How to Recognize a Good Deal?

Question

I realize this question has been asked and answered many, many times.

However, I just want to know how to recognize a good deal, more specifically in my situation.

I am looking for my very first investment, my idea is to get a duplex, live in half and rent the other half. Pretty standard idea I think.

I am in Southern Ontario, and I'm looking to buy in the London area. I find all of the duplex's to be very pricey in the areas I would want to purchase in, compared to other areas, for the simple fact that they're around Universities and Colleges.

My question is, should I not jump right into student rental properties and maybe start with duplex's in a cheaper area? Are student rental properties generally something you have to work up to or am I just not recognizing a good deal when they're coming?

I realize my question is very broad, but I am completely green, and at this point I'm just looking to find some sort of answer as to why when I'm looking on MLS or Kijiji, that I honestly don't know what I'm looking at or looking for to pick out the good opportunities from the not so good ones.

I wish there were a better way to word my questions but any information would help tremendously, thank you ahead of time!

Bryan L. · Answer

@Devon Young - Take your time.  You can also lose money with Real Estate.  You don't want to go there.  You're better off to miss a few good deals than to get into a bad one.  Especially with multi-family housings.  Multies have additional risk in that they are harder to sell if you make that mistake and buy the wrong one.  The only people buying multies are other investors.  And if you make a mistake, you will either have to sell at a loss, or hope to find someone else who will make the same mistake.

Roy N. · Answer

@Devon Young

Housing prices are going to be higher ... Canadian real estate markets did not incur the reset those to our south did in 2008 (whether this is good or bad is a debatable issue).  In contrast, your borrowing costs are going to be lower, but taxes will be higher.

If you will be living in half and this is your first house, you would be eligible for the first time home buyer treatment with CMHC which translates into a 5% down payment.

If you are in the right area ... 3-5 blocks of the university, student rentals can be a very lucrative.   Analyse the property both with yourself paying market rent - to see how well it cash-flows as a pure rental (look for 8-12%) - and with just the rented half bringing in revenue - to see if it can carry most, or all, your operating costs.

If your immediate goal is to live for free while building equity and saving for more properties, have a look at triplexs or quadraplexes as well ... the smaller your non-producing portion of the property, the better chance you have of living free or even making a little positive cash flow.

Amanda Hensley · Answer

Another thing that helped me was to use J Scott's SFH Rental Analysis spreadsheet and run houses through it.  I lean on it heavily (seems to take the emotion out of it for me).  If you go to the Resources section and and click on "Fileplace" you can find it there.  It's like the 3rd or 4th file you can download.  It works really well for SFH but I'm also using it for 2-4 multi-family buildings and it works OK on those too.  It may not work as well for larger buildings...

Brie Schmidt · Answer

@Devon Young - I am not familiar with the Canadian market but from what others have told me it is hard to cash flow in Canada.

Not knowing your market - I would suggest setting up daily MLS alerts on everything in your "farm area" IMO the best way to spot a deal is to know your market.  Look at every listing online, go see as many properties as you can and over time you will get faster at determining what is a deal.  I did this when I was first starting out and when my first purchase came on the market I jumped on it and had it under contract in a few days.  It took be months and months of looking but now I can spot them quickly.