Learning, Sharing, and Teaching > Real Estate and Landlording

Is the 1% rule for Canada as well?

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canuckystan:
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:
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.

Mr Mark:

--- Quote from: canuckystan 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?

--- End quote ---

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... ;-)

Rich on Money:
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:

--- Quote from: canuckystan 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?

--- End quote ---

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

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