Real Estate

How to chose best rental property

  • Last Updated:
  • Sep 9th, 2021 9:55 pm
Sr. Member
Oct 14, 2010
717 posts
799 upvotes
Toronto
jb10071 wrote: If I was investing 800k in real estate right now it wouldn’t be in Ontario.

But anyway OP it sounds like you want nice monthly cash flow but also want to retire in 15-20 years. My opinion is your strategy is flawed for real estate. If you want cashflow, buy in the US or Atlantic Canada. Otherwise if you’re dead set for Ontario then buy two houses in London or a similar location with growth potential. Wait 5 years, refinance, go buy two more. In 20 years you’ll have 8 properties and a viable retirement portfolio.

It doesn’t make sense to put a big down payment for a property. Rates are low and not rising, you’re leaving too much money on the table tying up all that capital.
Agree, the moment you stop or reduce leverage you are better off using that capital elsewhere.
Newbie
Jan 2, 2021
34 posts
24 upvotes
Good tips in this thread. I was going to take a HELOC against my primary residence to use as a 20% downpayment for a rental property in the kitchener area. Unfortunately since I also can't afford to be cash flow negative and factoring in the interest payment of the HELOC on top of other costs, that just doesn't seem possible with the property prices at the moment.

I have friends who are investing their HELOCs into dividend stocks so I may consider that instead.
Deal Addict
Mar 30, 2017
1214 posts
974 upvotes
GVA
really depends on which approach you want to do this.

style A is the negative cashflow appreciation route, you buy AAA property in GVA/GTA. Expect to be cashflow negative for years. Sell it for the big capital gain. The number of units are limited by the cashflow drain and your down payment fund. Supposedly you can only do this on 1 property as you are maxing out already.
Cons: you need to have reserve for 1) bad tenants not paying rent/damage, 2) income disruption if you lose your job, you need to plug the hole of negative cashflow, 3) costs surprise, a damn levy bill can be huge, or crazy insurance hike.
Pros: you can always sell it if you need cash...AAA properties should have a market even in a downturn market. Could potentially hit jackpot if you know how to pick AAA property. lots of owner along the development zone get their density upgrade for free and pocket millions from land assembly in GVA.

style B is the 'traditional' route, you buy properties with the best positive cashflow return, You can keep adding properties until you run out of down payment to buy. This doesnt mean capital gain is impossible...if you hold RE long enough, it will appreciate in price slowly, unless it really is in middle of no where of course. In this market, it is likely to be in smaller cities for positive cashflow.
Cons: not easy to sell, cashflow is positive because price is low, there is a reason for it. Usually if you need to sell, it could be in a undesirable time and you will get undesirable price. cheap buy-> sell cheap
Pros: worry free carry. tenants carry the properties itself. excellent if you cant spare cash, or in retirement, or whatever reason... cashflow is always welcomed. Positive cashflow helps you build down payment for next one faster. plus easier to qualify for mortgage as well with added cash flow. It will become easier and easier when you get like 4, 5 rental going on.
There is a landlord in Abbotsford, he built his rental portfolio over the last few decdades with rental cashflow... his rental cashflow is enough to buy 1-2 properties per year even at todays price.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
Newbie
Jan 2, 2021
34 posts
24 upvotes
seatiger wrote: really depends on which approach you want to do this.

style A is the negative cashflow appreciation route, you buy AAA property in GVA/GTA. Expect to be cashflow negative for years. Sell it for the big capital gain. The number of units are limited by the cashflow drain and your down payment fund. Supposedly you can only do this on 1 property as you are maxing out already.
Cons: you need to have reserve for 1) bad tenants not paying rent/damage, 2) income disruption if you lose your job, you need to plug the hole of negative cashflow, 3) costs surprise, a damn levy bill can be huge, or crazy insurance hike.
Pros: you can always sell it if you need cash...AAA properties should have a market even in a downturn market. Could potentially hit jackpot if you know how to pick AAA property. lots of owner along the development zone get their density upgrade for free and pocket millions from land assembly in GVA.

style B is the 'traditional' route, you buy properties with the best positive cashflow return, You can keep adding properties until you run out of down payment to buy. This doesnt mean capital gain is impossible...if you hold RE long enough, it will appreciate in price slowly, unless it really is in middle of no where of course. In this market, it is likely to be in smaller cities for positive cashflow.
Cons: not easy to sell, cashflow is positive because price is low, there is a reason for it. Usually if you need to sell, it could be in a undesirable time and you will get undesirable price. cheap buy-> sell cheap
Pros: worry free carry. tenants carry the properties itself. excellent if you cant spare cash, or in retirement, or whatever reason... cashflow is always welcomed. Positive cashflow helps you build down payment for next one faster. plus easier to qualify for mortgage as well with added cash flow. It will become easier and easier when you get like 4, 5 rental going on.
There is a landlord in Abbotsford, he built his rental portfolio over the last few decdades with rental cashflow... his rental cashflow is enough to buy 1-2 properties per year even at todays price.
Good post. Would it make sense for someone in the GTA/GVA areas to buy investment property in cheaper towns/provinces to go for style B? Without the landlord in close proximity to manage and maintain the property I would think that the higher property management/repair costs would cut most of the positive cashflow out of the situation in that case.
Member
Apr 6, 2019
219 posts
76 upvotes
GTA
andreagasparova wrote: we have good down payment - $350000
$425000 loan
30 year amortization
5 year variable at 1.45%
I would say, please educate yourself further about real estate investment. Your model is flawed from the start, you never dump that much down payment in real estate, that's not how you make money. Dirt cheap debt in real estate is what makes you the money.
Don't want to demotivate you or something, but just learn more. Real estate is a great way to create wealth. Just do some research on Google, this forum, bigger pockets, youtube Canadian real estate channel etc and you'll learn more and will be able to decide what's the best for you.
[OP]
Newbie
Aug 17, 2021
72 posts
34 upvotes
webester wrote: I would say, please educate yourself further about real estate investment. Your model is flawed from the start, you never dump that much down payment in real estate, that's not how you make money. Dirt cheap debt in real estate is what makes you the money.
Don't want to demotivate you or something, but just learn more. Real estate is a great way to create wealth. Just do some research on Google, this forum, bigger pockets, youtube Canadian real estate channel etc and you'll learn more and will be able to decide what's the best for you.
Thank you for the post... sure I want to learn...
Our down payment will come from equity we take from our existing house when we renew our mortgage. Our new mortgage payments will still be the same because we significantly lower our interest rates. Is that not good idea to take equity from our current house and use it as down payment?
What does it mean: "Dirt cheap debt in real estate is what makes you the money."
Member
Apr 6, 2019
219 posts
76 upvotes
GTA
andreagasparova wrote: Thank you for the post... sure I want to learn...
Our down payment will come from equity we take from our existing house when we renew our mortgage. Our new mortgage payments will still be the same because we significantly lower our interest rates. Is that not good idea to take equity from our current house and use it as down payment?
What does it mean: "Dirt cheap debt in real estate is what makes you the money."
Ok so you are refinancing your current home to buy the rental property? That's totally different then, and it's actually smart move. That's a zero down deal then but still with 350k in funds available you can buy 2 houses of 600kish each. 600k range would get you condos anywhere or you can also explore other areas like London, Windsor etc and get a duplex or detached with ADU, so you'll still be cash positive / neutral.
Also not sure if you know, the interest on money you refinance will be deducitble for tax purposes, you can google for Smith manouver to learn more on this.
While running the numbers on property , it seems like you are missing some stuff here and there , you can use some calculators available online like this https://www.calculator.net/rental-prope ... lator.html , run the numbers and see the possibilities.
[OP]
Newbie
Aug 17, 2021
72 posts
34 upvotes
webester wrote: Ok so you are refinancing your current home to buy the rental property? That's totally different then, and it's actually smart move. That's a zero down deal then but still with 350k in funds available you can buy 2 houses of 600kish each. 600k range would get you condos anywhere or you can also explore other areas like London, Windsor etc and get a duplex or detached with ADU, so you'll still be cash positive / neutral.
Also not sure if you know, the interest on money you refinance will be deducitble for tax purposes, you can google for Smith manouver to learn more on this.
While running the numbers on property , it seems like you are missing some stuff here and there , you can use some calculators available online like this https://www.calculator.net/rental-prope ... lator.html , run the numbers and see the possibilities.
Great. Thank you. Yes, we are exploring many options.
Thank you for the tip on tax deduction... we are already deducting mortgage interest, insurance, maintenance, utilities on our current house because we are renting basement and it makes big difference.
That calculator is very helpful because it has both profit from rental and appreciation value together in one. Thank you for the link.
But there are few items I do not know... for example Cost to Sell. I never sold the house... how much does it cost? Or Value Appreciation per year? Lets say the house I want to buy now was 460000 5 years ago and now it is 700000. How do I calculate Value appreciation. And how do I estimate appreciation into the future? Or is that just a guess?
Member
User avatar
Jan 24, 2010
324 posts
109 upvotes
Toronto
We bought a rental property (with a friend) for 1.16 M its a detached, 4 bed 2 car garage home. some repair works needed to the tune of 10K mostly plus 60K or bit more to build a two bed legal basement, over all can run about 1.1.25 M, rentals expected are 2,800+1500 = 4300.
Mortgage is 3200 + tax and insurance runs to another 700, so about 4000 a month.
But but over the years you seee the rents will go up.. 5 years from now, the cash flow will be better plus the appreciation will be better also. We also have to consider repairs and vacancy.
For few years we will be negative, even after average appreciation but detached home is a detached home.. will catch up over time..
our Down payment was 20% some came from a loan (we will work hard to pay that) and some from cash in hand...

over all, longer wait would be more beneficial..
Sr. Member
Nov 22, 2019
845 posts
631 upvotes
budwizestest wrote: Agree, the moment you stop or reduce leverage you are better off using that capital elsewhere.
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