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

14 Replies

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?

I am interested to hear responses as well. I also live in Vancouver and condos outside of Vancouver (Coquitlam, New West, Surrey, etc) are the only ones I'm finding where cash flow would be even a little positive. I have yet to purchase a rental property myself because of this market but will keep watching in the coming months, especially with prices stabilizing a bit.

In terms of leveraging your primary residence, this is a valid strategy to use. I have a condo myself and would be using equity to help with purchasing a property. For me, as long as the numbers work and you're comfortable with the risk, it's a great way to get started.

What areas have you been looking at?

Hi there,

I'm a Realtor in Vancouver and looking for the same thing for myself personally.  The condo/townhouse market prices haven't really dropped yet and I'm finding that the good ones are still going in multiple offers and over asking.  Definitely not as many as before but cash flow is still really hard to find.  Right now we're looking near the Lougheed mall because there is another huge development going in there in the next few years and it's near transit.  I think it's the same developer that is developing at Brentwood Mall and that area has exploded. I also think you may find some cash flowing condos in New Westminster by the Quay. I know lots of renters there and they love it. It's also easy to get anywhere from New West so it would probably be easy to rent.

I don't know where you will still find cash flowing land but I've only been looking into condos and townhouses lately. Good luck and please let me know how it goes!

I think it's okay to leverage your equity if there's no worry about paying all your costs and you buy something in an area that's easy to rent (somewhere close to the sky train).  

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Thank you for all of your responses!

I like the idea of investing near lougheed or the quay as well. I will look into those areas as well. I have a budget of 350000-400000 so that limits me a little.

I also like the idea of kelowna, kamloops etc... But it will be a bit more work driving out there to resolve any property issues, but I may still be able to get into property there.

I have been looking mostly these past few months in Chilliwack as there are a lot of people moving out that far as prices have risen so much.  Currently, property management companies claim a near 0% vacancy rate there.

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?

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. 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

@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.

@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.

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?

@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.

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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. 

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?