All Forum Posts by: Stevo Sun

Quote from @Kylene Heykants:

Hi BP community,

I recently got an accepted offer on a SFH in Alberta, Canada that has two separately metered legal suites. I'm currently performing due diligence with the property and need some advice. The property has two tenants currently in place which makes me nervous as I personally didn't screen them. This will be my first time managing a residential property which I'm assuming will take a bit more work than my commercial properties (I currently own and manage 4 commercial bays in the city I reside in). Because of this I want to make sure these tenants meet my standards. One of the units has a lease in place until early 2024, and I'm unsure of the other lease as I have not received the leases yet. When choosing my own tenants I would like to confirm their income, run a credit check and speak to past landlords but unsure if I can do this when the tenants are already in place.

Both suites are currently below market value (~20%) and I would like to do some work on the suites (light renovation) when they are not occupied.

What strategies do you use to ensure the current tenants are up to your standards when purchasing a property? Can I still run a qualification process when the tenants are already in place? Is there something in the due diligence phase that is a MUST to review that I may miss?

Any advice would be greatly appreciated! Love the BP podcast, their books and courses but rarely post on the forum. 

Thank you everyone!

Kylene

 In Alberta, you have to finish out the fixed-term lease. The Residential Tenancy Act (RTA) is fairly straightforward, so probably a good thing to familiarize. Always some risk in inheriting tenants, but I would ask to see the ledger to see if the tenants have been paying. Assuming you already walked the properties you have an idea of the conditions. Regarding renovations, one thing to watch for is if the building is pre-1990. At least in Calgary, you have to test for asbestos for pre-1990s.

I'm in Calgary, and happy to connect! 🙂

Good Luck! 

Quote from @Theresa Harris:

In both BC and AB and guessing other provinces in Canada, the seller has a contract with their agent that states the total amount of commission to be paid upon the sale  of the home.  It is paid by the seller.  It also outlines how much of the commission goes to the listing agent and the buyer's agent. The ones I've seen have a slightly higher amount going to the listing agent as there are extra costs for that person associated with the sale of the home.

I've never seen a case where a buyer has a contact with their agent that requires them to pay any extra fees.

 In Canada, its typical seller pays realtor commissions. 

Quote from @Aditya Bhate:

Hey Everyone!
I am new to the forums. 

Wanted to know what all are the Hot markets in Canada for the following:

1) Hot Rental cashflows (High ROI) (1-4Units)

2) Hot Multifamily Rentals

3) Flipping/Rehab deals

4) Wholesaling 

5) AIRBNB Locations with least vacancy?

6) Worst Markets in Canada

Thanks for replying :)

Have a great day ahead !

#Canada #REI #BiggerPockets

 I think you have to do some leg work to find out and learn about each market. No one can tell you which market will work for what you need. A lot of factors can make and break any deal. Like people say, 'real estate isn't hard, but it is hard work.' If you are throwing one-liner questions out, you will not get great information. Different investors can have drastically different views of the same market or property, depending on their investment thesis and what each person is looking for.

Hi Mackenzie,

I think there is a good group of Canadian investors on BP that you can reach out to. I would be happy to help you look at deals, but I'm not an expert. Real estate is hyper-localized, so it would be hard to coach someone if they are not in the area you operate in. That said, there is a variety of Canadians on BP and in pretty much all the markets across Canada.

Good luck!

Quote from @Anthony Therrien-Bernard:

Quote from @Jonathan Riordan:

If you buy in areas with better appreciation, you will see greater future rent growth potential, less turnover, less property damage in between tenants, etc. All of these things lead to better future cash flow. While it may not cash flow in the first few years of purchase, you will have future cash flow and more equity in the property with better tenants and less headache. Real estate investing is a long play. Invest in more sought after areas that will appreciate at a more rapid pace with future cash flow potential. 

 Definitely not always the case, I can name you countless areas of Calgary where appreciation is very strong (re-development potentials, high land value) and you would be cashflow negative it would not be improving over time, and have a pretty bad tenant profile too. A lot of the areas with very high land value in ratio to building values are great for appreciation but often don't commend much higher rents (and in some cases lower rents) while requiring you to pay significantly more for the property. 

 I can confirm this 😄

Quote from @Suzanne Laird:

Quote from @Vincent A.:

@Suzanne Laird

I grew up in Vancouver/Lower Mainland and now have lived in Calgary for the past 7 years. This will all depend on your risk level/tolerance as well as future goals.

For me personally, I would not like to be in a negative cash flow off the bat and risk housing appreciation. Properties in Alberta (in Calgary specifically) I've noticed rents have gone significantly up so the cash flow can be there. My speculation, is that properties here will appreciate due to the fact that no one can invest in the west and are going to start moving East. (ie. Your situation)

@Vincent A. Hey Vincent, thanks for the response. I have a duplex in Saskatchewan, Prince Albert and it's been hard. It cashflows nicely but it barely appreciated in the last decade and the tenants have been rough. I'm looking at Saskatoon because I'm originally from Sask and now the areas. I have been looking in Edmonton as well but again its not an appreciative market but it cashflows. Do you think I'm better off looking in AB or SK rather than Chilliwack or Abbotsford? It would be negative cashflow but just until the rates go down.. might be able to risk it. Or get a condo instead of a detached house with more down payment. Just feels like a waste of my cash though. Anyway, thanks for the response. It's a hard decision to make!

I will toss my two cents in here. I'm in Calgary and the saying 'you get what you pay for' is true. You often find better cash flow/less appreciation in rougher neighborhoods and better appreciation/ no cash flow  in nicer neighbourhoods. 

Depending on your goal, you need to decide how much time and energy you have to manage the properties. The approach I will suggest is to look at your portfolio as a whole. 

For example, I have a few properties that cash flow but basically have no (or very low) appreciation. I've sunk a lot of capital (down payment, renovations,  etc) in them and it's unlikely I can get that back out at a reasonable cost. That has effectively slowed down the speed of my acquisition/growth. The property I just acquired has more potential for appreciation, but basically 0 chance of positive cash flow.

For me its about balancing the portfolio and having a bit of diversification. 

Quote from @Wendy Cheng:

Looking for some advice... I am purchasing my first rental property, a triplex. I would like to know if there is anyone doing depreciation on the rental property? I know that CCA deduction claimed will become taxable upon sale of the property. What should I consider in order to make the decision for my situation? like my current taxable income level, the future appreciation of the property...

Thanks in advance!

Wendy

 You should consider your current and future taxable income. Property appreciation will most likely be capital gain if you keep the property for an extended period. The recapture portion will be 'recapturing' the amount you deducted all the way back to the amount you purchased the property for (basically, think about it as the amount you deducted will be taxed at the sale, assuming you are selling for more than the purchase price). We don't have 1031 exchange in Canada, so the CCA deduction allows you to defer your tax until you sell the property, which would hit you all at once. 

No one can predict what the government will do with tax rates in the future, so it is very hard to plan the optimal solution. Personally, if my taxable income is over 100k (usually whatever that high bracket is) in the year, I deduct CCA to lower my taxable income. 

Quote from @Jason Ridout:

Quote from @Theresa Harris:

Quote from @Soumojit Sarkar:

Quote from @Theresa Harris:

Quote from @Soumojit Sarkar:

Quote from @Stevo Sun:

I think cash flow in major cities in Canada is hard to find. They are out there but usually in the 'not the best' neighborhoods. Real estate in Canada vs. the US is wildly different. Finding something cash-flowing as soon as you buy would be challenging in the locations you mentioned. You need to look for something you can handle while paying the mortgage and waiting for rent to appreciate. So eventually, your mortgage payment will be lower, and the rents will be higher, then you can cash flow. Hopefully, at the same time, your property has also appreciated a bunch!

 @Stevo Sun: But you cannot get rid of old tenants unless you move-in yourself or do significant renovations?

 It depends where you are and how they are renting.  In BC with annual leases, yes you can. You just don't renew their lease.  Month to month are a bit harder, but still possible. Other areas, eg AB, you give appropriate notice if they are month to month.

AFAIK, all annual leases become month-to-month automatically after the lease duration in BC (at least in the Greater Vancouver area). Please correct me if I am wrong.

 No they don't.  You can keep renewing them as annual leases or if you want, you can change to a month to month.  I keep leases because it is easier to end them at the end (if needed) than to end a month to month.  Note that if the tenant doesn't want to renew the lease as a fixed term and wants to do month to month only, apparently you have to do month to month (or not renew the lease).

 Unfortunately just because a lease is a fixed term (ie one year) doesn't mean you can terminate them at the end of the lease. You can say the lease ends on a specific date, but you need to give a legitimate reason to end the lease on that date such as you or a direct family member are moving into the unit. 

So even if a lease has an expiry date, you can not evict for any reason other than the typical reasons (Personal use of the property or extensive renovations) 

 That's so different from AB that it boggles my mind. I think we have like three types of leases Fixed, Periodic, and Fixed to Periodic. Fixed term is basically the contract is fulfilled at end of the term, and each party needs to renegotiate a new term or move on. Periodic is your month-to-month, week-to-week, etc. The Fixed to Periodic is basically at the end of the fixed term, the lease kicks over to a periodic lease (which is usually month-to-month). 

It sounds like in BC; you have a Fixed to Periodic situation by regulation with many rules on 'why' you can and cannot terminate. Seems like a lot of headaches and the risk of getting a bad tenant seems extremely high since you can't replace them at the end of the fixed term.

I'm not sure if your thinking matches up to how the debt is underwritten (I'm by no means a mortgage professional, so take everything I say here with a cup of salt. haha).

I assume you think that if your property value goes up and you have essentially created the equity to 'change' the LTV to 80% (i.e. made 20% of equity and the remaining balance is 80% of the property value). However, as far as I know, other factors go into primary residence mortgage underwriting. The big one is that banks treat your primary residence differently in terms of risk profile, their thought process is you need somewhere to live, and when times get hard, you will do w/e you can to protect the roof over your head. This results in a few things. 1) They will allow for 5% down (with insurance, of course). 2) They give you a lower rate than investment properties (because of the lower perceived risk, aka you don't want to go homeless).

So just creating equity and changing the LTV to 80% on paper doesn't necessarily change the fact the loan is underwritten as a primary residence loan.

With all that said, I have not heard of anyone getting their loan pulled because they moved out earlier than 1yr. Things happen, people get married, get new jobs in a different town, etc. So I think the banks are not looking to close down everyone's mortgage if their circumstances change and the house is rented out for some reason. For example, I purchased a home intending to downsize my parents after major renovations (complete gut job, probably 4-6 months). My dad hesitates to downsize, but my mom struggles to upkeep their current house. However, if my dad refuses to move after everything is done, then I will have to rent the place out while waiting for him to accept the fact that they need to downsize. We did pay 20% down for this property, but as a second home mortgage, we could have gone with a downpayment that's less than 20%. 

Lastly, I'm unsure what you are trying to do by moving out within a year. Assuming you still need a place to live and if you try to apply for another primary residence loan, I think that's where you will run into trouble. 

Best of luck out there!

Quote from @Anthony Therrien-Bernard:

Quote from @Louis Henry:

Quote from @Account Closed:

You can make any property cash flow with a big enough down-payment. When you do that, though, returns are typically miserable, and you'd be better served with a different investment vehicle. 

Is purchasing real estate with 100% cash a bad investment to you? I’m here to learn!

 It depends what your objectives are, however a 100% cash investment will produce more cashflow but have lower return on investment. For example if you purchase a $500k property and buy it cash and the property goes up 5% in one year (ignoring expenses and cashflow) you just made $25 000 or a 5% return. However if you bought that $500k property with 20% down and a $400k mortgage and that same property goes up 5% in value (again ignoring cashflow and expenses to keep it simple) you just make $25 000 as well, but because you only invested $100k your return is now 25%!!!!!! This is the power of leverage and this is why real estate tends to have higher returns than stocks or other investments because it is relatively safe and cheap to use leverage. Now can you have too much of a good thing? Absoulutely! Leverage is very powerful but you have to be careful to not become overleveraged.

 I think Anthony fails to mention that real estate is also one of the easiest ways to access leverage. It's very unlikely you can get up to 95% leverage on other investment vehicles. It is relatively straightforward to get a mortgage and is an accepted type of debt readily available to everyday people.