Is $50 to $80 Cash Flow Decent?

[ClintL]

A turnkey type of real estate investment group here in Ontario is offering properties where they will guarantee positive monthly cash flows from $50 to $80. Assuming long term appreciation rates of 2-3%, is this cash flow considered a decent one for Ontario? Or can I do much better?



Are there any other turnkey groups in Ontario that offer better returns?

 

[Thomas Beyer]

They may have a rent guarantee for a year, based on certain assumptions. What bench strength does the guarantor have ? What happens if they do not pay as promised ? Are the rents realistic ?



$50 or $80 maybe sufficient .. it depends. You can always do better by having a lower mortgage ! $50/month with how much cash down for what value property ? With all expenses counted, such as 5% vacancy, management fee and repair&maintenance or reserve for future fridge replacement, carpet repair or new roof ?



Get some independent appraisals ! Have you seen the properties ? Are they priced properly ?



Some deals may be great .. or shady .. hard to say with such little information !

 

[ClintL]

The group is headed up by a very well known broker with a good reputation. The $50 to $80 is the net after all costs including their monthly management fee of about $60. They claim that if a unit becomes vacant, they will still guarantee you the $50 to $80 per month - this is part of their agreement. Regular repairs are also included. Properties are condos that run about $110 K to $130 K.

 

[housingrental]

Post detailed info for a detailed opinion

Hard to provide anything meaningful without it

 

[Thomas Beyer]

More details please : location, rent, leverage, assumptions, upgrades, # of bedrooms, area .. Is this a new building or a conversion ?

 

[markl]

Hi Clint,



You can do better buying a condo Townhouse in Hamilton there are no gaurantees of course but you can get better cash flow today even after property management and you have complete control over your asset.



You will get a much better return on this than a rental pooled apartment.



Regards,

 

[invst4profit]

First never "assume" appreciation. That would be speculating.

Second as mentioned already far more detail is required.

Third a "reputable" individual is not a guarantee.

Fourth, again as asked, how much money do you have invested.



This is not a black and white business, no investment is, so details make the difference.



$50-$80 per month being a good or bad return depends on whether your cash investment could receive better return elsewhere.

 

[ClintL]

Here's what I know do far (without naming the actual investment group);



- properties are in Kitchener, recently renovated townhomes turned into condos

- target tenants are seniors and most units are already tenanted

- price range from $110 to $130 K per unit

- Group/company property management does everything from tenants to maintenance

- Their fee is about $60 per month

- they guarantee positive cash flow each month from $50 to $80

- they can set up with lenders who are familiar with their projects or we can use our own financing, assuming 25% down



That's really all I know at this point. I haven't gone to investigate further details because I don't know if the $50 to $80 per month positive cash flow is indication of something worthwhile to look into further.

 

[housingrental]

Need more info

What exactly is the guarantee in detail?

From what you've posted so far people can only assume and give you inaccurate and meaningless analysis beyond the good info the above posters have already provided to you

 

[ClintL]

The guarantee as I understand it is that in case a unit becomes vacant, they will still send me a cheque for the $50 to $80 each month. I guess they are so confident that they can always get more eligible tenants in there plus the fact that they have a large enough internal fund to finance such guarantees, they can provide it. I'm sorry but I don't have anymore info at this point.

 

[Thomas Beyer]

[quote user=ClintL]- they guarantee positive cash flow each month from $50 to $80


ANY guarantee now pushes "real estate" into the realm of "securities" as they are now not selling a condo but a financial instrument [namely a promise of a certain rental stream] .. regulated by the Ontario Security Commission !!



In addition: a guarantee is only as strong as the guarantor ! What happens if the guarantor has no more money ? What happens if vacancy goes to 40% ?



Key questions are:

a) how strong is the reserve fund, or if 0 in a town house project, how recent are upgrades to common element like: parking lot, windows, verandas, lawn, fences, roofs ? i.e. can you expect a major cash call in 3 years for a new roof and a paved common parking lot for $20,000 ?

b) how many internal upgrades have been done i.e. new kitchens, bathrooms, fridges, electric outlets, bathroom fans .. i.e. what happens if tenant moves out and the unit is ugly .. the owner pays for it .. and that could easily be $5000 to $8000 for a townhouse !



Assuming some decent upgrades or reserves, a townhouse for $120,000 is usually not a bad price, but with a possible cash call of $12,000 or $23,000 coming it may not ! More details / DD please !!

 

[bizaro86]

What are you paying for the guarantee? You must be paying for it in some way, or they wouldn't offer it to you. Are similar units available at lower prices? Are they providing it to get the brokerage commission and rental property management revenue stream? If you're paying a substantial premium, I'd consider buying the unit elsewhere and hiring someone to manage it for you. If they're just doing it to move stale inventory, it could be a deal.

 

[ClintL]

The guarantee is part of the overall package. That's probably what happens when you pay them the $60 to $70 per month prop mgt fee. As far as I know, they went in and redeveloped the entire complex (they are currently redeveloping a similar complex in Cornwall I believe) and the units are fixed at $110 and $130 K. They are the broker, prop mgt, the whole deal. That's why they are turnkey.



If anybody PMs me, I'll be happy to forward their URL. It would be interesting for me to know if there are other similar groups like this.

 

[invst4profit]

I assume, but must ask, is the guaranteed positive cash flow above the monthly management fee. It is confusing as it appears they will send you 50-80/month and you will send them 60/month.



The catch with these deals is the hidden costs that investors are responsible to pay. Annual assessments for repairs, upkeep, etc.



Looking at the numbers if you put 25% down on a $110,000 unit that is $27,500 and assuming you receive $50 per month positive cash flow, which I am skeptical about, your yearly return on investment is 2.2%. To me that is not enough return to even bothering to finish typing this sentien........

 

[ClintL]

Yes they are saying the $50 to $80 is net. In their presentation, they said we should factor in this positive cash flow, plus the 2-3% expected annual appreciation plus the mortgage paydown from the rent to work out the return.