Author Topic: Would you buy this?  (Read 2982 times)

Maya

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Would you buy this?
« on: September 10, 2016, 07:53:51 PM »
We are looking at buying a townhouse for approx $220 k. We'd pay cash because we recently relocated to my home town and are currently unemployed. We'd still have 11 months worth of living expenses and a healthy emergency fund and car saving fund. We would not touch our rrsp and only use our last home equity to buy this place.

Our plan would be live here for 1-2 years, save like mad and take a bit out to buy our forever home. Remaining equity would be used to purchase other investments and income porter it's.

Does the investment side of things make sense ?

220 k purchase price, with some minor cosmetic upgrades

Rental :1550

Costs: 300 condo fees,
150 taxes
Maintenance 70-100?

So let's say monthly cash flow of $1000 if it's paid off, annual cash flow for the first 5 years of $700-2000, if remortgaged to take 70% equity out.
« Last Edit: September 10, 2016, 10:11:06 PM by Maya »

waltworks

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Re: Would you buy this?
« Reply #1 on: September 10, 2016, 09:44:57 PM »
Crappy rental. If you only want to live there for a year or two, just rent until you can get the place you really want.

-W

Blindsquirrel

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Re: Would you buy this?
« Reply #2 on: September 11, 2016, 03:08:46 PM »
   I would not buy, does not meet 1% rule and in my case, I shoot for 2% if I had 220k in it, would want at least 3000 a month fully rented at a minimum.  I am in a LCOL area so our yields are better. Property in Canada is very richly valued at the moment.

retiringearly

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Re: Would you buy this?
« Reply #3 on: September 11, 2016, 03:15:53 PM »
I would not buy it for a rental.  It needs to rent for at least 1% monthly  of the purchase price to make sense.

SwordGuy

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Re: Would you buy this?
« Reply #4 on: September 11, 2016, 03:21:00 PM »
Crappy rental. If you only want to live there for a year or two, just rent until you can get the place you really want.

-W

+1.

By way of comparison, I buy and fix up houses in the $45-55k range and rent them out for $765 to $820.   

I would be making $3200 or more on the same investment, and I wouldn't have all my eggs in one basket either.

Rent, then buy.


Maya

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Re: Would you buy this?
« Reply #5 on: September 11, 2016, 08:16:40 PM »
I don't think there is anything in my city that would meet the 1% rule. I wonder what people use here in Canada to get into the rental market as an investor. It makes sense and that's what I would hope for, but prices just seem so much higher here. Still reflecting and trying not to be impulsive.

What would you look for as ROI on cash flow? Once we pulled out our cash, leaving 20% our ROI would be 7-9% depending on mortgage rate. And including the equity gains by paying down the mortgage. That on paper seems decent, but annually only grossing slightly more than 1 month rent is perhaps a bit too tight.

fishnfool

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Re: Would you buy this?
« Reply #6 on: September 11, 2016, 09:30:32 PM »
Condos are rarely good rental investments. Buying right now at the peak of the market might not make sense, especially in a HCOL area. Your money might be better invested somewhere else. I think you're under estimating your operating costs on this townhouse and just looking at cash flow. A SFH might be a better option long term if you can find one possibly providing a little sweat equity, fixer. HOA fee's suck!

waltworks

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Re: Would you buy this?
« Reply #7 on: September 11, 2016, 10:08:28 PM »
In some places, prices are too high for rental property investing to make sense. C'est la vie. Invest elsewhere or in some other type(s) of asset. I won't go into detail on the 1% rule here, but you can easily google it (or read some other threads here) and educate yourself. Long story short, there are a lot of things about rentals that will end up costing you money - vacancy, repairs, tenant problems/lawsuits/etc, management... on and on. So serious investors won't generally touch a SFH under 1%.

If the shoe factory in my town is awful and loses money, I invest in a different business, or a shoe factory somewhere else, right? I have never understood why people don't think this way about real estate.

-W

Le Poisson

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Re: Would you buy this?
« Reply #8 on: September 11, 2016, 10:32:18 PM »
For comparison, I am closing now on a property east of Toronto for $175k freehold. Taxes $2200. Rents will be around $2400/mo.

Units are 1x4bdrm, 1x2bdrm, 2car garage.

You need to keep hunting.

Maya

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Re: Would you buy this?
« Reply #9 on: September 12, 2016, 09:07:23 AM »
Thanks everyone! We had a rental a couple years back, but it was our condo that we kept when we moved up to the next house. It too would have failed according to the 1% rule, but we it did cash flow alright for us. We bought it for $178k and rented it for $1000-1100. Lucked out with market increases and sold it for $270. I really don't think we'll be finding market increases like that in the near future and the main reason I'm hesitating for this particular condo is it's closest to the cheapest in the area we're looking so most likely to continue to take a hit if the market continues to go down.

Reason I'm tempted, it's in a great walkable community and I think we could enjoy living there. Would love to be mortgage free while we are, but DH will want to move up as soon as we have good jobs.

bpleshek

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Re: Would you buy this?
« Reply #10 on: September 12, 2016, 01:38:48 PM »
I'd say no.  I'd want at least 2200/month in rent(1% value of property).  Since this place has a high condo fee, i'd probably want more like $2500/month.  The other thing to consider are the real estate fees.  You're going to pay 5% to a broker when you move again in 2 years to buy your real home.  I'd rent or look for your "forever" home now.

Brian

Maya

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Re: Would you buy this?
« Reply #11 on: September 12, 2016, 02:28:50 PM »
no, we would be keeping it to rent out if we bought it, but you all make very valid points, and are changing the way I'm making my calculations going forward.

ShoulderThingThatGoesUp

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Re: Would you buy this?
« Reply #12 on: September 13, 2016, 05:49:06 AM »
No. You are unemployed. Do not spend $220k on anything besides lifesaving medical treatments.

Maya

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Re: Would you buy this?
« Reply #13 on: September 21, 2016, 10:27:52 PM »
Update, I'm now employed, and hopefully DH will be soon.  Holding off on purchasing anything for the moment as my job is a contract so I don't think I'd qualify for a mortgage alone. Try to focus on the low cost of living with my family till we qualify. Definite savings when you don't have to pay much other than food and some utilities.

Dicey

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Re: Would you buy this?
« Reply #14 on: September 22, 2016, 01:13:21 AM »
Good plan.

Maya

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Re: Would you buy this?
« Reply #15 on: September 22, 2016, 06:05:36 PM »
And DH just got a job too. House hunting soon, but will be for us not rental for the moment