Author Topic: Is the 1% rule for Canada as well?  (Read 279 times)

canuckystan

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Is the 1% rule for Canada as well?
« on: February 13, 2018, 08:32:34 AM »
I ask because it seems near impossible to find an investment property that fits the 1% rule.  I'm in Alberta, best I can find so far is $210K purchase price renting for $1350.  Is there something unique about the USA or Canada that changes the 1% figure?

sammybiker

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Re: Is the 1% rule for Canada as well?
« Reply #1 on: February 13, 2018, 01:06:35 PM »
tl;dr  Yeah, those standard numbers are often impossible to find up there in Canada.

I'm a US investor but lived in BC for a few years and networked with local investors and even helped on a couple flips.  Their strategy was all about maximizing tax write-offs while hoping to break-even on cashflow and riding the appreciation curve.  Same value add rules we use in the US apply even more so - converting basements/attics to living spaces in order to increase gross income, etc.

I see the Canadian market much like the Australian market (I've also experienced first hand) where it really cannot be compared to the US standard rules (1%) of operation and one must really look at the local advantages that usually do not include cashflow until the property is unleveraged.

If you're looking for someone direct, I have a good friend in GTA who is making it happen as a landlord - his main focus is getting creative on value add.  I'd be happy to put you in touch so you can pick his brain.
« Last Edit: February 13, 2018, 01:10:03 PM by sammybiker »

Mr Mark

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Re: Is the 1% rule for Canada as well?
« Reply #2 on: February 14, 2018, 12:30:57 AM »
I ask because it seems near impossible to find an investment property that fits the 1% rule.  I'm in Alberta, best I can find so far is $210K purchase price renting for $1350.  Is there something unique about the USA or Canada that changes the 1% figure?

The '1%' rule is just a basic rule of thumb for instantly screening properties wrt comparable long term passive investment opportunities. IE
A $200k house, renting gross for the 1% of $2,000/mth, then assuming 50% of gross rental will be required for management fees, property tax, maintenance (short and long term items), and occasional vacancy periods. So that after all the expenses you are looking at ~6% annual 'net' return before tax.

This assumes paying cash for the property, and no appreciation. If the deal is less than that 1% rule, you would be better just putting the cash into VTSAX with better returns and a lot less hassle.

It seems very hard to get this outside the USA, where housing prices seem to have gone insane in many Western type countries over the past 20 years. EG Canada, UK, Australia, NZ, ...

Why? Due to a combo of low interest rates, not enough new building or already crowded urban areas restricting inventory, indirect government subsidy via capital gains being untaxed, and people essentially speculating on housing prices continuing to climb faster than inflation. Plus the old 'I don't trust the stock market, I prefer 'bricks and mortar' - it worked for my parents and it'll work for me"
And who can blame them - recent history is on their side! If you bought property 10 years ago in Vancouver, London, Sydney, Auckland, Seattle, ... you've made a damn good return so far.

A way around this bind is to simply do some detailed research, bust some shoe leather, and find distressed 'ugly' properties you can get under true market value. A bit of DIY improvements to put in sweat equity, some cheap financing, self management, and you can gain both some instant equity that makes up for the poor rents, plus use leverage to boost 'cash on cash' returns. Make sure the debt is at a longterm fixed rate and hope inflation comes to the rescue.

Or rent your own place and just buy REITs and VTSAX... ;-)
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Rich on Money

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Re: Is the 1% rule for Canada as well?
« Reply #3 on: February 16, 2018, 03:20:02 AM »
The 1% rule has a purpose.  It's to give you an idea how the property will cash flow as a rental.  It's just not going to happen in high cost of living (HCOL) markets.  It doesn't mean you change the rule, it just means houses are too expensive.   Too many rich people and foreigners are buying and bidding up the market.  If it was me, I just wouldn't try to invest in real estate there, but thats up to you.  I'm a simple real estate investor, I don't mess around with HCOL areas.

marty998

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Re: Is the 1% rule for Canada as well?
« Reply #4 on: February 16, 2018, 03:27:16 AM »
I ask because it seems near impossible to find an investment property that fits the 1% rule.  I'm in Alberta, best I can find so far is $210K purchase price renting for $1350.  Is there something unique about the USA or Canada that changes the 1% figure?

Scratches head thinking what broom closet I can buy for $210k.... >:)

rocketpj

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Re: Is the 1% rule for Canada as well?
« Reply #5 on: February 19, 2018, 05:25:10 PM »
1% for residential property around here (western BC) is a pipe dream. Half that would be a lucky, lucky find.

It is more possible for Commercial property. The rent to cost ratios are significantly better. I'm in the process of upgrading a 'distressed' property I found at just over the 1% mark ($650k purchase price, $6100/mo rent).  When I finish the upgrades it will rent for a total of about $13k).  Upgrades will total between $50-120k.  I'm budgeted for the higher number, but as I progress through the work the lower number is looking more accurate - at this point I'm thinking about $75k all in.

It took me a couple of years and a lot of looking to find the place, but they do exist.  I was able to get this one because most commercial property investors are looking for a very passive opportunity, and this one is very hands on for the duration of the upgrades.

Ironically, the commercial building includes 2 x 2 bedroom apartments which I could not have bought as individual units for less than the total purchase price of the building.

kmart

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Re: Is the 1% rule for Canada as well?
« Reply #6 on: February 19, 2018, 10:08:02 PM »
Is it hard to find? Kind of. Is it doable? Yes. If you are going to focus on major Canadian cities or even secondary Canadian cities you will have a tough time. I'm currently doing it (or very close to 1%) but you have to go more rural. It can be difficult for managing properties but I live in AB and invest in another province. Why? Because #1 the numbers make sense and #2 I have connections there that make that possible.

If I were you I would look at the places with a smaller population and do some research. We have targeted a few towns of even only a few thousand people that are close to a more major centre - and by that I mean less than 100k. Someone may say thats risky but is it if in our situation you have a high elderly population with super low supply of rentals? It all depends on the research.