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where to invest

Willyboy

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Hello everybody. I'm almost new to this forum and real estate investing. I've done lots of research though and apparently I can't seem to be able to make a decision because the more I read online the more it gets complicated for me.
I have always wanted to invest in rental properties but generally speaking I'm not the kind of person who just hear about something, make a quick decision and jump in. I'm particularly very cautious nowadays because I find there's lots of uncertainty in the market due to a couple factors.
A few years ago I was getting ready to buy in Alberta, Edmonton or Calgary. But as I was moving forward the oil crisis started to emerge and It held me back.
So now I shifted my research to other areas in Canada and I decided that Vancouver and Toronto don't fit into my criteria because they are already very expensive. I researched more and I found that Hamilton could be the closest fit as it has been hot for the last few years and still not as expensive as Toronto but the thing is it has appreciated so quickly as well that I am now afraid it might have topped out already.
So now I started thinking back about Edmonton or Calgary but I am very confused because I keep hearing that the oil price will never go back to where it was before maybe a bit higher than what it is today but that's it and in this situation if I buy and the economy doesn't pick up as hoped in the long term then I might not benefit from long term growth in price which I'm interested in.
And speaking of Hamilton or other surrounding cities in Ontario like Brantford or Kitchener I am worried of a potential correction in price that could happen in Toronto and have a spillover effect into the other surrounding cities.
I don't think I'm caught in what some people call analysis paralysis but like I said with the different factors affecting the different cities in Canada and with me doing my due diligence I've come to a conclusion that I need the advice of those of you long term members who have a long experience in the Canadian market and who are savvy investors that can shed some light as far as what the best option or decision could be.
Would you recommend Edmonton, Calgary or Hamilton or the surrounding areas or maybe some other city that didn't come to mind?
If a correction happens in Toronto do you think it will happen in the other surrounding cities like Hamilton and if yes do you think it would be in the same magnitude or less?
BTW I have a long term plan like ten years and over but still this doesn't mean I will jump tomorrow regardless of what could happen because if I got stuck in a correction it would reduce my long term profitability which I would prefer to avoid if I could.
I would appreciate your help.
 

Thomas Beyer

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Okanagan, Vancouver Island, Abbotsford, Sunshine Coast are all great areas to invest in BC.

I would stay away from AB until we see sustained upside in oil, one confirmed pipeline ( likely TM) and are off the destructive NDP policies. Revisit annually. No rush to buy there. Foreclosures an option to look at though. Vacancies are very high in AB right now.

How to get started 101:

Have cash to invest ready.

Have a mortgage broker to get access to cash i.e. mortgage ready.

Research ONE market with upside, say Vernon, Abbotsford, Penticton, Victoria or Namaimo for BC.

Become an expert in a very small area AND an asset type, say a townhouse (TH) or a single family house (SFH) with a basement suite or a duplex or multiplex depending on your cash.

Know your market ie rent levels and asset values in a VERY VERY SMALL AREA. You must know, for example, if 250,000 for a three BR TH with an unfinished basement on xyz street facing south is good value, overpriced or a smoking deal, or how it compares relatively to the 2BR TH for $235,000 on abc street with a finished basement.

Some posts to get you started: http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/

Also, tell us a bit about yourself:

Where do you live ?

Do you own a house already ?

How much cash do you have to invest, roughly ?

Are you comfortable taking on debt ?

What income ( or two ) do you have ?

How much time, on average, per week can you invest for research, getting ready and/or management .. And eventually finding JV money ?
 
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Willyboy

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Hi Thomas. I live in Edmonton but I don't mind investing in other cities if it's better because even if I buy in Edmonton I'm not going to take care of the property personally. Wherever I buy I will hire a property manager for 100% of the time. It will cost some money but this wouldn't matter much to me as it would be offset by price growth if applicable.
The price range I have in mind is not so big. Probably between 500 k and 700 k depending on the opportunity and whether I go for one bigger property or two smaller ones.
I'm thinking about single family homes, suited homes or multiplexes.
I want cash flow but I would be more interested in equity growth because I did some maths already and found out equity growth is much more important. For instance if a property that is worth 600 k is cash flowing 300 dollars extra a month that would be about 3600 a year and about 36 k or more in 10 years. Where as if the property has appreciated at an average of 4 to 5 percent a year that would be about 380 k in equity growth.
regarding Vancouver Island it's a great area but very expensive for me to invest in and I would be worried about a possible correction in price that could be triggered by some measures that are being taken right now like new taxes or possibly higher interest rates in the coming years. I also would be worried about the same thing in the great Toronto area. And that's why I'm having a hard time making a decision as I would be buying in an already inflated market due in part to very low interest rates that could change in the future and trigger some correction.
 

Rickson9

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$500k to $700k in single family homes should be able to bring in $5k to $7k per month in gross rent
 

Thomas Beyer

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$500k to $700k in single family homes should be able to bring in $5k to $7k per month in gross rent

Tough to impossible to do in any healthy Canadian City. Only in rough parts of certain US cities, smaller US cities or remote northern Canadian towns.

Or perhaps levered with double the mortgages ie $2-2.5M in assets with 500-700,000 in cash.

Most gross yields on houses are 4-7% in Canada. For example, a house I recently bought in Kamloops for 430,000 is fetching $2200 rent or so a month or 5% or in Penticton where a 1/2 duplex for $305,000 is about $1600/month.
 
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Thomas Beyer

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Feel free to enlighten us with your wisdom. We are all here to learn and that includes me, my friend.
 

Rickson9

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All the information can be found at http://myreinspace.com/threads/canadians-snap-up-u-s-properties.17393/

No need to embarrass naysayers again. Some were embarrassed so thoroughly they don't even visit the forum any more.

OP would be making a mistake to focus on equity appreciation over cash flow IMO. Ask Calgary RE investors how that strategy is working out.

As per the OPs example, $600k deployed in US single family homes today would generate $6k per month in gross rent or $3k operating profit per month or $36k operating profit per year.

As ridiculous as it sounds, the profit would be anywhere from 1.5x to 2x higher back in 2010. The US RE market was on life support back then. And back then the CAD was worth something.

As much as I enjoy investing in the US, if a Canadian city hits 9+ months supply it'll be easy pickings. No negotiation necessary. Let's pray it doesn't happen up here.
 
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Thomas Beyer

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A rough part of town in a small US city apparently.

You misquoted me. I said either a rough part ( of a sizable) or a small US city.

But yes there are in many cases far better investment opportunities in the US.
 

Willyboy

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Thank you Thomas and Rickson for the advice. Pretty much appreciated. I'm gonna look at the possibilities in BC and the states as well. I am wondering though what effect could the US to CAD exchange rate have on an investment in US because if we do the math for instance if I buy a property in US today and resell with some price growth in the future and convert the money back to a supposedly higher Canadian exchange rate than today's rate then I will be making little to no profit. Please correct me if I'm wrong.
 

Thomas Beyer

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Correct going to the US as a Canadian with Can$ involves higher risk due to
a) unknown future exchange rate and
b) higher cost due to
- accounting for cross border,
- cost to get there
- dual tax filing in Canada and US,
- higher mortgage rates, and
- more difficulty as a Canadian to get mortgages in US

But yes, you will likely get higher gross yields in US $s.

The US is huge as is each state so you have to pick a city and a suburb within. We have done very well in Dallas, TX and other folks I know of in AZ, OR, CA, HI, FL or WA. Be very very focused.

With our federal socialist high tax anti-business anti-oil high spending government debt creating Can $ will likely weaken in the short term vs US $ as US raise interest rates with far higher GDP, wage and job growth but may appreciate if oil makes a substantial move up. So yes a gamble. But as Rickson9 points out the returns can be far greater. He posted this link to a map and article of the best rental yields in the US at the moment (2016)

https://www.biggerpockets.com/renewsblog/2016/04/02/best-single-family-rental-returns-2016/

Closer to home there is plenty of foreclosure activity in Alberta where the keen observer with connections can pick up assets 25-50% below 2014 asset values. Vacancies are very high so deep reserves and thick stomach are required to 2020.
 
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Rickson9

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Rickson, always fully furnished or no?

No furnishings. No appliances.

Purchased in the summer at the aforementioned gross yield:
https://m.imgur.com/a/mEX99

Rented within a month (ie between the date of the signed contract and close).

I'm currently in the process of buying another detached house. Will post pics once the renovations are done.
 
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kfort

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Thanks. Appreciate the insight into your dreams/ reality investing south of the border. Not likely an option for me anytime soon but always good to keep an open mind, knowledge is power (& frequently money).
 

Cory Sperle

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Stay close to home and buy in Edmonton, since you have a long term view and the market is down now is a good time to buy. Too much risk to go somewhere else unless you have significantly more experience.
 

Willyboy

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Thanks Cory for your advice. Much appreciated. I will be checking Edmonton out again as well among other possibilities.
 

Rickson9

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As someone who went from 0 experience investing in real estate to owning multiple properties in the US, the lack of experience shouldn't be a primary concern IMHO.

I got experience from the process despite a thread full of negative comments by supposedly 'experienced' REIN real estate investors who couldn't even see one of the biggest opportunities in history starring them in the face.

There are other things to focus on rather than lack of experience. Everything new will have 'lack of experience' as an overrated objection.
 
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kfort

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It's true, you'll rarely build awesome sauce in your comfort zone.
 

Cory Sperle

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Well done and good choice! My projects in Edmonton are down, but it's no worse than 2011. You get ahead by ignoring the naysayers and chicken littles out there and buy where it makes sense to you. I have no doubt Mr. Rickson has done well in the US starting with no experience, however there is added risk in foreign ownership, and you are also investing in currency exchange as well. When Terry Paranych was asked how many properties he owned in the US, his response was "zero, because if I can't see it, touch it, and smell it, I don't want it". He continues to buy in Edmonton through any market and has become incredibly successful investing in his own back yard.
 
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