Vancouver BC, Cashflow in this market? Buying today crazy?

Question

Hi All,

I am living in the hot market of Vancouver, BC. I now have some equity in my home because of the crazy market and so I was looking to buy my first investment property. A few questions have come up....

1. Is it wise to leverage yourself into your first investment property?

2. If you are in a hot and possibly peaked market (Things have slowed right down after the introduction of the foreign investor 15% tax) are there any real good opportunities to get cash flow positive properties? Do you wait?

3. With home prices averaging 700-900k in my area, is a townhouse or condo a good second option? I wanted land, but if they are out of reach? So far have not found any that cash flow positive...

4. I could also partner for a multi family/duplex etc... (closer to cash flow positive, about even on a good find.) , but partnerships complicate things...

Any one else in a market like this with similar questions?

Ming Lim · Answer

@Mark P. I'm an investor in the GTA and we have a similar hot market. I mentioned in another thread, but investing in a hot market like Toronto, is possible, but requires more sophistication by the investor. Simple buy and rent opportunities left a long time ago. These days, you need to be willing to do conversions, single family to duplex / multiplex or renovations to up rents to make these properties cash flow. Even with the barrier which requires both knowledge, a team and capital to execute on, inventory is limited. With that in mind, let me try and answer some of your questions.

1) How leveraged? I think almost all real estate is leveraged if you're getting a mortgage.

2) A wise man once said, "It's not about timing the market, but time in the market." If you property cash flows, is in a good area, has appreciation potential, you'll be fine. RE is a long game - you need to think 10 years time.

3) Buying a cash flow negative property is okay if you only plan on owning one or two properties. If you ever plan on amassing a large portfolio, you simply can't scale if you're loosing more and more money the larger you grow.

4) True, my shared investments are certainly more complicated. Be clear on responsibility divisions and exit terms. 1/2 a deal is better than no deal IMO.

Cheers,

Ming

Dani Sung · Answer

I personally don't think 15% tax is deterring any of these wealthy foreign cash buyers from purchasing homes. I actually watch the Vancouver market pretty closely because I have a ton of friends living there and my extended family owned rental properties there. I would keep a close eye on the immigration policies which would influence prices much more than the 15% tax. Just my 2 cents.

Julie Toh · Answer

Hi Mark P,

I posted an article here a month ago from the Canadian Real Estate Magazine titled, Investment strategy for Canada's Wealthy.  The wealthy creates wealth by leveraging their assets be in real estate or something else.  Leverage the equity in your home to invest in your 2nd, 3rd...property.  My clients who have built significant equity in their principal residences,  qualify to refi up to 80% and use that funds as down payment for 1 or 2 properties. If you're interested, I can go into detail how to qualify for this using the rental income from the (new) property. You can PM me.

Mark P. · Answer

Thanks Dani that's great advice!

I found a property that is on smaller lot. It's a single family dwelling and the rent should cover all of my expenses. I think I will go for it since cash flow was my main priority. Any thoughts on getting larger homes on smaller lots? It seems like an easier way to get cashflow because of the larger rents you get with a larger home at a cheaper price because of the smaller lot, but with the larger home depreciating and the land having less upswing will it pay off?

One of my main focuses wasn't necessarily appreciation, but to stay in the game with good rents covering expenses plus, so it seems like a good trade off. Any thoughts?

Ming Lim · Answer

@Mark P.- Well, I've done it before. 2 properties I have were bought with down payments  which came from HELOCs. Fully leveraged is fine, but make sure that the property you're buying cashflow well enough to cover the servicing of all your debts.

It's okay if inventory is low - you're learning to look at deals through a lens others don't have. Money is made in real estate on the buy. It's hard to turn a crappy deal into something that works well.

Mark P. · Answer

Hi Ming,

I was going to use a home equity line of credit for the down payment. So fully leveraged? :)

I was ok with that idea if I was going to get a deal that cash flowed or broke even. I had found a duplex that did, made an offer, but was beat out. I haven't found anything else that works since...

Tanya,

Thanks for the info. That makes sense to me as well. I guess no one really knows, but if the numbers add up either way it works. Have you seen any good deals in the under 400k range. If there are then I don't have to partner. The partnership I had or have available for me is a silent partner who puts half the money down in cash so I don't have to use my loc and can qualify for more, but then I would be the managing partner doing the day to day and I would split the profit etc...

The other thought I had was... Since I have my home equity line of credit set up, I could wait with that financing ready so that if things do correct I would be ready to scoop up cheaper properties... Any thoughts?

Tanya Braun · Answer

@Mark P.

I would say that if you were in the market a few months ago then now is a great time to buy!  Less competition and a greater chance of negotiating a price.  I also think buyers and sellers alike aren't sure what will happen so if there isn't a huge amount of interest in a unit then you will be in a better position as the buyer if the seller has to sell.

When the HST tax came into effect several years ago there were a few months when there was a pause in the market and then when people realized it wasn't going to have much of an affect on price it picked right back up.  I'm not saying that will happen for sure in Vancouver but I don't see a huge long term drop in prices so if the deal works (and it's in a sound building) in this market then I would say go for it.  Waiting to see if it goes down seems risky to me but I've been in this market for the last 20 years. Rents are increasing rapidly and anything near transit is pretty easy to rent out these days.  Of course everything comes with risk.  We're looking for an investment in this market.

Let me know how it goes!  I'm starting to do more research into the New West and Lougheed Markets so I would love to swap any info with you.

Steve Haight · Answer

@Mark P.

First off welcome to B/P. I am here in Vancouver now from Las Vegas. I invest in U.S. properties and have investors here in Vancouver. Still great deals down south. B/P is a great place to network, I have met some great connections here. Lets stay in touch.

Linda Labbe · Answer

HI all

I live in North Bay Ontario where cash flowing Canadian properties are still possible...or I do a lot of work with Canadians in the us  mainly  in Ohio Michigan  and  Missouri . If any interest in theses look me up

Mark P. · Answer

Tanya,

As a realtor out there with clients and what you see out there making offers... Do you think waiting a few months to see if the market drops is a good idea?

Vancouver BC, Cashflow in this market? Buying today crazy?

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