What is your selection criteria for single family homes?

[DEWDROPS]

Objective: Maximum appreciation (tight or no cash-flow okay)
Timeframe: Long 5-10 years+ (No flipping)
City: Calgary

When you shop for a detached single family house for rental and better potential appreciation over the years, what is your criteria for selection? How would you rank the importance?

Biggest house you can get for the amount (ex- >2000 sqft)
Newer built house (ex- yr >2000)
Price range (ex- houses <450k sell faster as more people get approved easily, thereby more demand)
Finished basement (can be rented separately right away)
Better income neighborhood (ex- avg family income above a certain level)
Hardwood floor and granite countertop
Front attached garage
One floor/2 floors
Big backyard
Lake community
Close to park
Close to LRT/train-station/bus-stop
Close to grocery stores (ex- Costco/superstore/walmart nearby)
Close to school
Areas popular among ethnic communities (ex- close to ethnic restaurants/places of worship)

In your opinion, what features are most important for better appreciation and finding rental clients?

 

[Thomas Beyer]

The question is far too broad. Kinda like asking what do you look for in a car ?

What is the goal here ? Maximum cash flow or maximum appreciation ( with little or perhaps even slightly negative cash flow ) ?

Over what time frame ?

For example, you can make a killing by buying very large properties say acreages at a discount - say in Calgary right now - where doubling your money in 3 years with 20-25% down is quite doable but you will have negative cash flow most likely.

I recently bought two houses in the Okanagan with the goal to double my money in 2-4 years with 25% down but tight tight cash flow.

If you want cash flow you need to buy smaller or shall I say cheaper up/down properties with 30%+ down, in smaller towns, a REIT, multi-family with 30-35% down, commercial assets or mobile home parks. In my book I talk about the cash-flow myth of highly levered SFH.
More on this here http://myreinspace.com/threads/first-time-investor-home-buyer-strategies.35183 or a post I did on "Cash flow or equity growth ?" http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/ or here http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/

 

[kfort]

Define your client (tenant) and it's gets a LOT more clear.

 

[DEWDROPS]

Objective: Maximum appreciation (tight or no cash-flow okay)
Timeframe: Long 5-10 years+ (No flipping)
City: Calgary
Price Range: 350 to 500k

Thanks for sharing those links, Thomas.

 

[Thomas Beyer]

Objective: Maximum appreciation (tight or no cash-flow okay)
Timeframe: Long 5-10 years+ (No flipping)
City: Calgary

Buy land or a house with a large piece of land underneath it, say a mobile home park, an acreage or an old multi-family building that can be sold to a developer eventually.

Or an old big house in a nice part of Calgary with big trees and very large yards. Or fronting onto a river or lake.

Do not buy a condo, an old TH in the NE or a new house on a 30-35 ft lot.

Buy something that is tough to replicate / build today.

Cash-flow is a function of leverage of course as a house in Elbow Park might cash-flow only with 50% down but not 35% even !

 

[Willyboy]

Hi Thomas. I noticed you don't like condos if I'm not mistaken and I understand you. I wanna ask you about something regarding condos though which is if you have no choice but to buy a condo what would you do? The reason I'm asking this is because I want to invest either in Vancouver or Toronto but SFH are out of question now due to affordability. So I thought maybe it would be a good idea to buy a condo instead as in those two cities even condos are gaining 15 to 20% price growth a year so it could be an alternative to buying a SFH and maybe better than going to another cheaper city to buy a SFH. What do you think?

 

[Thomas Beyer]

Condos have TWO major drawbacks:
a) you cannot control expenses as the condo board sets them. As such they are usually high.
b) they have less land per sq ft of living space. What goes up is LAND not building value. Buildings DEpreciate. Land Apreciates. Buy as much Appreciating assets as you can.

Buy more LAND, or an asset with loads of land underneath, such as a mobile home park, an apartment building, a commercial asset, or low rise where the zoning allows (or might allow) mid- or high-rise or a house with a large yard. Land is where the long term value is was they are not making anymore. As such, buy FREEHOLD.

If you cannot buy freehold land, i.e. you must buy a condo, buy one in a desirable area with limited future competition such as ocean front, lake front, lake view or ocean view, or at least park view if not on a lake or ocean. Minimum 2BR better 2BR + den or 3BR. MUST HAVE A VIEW. Not a lower floor but also not too high. Avoid busy, noisy streets.

Yaletown or Coal Harbor comes to mind in Vancouver, or along Lake Ontario in Toronto. Facing S or SW is better although some Asian prefer E or SE. Do not buy N or NE views as they are too dark in winter.

Do not buy floors 4 (death in Chinese) or 13 (as Europeans think that is bad luck)

Look for sub-metered utilities as much as possible so cost is born by renter not owner as part of strata fees.

Don't buy a condo without A/C. Ideally A/C too is sub-metered and not included in condo fees but that is very rare.

Watch out for special assessments on older buildings or deficiencies. Check condo board minutes. Don't get hit with a $30-80,000 assessment uninformed.

 

[Willyboy]

That's invaluable information Thomas. Thank you so much.

 

[Willyboy]

One more question Thomas if you don't mind. If in Calgary where do you think would be great locations for condos. I can afford SFH in Calgary but what is drawing my attention to condos is that I've been following up on the statistics on the website of the real estate association of Calgary and I noticed condos are down substantially where as SFH are holding pretty well so my thought is when the economy picks up the condos will appreciate back as much as they depreciated just to begin and then keep going up at a slower pace than SFH. I am not sure if I'm wrong or right in that regard though.

 

[Thomas Beyer]

...in Calgary ...

I'd say near UofC or current or future LRT stations. Or along Bow River or along parks like Fish Creek park. E-Village OK too albeit under construction for another decade. Don't buy condo conversions that are 30+ years old especially those with weak or non-existing reserve funds.

Presales in those locations that hit the market 2019 might be a good idea too. The risk though is a glut and too little absorption.

A compromise between (mid-rise / highrise) condo and house is a townhouse.

 

[DEWDROPS]

Define your client (tenant) and it's gets a LOT more clear.

Tenants that don't make trouble and pay rent on time, preferably long term tenants.

 

[kfort]

Tenants that don't make trouble and pay rent on time, preferably long term tenants.

You need to be much more specific than this or you're quite possibly headed for a bad time.

Edit:
& some items to consider & guide you:

What do they do for income?
What is their income?
What do they do outside of work?
Kids?
Pets?
Saving for a house?
Students?
Length of tenancy?
Credit score?

And many many more

 

[Willyboy]

Hi again Thomas. As I have been browsing SFH in Calgary the last few days I remembered You recommended in an older post not to buy TH in the north east. I just wanna make sure if you meant all types of homes or only TH and if you don't recommend north east in general I understand you would rather buy only in the south west or north west and would you prefer some neighborhoods to others for long term appreciation?

 

[Thomas Beyer]

TH is better than condo. SFH is better than TH. NE OK if close to LRT. For more upside buy at not yet completed LRTs going north and SE. More on this here https://www.calgarytransit.com/plans-projects/lrt

 

[DEWDROPS]

TH is better than condo. SFH is better than TH. NE OK if close to LRT. For more upside buy at not yet completed LRTs going north and SE. More on this here https://www.calgarytransit.com/plans-projects/lrt

Thanks for sharing this great info, Thomas. Here is a map of Green line extension: http://www.calgary.ca/Transportation/TI/Pages/Transit-projects/Green-line/map.aspx
On a side note, browsing through some SFH listings, seems like South (specially SE) part of Calgary is reducing prices more than other parts (example- NE skyview/taradale/martindale).

 

[Matt Crowley]

Some selection criteria you may find useful:

1. Find a comparable REIT index to compare any investment to: (for example: https://www.blackrock.com/ca/indivi...t-index-etf?nc=true&siteEntryPassthrough=true). If your investments can't clear this hurdle rate, then don't buy SFH.

2. Look at both leveraged and unleveraged paybacks: Leveraged years to payback (cash equity / after tax cash flow) and unleverage years to payback (after tax NOI / asset cost)

3. Compute cap rate on your initial pro forma NOI / total cost and compare to properties and properties of larger scale. You can always buy REITs to gain the exposure you want.

4. (advanced) Decompress the return components to determine your return on equity. (See: http://www.myaccountingcourse.com/financial-ratios/dupont-analysis) This will tell you where your return comes from: net margin, asset turnover, and leverage. Just put some thought into what each of these variables mean in the context of real estate investing. For example, the asset turnover ratio is R/TA which is the inverse of the price to rent ratio that you often hear touted in the news / Deutsche Bank regarding our overpriced real estate. It is a sign of the capital appreciation you expect down the road as a component of your total return.