All Forum Posts by: Paul Sverdlin

Hey Titus, investing in US broadens up the possibilities tremendously. I went into Ohio market 12 years ago, alongside with continuing to invest in Canada, and sure glad I did. 

Ping me if you want to have a more targetted conversation. Your post is so broad that almost any answer will address it. Seems like listening to bigger pockets podcast could be a good place for you to start. What exactly are you looking to figure out?

Hi Sharon, great answers already shared above and I am sure you will make a well-educated call on what to actually do. If I may just muse a bit to add a few considerations.

The house currently nets you about $2,850 (rent $5,300 - $1500 - $600 - $200 - maintenance of say $150). Plus your mortgage is getting paid down of say $500/mont for a total return of $3,350/month which is  $40,200/year. With a value of $1.5M it is bringing you a 2.7% return plus any appreciation.

What is missing for me is the price of a condo that you are renting. Since it rents for $2600 which is about a half of what you are renting the house for, lets assume the condo is $750,000.

If you sell your house and buy 2 condos, one for yourself and another as an investment, you are eliminating $2600 rent and be getting $2600 (minus expenses) in rental income from the second condo.

Appreciation, if it happens, will impact your house and your condos in roughly the same way over the long term. You aren't missing out on any appreciation after selling the house if you stay invested in real estate by buying 2 condos. However you will be living in your own condo and have just 1 more condo to manage rather than a duplex house. Way less hustle, potentially no property management fees required if you self-manage, etc. If you negotiate the selling and buying prices well, you may even be able to pay off some of that HELOC after all is done.

The downside is of course selling fees, settling all mortgages, hunting for condos, etc-etc-etc.

Could you please add a bit more info here? Its tough to follow the question. 

To anwer your question "how are people in Canada actually buying positively cashflowing properties were you can put "real" money into your pocket every month, starting from day 1?"

Answer 1. We don't. With mortgage rates high and prices also high there are no positively cashflowing deals from day 1. Case closed. Buy in the US is the easiest answer.

Answer 2. Having said that, let's go a bit deeper. Positive cashflow is achievable in Canada if you manage to find a realy good deal, which is very hard and takes plenty of creative networking, marketing, negotiation, etc. After you buy such a property it will likely be in a distressed condition. It may also require a conversion to a duplex, triplex or even 4-plex. This will take time and money to implement. You way also need creative financing or change in use (say rent by the room or rent it furnished or what not). It may also be in a different location that you live (northern ON, NB, AB, etc). 

Pick your answer from the two paragraphs above. Both answers are correct. Which one is right for you is your own choice.

https://www.ontariotaxsales.ca/category/gazette/

Great idea: let's review a student rental next to University of Toronto as an example. Those go for $1.5-$3 million. Let's see what $1.5M smaller place would look like. I am actually curious.

Canada does not allow 5% down on anything >$1M, it must be 10% down then (only $500k purchase qualifies for 5% down). Any mortgage has to have 20% down, otherwise the mortgage must be insured with our government agency at a cost of 4% of the mortgage amount (think of it as Freddie or Fannie). For the example sake lets imagine that 5% is allowed.

On a $1.5M purchase we are looking at $75k down (5%) and a loan of $1.425M which means 4% * $1,425,000 = $57,000 will be added to the mortgage balance as a mortgage insurance. Round it off to $1.5M total loan after all said and done. 

Mortgage payment alone on $1.5M is $9500/month. Taxes will be around $1000, insurance another $300. Say we are talking $11,000/month cost to carry without vacancies, maintenance, issues with tenants that may not pay rent (eviction takes 8 month easy around here). Of course the place is rented from day 1 with no empty time to find tenants. 

On revenue side I see a 3-bed basement in that area renting for $3600. That would leave us another $6k for upstairs which I also see up for rent in the area. Say we net out $9-10k. That's again, no maintenance, no vacancy, no bad tenants, not living in it yourself, all runs smoothly. 

In that case we are down $1-2k per month which we can recoup through mortgage paydown. Sounds like a zero-sum game bet on appreciation. Which is ok for some people and may not be ok for a student without savings who also needs to live somewhere else (we rented the whole house). Also keep in mind that we looked at $1.5M home while rentals that I found were likely in $2.2M range. Those houses are 100 years old. Likelihood of something going wring from capital expenditure perspective is huge. And that's a student rental with all its usual maintenance issues that we can think of. And he is self-managing this property spending his time. And tenants pays all utilities. I am almost writing it in a sarcastic tone since most of the assumptions above will go out the window in a real world in my experience.

Again, nothing necessarily wrong with the overall approach. However I wouldn't count this as an opportunity, and certainly not for a new student who has no experience, no cash and no credit.

Thoughts on the above?

Ryan, welcome to Canada. There is no such thing as 3.5% down. If someone puts less than 20% they have to insure their mortgage which is an additional cost. Our friend is from Toronto. A student house near university is $1.5-$3 million dollars. Are you suggesting he should risk this kind of money at these interest rates while still in school with no experience? 

As much as I love US investors, there are local realities that you are just not quite privy to... Happy to be proven wrong on this one. If this strategy works then perhaps I should be into it too and make some good returns. 

Hey Matt. Your question is so targetted that only an expert in ON, NB and AB markets can answer it, and even then it would only be their own experience. Hence it seems rather quiet in this thread.

As an ON investor for over a decade I can tell you that tenant nightmares could be real, and yet a lot depends on how you screen and treat those tenants. If you condense the question it seems to be a decision around total return vs. total risk. 

The biggest returns so far in Canada had been from appreciation, not so much from rents. Appreciation is great in Ontario and has been great lately in AB. While cashflow may be good in NB, I doubt it will match the value growth in our biggest growth markets.

The risk is in tenants not paying rent, and the pain in evicting them. That's where ON would be tougher than AB. However, this risk needs to be weighted against other risks of managing properties remotely since doing it from ON has its own issues (can't do even smallest of repairs on your own, can't check on the condition of the units, can't even show them to tenants in person to evaluate those tenants when you are first renting to them, etc). All of those remote management issues do add up and cost $$$ in long run.

Imagine a bad scenario: ON tenants stop paying, refuse to leave, it takes 10 months to evict them and they trash the place. Say rent was $3000/month. So you are out of pocket $30k + another $30k for renovations. While $60k is a lot, can you live with it if your property goes up in value by hundreds of thousands over the course of many years? Mind you, that's a very bad scenario. And it can also happen in AB or anywhere else in the world, although the likelihood may be a bit higher in ON. In 12 years that I managed my own rentals in ON there had been a few instances where I had to deal with problematic tenants and each time we resolved our issues without involving LTB. None cost me more than $5k. Meanwhile a coat of paint in-between tenants that I could have put on myself in my home market would easily cost me $5k in a remote market since I simply can't go there to paint the unit and have to hire a contractor instead. And that's every 3-4 years when tenants move out.

Hope this gives you some food for thought. Happy to connect if you need to discuss. 

Check out a couple of local meetup groups. Ask people about contacts for real estate agents, lawyers, appraisers, mortgage agents, inspectors, contractors, developers, etc. Go on volume as many of those people won't have the time or desire to meet with you. All it takes is a few who will be willing to have a chat, and some would. 

Then narrow your search to something that resonates (say you want to become an inspector). Figure out how to get into that area. Volunteer to do some work for actual inspectors, etc. It will eventually clck. Or so I hope :)

Agree with above comments. Talk to a couple of lawyers. Better to 3-4 than 1-2 since each may have a unique approach and may be aware of a risk that others won't know or mention. Only after you get all their perspectives will you actually be able to choose the best strategy.

Good luck!