Canadian Rental Questions

[Stashasaurus]

Hello Mustachians,

I am looking at purchasing a rental house in my home town. I am looking at a property that should generate $1400/month at a cost of $200,000, requiring $42,000 in initial capital. I take into account taxes, insurance, mortgage, repairs, vacancy and look to be positive by $130/month. ($1,542/year). I take NFV of these cash flows, using 8% IRR and the sale of the home (net capital gains) in ten years time to find the NFV of the rental.  I calculate this to be $41,000. I also calculate leaving the funds in a TFSA at 8% and it grows to be $90,000.

My question to the forum is am I missing something, or is this just a really bad deal? It looks like a lot of extra work/risk to buy this rental to keep my money constant. I will attach my spreadsheet hoping it makes sense to anyone else.

Any and all thoughts are welcome.

[Goldielocks]

There is a reason the investors "1%" rule (Capital x 1% = monthly rent) is the ideal ... 

Most usually base it on a 6% IRR... as they assume that real estate is less risky than full equities, and compare it to a blend of fixed income and equities.

Also,
You did not add in 5% of the rental cost for property management.  I definitely do this, even if I am assuming I do the work. I found that by "paying myself" an hourly wage, it made it more agreeable.  Anyway,  add in $70 per month for property management is needed (that's 24 hours PER YEAR of work, only).

[Stashasaurus]

Thanks Goldielocks, both of those are good catches. Updating the numbers makes it look even worse.  I would make the 0.7% Rule. Long term, I would like to get into the rental market, but this is obviously not a good first step.