Canada Deal Analysis, Closing Costs and more tips for crunching numbers
Good Easter Evening BP,
I have been working on a Canadian Relevant Spreadsheet calculator based on J Scott's (Here) which can crunch all my numbers for me. Trying to get estimated %'s and rates and averages for everything so I get a ballpark, then it also allows me to go through and plug in the numbers I know to slowly fine tune it. Once completed, I will post it up on BP to share. But for now, I was hoping for some feedback on specific relevant numbers for Canada.
Obviously it varies by province and sometimes things aren't a percentage of the Purchase price or anything, they are just static fixed numbers.
This newer website looks interesting, a spin off of ratehub.ca
It lets you calculate rough (very rough) closing costs (Rough cost of lawyer and appraisal) and provides listings for Lawyers and appraisers in your area. Didn't find any in my tiny town in AB but I suspect that is because it is a newer website. Appears to be focused mainly on Ontario. Anyway, not a bad start.
My questions are about Fair Conservative Assumptions. I will include what I have and welcome people's feedback.
PLEASE NOTE: These are general numbers for Single Family Residences in a Buy, Hold, Rent situation which also shows possibilities for selling. These numbers have been obtained from a number of Canadian sources and are a guide only as they will obviously vary. If there is a range of prices, I would rather pick the highest number so it is a real conservative number at the end.
Purchasing Costs
When you know much you are going to bid/buy the house for. Then I say this is anything else that could be included on top of that:
- Home Inspection = $500
- CMHC Mortgage Insurance (if less than 20% down) = 1%-2.75%
- Adjustment Fees = $500
(This would be any utility or property taxes paid by previous owner past closing date. Also could be Interest adjustment)
- Legal fees = $1000
(Transfer of Title Documents, etc)
- Property Transfer Tax = 1% on first $200k, 2% on the rest
- Title Insurance = $300
(Can prevent you from having to get a survey done)
- Property Survey = $2000
(Mortgage provider may need this. Always check to see if Title insurance will do?)
- Property Insurance = $900
- Utility Fees = $50 per utility
(Transferring ownership, etc. can sometimes incur this charge)
- Property Appraisal = $500
- Estoppel Certificate = $100 optional check for condos/strata only
- GST = 5%
(Often included in price, only if it is BRAND New ie never lived in before)
- New Home Warranty = $2000
(Some provinces this is mandatory for a new build ie AB
Also obviously the biggest chunk of this is your Down Payment. So then you come up with a Total Cash Outlay Value which is:
Purch Costs + Down Payment + Rehab
Rehab, Improvements & Development
This is super variable and ambiguous and comes with experience I am sure. But for us newbs, does anybody have any tips for these costs? Some I have seen thrown around on BP:
- Basic Renovations (Cosmetic, small fixes) = $5-$10 / sq ft
- Moderate Renovations (Minor Structural, Rooms, etc) = $15-$20 / sq ft
- Major Renovations (Gutting, Extensions,Major Structural) = $25-$30
Seems good to have a rough idea. Obviously veterans know right away and its impossible to be so general. But an idea of how much helps so much. Any suggestions?
If there is a Percentage of After Repair Value that people use as an absolute maximum for Estimated Repair Costs, that would be helpful too?
Rental Revenue
People wax lyrical about all different % rules in the US which I understand are very different to Canada. I am looking for a range here and mostly like a minimum. eg in some areas of US, the old "Mthly Rental should be 2% of the Purchase Price" rings true. I was thinking more along the lines of a minimum of say 0.7% for it to be cashflowing OK?
Vacancy Rates are hard to predict in SFR. 1 month vacant out of 12 is 8.33% so I copied J Scott and used this for the first year. Allowing for more is awesome but I figure if you are worried about anything more than 3 months vacancy it might not be a good deal/area/economy/time to buy?
Rental Revenue I guess then is Annual Rental income - Loss due to vacancy.
Rental Expenses
(Taken mostly from J Scott's spreadsheet) (Expressed as Annual Cost)
- Property Tax = 2%
(This varies like crazy 0.5%-2.5% all over Canada but 2% is a conservative estimate)
- Insurance = 0.1% - 3% of Home Value. Usually around $1000
(Average across Canada is around $900 so Estimating $1000 is fair?)
- Maintenance and Repairs = About 1 month's rent
(I guess you could do this as about 1% of Purchase Price?)
- Utilities = Tenant Pays so essentially 0%
- Advertising = $150
(Advertising for Tenants Online, Making Posters, Associated Time Costs)
- Administration = $400
(I budgeted excessively here. This includes Accountant for Tax return, Office Supplies etc. Could be much more if you pay for software or have an assistant or whatnot?)
- Property Mgmt = up to 10% of Mthly Rent (0% if you do your own)
Cashflow
Net Operating Income (NOI) = Rental Revenue - Expenses
Mortgage Payment = What your payments add to in a year
Mortgage Interest = Mortgage interest you pay in Year 1
Cap Rate = NOI / Purchase Price (Should be Min 5%?)
Cashflow = NOI - Mortgage Payment - Mortgage Interest
Cash Outlay = Down Payment + Purchase Costs + Rehab
Cash on Cash Return on Investment (CCR) = Cashflow / Cash Outlay
This really only tells you Year 1 Data. People like to use the Cash on Cash Return too but it is the same. J Scott's Table (And mine) project over the life of your mortgage so you can see what your cashflow gets up to.
If it is predicted to cashflow negatively in the first say 2 years, do you guys pull pin? Or is there a minimum Cash on Cash people say for the first year? Or say by Year 5?
Reselling Property (I guess Flipping comes in here too?)
Investment = Cash Outlay + Mortgage Payments + Mortgage Interest + Expenses Over Time.
Sales Value (After Repair Value) = Fair Market Value of the house at the time when you want to sell it. Only after repairs are done. Use comparable market analysis (CMA or "comps") to look at how similar (sq ft, beds, baths, features, age, location) properties are listed and have sold for. OR Get an appraisal?
Closing Costs = Detailed Below
Minimum Income Desired = J Scott promotes outlining the minimum you want to take away when selling the property. Ideally this would be done when making your bid for the place, but here it is good to know too
Once you have these numbers, you can figure out what your minimum sell price could be then your list price, then what your profit could be:
Profit = Sales Value - Closing Costs - Investment
Please Note*: This does not account for any tax implications (except Capital Gains) which are obviously important. If anybody has info on big hits with tax or ways to help with that in Canada, please let us know?
Closing Costs
- Realtor Fees = 1% - 7%
(Any advice here is welcomed? I have seen 3.5% on the first $150k and 1.75% on the extra. I read you also pay Sales Tax on the commission?Must be a million ways to skin a cat)
- Appraisal = $500
(Usually Buyer will pay for Appraisal but if you want one obviously theres a cost?)
- Closed Mortgage Interest Fees = 3-12 months worth of interest? (Only if you have a "Closed" Mortgage and you sell before your term is up. Can sometimes transfer this over to a different mortgage)
- Mortgage Discharge Fees = Flat Fee if you sell before mortgage amortization
- Legal Fees = $500 - $1000
(Another one where you pay Sales Tax on the Total?)
- Utilities/Property Tax = Have to pay up until Deal Closes (ie Half months worth, etc)
- Capital Gain = Current FMV - Purchase FMV
(You have to add 50% of this number to your income for tax purposes UNLESS it was primary residence which most Rental SFR's are Not)
So This is a pretty extensive list, but I am hoping with some feedback from you folks, we can have some decent numbers which help newbs like me get a feel for what is going on when we look at a property?
I will be in touch once I have the Spreadsheet completed and will add any data you folks can come up with to it.
Thanks for your time. I hope everybody got some quality family time over the Long weekend.
Happy Easter!
Matt