I have a condo town house pre-construction and to be completed in late 2022, the price is 400K , based on 2000 rent and 25000 closing fees the cache flow will be -143 per month , now I know it is in negative , but my bet is more on price appreciation, also the hope of rent will go up in couple of years and it will turn to positive. Now I clearly know buying real estate with positive cache flow is the ideal situation, but that is not option for me in Ontario with <20% down payment .
I know nobody know future and all said here is opinion , but from your experience, knowing this realestate is in Kitchener Ontario , do you think it is good investment for buy and hold ?
I live in Kitchener and did very well with my primary residence, but I would not buy on speculation. My investment properties are 1 hour to 3 hours from Kitchener and doing very well.There are so many better places to buy in Ontario and you can cashflow right from the get go. I've kinda looked at condos over the years, but the condo fees always worry me. I would rather buy an older undervalued house and deal with the headaches of that. I only say that because I am a handy person so I don't get stressed about repairs. I get it, with new construction and condo fees you know your fixed costs, but I like knowing if I have to sell any of my places tomorrow I will not be going backwards. One last thing, I need my places to cash flow so I can put that money towards the next downpayment. I don't want my last investment property that I bought to be my last investment property. Hope that gives you some food for thought.
Kitchener is a great buy and hold:
If you hold onto real estate long enough - you should never lose on it. In my market of Kitchener - Waterloo, Ontario we have incredible growth over the years and it is expected to continue for some time due to the following:
1. Low-interest rates - allow for low monthly payments - keeps prices rising
2. Low supply of homes compared to demand - under 200 homes for sale right now in a market of over 500,000 people.
3. Transition of people out of Toronto to communities nearby. Kitchener and Waterloo is only 1-hour drive down the 401 from Toronto so we have a lot of people moving out of Toronto and into Kitchener Waterloo.
4. Desire for more space due to Covid-19. Many people are moving out of condos (again many from Toronto) and into homes with more space in our market. This drives detached home, semi-detached home and townhouse sales.
5. Predicted price appreciation for next year is double digits.
6. Increased costs of construction keep prices rising as well.
7. Kitchener Waterloo has a solid economic base including high-tech companies such as google which are driving more jobs and more influx of people that will need housing.
8. Our Cities have excellent services including 2 Hospitals, 2 Universities, and a number of colleges both private and public.
9. Growing infrastructure investments including the LRT (Light Rapid Transit)
10. Beautiful Family Spaces including large Parks, Sports Facilities, Community Centres, Chicopee Ski Hill, Bingemans Family Fun Centre and many more!
This is just to name a few from the top of my head!
Thank you for your reply. I was looking more to buy on pre-construction and sell when finished, for profit. I don't want to wait for mortgage pay down to make a profit or buy and hold in a negative position
There is two scenarios that make this a good investment in my opinion
1) You positive cashflow on the property. Based on the numbers you have right now that is not happening. The rent would have to increase significantly before completion date which is extremely unlikely.
2) You sell before/on completion for a profit.
Holding a property with negative cash flow and hoping to make your money off appreciation is not typically an optimal strategy. If you are exceptionally flush with cash and know %110 for certain that the play is a good one then it might make sense. Just to elaborate on that, lets say you know a big company is about to relocate their operations into the area or the city is going to improve some major infrastructure etc In other words some type of catalyst that will provide the appreciation. That could make an appreciation play feasible. Banking on the general markets appreciation doesn't typically make sense from an investment standpoint. Think about this.. if your negative cash flow property appreciates won't the positive cashflow properties appreciate also?
Assets make you money. Liabilities cost you money. I highly suggest you consider what @Cameron Swartzentruber said. A deal with negative cashflow, even a small amount, can really set a person back. Consider that -$150/mo vs +$400/mo is $6600/year difference. Thats 33k over 5 years.
This has nothing to do with the market itself. I am sure Kitchener is a great place to invest, but the property itself is not a sound investment based on the info you have presented.
You are trying to create a snowball of wealth. Red numbers melt the snowball :)