1% Rule in Canada - is it possible?

31 Replies

Hello Everyone,

Hope all is well with you.

Over the past year I have been reading books, watching real estate investment videos, and the 1% rule seems like a common target a lots of investors looking for. It is basically the gross rent should be at least 1% of the selling price.

It is definitely an awesome target to reach, and it definitely will generate great returns. However, I have been looking and looking in BC, Canada, especially in Kamloops, Kelowna and Prince George with No luck so far.

I talked to many local realtors in the areas and asked about the 1% rule, all of them said it is impossible in that market.

So...any suggestion and insights?

PS: I am looking to invest in BC this year, currently I live in Vancouver, with one condo investment. The unit has good potential for appreciation, but cash flow BAD lol

1% rule is very tough in Canada.  I invest in a London, Ontario which is one of the better markets and I’m looking at about 0.8%.  In 5-7 years I might be closer to 1% assuming decent YoY rent increases.

When I analyze properties I try and estimate all expenses, plus misc, and try and get to an average of $200/door (on a MFH).

@Robin L.

Firstly, the 1% thing you read about here on by is more of a yard-stick or "rule of thumb" at best ... and it really should be that revenue is 1% (or better) of the into service costs (purchase price plus make-ready costs).

On another note:  Going forward, please start a discussion *once* in the most appropriate forum rather than in multiple forms.   Having the same discussion in parallel only fragments the dialogue and makes the discussion more difficult to search in the future.

    

@Patrick Archer

Canada is a big place.

The 1% is typically achievable in USA but in Canada (medium / larger cities) tends to be more around 2% or so. (Keep in mind that most books and podcasts are from USA) 

Having said that, it isn’t impossible mainly if you find a deal in a small town. (BC is out of hand and the most attractive place right now is Kamloops) 

I tend to follow the Canadian REIN rule of thumb of ....

(Rent X 12) / Purchase price

The result needs to be > 7% otherwise is a “No Go” for me. (If passes this basic rule than I proceed with deeper Analysis)

Note: All our properties were purchased following this rule. 

Good luck 

Edison 


@Patrick Archer

Thanks for your insights Patrick! 0.8% is very good ratio too.

Recently I've been following an investor on YouTube. It seems he is doing very very well in London, Ontario.

https://www.youtube.com/channel/UCdRtqnqBSq4GY7DGiYICu5g

Hope that helps =)

@Roy N.

Thanks for the reminder Roy, yes I agree 1% is a rule of thumb, and I have been using this rule to filter massive listings.

For sure I will post once in the future=)

@Jacob G.

Yes I agree, small towns might be better. Right now I am starting to look further in BC. However with smaller towns there are smaller population...less rental demand I suppose?

Any suggestions?

@Thomas Lorini

Thanks for the insight, yes definitely student housing and Airbnb are good ways to boost cash flow. Currently I am considering to convert my condo investment to Airbnb, hopefully I can share some insights to you soon =)

@Edison Reis

Thanks for the insights Edision! Yes I totally agree smaller cities will have better ratios. I live in Vancouver area and now I have been shifting my focus to Kamloops, Kelowna area. I have been looking through listings and  have seen few duplexes with ratios between 6.5 - 7% ratio so far (very rough estimate).

Ps: I was an engineer too, and I am very happy to see your success. Good luck to you too=)

Robin

@Robin L. ! Awesome !  

There are some duplexes in Kelowna but my experience shows that they are from the 60’ or 70’ hence be careful to not get a money pit. I have a full time job that takes me on the road across Canada so I am not around to handle property issues that’s why I tend to buy newer ones as they tend to be “hands free” as far as maintenance 

I forgot to suggest Vernon and/or Lake Country (Winfield) areas. The prices are lower than Kelowna but the rents are basically the same.

Cheers

Edison

@Edison Reis thank you for introducing us to your REIN rule of thumb -- it's a great way for us to quickly & easily gauge a property. 

My wife & I are total newbies to RE investing & have been reading a lot & also watching tons of videos. We quickly learned that most of Bigger Pocket's content does not lend itself well to BC or pretty much any urban area in Canada (common REIN figures of 2.5%). We'll be exploring very small markets to see if we can make the numbers work.

You’re welcome @Arthur P.

BP is great but we (Canadians) need to intake the message and adapt to our reality. Often the content and message is accurate but the numbers / stats aren’t. 

As long we are aware there’s no harm.

Good luck in your REI endeavours and let me know if I can answer any further question you may have.

Cheers

Edison 

I think the bulk of the Canadians on BP are from Ontario Alberta and BC where the ratios are ridiculous. I would like to hear experiences in Prairies and the Maritime's  

Kelowna isn’t in the best part of the cycle right now, exercise caution.

I’m in SK and it is possible in Saskatoon. Not common, not easy, but possible in certain property types. Small towns would be more possible but with the higher risk higher reward should be expected.

Originally posted by @Account Closed :

Kelowna isn’t in the best part of the cycle right now, exercise caution.

I’m in SK and it is possible in Saskatoon. Not common, not easy, but possible in certain property types. Small towns would be more possible but with the higher risk higher reward should be expected.

 I expected that in Saskatoon. Doesn't have to be at or over 1% but close enough. Toronto is in like the 0.35-0.45% range.

@Hai Loc much of Saskatoon would be at .7% or so. Slightly under in many cases. Especially for mom n pop type folks who farm out management to one of the many absolutely useless companies that operate locally.

Extremely hard to achieve in Northern BC. I keep running numbers and searching for the deals and trying to make the deals happen. Most people will know what things will sell for so they arent usually so willing to deal

Originally posted by @Account Closed :

@Hai Loc much of Saskatoon would be at .7% or so. Slightly under in many cases. Especially for mom n pop type folks who farm out management to one of the many absolutely useless companies that operate locally.

Surprisingly that is still relatively low 

@Hai Loc it’s overbuilt. And WAY overbuilt in the condo market. It’ll be minimum 5 years before ANY appreciation happens in condos. I believe as a whole it’s at bottom currently but I also see a flat bottom. Expect 3 years @1% natural appreciation (essentially none) for most detached home areas. New development areas will be even flatter.

Originally posted by @Tom Lundberg :
Originally posted by @Theresa Harris:
Originally posted by @Tom Lundberg:

Are there any rules in Sask regarding rent rate hikes?

 It appears that the only rules are 60 days notice and you can only increase it once per year.

 Thanks, BC has some tricky ones.

BC does. I have 3 rentals there and you need to give 90 days notice for rent increases and see what the cap is for that year.