Northern Ontario Duplex - need help analyzing potential deal
Hi,
First-time poster here. I am looking for help analyzing a potential deal. I am currently a renter but have been wanting to purchase a duplex for a few years, but haven't seen any nice options come up in my area. If someone is familiar with the real estate in Northern Ontario, or just interested in providing some advice I would be grateful!
General details: All-brick building built in 1960s as a triplex, I believe, but is currently a duplex with 2-2 bedroom units and 3 bathrooms. Upper unit has 2 bedrooms, 1 bath, separate entrance, eat-in kitchen with some updates. May need windows in back of building, but newer windows in front. Main floor unit has 1 bedroom on main floor with kitchen, bathroom, dining room and living room. Dining room was formerly a bedroom. Dining room has exit to backyard deck and large backyard. Newer windows throughout and roof was done 10 yrs ago. Basement has a bedroom, large bathroom with laundry and rec-room. Garage located on site and 3 storage sheds. Main unit has been owner-occupied for 20 yrs or so and has been updated throughout and well-maintained. Owner was carpenter. Owners will do retrofit. My fiance and I would move in to the main unit for the first few years to see how we like being landlords instead of renters. We hope this would be a good investment down the road when we eventually move into a single family home.
Property type: Duplex
Asking price: $299,500
Square footage: 800 sq ft per floor (upper unit 800 sq ft of living space, main unit with basement, 1600 sq ft living space)
Current Income: Upper unit $950 incl utilities, going up to $965 incl. in October and renter intends to stay. I think the lower unit could rent for $1,200 to $1,300 conservatively. All rents would be incl. utilities as there is only one meter.
Expenses:
Property taxes: $3120
Utilities: $6,616 (includes all hydro, heat, furnace rental, water incl. water heater rental)
Heating: gas powered hot water boiler.
This is the nicest duplex I have seen in my area, and it's not currently listed on MLS which could make a cheaper deal possible if we don't use a realtor. My intention is to buy a duplex to live in (with a 5% downpayment) and then eventually move out leaving a cash flowing investment property. I find based on my analyses I never seem to get a good enough cash flow to make things worthwhile without buying way below asking price. I think that's a by-product of me being quite conservative, and prices being generally high in my area.
Any advice would be appreciated!
Thanks,
Dea
Most Popular Reply
Hi Dea,
A fellow Canadian! :)
Ran some rough numbers that I hope may help you out - I'm not very familiar with Northern Ontario (I'm a west coast guy myself) but hopefully this gives you some ideas of where to drill into more and see how it fits into your budget...
5% downpayment = 15K, 285K mortgage.
At 3% on a 25 year term, that's $1,352 a month on the mortgage (but I'm not including CMHC premiums and closing costs here...you should be able to secure a slightly better interest rate (say 2.8-ish on a 5 year term?) assuming your credit checks out and so on).
Add:
260$/month property taxes
551$/month utilities
Total monthly cost = $2,163
Total income = $2,215 /month (using 965 and the midpoint of 1250 for your estimated rent on the other unit). Despite you living in the unit, should still calculate "as if you were paying rent" in my opinion - since after all, you have to live somewhere, whether it's a unit you "pay yourself" for, or pay someone else for.
That leaves you with a slight surplus of 52$ /month.
What you also need to now account for however is:
- On-going maintenance costs not included (i.e paint, carpets, windows, whatever else that will arise during the ownership of the duplex)
- Vacancy allowance (if the tenant moves out and it takes a month or two to get a new tenant in, your surplus for the year vanishes).
- (Leaving this for other members to chime in on what else they'd recommend budgeting for that I may have missed...?)
Based on this:
1. Is it an attractive area? Low vacancy, good job market, etc.? (i.e can you expect appreciation on the unit? Positive cash flow wise, there's something (more than Toronto! :)) - but it's very low, so you'd want to try to get some appreciation as well?
2. Can your family income withstand any shocks (say, 2 months of vacancy, or, a new roof, interest rates rising to say 5%, or something similar). If you have the ability to (for sake of argument) keep 0.5% of the purchase price on hand as a contingency savings to feed you through any of those shocks, then why not, seems like a decent way to go. This is important; if you and your fiance have a good earnings stream of income, this can be a good bet to get you into the property market and own a home/be a landlord with a nice low downpayment.
Hope this helps!