Toronto, Ontario · Member since 2016 · 4 posts · 1 vote
Looking at a (FSBO) semi-detached duplex property, 4-floors, each unit has 2BR, 1BTH, WSHR/DRYR in both, all-inclusive, currently both are occupied ($1500 and $1400).
I would look to buy with roughly 5% down (save and invest the remainder of cash flow for repairs and emergency fund). I would live in the more expensive unit and update/repair.
Mortgage would be approximately $2200 and expenses could be another $1000, total $3200/month.
Is this feasible? A good idea? This is in a major city in Canada in a pretty hip/hot area. The neighbouring house sold for $480k last year and it is not divided into a duplex. Is posting the ad acceptable or more helpful here?
Also newbie to the forums, not the podcasts however.
RE in major cities up here is pretty different from what I have read on these forums ... hopefully there is some useful information.
If you are, in fact, looking at $2900 in revenue and $3200 in expenses per month, you would be loosing $300 ($3600/year) ... not really the direction you want your cash to be flowing.
If you are, in fact, looking at $2900 in revenue and $3200 in expenses per month, you would be loosing $300 ($3600/year) ... not really the direction you want your cash to be flowing.
If you are looking for a home, with the other half being a mortgage helper, then your goals are different. In that instance, if you end-up paying less than your current rent, you may be better off. {Note the stress on "may"}
Unless you plan to live in this location forever or already know you will sell it when you decide to move out, then you should make certain it works as a rental - or you can fix what is broken and make it work as a rental - before you buy it. Otherwise, when you move out for the nice house in Orléans in five years, you will be back to loosing money.
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
10y
I'm not convinced either way, but unlike some of the other folks here, I'd say that this isn't necessarily a definite no. I think that sure, you would rather get incredible cash flow on an investment, but let's take a couple of things into consideration:
1) This sounds like a place where the OP WANTS to live. If he lives in half, rents out the remaining space on his side for $750, and collects $1400, that just about covers the mortgage. That's pretty good if it's a great spot.
2) $1,000 is a LOT for expenses on an owner-occupied property. Typically, you won't pay for property management, minor repairs, and much of the maintenance while you live there. You can do that work yourself at a very low cost and very conveniently on the weekends and when you get home from work. Just save your pennies for the really big things like furnaces, roof replacements, and other big $5,000 - $10,000 + expenses. Much of the rest can be handled by the owner-occupant to get the ball rolling and save some cash.
3) It sounds like the OP thinks this is a favorable location. It might be no surprise if rents rise in a few years, allowing this property to cash flow. Obviously, you wouldn't buy a property as a true rental hoping for appreciation in the rental market, but in this case that may not be such a bad gamble.
The OP needs to buy this property in the hopes that it gives him at least a few of the following excellent options:
- To live in the property indefinitely at very low cost with tenants paying the mortgage
- To sell the property at a substantial gain after a year (think improving it while living there)
- To keep the property as a cash flowing rental after a year (improve it and/or hope for some market help)
I'm NOT saying to bank on the market going up to prop up this purchase decision. I AM saying that the OP could be doing a heck of a lot worse, though! This feels a lot like my first purchase, also in a hot market.
My numbers looked like this at the time of purchase:
$240,000 price point
Each side rented for $1,100
Mortgage was $1550
I live in half, rented out half to a roommate for $550 and collected $50 pet rent from the cats on the other side - totaled $1700. If you say that my expenses were "50% of the gross rent" then you'd be looking at $1,000 of expenses per month.
Not even a little bit close - my expenses are nowhere near $1,000 per month, since I do the work myself. I will continue to hustle until rents rise enough to make it an easy decision to hire property management.
Also - IF things hadn't worked out, I would have simply lived in the property for a longer time period, until I could stabilize it as a rental.
So it seems that no, this might not be the perfect house-hack. But, if it's in a great spot and brings a lot of favorables (including substantial positive cash flow in the form of mitigating the OP's mortgage/rent payment, it may be a very good overall buy.
The question, as always, though is - can you do better than this, or is this what the market is giving you?
Yes, we are looking at buying it as a home. The location is hip, safe, and very convenient (walking distance and biking distance to jobs). We are also in Canada where the taxes and expenses are a bit higher (in the major cities this definitely applies). As mentioned, our rent is about $1400 right now, plus we pay hydro, etc.
In Canada (US too?) we have a government program where if you don't put down 20% or more you pay an insurance fee (CMHC - 2-3%). Properties purchased solely for renting must have 20% down as well. So we would plan on putting down 5%, live in one and rent the other.
@Scott Trench 1) My partner would not be so cool about renting out our half. Good suggestion though. 2) The $1000 figure was from the previous owner (who pays for everything at the property ... amazing deal and dangerous, I know) giving ballpark figures of his previous costs (Per year: insurance $2k, taxes $4k, internet $1k, water $1k, gas $1.5k, hydro $2k (total $12k)). 3) Good points. We'd live in the upper unit and update the kitchen and add a bathroom. Thanks for the tips and comment.
This house is listed at $529k by the owner ... it is too high and does not show well. I think it will be tough to get him down as he's the owner and looking for as much cash as possible.
The premium for First Time Homebuyer mortgages (with a 5% downpayment) increased last year and is now 3.6%.
When you are negotiating on a property, don't worry about the owner ... that is her/his job ... but look out for your own interests. Make your offer where the numbers make sense.
Montreal, Québec · Member since 2016 · 133 posts · 19 votes
10y
Casey Mac make a firm and reasonable offer. If the owner's numbers are too high, let him sit on it and realize how long his property will remain on the market. There are 2 possibilities if the numbers are no good.. Either someone will buy it and have a negative cash flow or he will eventually reduce his asking price. Don't be the sucker in this type of situation. At the end of it all, the current owner is all about his money and you should all about your's too.
