Real Estate

Considering buying a Rental Property

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  • Feb 18th, 2021 8:34 pm
[OP]
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Mar 28, 2005
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Ontario / Quebec

Considering buying a Rental Property

I'm considering buying a rental property - most likely a 4-plex.

I'm trying on drawing on the expertise here to get a handle what makes sense financially and what to watch out for.

The idea is to put the minimum amount down, I assume that is 5% of the purchase price, an essentially apply the rent revenues to pay for the mortgage and expenses plus hopefully have something left over at the end of the year.
First property I looked at as an example was:
Purchase Price: $379500.-
Expenses: $26160.- (includes mortgage, utilities, property tax, insurance, but NO maintenance)
Gross Revenue: $33204.-

When I look at the numbers, this seems a poor investment.
I remember reading that the rental income a lender considers for mortgage approval is half ofthe actual maximum income - that would be $1383.50 per month whereas the mortgage calculation comes to $1516.- per month.Is that typically correct?
I can easily make up the difference from my own income, but I don't really want to do that.
There is also no annual maintenance cost included in expenses - what would be a reasonable amount for a 4-plex with 10 year old furnaces and 5 year old windows.
23 replies
Deal Addict
Nov 23, 2008
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what city are you in?

a 4plex for $379K ?
that means you should be in a pretty small city?
[OP]
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Mar 28, 2005
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Well, the rent is just under $700 for each 2 bedroom unit which I think is pretty low as well and it looks as if tenants don't even pay for their own utilities.

The city is small - it's Cornwall.
Financially this property doesn't make sense to me as an investment - I just used it as an example to get some idea what to look for in a rental and get some feedback from members here who own rental property.
Deal Addict
Nov 23, 2008
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There is somewhat of a difference between renting out a N- Plex vs condo versus house

small casual landlords just have condos and houses

It gets a bit more serious when you have a dedicated N-Plex. Suddenly you have guaranteed four customers that you need to answer to. And I would think some of the plumbing and HVAC systems maybe different from a regular house, as it is centralized for efficiency.
Deal Addict
Dec 6, 2006
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krs wrote: I'm considering buying a rental property - most likely a 4-plex.

I'm trying on drawing on the expertise here to get a handle what makes sense financially and what to watch out for.

The idea is to put the minimum amount down, I assume that is 5% of the purchase price, an essentially apply the rent revenues to pay for the mortgage and expenses plus hopefully have something left over at the end of the year.
First property I looked at as an example was:
Purchase Price: $379500.-
Expenses: $26160.- (includes mortgage, utilities, property tax, insurance, but NO maintenance)
Gross Revenue: $33204.-

When I look at the numbers, this seems a poor investment.
I remember reading that the rental income a lender considers for mortgage approval is half ofthe actual maximum income - that would be $1383.50 per month whereas the mortgage calculation comes to $1516.- per month.Is that typically correct?
I can easily make up the difference from my own income, but I don't really want to do that.
There is also no annual maintenance cost included in expenses - what would be a reasonable amount for a 4-plex with 10 year old furnaces and 5 year old windows.
The minimum down payment on a rental property is 20%.
Deal Fanatic
Feb 22, 2011
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Based on the purchase price, down and mortgage payment you are expecting to pay 3.25% interest on your mortgage?
Deal Expert
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Oct 26, 2003
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Winnipeg
krs wrote: Well, the rent is just under $700 for each 2 bedroom unit which I think is pretty low as well and it looks as if tenants don't even pay for their own utilities.

The city is small - it's Cornwall.
Financially this property doesn't make sense to me as an investment - I just used it as an example to get some idea what to look for in a rental and get some feedback from members here who own rental property.
not sure where that is but if it is in ontario/quebec you will be hard pressed to make any profit, their government allows tenant to keep their rent
Member
Jul 2, 2018
262 posts
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krs wrote: I'm considering buying a rental property - most likely a 4-plex.

I'm trying on drawing on the expertise here to get a handle what makes sense financially and what to watch out for.

The idea is to put the minimum amount down, I assume that is 5% of the purchase price, an essentially apply the rent revenues to pay for the mortgage and expenses plus hopefully have something left over at the end of the year.
First property I looked at as an example was:
Purchase Price: $379500.-
Expenses: $26160.- (includes mortgage, utilities, property tax, insurance, but NO maintenance)
Gross Revenue: $33204.-

When I look at the numbers, this seems a poor investment.
I remember reading that the rental income a lender considers for mortgage approval is half ofthe actual maximum income - that would be $1383.50 per month whereas the mortgage calculation comes to $1516.- per month.Is that typically correct?
I can easily make up the difference from my own income, but I don't really want to do that.
There is also no annual maintenance cost included in expenses - what would be a reasonable amount for a 4-plex with 10 year old furnaces and 5 year old windows.
At first glance it looks ok. Here are some questions to ask
How many bedrooms per unit?
What type of a roof is it? What type of a 4plex any pics?
What are the expenses (not including mortgage)?
What are the market rents?
Can you renovate each unit and increase the rents? Cost of reno? Potential Rent after the reno?
What can it appraise for after these renos?
Who are your tenants? Will current tenants leave?
You may need to include your personal income when this is the subject property, but when you go to purchase other properties and this is the non-subject property it may actually help you qualify.

Find a Realtor/Coach/Mentor that can walk you through this, you want to have the right strategy when you approach this and you want to make sure you don't limit your future growth.
Realtor + Investor
Jr. Member
Dec 12, 2011
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Toronto
Not every rental property will cash flow positive unless you put down a significant down payment. Many years ago it was possible, but very very difficult in 2021.
[OP]
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Mar 28, 2005
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webworm wrote: The minimum down payment on a rental property is 20%.
Thanks for pointing that out.
I'm just getting my toes wet on this idea.
Looking on line I came across this:
https://www.ratehub.ca/investment-property
Since the plan is to live in one of the units, the down payment required is then only 10% for a 3-4 unit or 5% for a duplex - is that still true?
[OP]
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Mar 28, 2005
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mazerbeaner wrote: Based on the purchase price, down and mortgage payment you are expecting to pay 3.25% interest on your mortgage?
I sure hope not.
When I get a bit closer on a specific unit, I will check on the RFD mortgage thread to see what's available
[OP]
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Mar 28, 2005
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clydelee2020 wrote: Not every rental property will cash flow positive unless you put down a significant down payment. Many years ago it was possible, but very very difficult in 2021.
The general idea is to buy something with a minimum down payment and then have the equivalent of half the rent cover the mortgage
So in the original example - $379K with rent of $2767 per month, the mortgage should not be more than $1383.but it is so I put that aside.
Second example - $270K with rent at $2300,half is $1150.- which would over the mortgage, well...depending on the rate.
At that point I would look at the other aspects some of which RealtorInvestor posted
Maybe my expectations are unrealistic

The other option is to buy a run down place and renovate it since we have the expertise in the family to do the renovation ourselves so costs would be reasonable.
Deal Fanatic
Jul 30, 2003
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Toronto
I think it will be beneficial to include - what is the goal of having the rental property? Passive income? Just investment? or something else?
You should be looking at different asset class to compare to make a better judgement.
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Aug 14, 2020
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Hamilton, ON
krs wrote: Thanks for pointing that out.
I'm just getting my toes wet on this idea.
Looking on line I came across this:
https://www.ratehub.ca/investment-property
Since the plan is to live in one of the units, the down payment required is then only 10% for a 3-4 unit or 5% for a duplex - is that still true?
This is true - if it cash flows. You mention that you think lenders count 50% of the rent as income. That could be right for a specific lender, but all lenders calculate this differently. Furthermore, that way of calculating the rent income is referred to as an "Addback". There is another type of calculation called an "Offset" where they offset a percentage of the rent against PITH (Principle, Interest Tax and Heat). Offset is more favourable to most borrowers. However, the more favourable the addback or offset calculation, the higher the interest potentially. A well versed Mortgage pro should be able to balance this for you. I can find you an 85% offset on subject and non-subject properties - and it may make sense for your investment plans at 3-4% - but you are likely to be able to do it at less than 2% if your income is enough to balance the equation. There are lots of options in between.

So, if the Debt Service ratios don't work at the lowest possible interest rate (based on your income) you can try one of 2 things: find a more favourable addback/offset and pay a little more interest OR increase your down payment to reduce the mortgage. Increasing your mortgage to 20% or more may also allow you to avoid paying for mortgage insurance (i.e. CMHC) fees.
_



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Kirby Reschny
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Feb 29, 2008
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If you’re in Ontario, good luck.

I’d I could show pics and tell you stories I’ve heard from a couple landlords that I talked to...yikes. One of them moved into a luxury building brand new and managed to destroy several things. The other was more of a friend and took advantage of the relationship. She left the place in so much disrepair the landlord got a bill for 10k to fix and she’s going to put it in the market.

You really have to be crazy to be a landlord in Intario. Tenants simply don’t care and they are pandered to by our government.

You want a 4plex? Be prepared. One jerk tenant could cost you the other 3.
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Aug 8, 2020
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JayLove06 wrote: If you’re in Ontario, good luck.

I’d I could show pics and tell you stories I’ve heard from a couple landlords that I talked to...yikes. One of them moved into a luxury building brand new and managed to destroy several things. The other was more of a friend and took advantage of the relationship. She left the place in so much disrepair the landlord got a bill for 10k to fix and she’s going to put it in the market.

You really have to be crazy to be a landlord in Intario. Tenants simply don’t care and they are pandered to by our government.

You want a 4plex? Be prepared. One jerk tenant could cost you the other 3.
Yep I see these posts on the landlord Facebook group everyday, Ontario is not the place for landlord, sure if you bought way back you can make some but now a pro tenant can't destroy you. LTB is one sided for tenants is what I've read.
[OP]
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Mar 28, 2005
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The idea about a 4-plex that if one unit is empty, only 1/4 or so of the inome is gone.
Anything bigger is classified as "commercial" which I didn't want.

I'm also thinking of having a relative live in one unit to keep an eye on the the others.
And a duplex or triplex are also options.

The bottom line plan is to see if we can use this to build up some long term equity for my son.
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thought you may find this video interesting - I love Mark Loeffler he is one of my fav people to watch. This property is in Cornwall and is a duplex. He shares all of the numbers

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JayLove06 wrote: If you’re in Ontario, good luck.

I’d I could show pics and tell you stories I’ve heard from a couple landlords that I talked to...yikes. One of them moved into a luxury building brand new and managed to destroy several things. The other was more of a friend and took advantage of the relationship. She left the place in so much disrepair the landlord got a bill for 10k to fix and she’s going to put it in the market.

You really have to be crazy to be a landlord in Intario. Tenants simply don’t care and they are pandered to by our government.

You want a 4plex? Be prepared. One jerk tenant could cost you the other 3.
I feel you are right in so many ways - I mean we pretty much have a government who comes on TV and says its okay to not pay your rent. People are taking advantage of this, and the government pretty much wants small landlords to provide affordable housing to people or free housing. It is absolutely ridiculous.
[OP]
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Mar 28, 2005
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atom2020 wrote: thought you may find this video interesting - I love Mark Loeffler he is one of my fav people to watch. This property is in Cornwall and is a duplex. He shares all of the numbers

Great video - thanks for posting.
Do you know if that analysis spreadsheet he is using is available on line or for download?

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