Real Estate

Cash flow

  • Last Updated:
  • Aug 9th, 2021 7:51 pm
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[OP]
Member
Oct 6, 2017
393 posts
440 upvotes

Cash flow

Hey guys,
I'm a new landlord and wanted to see what you guys think of this cash flow. Is it good/ok/bad?

Property 1 (3 bed townhouse condo)
Purchase price: $300K
Down payment: 20%
Total monthly expense: $1500
Rent: $1700
Cash flow: $200

Property 2 (3 bed townhouse condo)
Purchase price: $360K
Down payment: 10%
Total monthly expense: $1900
Rent: $2000
Cash flow: $100

So I cash flow $300 from both properties.
24 replies
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
Not sure what city this is in?

In Toronto area it's unlikely to get positive cash-flows until 5 or 10 years after purchase. And I think it's true for most places in Canada as well.

These numbers look really good. You might be missing adjustment for vacancy and some expenses.
Last edited by buysellbuy on Aug 8th, 2021 10:17 pm, edited 2 times in total.
Member
Aug 19, 2013
432 posts
378 upvotes
Etobicoke
Have you calculate the maintenance costs in the expense? One plumbing issue will eat your 2 months cash flow easily, unless you know how to fix it. One appliance failure will eat your whole years cash flow. It's not that simple. In last July 2021 alone, I had to replace HWT (~$1400), basement fridge ($950) and a new toilet ($140) in my rental. So, my last year positive cash flow gone in one month.
Newbie
Jun 9, 2021
5 posts
5 upvotes
Your total carrying cost includes all utilities, insurance taxes and upkeep etc? What your potential rental pool look like?

Can you convert any part of house to make a seperate unit like the basement to increase income?

Your cash flow is not a large margin and a considerable repair; roof , hot water tank, etc would take years to break even.

If you feel you can make a decent gain on property value then that could offset the risk
[OP]
Member
Oct 6, 2017
393 posts
440 upvotes
Monthly cost includes mortgage, condo fee, taxes, insurance, water heater, and $75 for maintenance repairs.

I understand maintenance and repairs could vary depending on the issue but for now I'm including $75 just for math. Utilities are paid by the tenants. Condo fee covers all the exterior repairs and maintenance. HVAC in both units are relatively new ( about 3-4 years old). Appliances are about 5 years old.
Last edited by rfd911 on Aug 8th, 2021 10:29 pm, edited 2 times in total.
Deal Addict
Nov 9, 2013
4814 posts
5400 upvotes
Edmonton, AB
rfd911 wrote: Hey guys,
I'm a new landlord and wanted to see what you guys think of this cash flow. Is it good/ok/bad?

Property 1 (3 bed townhouse condo)
Purchase price: $300K
Down payment: 20%
Total monthly expense: $1500
Rent: $1700
Cash flow: $200

Property 2 (3 bed townhouse condo)
Purchase price: $360K
Down payment: 10%
Total monthly expense: $1900
Rent: $2000
Cash flow: $100

So I cash flow $300 from both properties.
How do you get a rental with 10% down payment (unless, you are going to live in it)?
Last edited by treva84 on Aug 8th, 2021 10:29 pm, edited 1 time in total.
Buy quality. Keep calm and go long
[OP]
Member
Oct 6, 2017
393 posts
440 upvotes
treva84 wrote: How do you get a rental with 10% down payment (unless, you are going to live in it)?
I lived in it and then turned into rental.
Deal Addict
Nov 9, 2013
4814 posts
5400 upvotes
Edmonton, AB
rfd911 wrote: I lived in it and then turned into rental.
Ah. Assuming the numbers reflect the true reality of the situation I’d say it’s pretty good.

Perhaps though to add a margin of safety factor in vacancy costs and cost of a property manager (just in case you need one down the line).
Buy quality. Keep calm and go long
Newbie
Jun 9, 2021
5 posts
5 upvotes
Personally I dont like such low margins.

You could lend out that money in second mortgages and make 700 to 900 month but you didnt say which area these are located in so increase of property value could offset the risk...

One bad tenant and you are taking a big loss in somewhere like ontario
[OP]
Member
Oct 6, 2017
393 posts
440 upvotes
OneAngryDwarf wrote: Personally I dont like such low margins.

You could lend out that money in second mortgages and make 700 to 900 month but you didnt say which area these are located in so increase of property value could offset the risk...

One bad tenant and you are taking a big loss in somewhere like ontario
Both properties are in Southwest Ontario. Both tenants are stable 'long term' but that can change anytime.

I'm also thinking of re-financing property #1 cashing out about $40K and investing that into dividend ETFs for an average 8% return. It will reduce my total cash flow to about $150 a month but then I will gain about $250 a month from the dividends plus having more cash on hand.
Deal Addict
Nov 9, 2013
4814 posts
5400 upvotes
Edmonton, AB
rfd911 wrote: Both properties are in Southwest Ontario. Both tenants are stable 'long term' but that can change anytime.

I'm also thinking of re-financing property #1 cashing out about $40K and investing that into dividend ETFs for an average 8% return. It will reduce my total cash flow to about $150 a month but then I will gain about $250 a month from the dividends plus having more cash on hand.
If you can get 80% LTV in stocks you can probably make more money than in RE over the long term, the issue is that leverage for RE is so easy, compared to stocks.

I personally would screen for stocks with yields greater than 2-3% who grow their div at least 7% per year (so, div yield + div growth = 10% or higher). They aren’t too difficult to find - all the big banks, pipelines, some telcos (Telus), some utilities, etc.

If you can take less yield (ie 1-2%) you can find some that grow their divs consistently at 20+%.

If you want to learn more check out this thread in the Investing Forum - one of the GOAT threads

investing-idea-dividend-growth-1587815/
Last edited by treva84 on Aug 8th, 2021 11:07 pm, edited 1 time in total.
Buy quality. Keep calm and go long
[OP]
Member
Oct 6, 2017
393 posts
440 upvotes
The equity build up (mortgage principal) from both properties is $1500 a month. Appreciation is another thing which can go both ways.
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
8% dividend is to good to be true in the long run. Most likely a part of that dividend will be Return of Capital.


rfd911 wrote: Both properties are in Southwest Ontario. Both tenants are stable 'long term' but that can change anytime.

I'm also thinking of re-financing property #1 cashing out about $40K and investing that into dividend ETFs for an average 8% return. It will reduce my total cash flow to about $150 a month but then I will gain about $250 a month from the dividends plus having more cash on hand.
Deal Addict
Nov 9, 2013
4814 posts
5400 upvotes
Edmonton, AB
buysellbuy wrote: 8% dividend is to good to be true in the long run. Most likely a part of that dividend will be Return of Capital.
No.

Many stocks were trading with 8+ % yields in the last 18 months that didn’t cut their dividends - Enbridge for example. You can buy it today with a nearly 7% yield and management is still committed to growing it. It’s a 100% eligible dividend (no ROC).
Last edited by treva84 on Aug 8th, 2021 11:11 pm, edited 2 times in total.
Buy quality. Keep calm and go long
[OP]
Member
Oct 6, 2017
393 posts
440 upvotes
treva84 wrote: If you can get 80% LTV in stocks you can probably make more money than in RE over the long term, the issue is that leverage for RE is so easy, compared to stocks.

I personally would screen for stocks with yields greater than 2-3% who grow their div at least 7% per year (so, div yield + div growth = 10% or higher). They aren’t too difficult to find - all the big banks, pipelines, some telcos (Telus), some utilities, etc.

If you can take less yield (ie 1-2%) you can find some that grow their divs consistently at 20+%.
BMO ETFs give average 7% yield plus some growth. There are some other income (EIT.UN) and split share funds (ENS, GDV, FTN etc) that pay 10-11% yield plus some modest growth.
Deal Addict
Nov 9, 2013
4814 posts
5400 upvotes
Edmonton, AB
rfd911 wrote: BMO ETFs give average 7% yield plus some growth. There are some other income (EIT.UN) and split share funds (ENS, GDV, FTN etc) that pay 10-11% yield plus some modest growth.
Just be mindful anything with a .UN pays a Return on Capital which is treated differently than dividends in unreg accounts. Also the split corps have their warts as well.
Buy quality. Keep calm and go long
Sr. Member
Dec 3, 2019
510 posts
464 upvotes
Ontario
I understand there are some extreme examples of companies paying 8% dividend yields. But very few companies make an 8% profit to pay that dividend.

Utility companies are in a unique position due to their monopoly. But if in fact their high dividend is back-up by high Net Income the regulator will step in and force lower rates.

On average companies payout in the 1-4% range long term depending on industry and that's what an ETF will average.

I think if you read historical financial statements for most companies the Net Income is never that high in the long run.
Deal Addict
User avatar
Jan 2, 2012
4403 posts
2577 upvotes
Toronto
rfd911 wrote: Hey guys,
I'm a new landlord and wanted to see what you guys think of this cash flow. Is it good/ok/bad?

Property 1 (3 bed townhouse condo)
Purchase price: $300K
Down payment: 20%
Total monthly expense: $1500
Rent: $1700
Cash flow: $200

Property 2 (3 bed townhouse condo)
Purchase price: $360K
Down payment: 10%
Total monthly expense: $1900
Rent: $2000
Cash flow: $100

So I cash flow $300 from both properties.
If you're looking to maximize your cash flow, assuming you also have a principal residence you can look at Cash Damming strategy. Basically using equity (via a re-advanceable HELOC) from principle residence to pay all rental expenses, and putting all rental income into your principle residence mortgage which in turn increases the HELOC availability. This converts your personal residence mortgage into a fully tax deductible HELOC, and frees up cash flow for rental expenses.
Deal Addict
May 12, 2014
3376 posts
3710 upvotes
Montreal
My understanding is that in Ontario you should always include utilities in the rent (because if the tenant stops paying you're on the hook anyway).

The advice is opposite for Quebec.
Member
Sep 23, 2011
437 posts
599 upvotes
Vaughan
FrancisBacon wrote: My understanding is that in Ontario you should always include utilities in the rent (because if the tenant stops paying you're on the hook anyway).

The advice is opposite for Quebec.
I'm not a landlord but if I were, would still try to set it separately otherwise they have no incentive to be mindful of usage. As a tenant, most places where it wasn't included in maintenance fees I was paying it separately.

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