I'm in a Hot Market with high prices where Cash Flowing properties are rare (Montreal, Canada)
Would you be willing to take a deal with negative cash flow for the first 5 years (2-5K $ per year) if it offers:
Appreciation potential
Equity accumulation ( Around 250K over 5 year)
And tax benefits + deduction (Around 60K / year between operating expenses, loan interest and depreciation) ?
Relying on appreciation only is just another form of gambling. It's like going to the casino and either betting black or red on roulette. Mind you there were a LOT of lucky gamblers, at least in the GTA over the past decade.
Rental Property Investor · Saint-Hubert, Québec · Member since 2017 · 70 posts · 44 votes
6y
To be honest, I wouldn't base my investment decisions on appreciation only. How big is the building? How much will you put down? Can you do some value add? Is the negative cashflow after management, repairs, capex, vacancy etc. ? Those are all questions you should ask yourself. Keep in mind you will also have to deal with the Régie du Logement, which is quite strict on rental increases.
From what I've heard, deals in Montreal are rare and if you manage to find one, you better be the fastest man on the planet to make an offer cause they go fast. Why not look outside Montreal? I think it would be a mistake to limit yourself to Montreal only, considering there are much cheaper properties to be had outside that region.
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
6y
Well, if you really want to be in Montreal then you may not have much choice. Don't know how taxes work in CDN on operating losses, but that may help you offset some operating income?
In general, if it's losing money from day one, I'd need a pretty compelling reason. Even if Montreal is a very nice place :)
I'm in a Hot Market with high prices where Cash Flowing properties are rare (Montreal, Canada)
Would you be willing to take a deal with negative cash flow for the first 5 years (2-5K $ per year) if it offers:
Appreciation potential
Equity accumulation ( Around 250K over 5 year)
And tax benefits + deduction (Around 60K / year between operating expenses, loan interest and depreciation) ?
Sounds like Toronto because the ratios just doesn't make sense. I personally would not do it for a single tenant rental. If you can create multiple streams of income with additional tenants whether its units, rooms etc then it might be worthwhile for the location..
In Toronto the rental market has been inflated for years but now has calm down and rates are declining.. thus adding more risk for an investor and in your case potentially higher debt with lower rental rates and even occupancy..
$250k equity in 5 years is one heck of a debt to have on one property with one tenant.. That's why multi family space is so crowded as you are diversifying your occupancy with multiple tenants..
Most of the investors who consider this route already have high paying jobs or business that can handle a catastrophe
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
No. Appreciation potential is gambling as far as I'm concerned. Equity paydown is also rather slow. Depreciation has recapture tax (at least in the US), so it's not always all it's cracked up to be.
I'm in a Hot Market with high prices where Cash Flowing properties are rare (Montreal, Canada)
Would you be willing to take a deal with negative cash flow for the first 5 years (2-5K $ per year) if it offers:
Appreciation potential
Equity accumulation ( Around 250K over 5 year)
And tax benefits + deduction (Around 60K / year between operating expenses, loan interest and depreciation) ?
Relying on appreciation only is just another form of gambling. It's like going to the casino and either betting black or red on roulette. Mind you there were a LOT of lucky gamblers, at least in the GTA over the past decade.
In a competitive market, forced appreciation seems to be what I should aim at after I find a deal.
I forgot to precise this but my comment was related to house hacking a Triplex
@Frederic Babeux the decision to start with montreal, at least for the start is because my girlfriend and I work here and we wanted to house hack as an initial investment.