Need some advice for a scarborough investment property

[JesseLee]

I`m seriously considering a R.E. investment in Toronto`s 416 area. I drove by the Warden station and noticed there is a new subdivision being now built. The one I`m looking at is a Condo village Townhouse around 1000 spft, from Mattamy homes. The price is bit high (250k) but still not crazy and its just steps to TTC subway.

Any REIN member already invested there? How do you think of that community and what`s the rent vancancy rate and monthly rental would be? All comments are appreciated.

Jesse

 

[kabuku]

QUOTE (JesseLee @ Apr 11 2008, 03:24 PM) I`m seriously considering a R.E. investment in Toronto`s 416 area. I drove by the Warden station and noticed there is a new subdivision being now built. The one I`m looking at is a Condo village Townhouse around 1000 spft, from Mattamy homes. The price is bit high (250k) but still not crazy and its just steps to TTC subway.

Any REIN member already invested there? How do you think of that community and what`s the rent vancancy rate and monthly rental would be? All comments are appreciated.

Jesse

Hi Jesse,
I have a couple of rental properties in the east end of Toronto and have lived there all of my life.
Having said that, this is still just a guess on my part.
I think you would have plenty of rental demand and would get $1350-1500 a month, likely $1400.
The area definitely has some potential and as a contractor I know that some of the people moving into the area have money. However, I would be concerned about the public housing across the street (if this is the development south of eglington on the east side of Warden). I have been wrong before lol.
Good luck,
Brian Anderson
www.Andersonwindowsanddoors.ca

 

[invst4profit]

I can`t comment on the area but based on the purchase price and estimate of rental you will be
negative cash flow of $100-$300 per month before any expences.
Insurance, vacancies, misc. repair/upkeep, advertising, taxes etc. will bankrupt you in short order.
Probably close to $600-$700 per month negative cash flow over the long term.

 

[JesseLee]

Hi Brian,
QUOTE However, I would be concerned about the public housing across the street (if this is the development south of eglington on the east side of Warden).

I haven`t toured around a lot but I will. Cross the steet I see another low rise condo-building (it loos like nice) and a health care centre. When you refer the public housing could you give me some hint like steet or intersection etc? Thank you so much for all the information, really need that piece of info.

Hi Greg
I`m planning to put down 30K as down-payment so the overall borrowing would be 230k, with a 40 year mortgage at the rate of 4.5%, it gives a monthly payment of $983. The tax+condo fee I estamate it to be $300. (12cent per sql foot for condo fee) so all together it sums up to $1300. And my expectation for rental is $1350 so it gives a very tight or break even flow, not that bad but hopefully I can enjoy a nice value appreciation. But your estimate is a neg one even before expenses...I`d like to hear more details, could you elaborate a bit more?

 

[invst4profit]

My oroginal estimate was on a 250,000 morgage at a higher int. and 30 amt.
If I look at your numbers I calculate monthly payments at $1027 plus your condo
fees at $300. This is giving you virtually no cash flow on a $30,000 investment. Not good.
Even if you could cash flow $50 per month that is only 2% return on your investment. For
that you might as well leave it in the bank and avoid the headaches of landlording.
That is a loss of at least $2400 per year on what a reasonable investment should return.
Also you have included nothing for expences. In a normal rental property expences
generally run at 50% of rental income. Condos can be lower but still exist.
You have not included closing costs, insurance, evictions, vacancies (killer expense),
advertising upkeep/repairs special condo assesments, legal, accounting etc. etc. etc.
I would estimate at least 30% of rental income to expences maybe 40% overall.
You stand to lose a lot over the long term. I still see you losing $500/month long term.
As far as appreciation is concerned I personally am a investor not a speculator so I will
stay away from that topic except to say bubbles burst.
Landlords should look to make there money when they buy not when they sell.

 

[JesseLee]

QUOTE In a normal rental property expences
generally run at 50% of rental income. Condos can be lower but still exist.
You have not included closing costs, insurance, evictions, vacancies (killer expense),
advertising upkeep/repairs special condo assesments, legal, accounting etc. etc. etc.

That scared me...I may need to re-evaluate if real estate investment is a fit to me or not. It sounds like the real estate investment can so easily turn into a nightmare.

Greg, I have to say your comments are discouraging but guess what, I do appreciate, it gives me some thoughful insight from other perspective. I will continue to do my own due diligence in the next following days until I can make a decision. Thanks again.

 

[invst4profit]

Real estate investment requires a lot of research and education. When done right it can be
very successful and rewarding when done wrong it is a nightmare. Many go into
it thinking it is easy, take the rent, subtract the morgage payment and laugh all the way to the bank.
Not reality.
It is a business and most new businesses fail in the first 5 years.
Suprisingly enough many mom and pop landlords don`t even know they are losing money every month
and eventually sell because they are tired of the headaches of taking care of tenants.
Landlording can be difficult and one bad tenant can be desasterous but that is where the
education part comes in.
There are many ways to make your money work for you that are easer than real estate it`s just
the numbers that differ.

 

[Nir]

Jesse, I strongly recommend you read "Real Estate Investing in Canada" by Don Campbell.

It explains how to more accurately analyze a property cash flow in addition to many other things. There are more expenses to consider, as Greg mentioned, like property management fees, insurance costs, vacancy rates, repair and management..

HOWEVER, the GOOD news is there are properties that will generate positive cash flow for you from the first month with only 10% down!

It`s just not going to be the condo you found. As an initial filter , how about looking for properties with a minimum 10% annual rent to purchase price ratio. if not in Toronto perhaps in other smaller cities.

Neil