Need second opinion: buying 2-unit house to live & rent

15 Replies

Hi all,

I'm preparing to buy my first property in GTA, Canada. I'd like to run these numbers by you to see if I'm fairly on track, or if I'm getting into a big mess. What do you think?

An example of a semi-detached house I'm looking at is $424,000 so monthly mortgage payments will be about $2000.

I've estimated annual expenses at $20,865.
3,790 Taxes
720 Insurance
1500 Hydro
120 Advertising
1500 Gas
500 Water & waste
12,735 Maintenance (at 3%)

I'll be getting more accurate numbers once I make an offer and start due diligence. But am I roughly ok with these?

That brings my total monthly bills to $3,645. I estimate I can live in the basement and rent out the top portion (2-3 bedroom) for $1,300 so I'll have to cover $2,345 myself.

Looking at the amortization table, I'm putting about $1,000 per month towards principal, averaged over the first 5 years. Since GTA is expected to continue growing strong and house prices are expected to increase, I can somewhat safely assume that when I sell, I'll get the same price I paid.

Currently I rent at $1,300. Assuming I put $1,000 a month on top of that towards a savings account (ie. paying off the principal) I'll be paying $2,300 every month... the same as my real expenses for owning the house.

I hope I explained it properly. I'd appreciate any feedback.


@Account Closed - Many people here on BP advocate the strategy of buying a duplex to live in one half and rent out the other. In my mind, that's a risky strategy, especially for someone who has never owned property before of any type and who has never been a landlord before. Multi-family properties can be much harder to sell than SF homes. Why does that matter? If you make a mistake with that purchase, or you discover that living next door to your tenants is not for you, or whatever reason. My suggestion for newbies is to buy a nice house to live in and learn what home-ownership is all about. Then, maybe for your second house (or maybe even your first) buy a fixer upper and get it at a great price. Get it fixed-up which adds some more instant equity on top of your bargain purchase price. Then take out a HELOC on your equity and use that HELOC to start investing. Just my 2-cents worth (if that).

The GTA huge market. I own a number of properties in this area. If you can provide the location I could comment on the value and offer specific feedback for you.

I would say at first glance your maintenance budget is very high at 12k a year. Unless the home has a large amount of deferred maintenance. Typically I use 5% of the gross income.

What mortgage numbers are you using?

20% down 3.25% interest rate 25 yr am
Is a payment of 1649 per month.
Are you looking at 5% down mortgage ?

You can always pm me for more info. I live in Newmarket and I'm very active all over the GTA.

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Hi Bryan L.

Right now I pay $1,300 every month I'll never see again so I don't want to pay more than that, unless I can count it towards the principal. House prices around here wouldn't allow for a mortgage less than this.

Hi Gary McGowan

I'm looking at Meadowvale in Mississauga. The mortgage is 3% interest with 5% down. I'm hoping to get a second property (rental only) later this year, so I need to save more down payment for that one.

My first 3 properties were each my home , I just kept them as I moved , all improvements were based on the premise that they would be rentals one day .

For me it has worked well , Now those properties are paid for and make the payments on the 3 that I purchased in the last year . The rents from those will be used to buy more .

hello everyone,

sorry for imposing on your post Tabatha, but I am new to real estate investment as well so I have just been skimming through some of the threads. I was wondering what is hydro? Is this something that u have to account for on every purchase. I'm still learning the lingo sry lol.

@Glenn Miller I think that hydro is Canadian speak for electricity. I only know this because a Canadian guy lived across the road from me once. I guess they get a lot of their electricity from hydroelectric generation. We do too in my area with TVA, but I've never heard anyone else call it hydro but a Canadian. Locals here will call it "lights" though.

Maintenance is 3-10% of yearly rent, not 3% of purchase price every year. Unless it's houseboat or something. :)

Hydro does refer to Electricity. We also refer to it as lights, electric, electricity and power. Most either use hydro or lights though.

I do wonder about the numbers you have stated. Water seems low to me but I do not know the GTA region. I live in a less expensive region and my numbers are higher than yours, except maintenance. Why do you have to wait to make an offer first before getting firmer numbers? Part of your assessment and valuation should be based on your potential cash flows(profit).

@Bryan L

Thanks alot. I was wondering lol. From me being on here the short time I have I quickly realized that my real estate vocab is definately lacking but I had never heard of hydro. Today is a good day...I learned something new.

@Josh Compton

For rental units, the maintenance is higher, but I've been told that for a primary residence the maintenance is more like 2-3% of purchase price. I will be renting out half the house, so I'm going with 3%, is that too low?

@Dale Plant

I guess I don't have to wait. I'm not sure where to get the information, but I can find out and check before making an offer. Good idea. I can probably estimate all the expenses more accurately by checking with the local authorities first.

@Account Closed

Too high. Way too high. Unless I am missing something like consistent avalanches in your area you won't spend a grand a month in expenses. That's a new furnace every 6 weeks.

My point was your math (3% of purchase price every year) is off

It should be about 8-10% of yearly rent (In your case around $1400, for the year, not monthly)

This expense column is for leaking sinks and such, 12k is far too conservative for a double. My guess is someone said 3% expenses, and you took it as it relates to purchase price and not how it most likely was intended, rent. I don't live there, but doubt the average home owner could absorb such a high cost every year. If it's in average shape budget 2K and you'll be safe and realistic.

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@Josh Compton

The person who said 2-3% definitely said it was 2-3% of the purchase price per year, because we were talking about personal homes, not rental units. Another person said that Gail Vaz-Oxlade (Canadian money writer / show host) says 3-5 % of the value of the home.

I'll only be renting out a portion of the (semi-detached) house and living in the basement, so it'll be partly rental-related expenses, but I have to maintain the whole house, even though it's not all rented out. So calculating maintenance based on income won't be right either.

Your monthly maintenance fees will not be more than 3-5% of your total income per year (if both units where rented out).

I'm not sure if Gail owns properties herself. It is very important you only listen to people who own and invest in real estate. I have owned over 25 properties in the GTA from SFH to 5-plex buildings and I have never spent that much in monthly maintenance. The only time I spend that much is when I decide to do major capital improvements.

The area you mentioned is a decent one. If you need me to pull some comp let me know. I used to work a Mississauga Rd and 407 for a few years.

Main floor 3 bedroom suite should rent for 1,350 to 1,450 per month plus utilities, This of course will factor on the finish of the unit.

As for buying a second property the lenders will require a min of 20% down. They may say you do not have enough equity on your primary residence and require more down on your second property.

@ Gary McGowan

I've decided not to buy a primary residence at this time, and to invest the extra $1k/month into rental properties. It's good to know the numbers you think are realistic for this area. I think I underestimated rent a little, but better to be low on income estimates, right?

For now, it's a bit too risky for us, as first time buyers, so we'll look for rental properties in other areas like Kitchener.

Thanks for chiming in. I'm new to the community and it's great to have experienced advice when weighing the pros and cons.