Cap Rates in Hamilton Brantford

[TonyMandrique]

Hi.

For the last few months, I have been struggling to buy students and single family rentals in Hamilton and Brantford. However, the low cap rate is my problem.

May I have your comment/advice on average cap rate in the areas and average monthly/yearly expenses (per room)?

Your feedbacks are much appreciated.


FHC

 

[Nir]

CAP:~7%, expense: ~$250/mo or 40-50% of rent

 

[TonyMandrique]

QUOTE (investmart @ Sep 9 2009, 09:14 PM) CAP:~7%, expense: ~$250/mo or 40-50% of rent


Thank you very much for your input. I thought my numbers are way off, hence, I can not close a deal.

Anyway, last weekend, I increased my (final) offer for a students rental in Hamilton using the same cap rate of 7% and 47% actual+estimated expenses of rent, but, was still not accepted. The seller was asking too much for his property that will yield a negative cash flow. So, I am still looking. Better luck next time.

Thanks again. I really appreciate your input.

FHC

 

[jseib]

I`m starting to like Hamilton less and less... Because it has a reputation for lower prices and lots of local gurus and such like to promote it... I see a lot of Toronto area investors coming into Hamilton and buying things not based on what it should be worth in Hamilton but what it would be worth in Toronto...

I recently met a hopeful investor who was all excited because he found homes selling in Hamilton for mid 100`s and my partner had to explain to him that just because the houses are so cheap compared to what he`s used to doesn`t mean its a good deal.... I don`t think he believed us though...

 

[aiden1983]

QUOTE (FHC @ Sep 9 2009, 10:39 PM) ..... using the same cap rate of 7% and 47% actual+estimated expenses .....

What do you include in your expenses? Debt repayment? Vacancy Rate? Maintence? All of the above? I am also new to RE investments and have been working on a cash flow analysis but my expenses seem much higher than yours with a similar cap rate but the property seems to be positive cash flow (unless I am calculating something wrong).

For example my numbers are:
List Price:$549,000
Down Payment: $27,450

Mortgage Payment: $2882.39
Vacancy: $400
Taxes: $2,071/year
Maintenance:$400

Revenue: $4,000

Cash Flow of approx $145.03

What would you calculate this expense per month to be?

This is not a property that I am going to buy as it doesn`t flow well enough but this is how I was calculating my cash flow. I was thinking of lowering my main to 5% and my vac rate to 8%, is this reasonable? See anything major I may have forgot?

thanks you for your help

 

[Thomas Beyer]

QUOTE (aiden1983 @ Sep 10 2009, 09:05 AM) What do you include in your expenses? Debt repayment? Vacancy Rate? Maintenance? All of the above? ..
operating expenses only .. before mortgage payments

op expenses include: R&M, insurance, taxes, utilities, marketing, onite manager and property management .. we use about $250 to $300/month also .. depending on province and suite size, and also depending on age of asset, size of asset and who pays heating or hot water bills (differs by province and building type, i.e. electric baseboards or electric water heaters vs. central boiler or central hot water tank .. utilities alone are well over $100/suite/month on average)

 

[TonyMandrique]

QUOTE (aiden1983 @ Sep 10 2009, 08:05 AM) What do you include in your expenses? Debt repayment? Vacancy Rate? Maintence? All of the above? I am also new to RE investments and have been working on a cash flow analysis but my expenses seem much higher than yours with a similar cap rate but the property seems to be positive cash flow (unless I am calculating something wrong).

For example my numbers are:
List Price:$549,000
Down Payment: $27,450

Mortgage Payment: $2882.39
Vacancy: $400
Taxes: $2,071/year
Maintenance:$400

Revenue: $4,000

Cash Flow of approx $145.03

What would you calculate this expense per month to be?

This is not a property that I am going to buy as it doesn`t flow well enough but this is how I was calculating my cash flow. I was thinking of lowering my main to 5% and my vac rate to 8%, is this reasonable? See anything major I may have forgot?

thanks you for your help

I would use:
Vacancy rate = 3.75% of rent income
R&M = 5% of rent income
Insurance = 100/month or ask your insurance agent
Cable & internet = $80/mo
PM = $500/mo
Gas, Hydro & water = $100/mo/suite as suggested by Thomas; or none if to be paid by tenants
Plus other miscellaneous op expenses

The cap rate I am targeting is 8% minimum or higher enough to cover monthly mortgage payment (with 5% d/p) and some money in my pocket or if possible minimum $500/mo.

Just sharing my 5cents. Thanks, too, for sharing.

FHC

 

[TonyMandrique]

QUOTE (jseib @ Sep 9 2009, 10:05 PM) I`m starting to like Hamilton less and less... Because it has a reputation for lower prices and lots of local gurus and such like to promote it... I see a lot of Toronto area investors coming into Hamilton and buying things not based on what it should be worth in Hamilton but what it would be worth in Toronto...

I recently met a hopeful investor who was all excited because he found homes selling in Hamilton for mid 100`s and my partner had to explain to him that just because the houses are so cheap compared to what he`s used to doesn`t mean its a good deal.... I don`t think he believed us though...


True enough. Not because price is low means it is a good deal. It depends on someone`s objective - as rental property or residential vs price for a Toronto residential property.

Thanks.

 

[jseib]

FHC

I would really beg you to rethink 3.75% as a good vacancy rate when running numbers... I run small rental units in Oakville and the market has been pretty hot here for them for several years now... Almost always 100% full with 60+ tenants but we still have a 5% vacancy even with a hot market and almost no inventory in the whole city... Between tenants that move out on short notice leaving a mess or new tenants who still have to give notice to their current landlords or have a few weeks left at their old unit.. I will be shocked if anyone here is managing 2-4% vacancies with rentals on a consistent basis.... Even if they are why would you base your decisions on the best possible outcome if it cashflows with a 10% vacancy Id rather pocket the difference between 3.75% and 10% then to assume 3.75% and have it go negative at 6% vacancy

 

[TonyMandrique]

QUOTE (jseib @ Sep 11 2009, 08:37 AM) FHC

I would really beg you to rethink 3.75% as a good vacancy rate when running numbers... I run small rental units in Oakville and the market has been pretty hot here for them for several years now... Almost always 100% full with 60+ tenants but we still have a 5% vacancy even with a hot market and almost no inventory in the whole city... Between tenants that move out on short notice leaving a mess or new tenants who still have to give notice to their current landlords or have a few weeks left at their old unit.. I will be shocked if anyone here is managing 2-4% vacancies with rentals on a consistent basis.... Even if they are why would you base your decisions on the best possible outcome if it cashflows with a 10% vacancy Id rather pocket the difference between 3.75% and 10% then to assume 3.75% and have it go negative at 6% vacancy

Good point to consider. Thanks for sharing.

FHC

 

[DOZAH]

QUOTE (jseib @ Sep 11 2009, 07:37 AM) FHC

I would really beg you to rethink 3.75% as a good vacancy rate when running numbers... I run small rental units in Oakville and the market has been pretty hot here for them for several years now... Almost always 100% full with 60+ tenants but we still have a 5% vacancy even with a hot market and almost no inventory in the whole city... Between tenants that move out on short notice leaving a mess or new tenants who still have to give notice to their current landlords or have a few weeks left at their old unit.. I will be shocked if anyone here is managing 2-4% vacancies with rentals on a consistent basis.... Even if they are why would you base your decisions on the best possible outcome if it cashflows with a 10% vacancy Id rather pocket the difference between 3.75% and 10% then to assume 3.75% and have it go negative at 6% vacancy



I agree 100%

 

[luckyluciano]

I don`t do student rentals due to the legality, high maintenance issues. However I do understand the attraction for the higher cap rates potential. A 7% seems far too low when one considers you can almost get a single family dwelling with the same cap or a multi res in downtown toronto along the bloor subway line.

 

[jseib]

QUOTE (luckyluciano @ Sep 15 2009, 03:44 AM) I don`t do student rentals due to the legality, high maintenance issues. However I do understand the attraction for the higher cap rates potential. A 7% seems far too low when one considers you can almost get a single family dwelling with the same cap or a multi res in downtown toronto along the bloor subway line.

And trade legality and maintenance issues for garbage strikes and crackheads

but no I agree 7% is far to low for a student rental... I don`t doubt people will gladly pay it but for the hassle I think they are nuts..

 

[TonyMandrique]

QUOTE (jseib @ Sep 15 2009, 04:03 AM) And trade legality and maintenance issues for garbage strikes and crackheads

but no I agree 7% is far to low for a student rental... I don`t doubt people will gladly pay it but for the hassle I think they are nuts..


I agree...7% is far too low but good enough when buying a property with potential income growth either through increase the rent or add new rentable units. So far, my experience with student rentals are excellent. I do not have problem with maintaining the place as they are the ones responsible in cleaning their units and common areas. Otherwise, they will be charged extra for cleaning services. Of course, this arrangement is made clear during the pre-screening process and also incorporated in the lease agreement.

FHC

 

[luckyluciano]

Garbage strikes may be coming to a town near you, can`t control it and thankfully does not happen often. "Crackheads", are you implying Spadina. & Bloor is full of crackheads?

QUOTE (jseib @ Sep 15 2009, 07:03 AM) And trade legality and maintenance issues for garbage strikes and crackheads

but no I agree 7% is far to low for a student rental... I don`t doubt people will gladly pay it but for the hassle I think they are nuts..