Why Am I Having A Hard Time Finding A Property?

[aiden1983]

I have been looking for a while now (over 8 months) to find a property (SFH ~1000 sqft bungalow with 15.2m lot in SE or SW Calgary) and cannot find one that is cash flow positive.

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

 

[Rickson9]

Don`t feel too bad, good cash flowing opportunities are always difficult to find.

Just be careful not to get frustrated and compromise on positive cash flow.

Keep searching and good luck!

 

[Gen1GT]

Isn`t the vacancy rate a little high for your calculations, or is it that bad in Calgary right now?

 

[aiden1983]

QUOTE (Gen1GT @ Feb 8 2010, 01:31 PM) Isn`t the vacancy rate a little high for your calculations, or is it that bad in Calgary right now?

Ya it is a little high but it is more of a stress test for properties. I think Vac Rate in Calgary should be 4-6% depending on the area (my guess).

 

[wgraham]

QUOTE (aiden1983 @ Feb 8 2010, 01:38 PM) Ya it is a little high but it is more of a stress test for properties. I think Vac Rate in Calgary should be 4-6% depending on the area (my guess).

Have a look our current opportunities to see what we have been finding in SW/NW Calgary and how we run our numbers.

These properties are not easy to find but they are out there.

your vacancy rate is way too high for practical purposes in my scenarios. Try 5% as a more realistic number.

Also, your repairs and maintenance could be high depending on the type of property you are finding.

Stress testing is one thing but it still has to be within limits.....

 

[aiden1983]

QUOTE (wgraham @ Feb 8 2010, 03:04 PM) Have a look our current opportunities to see what we have been finding in SW/NW Calgary and how we run our numbers.

These properties are not easy to find but they are out there.

your vacancy rate is way too high for practical purposes in my scenarios. Try 5% as a more realistic number.

Also, your repairs and maintenance could be high depending on the type of property you are finding.

Stress testing is one thing but it still has to be within limits.....

I was actually looking at your overviews earlier today and thought that there were a few things that I felt were off, but in particular you have $2500 rent for a place in Shawnessy (Isn`t this high? Does it have a suited basement?)
-I live in Lake Chaparral and the house next door is renting at $1700 (might be low I have no idea)

I can change the Vac Rate to 5% but the 10% maint (I also add in insurance and advertising that`s why its at 10%).

 

[aiden1983]

QUOTE (wgraham @ Feb 8 2010, 03:04 PM) Have a look our current opportunities to see what we have been finding in SW/NW Calgary and how we run our numbers.

These properties are not easy to find but they are out there.

your vacancy rate is way too high for practical purposes in my scenarios. Try 5% as a more realistic number.

Also, your repairs and maintenance could be high depending on the type of property you are finding.

Stress testing is one thing but it still has to be within limits.....

Thanks for the insight too

 

[wgraham]

QUOTE (aiden1983 @ Feb 8 2010, 03:21 PM) I was actually looking at your overviews earlier today and thought that there were a few things that I felt were off, but in particular you have $2500 rent for a place in Shawnessy (Isn`t this high? Does it have a suited basement?)
-I live in Lake Chaparral and the house next door is renting at $1700 (might be low I have no idea)

I can change the Vac Rate to 5% but the 10% maint (I also add in insurance and advertising that`s why its at 10%).


$1350 up
$950 down
$275 for the garage

is what we have for current leases

 

[aiden1983]

QUOTE (wgraham @ Feb 8 2010, 03:42 PM) $1350 up
$950 down
$275 for the garage

is what we have for current leases

Wow that is better than I would have ever though for a garage. Is it legal or illegal? Very jealous of your deal

.

 

[Lucas]

I`m from Edmonton so not too sure of market rents in Calgary but looking at your expense numbers, I would say you`re actually a little light on expenses...especially for an older SF property w/ suite. However, if you are currently renting, I can see your impetus in getting into an ownership situation asap.That said, when I calculate I use:

• 5% interest
• 30 yr am.
• Vacancy rate: 8% (assume your house will be vacant 1 month of the year)...in your case, because you are living in the mainfloor suite you might decide to reduce that to 4%...however, I think its in your best interest to "pretend" that you will be renting both suites when analyzing.[*]Maintenance: 7% This depends on the condition of the property...10% is a little high...for ease of calculation I go with 7%...making it 15% for vacancy and maintenance.Management: 12% (most comapnies have "lease-up" fees and all sorts of hidden costs...hence the 2% lift...Insurance: 3%

• ...this seems to be the average in my experience.HELOC and/or cost of money borrowed (if applicable)

• = ??Other expenses to consider (some investors build them into their monthly analysis and some don`t):

• Legal fees = $1000, Closing costs = $700 (inspection = $400, appraisal = $300), Exit costs: Realtor + Legal = This depends on what you anticipate the value will be when you sell...the standard Realtor commision is 7% on the first 100k and 3% on the balance of the final selling price and the legal fees are approx. $1000, Opportunity Cost of funds used = 3% to 5%...there are high interest savings accounts that are 3% +.

I have seen other investors use a 50% expense ratio when analyzing revenue properties...this seems a little extreme to me BUT each property found would be quite lucrative. For quick funnel calculations I use 35% to 40% and above financial numbers (ie. 30 yr am, 5% interest). Also, your monthly cashflow depends on your downpayment amount (ie. the higher the downpayent = better cashflow), however you want to be aware of the opportunity cost of using ALL your money for 1 property...maybe there are better ways to use that money (ie. JV`s, education, 2 properties, 5 properties etc...).

I personally don`t factor in garage income. If it rents consistently I would consider it a "bonus" but I try not to rely on it especially if the garage income makes (or breaks) the deal.

You can "play" with the numbers all day to make them work (like forcing a square peg into a round hole) but its not too your advantage...I would find the margins you are comfortable with and stick to them. Also, I`m not sure which Realtor (if any) you are using but they should give you keen insight into the Calgary rental market (including market rents and expected vacancy rates).

Brett Turner (see Redlinebrett...company name: Redline Real Estate) seems to have good insight into the Calgary rental market.

I recommend that you start writing offers...find 10 properties you like and write an offer on each one, in order of preference, based on your cashflow numbers...see what happens...

I hope this helps and good luck,

Lucas

QUOTE (aiden1983 @ Feb 8 2010, 01:19 PM) I have been looking for a while now (over 8 months) to find a property (SFH ~1000 sqft bungalow with 15.2m lot in SE or SW Calgary) and cannot find one that is cash flow positive.

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

 

[invst4profit]

Good deals are in fact hard to find that is why not everyone is making money in this business.
Keep looking for something with rental income close to 1% of purchase price and then dig with your due diligence.

It`s actually good to hear that you have been looking for 8 months as most new investors give up far sooner and will compromise buying properties with poor cash flow.

You may be forced to look farther afield if the numbers are not working. The fact is not every area is good for investment.
Unfortunately many novice investors will create a false positive cash flow by paying down a mortgage or reduce expense estimates to convince themselves they have a good deal. Ultimately this approach will come back to bite them.

 

[MONEY]

QUOTE (aiden1983 @ Feb 8 2010, 03:51 PM) Wow that is better than I would have ever though for a garage. Is it legal or illegal? Very jealous of your deal

.

Looks `illegal` to me.
And how can he get $2400/month for a single zoned house in Beddington?

The `REIN` system in use here?

 

[gwasser]

QUOTE (aiden1983 @ Feb 8 2010, 12:19 PM)
I have been looking for a while now (over 8 months) to find a property (SFH ~1000 sqft bungalow with 15.2m lot in SE or SW Calgary) and cannot find one that is cash flow positive.



I am using the following to calculate the cash flow:

5% interest

30 yr mort

10% vac rate

10% maint

and actual taxes



My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.




Although Wade's rents are quite amazing, I think you're a bit on the conservative side with your numbers.

Why don't you e-mail me including the type of property you are looking for. Maybe I can find something that approaches your needs. Did you notice Jim Whitelaw's earlier posting? http://myreinspace.com/rein_members_only/Canadian_Quick_Turn_Real_Estate/108-15446-Need_some_motivated_sellers.html



I do have to point out that if you follow REIN's criteria in Calgary, you will have to take into account the following.

[list type=decimal]
[*]You are applying whole sale numbers to a single unit property purchase and you are competing with emotional people trying to buy there 'dream' home. If you were buying a 4 or 8-plex you, it may be a bit easier.
[*]Current interest rates are in the 2-3% for mortgages and although you should stress test, you should not DEAD-test.
[*]Optimizing rent like Wade is, may result in higher vacancies - you should see my neighbour's turn-over. Nearly everyone in Calgary needs a car to get around so a place may be more difficult to rent out without parking.
Calgary properties have often low cap rates and more appreciation - single units even during these times yielding barely 3% (using my rental income estimates). Cap rates are like bond yields and they vary with interest rates, time and house prices. Currently, with low interest rates there are a lot of enthusiastic investors and first time home owners scouring the markets for bargains.
Best deals are in the depressed condominium markets while single family starter home sell on average within 42 days or so.
[/list type=decimal]

 

[Gen1GT]

If you`re having a hard time finding a rental property, why not create a rental property? i.e., find a big, old house with lots of space, then create a duplex or triplex out of it? Perhaps more cost up front, but could net stellar cash flow. Does anyone have experience doing this?

 

[aiden1983]

QUOTE (gwasser @ Feb 8 2010, 06:29 PM)
Although Wade's rents are quite amazing, I think you're a bit on the conservative side with your numbers.

Why don't you e-mail me including the type of property you are looking for. Maybe I can find something that approaches your needs. Did you notice Jim Whitelaw's earlier posting? http://myreinspace.com/rein_members_only/Canadian_Quick_Turn_Real_Estate/108-15446-Need_some_motivated_sellers.html



I do have to point out that if you follow REIN's criteria in Calgary, you will have to take into account the following.

[list type=decimal]
[*]You are applying whole sale numbers to a single unit property purchase and you are competing with emotional people trying to buy there 'dream' home. If you were buying a 4 or 8-plex you, it may be a bit easier.
[*]Current interest rates are in the 2-3% for mortgages and although you should stress test, you should not DEAD-test.
[*]Optimizing rent like Wade is, may result in higher vacancies - you should see my neighbour's turn-over. Nearly everyone in Calgary needs a car to get around so a place may be more difficult to rent out without parking.
Calgary properties have often low cap rates and more appreciation - single units even during these times yielding barely 3% (using my rental income estimates). Cap rates are like bond yields and they vary with interest rates, time and house prices. Currently, with low interest rates there are a lot of enthusiastic investors and first time home owners scouring the markets for bargains.
Best deals are in the depressed condominium markets while single family starter home sell on average within 42 days or so.
[/list type=decimal]





Thanks for the info. I cannot see Jim's post as I do not have access to that part of the site. Can you please post your email address and I will send you my information. Thanks to everyone for your help.

 

[aiden1983]

QUOTE (Gen1GT @ Feb 9 2010, 06:55 AM) If you`re having a hard time finding a rental property, why not create a rental property? i.e., find a big, old house with lots of space, then create a duplex or triplex out of it? Perhaps more cost up front, but could net stellar cash flow. Does anyone have experience doing this?

I think this would be very hard to do in Calgary due to all the red tape you have to go through in order to get another suite in a house.

 

[wgraham]

QUOTE (aiden1983 @ Feb 8 2010, 03:51 PM) Wow that is better than I would have ever though for a garage. Is it legal or illegal? Very jealous of your deal

.

There is nothing to be jealous about and I didn`t post the numbers to brag. I simply wanted to show what is possible and real out there at the moment.

Yes I buy both legal and illegal places. With the illegal ones I have certain boundaries and make sure my investors are informed of the risks and how we will manage them.

You would be amazed what you can get for a good garage!

Good luck with your search!

 

[RedlineBrett]

QUOTE (aiden1983 @ Feb 8 2010, 12:19 PM) I have been looking for a while now (over 8 months) to find a property (SFH ~1000 sqft bungalow with 15.2m lot in SE or SW Calgary) and cannot find one that is cash flow positive.

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

How much are you putting down?

 

[aiden1983]

QUOTE (RedlineBrett @ Feb 9 2010, 12:31 PM) How much are you putting down?

I would like to put down 5%

 

[RedlineBrett]

QUOTE (aiden1983 @ Feb 9 2010, 12:49 PM) I would like to put down 5%

I am using the following to calculate the cash flow:
5% interest
30 yr mort
10% vac rate
10% maint
and actual taxes

My plan is to buy a suited bungalow (or suite it myself as my family does that as a side business) and live up stairs and rent downstairs. I would like it to be cashflow positive assuming I pay current market rent so that I can move out within 3 years and buy another property. Does anyone have any suggestions to what I should change to realize my goal? Any help that would be great.

Well you are putting very little down and have a lot of `safe` assumptions in there.

with a `safe` rental income of 2200/month (1300 up, 900 down plus utilities) you would need to purchase a property for under $300,000 to make this work with your planning assumptions. Most of the buying public is not doing their math with your variables they do them with current actuals so these properties get snapped up fast.

They are available in some `shady` areas of town... but if you`re going to owner-occupy this place as your realtor I would try and talk you into spending a bit more. What good is $1M/yr if you have to live in a cardboard box?

To get a decent place in the SW you are looking at $425k. To get a decent place in the SE you are looking at 350-400k but these are VERY RARE with both 15M of frontage and proper zoning for a suite. There are more properties in the SW and they`re better communities too. Most times in real estate you get what you pay for.

Here is what I would change

1. Get on a 35yr am. Reduce your payments as much as possible. When you have a good month you can pay more principle. When you have a bad month you have a wider safety net. No risk other than the extra 0.2% of CMCH premium which I think is worth it.

2. Your 5% rate . Get on the variable rate of prime minus 0.2% (prime-0.3% is available too). If you are going to live in the property for three years you can bank up significant savings. If you assumed a 3 year average rate of 3.25% you would bank a total of $428/mo assuming a loan of $412,467 at 5% which would include your CMHC premium at 5% down. Since you`re going to live there for 3 years that`s 36 x $428 = $15,408 in savings vs. a rate of 5% that you`re using. That`s at 3.25%. Prime is still at 2.25% so that`s a FULL POINT they have to go up for your 3 year AVERAGE to hit 3.25%. Bottom line 5% is more than safe enough for a 3yr timeframe and you`ll bank so much money while rates work their way up that if it hit`s it in year 5 you`ll have a nice fat cushion to deal with.

3. Your vacancy rate of 10% should reflect that you`ll be occupying the main floor for three years. Basement suites rent the fastest and to be honest our basement suite vacancy rate has been less than 4% in the worst of times over the past three years. Other than that an 8% rate (one vacant month a year) is more than enough.

4. 10% maintenance. If you`re going to include maintenance then you need to include some of the other upside on the property. So principle paydown and estimated appreciation rates should start to come into play. That`s why no one wants to be a renter right? so you need to give that some credit as well.

5. Rents will be higher in 3 or 5 years than they are now. As interest rates move up more buyers will be priced out and the demand for rentals will increase. Everyone seems to agree that rates are going up so make sure you`re looking at this double-edged sword from the landlord side of the equation.

Bottom line - there are quite a few nice places in the SW that you could buy for $425,000 - $450,000 at 5% down, rent out your basement suite and your garage and live for less than $500/mo. Even if rates DOUBLED you are still less than $1000/mo and this includes tax and insurance. Read that line again. Basement suites in these areas rent fast and you can get them within walking distance to the West LRT when it comes in. Get your realtor to show you some of that stuff and ask yourself what risk is greater - having a property that doesn`t meet all of your criteria yet costs you $500/mo to live in right now or waiting around for your ideal property to come along and find you`ve been priced out or CMHC goes to 10% down for first time buyers?