how to analyze rental properties in Montreal, Canada?

Question

Good morning,

My name is Paulo Ascurra and live in Montreal. I am very interested in rental properties. I have been following bigger pockets webinars for 2 months. When I try to analyze properties applying the four quadrant method, it does not work in Montreal because most of the time I have negative cash flow and the return on investment (cash on cash) is very low around 1-2% or negative. Rentals properties in Montreal are expensive; however, the rent that tenants pay is very low. An example: I found a very nice triplex very well situated close to the subway with minimum repairs to be done. The value of the property was $485,000 and the rent for each apartment was $640/month. I think I am missing some important points about how to do calculations in Montreal. I understand US property values are cheaper and the rents are higher (depending on the area... I know). Could you give me any suggestion how to approach rental real estate in Montreal?

Best regards,

Paulo Ascurra

Philippe S. · Answer

"The value of the property was $485,000 and the rent for each apartment was $640/month."

The thing in Montreal is that selling prices went up too quickly in the last 10 years, but the rents did not follow the same raise...  So the seller might have bought the property for $200000 then years ago, with $640/month rent, it might work for him.  But with the current selling price, it just doesn't cashflow unless you double the rents, which is not even possible due to our regulations.  Your only hope to make it work is to offer the amount that will make it work for you (let's say $250000) and hope the seller is desperate to sell and accepts.

It's how I see our market right now ;))

Roy N. · Answer

@Paulo Ascurra

What Mark failed to mention with his cut-n-paste greeting is that much of the content in those blogs is US-biased.  While the basic premises will be the same the details of investing in Canada, and even more-so, Québec, are different than in the U.S.A. - financing, regulation, taxation are all different here.

Thomas S. · Answer

Number are numbers. The results you are getting are correct and for that reason investing in the Montreal market does not work. You need to find a property where the numbers do work or as most investors do ...look else where to invest.

The investors buying in areas like yours most likely have way too much equity in those properties believing paying off, or down, a property increases cash flow. The opposite is actually true and every investor in Montreal is probably losing real money.

I would suggest to look east to New Brunswick or possibly out west if you can not find cash flow in Quebec outside Montreal. Try the Hull area across from Ottawa, plenty of government workers renting there.

Frederick S. · Answer

Thomas S.

Nothing is worse than QC. We can't even collect last month or security deposit.

We are the only province in Canada where a security deposit is illegal. Tenant rights are incredible here.

Best,

Paulo Ascurra · Answer

Thank you very much Greg for your comments and your suggestions. I will explore more the market outside Montreal

Lynne Jacob · Answer

Very much appreciate your summary, @Roy N.  Thanks for taking the time to share.

Roy N. · Answer

@Lynne Jacob

It really depends in which areas of the province you are operating and which clientele you are servicing.  Rents in Fredericton and areas of Moncton around the Université are reasonable strong.  Conversely, rents in most of Saint John (save some small pockets of Uptown) and au nord de la provence are considerably lower (and vacancy rates considerable higher).

The homestead break for owner-occupents is considerable, but property tax on residential rental property is not {quite} double that of owner occupied properties.  There was an effort a few years ago to have the provincial government address this.  Their response was a small tax reduction on the provincial portion of all commercial property instead of a significant reduction in residential rental property {despite owners of commercial property supporting the latter}.

The population of the Maritime provinces is about the same as that of Montréal, so naturally commodity and food prices are greater (the possible exception being seafood ;-)) as per unit transportation costs are higher.

In Fredericton we are split between student rentals and those for everyone else (mostly young professionals).  Property prices here are full and you need to hunt for acquisitions which make sense.  However, vacancy is low (<4% much the past decade, though up considerable in the past couple of years with over 400 new unit coming on-line)

After observing Saint John for a few years, we finally took the plunge in 2016.  We are focussed on a very specific area of Uptown and on acquisitions where we can force significant appreciation - the idea being we can purchase, retrofit, rent and refinance to extract most (or all) of our initial capital outlay.

The rental market in Saint John is very different from Fredericton - rents are lower; vacancy is much higher {there are many more old-n-tired units on the market}; tenants prefer to rent month-2-month; and, due to the older building stock, folks are accustomed to renting with utilities included.   We have a plan to enable us to operate in this environment ... we'll find out in the next 18-months whether we've got it dialled-in or not.

Lynne Jacob · Answer

Hi, @Roy N.  I see you're in NB.  I visit Montreal frequently, but live in Beau Bassin Est.  That said I originally come from Ontario.  I find the rents to be pretty low in NB, though.  In fact, comparing the cost of living in those 2 provinces, while food, fuel and taxes are considerably more expensive in NB than in Ontario, the rent paid and even cost of housing is what more or less balances it.

And that said, while housing is cheaper in NB I find rents are generally so much lower that one does well there, as well as in most places in Canada, if a property pays for itself.  And add to that the heavy municipal taxes at double for a non-primary residence.

Just curious as to your opinion / findings on how profitable residential rental properties are?

Roy N. · Answer

@Paulo Ascurra

It depend on your comfort level with investing remotely - some folks like to be able to reach out and touch their properties and whether you intend to go-it alone or find local partners where you invest.

While I still follow certain areas around MTL (I use to live in Saint-Jean-sur-Richelieu and on the island (st-denis) many, many, years ago), like much of Southern Ontario, it has been quite some time since I have come across a deal which be sufficient reward for dancing with Le Regie or the Landlord and Tenant Board.

Paulo Ascurra · Answer

Thanks for your answer Roy. Do you think that it would be better to invest outside Quebec?

how to analyze rental properties in Montreal, Canada?

Most Popular Reply