I have a potential opportunity to buy new housing with a tenant that will pay sufficient rent to cash flow the property and meet the 1.1 rule. However, given the following:
1) premium for new house vs. similar pre-owned house, and;
2) GST on cost of new home
Does buying this property make sense if my game plan is to rent to this tenant for 2 or 3 years and then sell the property once the tenancy is completed. In my analysis there are a couple of factors that play a big part. First, it assumes 5% increase in housing prices each year for the next 3 years and second I am highly dependent on the fact that the house will sell 2 years down the road as I probably wouldn`t be able to find another tenant who would pay an equivalent amount of rent. This opportunity makes great sense, but only in the short term and is dependent on finding a buyer relatively quickly once the tenancy is complete.
PROS:
- cashflowing property that meets the 1.1 rule
- no hassle tenant
- a virtually new home to sell at the end of the lease
CONS:
- property has never been lived in
- I could be selling into a market where there is still an oversupply
In doing my analysis my concerns are as follows:
1) I need to have about 5% price increase over the next 2-3 years to make this worthwhile. Given current market conditions is this feasible?
2) Not ever having sold a newer house before, is the premium on buying a new house recoverable when it comes time to take it to MLS and the resale market? or is this never recoverable?
The only feasible exit strategy appears to be selling the property, as renting it will not cash flow after this initial tenant.
Any thoughts would be greatly appreciated.
Thanks,
Matt
1) premium for new house vs. similar pre-owned house, and;
2) GST on cost of new home
Does buying this property make sense if my game plan is to rent to this tenant for 2 or 3 years and then sell the property once the tenancy is completed. In my analysis there are a couple of factors that play a big part. First, it assumes 5% increase in housing prices each year for the next 3 years and second I am highly dependent on the fact that the house will sell 2 years down the road as I probably wouldn`t be able to find another tenant who would pay an equivalent amount of rent. This opportunity makes great sense, but only in the short term and is dependent on finding a buyer relatively quickly once the tenancy is complete.
PROS:
- cashflowing property that meets the 1.1 rule
- no hassle tenant
- a virtually new home to sell at the end of the lease
CONS:
- property has never been lived in
- I could be selling into a market where there is still an oversupply
In doing my analysis my concerns are as follows:
1) I need to have about 5% price increase over the next 2-3 years to make this worthwhile. Given current market conditions is this feasible?
2) Not ever having sold a newer house before, is the premium on buying a new house recoverable when it comes time to take it to MLS and the resale market? or is this never recoverable?
The only feasible exit strategy appears to be selling the property, as renting it will not cash flow after this initial tenant.
Any thoughts would be greatly appreciated.
Thanks,
Matt
