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Rental Property How To`s

W

Wayne

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Jan 28, 2008
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I have recently spoken with the Kinch Mortgage Team (Thanks Rob) regarding a 5 year plan and investing
in up/down rental properties. The money part seems pretty straight forward, but I seek advice on the
following:

1) Tenant leases - How to create ? Can you get tenants on a lease after possession if none in place ?
2) Rental increases upon possession - possible ?
3) Utilities - who pays and why ? How to split between up/down tenants ? Pros & Cons ?
4) Insurance - Tenant and house. Need info
5) Property management - necessary ?
6) Tax advantages for rentals / investments - whats deductable ? Advice sought.

Any other advice or comments that may prove useful would be appreciated.



Thanks,

Wayne
 
The first thing we need to know is what province are you in and have you researched the provincial landlord/tenant web site to study the rules.
 
QUOTE (invst4profit @ Dec 11 2008, 07:11 AM) The first thing we need to know is what province are you in and have you researched the provincial landlord/tenant web site to study the rules.


I live in Bc and the properties will either be in Vancouver area or southern vancouver island.
I will check out the website you`ve suggested too.

Just wanting to hear how others here in BC deal with the items I`ve sought advice on.



Thanks
 
QUOTE (Wayne @ Dec 10 2008, 11:03 PM) I have recently spoken with the Kinch Mortgage Team (Thanks Rob) regarding a 5 year plan and investing
in up/down rental properties. The money part seems pretty straight forward, but I seek advice on the
following:

1) Tenant leases - How to create ? Can you get tenants on a lease after possession if none in place ?
2) Rental increases upon possession - possible ?
3) Utilities - who pays and why ? How to split between up/down tenants ? Pros & Cons ?
4) Insurance - Tenant and house. Need info
5) Property management - necessary ?
6) Tax advantages for rentals / investments - whats deductable ? Advice sought.

Any other advice or comments that may prove useful would be appreciated.



Thanks,

Wayne

I live in the Victoria area and I found that I could not find places that could generate positive cash flow in that area. You need to head up island. Alternatively you could look at some bargains becoming available in Alberta or Ontario. In Ontario it is easy to find properties that cash flow. I bought my 1st two poperties in Ontario this summer.

I would suggest reading Don Campbell`s book on the ACRE system, which will answer most of your questions (it is too much to post here without you having some basic understanding) and then when looking for specific information to a question do a search, then post on here.

RF.
 
Regarding #6- go to Revenue Canada`s site and become familiar with all of the tax rules for rental properties- they will help you to make informed decisions. I`ve set my files up to mirror Revenue Canada so that when my taxes are prepared it will be easier for the accountant.

S.G.


QUOTE (Wayne @ Dec 11 2008, 01:03 AM) I have recently spoken with the Kinch Mortgage Team (Thanks Rob) regarding a 5 year plan and investing
in up/down rental properties. The money part seems pretty straight forward, but I seek advice on the
following:

1) Tenant leases - How to create ? Can you get tenants on a lease after possession if none in place ?
2) Rental increases upon possession - possible ?
3) Utilities - who pays and why ? How to split between up/down tenants ? Pros & Cons ?
4) Insurance - Tenant and house. Need info
5) Property management - necessary ?
6) Tax advantages for rentals / investments - whats deductable ? Advice sought.

Any other advice or comments that may prove useful would be appreciated.



Thanks,

Wayne
 
You won`t find cash flow in Vancouver!


QUOTE (Karma @ Dec 11 2008, 01:07 PM) Regarding #6- go to Revenue Canada`s site and become familiar with all of the tax rules for rental properties- they will help you to make informed decisions. I`ve set my files up to mirror Revenue Canada so that when my taxes are prepared it will be easier for the accountant.

S.G.
 
QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 1) Tenant leases - How to create ? Can you get tenants on a lease after possession if none in place ?
yes, use the BC standard form.

QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 2) Rental increases upon possession - possible ?
yes, with 3 months notice, once a year. So find out when teh last increase was served. BC is rent controlled. So 4% is your max in BC.

QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 3) Utilities - who pays and why ? How to split between up/down tenants ? Pros & Cons ?
depends on the property. Assume up/down house, usually it would be paid by tenants, but it is up to you / the lease.

QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 4) Insurance - Tenant and house. Need info
You need property insurnace in case there is a major desaster like a fire. Usually the mortgage company requires it. Ensure replacement value. So if you buy the house for $250,000 you may need insurnace for $350,000 to replace it if it burns down.

QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 5) Property management - necessary ?
Depends on your skills, proximity, time availability and desires. I suggest doing the first one or 2 yourself to LEARN, then outsource to keep your SANITY and to focus on raising more cash from investors and finding more deals. Property manager will charge about 10%, maybe 12% of rent, even if vacant perhaps and may charge a one month re-remtal fee. This may sound high, but it frees up a load of time to find more deals, where you make more money per h .. about 5 to 10 fold !
QUOTE (Wayne @ Dec 10 2008, 11:03 PM) 6) Tax advantages for rentals / investments - whats deductable ? Advice sought.
You pay taxes on taxable property income annually. Property income is: rents - expenses - depreciation .. and usually depreciation (of up to 4% of purchase price annually) is bringing taxable income to below 0, depending on rent, expenses, price and leverage level.

Thus, most of the time you pay taxes on a sale only.

All applicable, actual and reasonable expenses are deductible: property taxes, utilities, R&M, mortgage interest, legal fees, realtor fees, % of office use at home, % of car expenses, REIN memberships, travel expenses, % of research trips .. key being the word "actual" and "reasonable" .. and CRA might disagree with your version of "reasonable" .. so an annual trip to Hawaii might not be eligible if the property is in SK, but if you have 3 properties in SK and live in AB, and you fly there 2x / year then that trip cost would certainly be eligible !

Thus, you have an asset class that is tax PREFERRED and tax DEFERRED !!
 
QUOTE (nepoez @ Dec 13 2008, 10:16 AM) You won`t find cash flow in Vancouver!
sure you do .. you just can`t leverage as much as in other parts of the country ! You have very low vacancies in Vancouver and thus a very predictable rental income .. but likely at the expense of a fairly low cash-on-cash ROI .. nevertheless a steady egg-laying turtle !!
 
True. I must correct my statement to "You won`t find cash flow in Vancouver on 100% financing or even 70% financing"


QUOTE (thomasbeyer2000 @ Dec 14 2008, 03:02 PM) sure you do .. you just can`t leverage as much as in other parts of the country ! You have very low vacancies in Vancouver and thus a very predictable rental income .. but likely at the expense of a fairly low cash-on-cash ROI .. nevertheless a steady egg-laying turtle !!
 
QUOTE (nepoez @ Dec 14 2008, 06:51 PM) True. I must correct my statement to "You won`t find cash flow in Vancouver on 100% financing or even 70% financing"
incorrect @ 70% .. it just isn`t all that great .. there are properties in the Greater Vancouver Area that will cash flow @ 70% LTV with a 4% interest rate mortgage .. maybe not your average Yaletown or Coal Harbor $1M condo but an older up/down bungalow in the `burbs or surrounding town liek Burnaby, Surrey, PoCo, ... !

btw: where do you get 100% fianancing ? 80% mortgage + 20% LOC ? Highly risky, btw !
 
I was actually thinking City of Vancouver, however I didn`t think Burnaby would work either, I don`t think I looked hard enough when I started and just gave up and started looking in Edmonton right away
However, the prices have gone down recently and could probably adjust further.

Hmm... 100% financing is the only way I can do it. The 20% down is from my home equity LOC. Any feed back?



QUOTE (thomasbeyer2000 @ Dec 14 2008, 08:00 PM) incorrect @ 70% .. it just isn`t all that great .. there are properties in the Greater Vancouver Area that will cash flow @ 70% LTV with a 4% interest rate mortgage .. maybe not your average Yaletown or Coal Harbor $1M condo but an older up/down bungalow in the `burbs or surrounding town liek Burnaby, Surrey, PoCo, ... !

btw: where do you get 100% fianancing ? 80% mortgage + 20% LOC ? Highly risky, btw !
 
Thomas

From a business perspective are not all investment properties financed 100%.
Regardless of it being your money a partners money or the banks money is it not all borrowed money that requires a monthly return or are your income dollars simply counted twice. Do you separate cash flow from ROI or are they one in the same.
How do you calculate "monthly" cash flow on a property when there is a cash down payment.


If I buy a $200,000 property with cash and rent it out for $2000/month how does my cash flow compare to the same property financed with 20% down/80% mortgage.

(For simplicity assume my cash would otherwise be invested at a similar rate as my mortgage)
 
QUOTE (invst4profit @ Dec 16 2008, 09:58 AM) Thomas

From a business perspective are not all investment properties financed 100%.
Regardless of it being your money a partners money or the banks money is it not all borrowed money that requires a monthly return or are your income dollars simply counted twice. Do you separate cash flow from ROI or are they one in the same.
How do you calculate "monthly" cash flow on a property when there is a cash down payment.

If I buy a $200,000 property with cash and rent it out for $2000/month how does my cash flow compare to the same property financed with 20% down/80% mortgage.

(For simplicity assume my cash would otherwise be invested at a similar rate as my mortgage)

Good points Greg.

Some simply measure their cash-on-cash return.

Some remove a portion of the cashflow as compensation for their cash invested, calculated by their required ROI % on cash invested, and the remaining amount is then the cashflow derived from the investment.

If one ignores the amount of cash invested then one will have an inconsistent and inaccurate measure of true return, because the cash invested in each of several properties can be wildly different.
 
QUOTE (invst4profit @ Dec 16 2008, 09:58 AM) Thomas

From a business perspective are not all investment properties financed 100%.
Regardless of it being your money a partners money or the banks money is it not all borrowed money that requires a monthly return or are your income dollars simply counted twice. Do you separate cash flow from ROI or are they one in the same.
How do you calculate "monthly" cash flow on a property when there is a cash down payment.
indeed that is a view point .. some call it ROE (return on equity), others return on working capital and some opportunity cost. i.e. if had this cash and did not buy a piece of real estate, what else would I do with this cash ..

cash is cash .. if I have $100,000 and can get a mortgage for $400,000 to buy s.th. for $500,000 then I look at the return on the cash .. I would not call it "financed" though !
 
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