What is a Good Mortgage to Rent Ratio in Calgary for Investment Property?

[aiden1983]

Hello Everyone,

My wife and I are looking to get into RE in Calgary and was wondering what Mortgage to Rent ratio you find attractive enough to buy when referring to Calgary. I know that 100:1 ratio is good but in Calgary I have only seen around 175:1 ratio. Ideally we would like to buy a 4-6 plex and be able to occupy one suite while the other tenants cover the mortgage. Is this currently possible in Calgary to do this or even come close to this?

PS I love this forum and you guys have given me great advice in the past. Thanks to everyone on here.

 

[invst4profit]

Unless you have savings to top up the shortfall each month you need to stick with the 1% rule if you want to see positive cash flow.
If positive cash flow is not imperative and you have the extra cash to top up the mortgage then you simply have to figure out what you can afford.

Bottom line it does not matter what is available only what you can afford below the 1% rule.

 

[aiden1983]

QUOTE (invst4profit @ Aug 12 2009, 11:10 AM) Unless you have savings to top up the shortfall each month you need to stick with the 1% rule if you want to see positive cash flow.
If positive cash flow is not imperative and you have the extra cash to top up the mortgage then you simply have to figure out what you can afford.

Bottom line it does not matter what is available only what you can afford below the 1% rule.

Thank you for the great info. I have a tough time judging what to do with Calgary RE as it is a whole other game compared to my home town in NW Ontario.

 

[invst4profit]

Take my advice with a grain of salt as I am a positive cash flow investor.
I do not have the cash reserves or the patience to speculate on appreciation.
Others will no doubt have different advice for you.

 

[aiden1983]

QUOTE (invst4profit @ Aug 12 2009, 11:33 AM) Take my advice with a grain of salt as I am a positive cash flow investor.
I do not have the cash reserves or the patience to speculate on appreciation.
Others will no doubt have different advice for you.

I understand and will wait for others to chime in here. I know which city I would love to invest in but I don`t live in it and don`t currently know how I would buy a strictly investment property in one city and a house/partial rental in another. Thanks again for your opinion.

 

[RedlineBrett]

QUOTE (aiden1983 @ Aug 12 2009, 11:49 AM) Hello Everyone,

My wife and I are looking to get into RE in Calgary and was wondering what Mortgage to Rent ratio you find attractive enough to buy when referring to Calgary. I know that 100:1 ratio is good but in Calgary I have only seen around 175:1 ratio. Ideally we would like to buy a 4-6 plex and be able to occupy one suite while the other tenants cover the mortgage. Is this currently possible in Calgary to do this or even come close to this?

PS I love this forum and you guys have given me great advice in the past. Thanks to everyone on here.

The multi-family (5 suites and up) market in Calgary is quite poor. Simply not enough supply and vendors all asking in the 150-200/door range.

Fourplexes can be had but again the market price for them is in the high 600s to low 800s depending on quality and location. You can get them for 600 or even a little less than 600 but you will not be in an area I would like to live in.

I have many clients similar to you and they nearly all choose the `live up rent down` scenario - buy a suited property and rent out the basement suite and/or garage. This allows them to buy a property at 5% down and pay not much more than their rent would be in order to live on the main floor of a detached home in a nice neighborhood. Then when they move out they just rent out the main floor.

Plan to spend from 350 to 425 for a quality property of this type. Basement suite rents from 800 to 900 or so.

the "1% rule" doesn`t exist anywhere in western Canada unless you are doing some sort of student rooming house thing and I suspect that would also be quite tough to do.

 

[DaveRhydderch]

Have you seen this 4 plex in Southwood for 699,000. Fairly far south but reasonably close to the LRT. If you send me your email, I`ll fire it along to you.

 

[MONEY]

The test I use is simple, every dollar I invest in real estate must generate at least 3% in REAL SPENDABLE CASH each and every month before taxes.
Why am I requiring a 36% yearly ROI on cash I put into real estate? Because that is the minimum I generate using various option strategies in the stock market.

 

[housingrental]

That is a crazy metric that will result in either A) Too little cash downB) Purchasing one property every thirty years in a rural village.

MONEY - This is a real estate investing forum....

QUOTE (MONEY @ Aug 12 2009, 06:27 PM) The test I use is simple, every dollar I invest in real estate must generate at least 3% in REAL SPENDABLE CASH each and every month before taxes.
Why am I requiring a 36% yearly ROI on cash I put into real estate? Because that is the minimum I generate using various option strategies in the stock market.

 

[aiden1983]

QUOTE (DaveRhydderch @ Aug 12 2009, 01:30 PM) Have you seen this 4 plex in Southwood for 699,000. Fairly far south but reasonably close to the LRT. If you send me your email, I`ll fire it along to you.

I looked at this one but apparently they have 5 offers (one which is being pulled due to the home inspection and the furnace and tanks are original minus 1 of them) and the rental in that area is really low ($900 per apt). We may opt to invest in Ontario as the 1% rule can be had, as well as the $100 per month per door profit (this is according to rough estimates but depends heavily on the property tax). Are you guys currently holding in the Calgary market or still very active? Do you guys feel there are deals to be had? I may continue to rent in Calgary and purchase a investment property and wait a year to purchase a house and live up rent down when my job is more secure (not too worried but you never know in this economy).

 

[aiden1983]

QUOTE (MONEY @ Aug 12 2009, 03:27 PM) The test I use is simple, every dollar I invest in real estate must generate at least 3% in REAL SPENDABLE CASH each and every month before taxes.
Why am I requiring a 36% yearly ROI on cash I put into real estate? Because that is the minimum I generate using various option strategies in the stock market.

If you make 36% ROI consistently for a few years you will be one rich broker! Those are very, very high ROIs for stocks. That is like ponzi scheme ROI there.

 

[Thomas Beyer]

QUOTE (MONEY @ Aug 12 2009, 04:27 PM) The test I use is simple, every dollar I invest in real estate must generate at least 3% in REAL SPENDABLE CASH each and every month before taxes.
Why am I requiring a 36% yearly ROI on cash I put into real estate? Because that is the minimum I generate using various option strategies in the stock market.
Please elaborate on this .. as I find this hard to believe .. but just because I find it hard to believe doesn`t mean it is not possible .. so enlighten us please !!

a) where do you find such real estate deals ?

b) what kind of option strategies do you use ? I assume spreads. Give us some specific examples please !

 

[MONEY]

QUOTE (housingrental @ Aug 12 2009, 06:12 PM) MONEY - This is a real estate investing forum....

Did I say it wasn`t? ahhh...your point is??

 

[housingrental]

My point was from my last point that:
That is a crazy metric that will result in either
A) Too little cash down
B) Purchasing one property every thirty years in a rural village.


Please let us know...

QUOTE (MONEY @ Aug 13 2009, 02:22 AM) Did I say it wasn`t? ahhh...your point is??

 

[Goodstuff]

If you can generate a 36% return on you money in the stock market, like you say you can (consistently?), why would you ever bother with the headache of real estate?

You`ll be a billionaire within a few years with that kind of return.

 

[MONEY]

QUOTE (Goodstuff @ Aug 14 2009, 08:35 PM)
If you can generate a 36% return on you money in the stock market, like you say you can (consistently?), why would you ever bother with the headache of real estate?



You'll be a billionaire within a few years with that kind of return.


One of the biggest reasons is, you can`t get a 75-80% loan to buy stocks, but you can to buy real estate. You can`t get a partner to cover most or all of that remaining 25% to buy stocks, but you can to buy real estate. I can also buy real estate at a discount based on any number of situations unique to the seller. I can also directly impact the value of real estate I buy by taking action. I can improve the property, add amenities and increase the rents as the market will allow. This increases the value of the real estate I bought at a discount.

However, the correction we are working through now highlights the fact that long term profits from real estate don`t always materialize.

 

[Thomas Beyer]

QUOTE (MONEY @ Aug 14 2009, 10:10 PM) However, the correction we are working through now highlights the fact that long term profits from real estate don’t always materialize.

.. not in the short term anyway ..

so where are those 36% ROIs .. what option strategies ???

 

[EdRenkema]

QUOTE (MONEY @ Aug 14 2009, 09:10 PM) One of the biggest reasons is, you can`t get a 75-80% loan to buy stocks, but you can to buy real estate. You can`t get a partner to cover most or all of that remaining 25% to buy stocks, but you can to buy real estate. I can also buy real estate at a discount based on any number of situations unique to the seller. I can also directly impact the value of real estate I buy by taking action. I can improve the property, add amenities and increase the rents as the market will allow. This increases the value of the real estate I bought at a discount.
However, the correction we are working through now highlights the fact that long term profits from real estate don`t always materialize.


OK so basically you`re saying RE is a more viable investment because there are more variables that you can control hence even with your potential (36%-?) you still do RE.
I guess thats why even a simple guy like me can do RE

 

[Nir]

Guys,
`MONEY` is 100% correct! 36% is definitely possible! It`s a actually a good target.

Some of you are more experienced investors and it is a bit surprising you are that surprised.

First, let`s recall a formula I developed and shared here around a year ago:
ROI not incl. appreciation = {(CAP-i) /d} + i
where:
d – downpayment (i.e. 0.1 = 10%, 0.5=50%)
i – mortagge interest
CAP – income property CAP

so.. example: if CAP is 6%, mortgage interest 2.5% and downpayment 10%, ALL reasonable figures and assuming it`s a 4-plex you can put only 10% down:
ROI = {(CAP-i) /d} + i = {(6%-2.5%) /10%} + 2.5% = 37.5%

Thomas, just plug in 10% down instead of the higher % you put down on your own apartment buildings, and you will also get ROI>36%.

Regards,
Neil

 

[housingrental]

Yes but that depends on high leverage re my other post!
Also hard to purchase an investment property at 2.5% interest...If purchasing SFH even 6% cap can be hard to find in most markets currently!

QUOTE (investmart @ Aug 15 2009, 08:25 PM) Guys,
`MONEY` is 100% correct! 36% is definitely possible! It`s a actually a good target.

Some of you are more experienced investors and it is a bit surprising you are that surprised.

First, let`s recall a formula I developed and shared here around a year ago:
ROI not incl. appreciation = {(CAP-i) /d} + i
where:
d – downpayment (i.e. 0.1 = 10%, 0.5=50%)
i – mortagge interest
CAP – income property CAP

so.. example: if CAP is 6%, mortgage interest 2.5% and downpayment 10%, ALL reasonable figures and assuming it`s a 4-plex you can put only 10% down:
ROI = {(CAP-i) /d} + i = {(6%-2.5%) /10%} + 2.5% = 37.5%

Thomas, just plug in 10% down instead of the higher % you put down on your own apartment buildings, and you will also get ROI>36%.

Regards,
Neil