly vacant. I would assume it`s somewhere around there.

3802 Brentwood Road N.W.
Calgary Alberta T2L1K8

 

[bizaro86]

QUOTE (zzebian @ Oct 2 2010, 10:03 AM) I also walked by and googled some address`. It looks like the old KFC and some retail bays behind it are mostly vacant. I would assume it`s somewhere around there.

3802 Brentwood Road N.W.
Calgary Alberta T2L1K8

University city announced a sell-out of phase one, and are now selling phase 2. It appears (From the availability board on their website) that the phase 2 units are also near sell-out, with the most expensive of the one and two bedrooms remaining, as well as some studios. The two bedrooms for 189,000 are long gone, even in phase 2.

I had pre-registered to go take a look, but never got a call. The two`s at 189 would have interested me, but it appears what`s left is ~300k for a two bedroom.

Has anyone purchased or viewed and has any thoughts?

Michael

 

[JimWhitelaw]

QUOTE (bizaro86 @ Nov 1 2010, 10:08 AM) Has anyone purchased or viewed and has any thoughts?
What I don`t understand is why there is continued interest in this kind of investment. D. Campbell is often critical of these "investments" in pre-built condos and a number of highly experienced investors like Thomas weigh in saying it`s a dog that won`t cash flow and is fraught with risks and yet people still want to hear someone tell them something different. WALK AWAY. There are legitimate good buys out there for those willing to dig for them. Pass on the glossy brochures and marketing hype, get a little dirty, and find something else.

 

[bizaro86]

QUOTE (JimWhitelaw @ Nov 1 2010, 02:40 PM) What I don`t understand is why there is continued interest in this kind of investment. D. Campbell is often critical of these "investments" in pre-built condos and a number of highly experienced investors like Thomas weigh in saying it`s a dog that won`t cash flow and is fraught with risks and yet people still want to hear someone tell them something different. WALK AWAY. There are legitimate good buys out there for those willing to dig for them. Pass on the glossy brochures and marketing hype, get a little dirty, and find something else.

At this point I consider researching it part of my ongoing quest to understand the real estate market in this city, and not necessarily as a potential investment. I am still surprised that they offered 2 bedroom condos in a new highrise for 189,000, and I`m not surprised they sold those quickly. This is a great location on the train and close to the university and hospitals. That`s less than what you`d pay for a 30 year old apartment style 2 bedroom in that location, which may have significant deferred maintenance.

I also think it makes sense to evaluate investments individually, as opposed to deferring to authority or categorizing them (Mr So and So says category X is always a bad investment). But then I`m extremely pre-disposed to individual thought, which is not always an advantage.

The numbers on this investment may or may not work (and its a moot point since they`re sold out anyway), but that doesn`t make it a bad idea to investigate them.

Michael

 

[zzebian]

From last Saturday`s Calgary Herald:


Expert sees TODs as good invesments
BY KATHY MCCORMICK, CALGARY HERALD NOVEMBER 27, 2010


Looking for a good real estate investment in these shaky economic times?

Buy where people will want to live when you`re ready to sell, says Don Campbell, one of the gurus of real estate investing.

"Buy around an LRT or around a hospital," says the real estate author and president of REIN (Real Estate Investment Network), which has more than 3,000 Canadian members. "There`s a better chance to sell at a premium price."

Affordability is the biggest driver of real estate in today`s economy -- and that means the biggest demand will be "along LRT lines and rapid bus terminals," he says.

That is where city officials in Calgary are advocating TODs: transit-oriented developments that cluster around C-Train stops or bus terminals and are higher density -- and thus more affordable in price.

In keeping with much of his advice Campbell says to think long-term about TODs. "You have to have at least a five-year window," he says. "Find out what is happening so you are buying the future."

Some recommendations from Campbell:

- Buy near the west LRT line -- an obvious choice because construction is already underway. "There are stations planned all along the older neighbourhoods."

- Airdrie is another great spot that offers affordability close to the city "and their commuter bus shows such great city leadership," he says

- Buy in the northeast. "I`m a real fan of the northeast and

its potential," says Campbell. "With the airport expansion, there will be many jobs, and the ring road provides much easier access.

"There are multi-million dollar projects planned with commercial, residential and light industrial."

Overall, says Campbell, TODs are good investments.

"Your property will be in much higher demand anywhere within one kilometre of an LRT," he says.

They are likely to ring true with buyers, says Campbell.

"From an affordability point of view, higher-density condominiums (whether downtown or around an LRT terminal) will become more popular in Alberta," he says. "And people moving from other provinces or countries are used to living near vibrant centres and they want density."



Read more: http://www.calgaryherald.com/business/Expe...l#ixzz16taJZZLb

 

[gwasser]

QUOTE (zzebian @ Oct 2 2010, 09:03 AM)
I also walked by and googled some address'. It looks like the old KFC and some retail bays behind it are mostly vacant. I would assume it's somewhere around there.



3802 Brentwood Road N.W.

Calgary Alberta T2L1K8






I bought a unit at University City and it is a very exciting project directed by three companies: Riocan (one of Canada's largest real estate trusts), Kightbridge Development from Calgary and Metropia Urban Landscapes of Toronto. I wrote about it a few weeks ago: http://myreinspace.com/public_forums/General_Discussion/61-18760-When_the_price_is_right_you_can_definitely_sell.html.



They are build right between Calgary Coop and Block Busters in Brentwood mall. The project comprises 2 18 floor highrises with underground parkade and main floor shopping areas. The condo units are small two and one bedrooms and go as small as a 343 sft studio. Two-bedroom units on the lower floors are priced at around 200K; the ones near the top go for as high as 360K.



The units are well designed with a basic package (good for rentals) and a more trendy upgraded interior package with granit kitchen counters and laminate flooring. The upgrade package is about $10K more (a bit expensive in my books). The parking spots in the parkade are titled and go for an extra $7400. Don't forget to add GST.



In addition to the 2 18 floor towers, there are two smaller towers behind them and finally a senior citizen complex. It is

all geared around Calgary's TOD program (transit oriented development). University City will also have a small park on the back.



It is superbly located and resale condos build in the 1980s nearby sell for around 180-230K. The 2 University City tower construction is scheduled to start coming march - stores that are scheduled to be demolished are already mostly vacant except for Ginger Beef Restaurant and an investment advising company whose name I forgot. Completion is scheduled for Dec 2012 but probably in the spring of 2013.



Currently a traditional 2 bedroom in a 1980s complex rentd for around 1050/month in the area. Newer condos rent as high as $1300 per month along the LRT corridor in the NW. So I expect U. City 2 bedrooms to rent for around $1400 two years from now. Are there risks?



You bet. What about filling the close to 400 new units up with residents and tenants. Expect intially vacancies and rental discounts.

The Condofees are about 0.49 per sft. So around $250 per unit which compares favorable with fees in similar complexes in NW Calgary. Condo fees are estimated and so nobody knows what they will be until the building operates for a year or two.



The sales were so hot that the complex (the 2 high rise towers) sold out in 3 days. Potential buyers had 10 days to qualify for mortgages or rescind the offer. Right now, the entire first tower is sold out, but some units in phase 2 have been brought back on the market. Well... there is a waiting list of buyers so when you haven't subscribed yet, you may be out of luck.



The down payment is about $12000 and assuming appreciation of 3 to 5% annually on a $200,000 purchase price this should provide you with an excellent start of a potentially very rentable property. Thomas made earlier a forecast of rents rising 30 to 40% following Calgary's recoveryfrom the 2007-2008 downturn. So if that came true, a unit in U City will work out just fine.



Hope this helps.

 

[bizaro86]

QUOTE (zzebian @ Dec 1 2010, 01:51 PM) From last Saturday`s Calgary Herald:


Expert sees TODs as good invesments
BY KATHY MCCORMICK, CALGARY HERALD NOVEMBER 27, 2010


Looking for a good real estate investment in these shaky economic times?

Buy where people will want to live when you`re ready to sell, says Don Campbell, one of the gurus of real estate investing.

"Buy around an LRT or around a hospital," says the real estate author and president of REIN (Real Estate Investment Network), which has more than 3,000 Canadian members. "There`s a better chance to sell at a premium price."

Affordability is the biggest driver of real estate in today`s economy -- and that means the biggest demand will be "along LRT lines and rapid bus terminals," he says.

Hmmm... This thread was originally about University City, which is on an LRT line, and near a hospital. And (not so incidentally) it`s also near the University and Rocky Mountain College. Oh yeah, and the prices were affordable.

Maybe I should make Godfried an assignment offer to take over his contract...

Michael

 

[gwasser]

QUOTE (bizaro86 @ Dec 1 2010, 03:49 PM) Hmmm... This thread was originally about University City, which is on an LRT line, and near a hospital. And (not so incidentally) it`s also near the University and Rocky Mountain College. Oh yeah, and the prices were affordable.

Maybe I should make Godfried an assignment offer to take over his contract...

Michael

Sure I`ll assign you my unit for $500K

BTW the developing companies wanted to prevent speculation and flippers so I cannot assign or sell until the unit is completed except with their permission. That way they keep speculation down. Also, they did another tricky thing. My initial deposit is around $12K but.... upon possession your downpayment has to be around 25% of the purchase price. On top of that, the whole thing is not called downpayment but DEPOSIT and if you walk away without closing you lose the entire deposit or close to $40,000.

Ahh... you may say, but I only paid $12K up to now and they can try to get the rest. For that they have a` blanket bond`... where the difference between the total deposit and your initial deposit is covered by a bond... for which the buyer is liable. So if you are walking away because real estate prices fell by completion date while you were speculating on appreciation, you are on the hook!

These guys have learned how to control speculation and attract true buyers and investors.

 

[bizaro86]

QUOTE (gwasser @ Dec 1 2010, 09:29 PM) Sure I`ll assign you my unit for $500K

BTW the developing companies wanted to prevent speculation and flippers so I cannot assign or sell until the unit is completed except with their permission. That way they keep speculation down. Also, they did another tricky thing. My initial deposit is around $12K but.... upon possession your downpayment has to be around 25% of the purchase price. On top of that, the whole thing is not called downpayment but DEPOSIT and if you walk away without closing you lose the entire deposit or close to $40,000.

Ahh... you may say, but I only paid $12K up to now and they can try to get the rest. For that they have a` blanket bond`... where the difference between the total deposit and your initial deposit is covered by a bond... for which the buyer is liable. So if you are walking away because real estate prices fell by completion date while you were speculating on appreciation, you are on the hook!

These guys have learned how to control speculation and attract true buyers and investors.

It`s probably a good idea to keep flippers out of these projects, and only sell to people who actually intend to close. Other than that I`ll congratulate you on what I think will be a good investment, although I think your asking price might overstate it just a bit.

Michael

 

[YoungRealty]

Condos are a funny animal. They don`t typically fit the Cash Flow Zone model. As an almost exclusive condo investor myself, your play on this is as follows. Don`t invest at the beginning, it takes too long to get any return on your investment. As the building comes close to closing, search out people who cannot close to financial constraints and buy them out. It allows for a few things, 1. you will know the market at the finish stage, 2. you can typically get a better price, and 3. you can see returns on your investment much sooner. If you are buying for cash flow to rent to university students, you are better off to find a home or multiplex next to the university, your returns will be better then a condo. I currently own 9 condos, they are all cash flow positive, so you can find the properties, just have to search them out. The benefit of owning in major city centres is that the appreciation is massive, generally a six figure return from my experience, I have purchased and sold over 20 condos personally and currently own another 9. I have also sold over $50million in condos to clients over the past 3 years, there is a great market out there, but the universitycity condos I would be very cautious on.

Stephen Young
Young Realty Inc.