Information about Leduc

[Doris]

Hello,

I`m looking for some information about Leduc. I live in Ottawa and buy exclusively in Edmonton, however while talking with my Edmonton-based mortgage broker yesterday, he recommended that I consider buying property in Leduc. He owns several properties there and recommends it highly. According to him, cash flow is better there than in Edmonton. He gave an example of a single family property selling for $235,000 which would get $1700-$1800 of monthly rent, significantly better rents than can be had for townhouse condos in Edmonton selling for roughly the same price.

I`ve checked out REIN`s Top 10 places in Alberta but Leduc isn`t on there, so now I`m doing some research. Is anyone familiar with Leduc and the rental situation there? Any information and personal experiences would be helpful as I look into it. Thanks in advance.

Doris

 

[invst4profit]

I don`t know anything about Leduc but I do know that at $235,000 rent of $1800 is still going to give you negative cash flow on a SF.
Not good with the direction the economy and housing is going.

 

[GarthChapman]

QUOTE (invst4profit @ Nov 13 2008, 01:40 PM) I don`t know anything about Leduc but I do know that at $235,000 rent of $1800 is still going to give you negative cash flow on a SF.
Not good with the direction the economy and housing is going.

This fictional property can indeed cashflow under reasonable terms.

My assumptions are:
20% downpayment and a 4.75% interest rate on the mortgage with 35 year amortization

The numbers
$1,800 rent

$913 is Mortgage pmt
$144 is 8% vacancy allowance
$50 per month maintenance allowance
$50 insurance premium
$180 is property taxes
$463 = monthly cashflow

This essentially delivers a 12% annual return on the $47,000 of capital invested (the downpayment).

 

[invst4profit]

Mortgage $188000 = 913.58/month (4.75, 35 yr)
Down Payment 47,000 (20%) = 184.23/month (4.75% return)
Expenses @40% minimum = 720/month

$913.58
+$184.23
+$720.00
-----------
$1817.82

Negative cash flow of $17.82 per month and my guess is expenses would be closer to $900 than $720 on a SF making it a negative cash flow of $197.82/month.
Also the return on the down payment of 4.75% in my opinion is low but that is what I used. I always calculate cash flow based on 100% mortgage otherwise I am attributing ZERO value to my money.
I worked hard for my money and every cent must earn it`s keep in my world.

Funny how one can make numbers look like anything they want.

 

[JimWhitelaw]

We have a bungalow in Leduc that rents for $1800. Overall numbers very close to what Garth presented. Positive cash flow is definitely do-able.

 

[Thembi]

QUOTE (invst4profit @ Nov 13 2008, 02:58 PM) Mortgage $188000 = 913.58/month (4.75, 35 yr)
Down Payment 47,000 (20%) = 184.23/month (4.75% return)
Expenses @40% minimum = 720/month

$913.58
+$184.23
+$720.00
-----------
$1817.82

Negative cash flow of $17.82 per month and my guess is expenses would be closer to $900 than $720 on a SF making it a negative cash flow of $197.82/month.
Also the return on the down payment of 4.75% in my opinion is low but that is what I used. I always calculate cash flow based on 100% mortgage otherwise I am attributing ZERO value to my money.
I worked hard for my money and every cent must earn it`s keep in my world.

Funny how one can make numbers look like anything they want.

Excuse me,how did u get expenses of 720?why would you have such high expenses if ur tenants are paying utilities,i hav a property i bought for a higher price than that and it still cashflows,gues it depends on ur expenses and math calculations

 

[GarthChapman]

QUOTE (invst4profit @ Nov 13 2008, 02:58 PM) Mortgage $188000 = 913.58/month (4.75, 35 yr)
Down Payment 47,000 (20%) = 184.23/month (4.75% return)
Expenses @40% minimum = 720/month

$913.58
+$184.23
+$720.00
-----------
$1817.82

Negative cash flow of $17.82 per month and my guess is expenses would be closer to $900 than $720 on a SF making it a negative cash flow of $197.82/month.
Also the return on the down payment of 4.75% in my opinion is low but that is what I used. I always calculate cash flow based on 100% mortgage otherwise I am attributing ZERO value to my money.
I worked hard for my money and every cent must earn it`s keep in my world.

Funny how one can make numbers look like anything they want.

Agreed - one can make the numbers fit one`s bias, and that is how many people make investments they shouldn`t.

In this case you are using an arbitrary 40% of income allowance for expenses and I submit that does not work with single family properties. My numbers are based on actual values in that market.

I showed the return on cash invested as 12% annually by dividing the cashflow into the downpayment. You are measuring based on an expected return on ash invested of 4.75% and that is fair enough. Using that scenario you would also get a 7.25% bonus on your cash.

 

[invst4profit]

Garth you left out half the expenses.

advertising
management (owner or company)
lawyers
accounts
evictions
utilities when vacant
etc.

Average monthly expenses are far to low. Add in a furnace, roof, hot water tank, property management and plenty more.
I will guarantee based on long term statistics that expenses will be 40-50% and those not seeing that number either have not held long enough or they are not including all expenses.
It is common to see lower numbers short term but the average on a buy and hold business will be as I have said.
The biggest problem with using actual numbers is they are from yesterday and do not account for the unexpected tomorrow or for the most part long term capitol expenses which together usually account for a big part of averaged expenses.
I do not look at ROI I only look at positive cash flow. The bank and I are in partnership on my deals, they get paid monthly and I expect to get paid monthly on my cash investment (down payment) off the top before counting cash flow.

 

[GarthChapman]

QUOTE (invst4profit @ Nov 14 2008, 06:48 AM) Garth you left out half the expenses.

advertising
management (owner or company)
lawyers
accounts
evictions
utilities when vacant
etc.

OK Greg, let`s do that. I agree with you. We don`t take into account all those things that will be costs over the long haul. These figures are monthly.
$25 Advertising (I don`t spend near that much but let`s err on the high side)
$180 for management (I always seem to miss that one as we manage our own)
$0 for lawyers (that was included in the 3k acquisition costs I allowed for)
$40 for evictions (let`s assume one eviction every 3 years costing $1,500)
$0 for utilities when vacant (included in the 8% vacancy I allowed - much higher than actual experience will be)
$245 is additional total allowance for future expenses

So at a worst case scenario this property cashflows $220 per month.

Investors must have solid cashflow to make it in this business, and just to survive when times are tough. This property does that.

And over the long haul, it will contribute $5,400 per year (11% on cash invested) in mortgage paydown and, based on the long term average of 8% appreciation (1973 to 2006 average for Edmonton, rounded) it will also provide a 40% annual return on the $50,000 cash invested.

Those numbers work for me. Actually, they have nearly retired me after 8 years of real estate investing.

Now that we have completely hijacked this thread, let`s return it to the topic the original poster asked about - Who can tell her about investing in Leduc?