Small Single family home deal advice..

10 Replies

Hello out there BP...

I have a deal here i was wondering if you guys could give me some feedback on it. I have run it through the calculator a few times but im still not certain. heres the info

Small 570sq ft single family home 2 bedrooms 1 full bathroom recently renovated new kitchen cupboards, flooring appliances, fresh paint, upgraded windows and siding, new shingles on the roof. it also has a completely fresh slate in the basement ready for any reno i want. single detached garage nice yard and close to town walking distance to everything. Its in the small town of Manning Alberta.. yes canada lol. I'm finding it hard comparing deals and what not with all the american info on the site but its still helpfull non the less.

its on the market for 87,000. taxes are 1000... im looking to buy and hold this place.. maybe even reno the basement hopefully make a bit of equity anyways. The place is for rent right now 750/month not including utitilies... the town is in need of rentals.. so i can basically guarantee it being easy to rent as the realtors in town say its been great.. they are also the local property managers.. haha small towns. i have 5% down.. so i also need to pay the canadian CMHC insurance of 2603 added onto my mortage. the house is so cute.. yes i know that sounds emotional and i know this is a numbers game.. but I think its a perfect little starter place. I also dont mind staying in the basement while im fixing it up!

ps this would be my first investment so i wanna start with somethin small!.. i have lots of time on my hands cuz i work a 2 weeks on/off schedule so it might be a fun basement project for the winter!

anyways thanks so much in advance for all the advice this website is the best!

Sounds like you may be getting too emotionally attached.  "Fun basement projects for the winter" are a good way to lose money.

By the numbers it's not a great rental property.   Don't be misled into thinking that owning real estate someone else lives in is a rewarding experience.  It's not.  Non producing rental property is a liability, and a giant headache.   I think a lot of people don't fully comprehend just how long 30 years is when financing a property..   That's longer than I've been on this earth lol....

If it's already been rehabbed except for the basement so I don't see much potential for a flip.  There's also the issue of being able to sell a non conforming property.  2/1 is deemed functionally obsolete by todays standards and isn't particularly easy to sell on the retail market.  You are basically limited to young couples and retirees.  There are buyers out there, but they are much harder to find.  

Originally posted by @Ed Lee:

By the numbers it's not a great rental property.   Don't be misled into thinking that owning real estate someone else lives in is a rewarding experience.  It's not.  Non producing rental property is a liability, and a giant headache.   I think a lot of people don't fully comprehend just how long 30 years is when financing a property..   That's longer than I've been on this earth lol....

If it's already been rehabbed except for the basement so I don't see much potential for a flip.  There's also the issue of being able to sell a non conforming property.  2/1 is deemed functionally obsolete by todays standards and isn't particularly easy to sell on the retail market.  You are basically limited to young couples and retirees.  There are buyers out there, but they are much harder to find.  

 I would probably continue searching unless you are located in one of those crazy markets where home prices are not burdened by reality.  i.e. coastal california where the cheapest homes available are 500K+

thanks so much for the advice! Maybe I'm just getting a little ahead of myself.. Jumping the gun a bit so to speak! 

Originally posted by @Danielle Gronnestad:

thanks so much for the advice! Maybe I'm just getting a little ahead of myself.. Jumping the gun a bit so to speak! 

One  more thing I forgot to add.  If you are currently renting and it's the most affordable home available I would probably go for it.  

@Danielle Gronnestad  

I responded to your other copy of this posting, so will not repeat those bits here.  However the responses above naturally follow from the questions I reflected back in my other response.

If you were to purchase this house for 87K, you could put a 10% downpayment (8700) with an insured mortgage.  This would add about 3500 in insurance premium to your mortgage balance (you may be able to pay the premium up-front rather than roll it into the mortgage)

With an insured mortgage, if you were to go with a 5-yr term variable rate product, you should be looking at an interest rate between 2.4 & 2.7%.  Rolling the insurance premiums into the mortgage and amortizing over 25 years, your mortgage payment would be just under $400/mth {though I would recommend paying bi-weekly}.

Let's look at the operating numbers:

Scheduled rent:                       $750/mth       $9000/yr

Vacancy allowance (10%):     $75/mth         $900/yr

Gross revenue:                        $675/mth       $8100/yr

Operating Expenses:

Property taxes:                        $100/mth         $1200/yr

Insurance:                               $90/mth         $1080/yr

Water & sewer:                         $93/mth          $1120/yr

Maintenance (10%):                  $68/mth          $810/yr

Property Management (10%):   $68/mth           $810/yr

       Total:                                 $419/mth          $5020/yr

NOI: $256/mth $3080/yr

Debt service:                              $372/mth        $4464/yr

CFBT:                                         ($116)/mth      ($1384)/yr

Yes some of my allowances may be conservative and I upped the property tax a little from what you mentioned in your post.   Even if you trim down my allowances, the best you might accomplish (on paper) is a break even ... but you would be setting yourself up for an expensive lesson.

Now, this house may work as "rent to own", but you would need to qualify a candidate who would like to own it; rent to them for $750/mth and sell them an option to purchase the house in X months/years at a price to be set now.     That said, I do not recommend a rent to own as your first.

It's literally impossible to find good cashflowing single family properties anywhere in Canada. But by my calcs, this property would cashflow approx. $100/mth. If you can put 20% down, can get a 30 year amortization, and current 5 yr rates are 2.99%, leaving you with a $300/mth payment. There's also no insurance premium. You say the rent is $750+ utilities, so need not include in your expenses. In addition, your insurance should only be $500-$600/year or $50/mth (but you should check with local insurance agent). Therefore, NOI = $389.

As a buy and hold, you want to make sure this property you are looking at would appreciate at least in line with inflation.  What are the demographics of this town and surrounding areas - is it near an oil sands project or other mine where will create rental demand?  I'm not an expert, but in my view, small towns with relatively no industry or large employment base do not typically experience any significant growth. Hence, they remain relatively flat in price.  So, some research on the long term plans for the town and surrounding areas would be warranted before making your decision.  

My 2 cents.  

It's important know that with investment properties up 4 units CMHC only alows up to 80% LTV.

http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC_Income_Property.pdf

Originally posted by @Gary McGowan:

It's important know that with investment properties up 4 units CMHC only alows up to 80% LTV.

http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC_Income_Property.pdf

 Gary,

Thank-you for posting the clarification.  I neglected to mention above that a 10% downpayment would require the OP to reside in the property.

Wow guys, thanks so much I definitely have a lot to think about... I'm not really thinking it's a good but anymore, just from what you have explained and I just don't wanna be tied down to this tiny little town! It does have a lot of rental demand but I don't think it's worth it.

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