Real Estate

Ottawa and Surrounding Area Real Estate market discussion

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Deal Addict
Jul 7, 2007
1722 posts
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What does everything think of pre-con these days? Prices seem to be picking up. I see that Richcraft released some new 50' lot designs (available in the West, South, and East end) and the prices are mind-boggling. They are approaching 1 mil base without upgrades. Can't believe that people are going to be paying more than $1 mil to close on a pre-con house in Stittsville.
https://www.richcraft.com/homes/homeste ... mporaries/
Deal Guru
User avatar
Jun 28, 2003
12183 posts
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Ottawa
bhushh009 wrote: Do you mind sharing your calculation in detail? I ran quick numbers on 500k property with rent 2500 per month , included expenses like 8% management,5% maintenance, Insurance, property tax etc.
Cash flow is negative -$800 each month.. Am i missing something here?
I can't speak on behalf of jk but property management (PM) expense is very much a variable cost, not a fixed cost. Once you figure out how to screen tenants, you don't need to engage and pay a PM.

I acknowledge there are instances where PM will come in handy (you are too busy, don't have the skills/know-how or are frequently out of town)
Deal Addict
Nov 26, 2004
4462 posts
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Zero Hope wrote: What does everything think of pre-con these days? Prices seem to be picking up. I see that Richcraft released some new 50' lot designs (available in the West, South, and East end) and the prices are mind-boggling. They are approaching 1 mil base without upgrades. Can't believe that people are going to be paying more than $1 mil to close on a pre-con house in Stittsville.
https://www.richcraft.com/homes/homeste ... mporaries/
This is like playing the game of musical chair, its a fun game when one see their net worth on paper keep going up with each new release. But everyone knows this is not sustainable and growth at current rate will eventually stop, and they just hope that they are not left standing when the music stops.

That being said, based on the latest poll, if Trudeau plays it right, the music may keep playing for another 4 years.
https://www.cbc.ca/news/politics/grenie ... -1.5633289
And to be fair, I can't see how O'Toole or MacKay winning Quebec. So Trudeau has to defeat himself in the next election which he almost accomplished in the last one.
Deal Guru
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Jun 28, 2003
12183 posts
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Ottawa
letterip wrote: Are you guys considering Income Tax deduction of mortgage interest in your calculations?
I do claim the interest portion of my rental property mortgage when I do my income tax but I do not see how that is applicable to the monthly cash flow calculations?

If it does, I would love to hear more about it (formula etc)
Deal Addict
Jul 7, 2007
1722 posts
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freeman93 wrote: 2020 Bungalow in stittsville, 1500 square foot, not including the basemenet. Sold for $915K... I just don't understand this one. Maybe if someone else has more insight then I, but it's 19 Brigade ave. Sure its brand new, but I saw the finishes, just looks like any other brand new home selling across the street in Fernbank for $700K.
3 weeks later, this price doesn't seem crazy if you compare it to what Richcraft is charging in Westwood (Stittsville).

https://www.richcraft.com/home/birchstone/

800k base for a bungalow without a finished basement on a standard 50'x105' lot. 19 Bridadge was on a 65'x105' lot, had a finished basement, premium finishes. Its in line with what Richcraft is charging.
Member
Oct 21, 2007
478 posts
656 upvotes
jk9088 wrote: I agree before COVID-19 everything was selling, however now there seems to be quite a few houses that are sitting. Could be a good opportunity right now to pick up a dated house for under asking. Tbh I'm a bit tempted myself (even though I had planned to scale back a bit in real estate)...
Is that in the outer areas of Ottawa (Kanata, Orleans, etc)? In the core, I'm still seeing questionable semis in the 6-800k range selling $150k over asking... $70-80k over seems not bad. I would say in the central neighbourhoods, the sellers market is even more extreme than pre-COVID. That said, I have a friend who just bought a place only $10k over asking in Kanata.. and it does (at least visually) look like there are more listings starting to build in those areas, so perhaps it is starting to turn. It'll be interesting to see how things evolve as we get into the traditional "summer" months, or if the July 1st mortgage changes have any impact. Or whether Canada Day kicks off a 2nd COVID wave like memorial day seemed to in the US. So many questions...
Sr. Member
Jul 15, 2019
724 posts
588 upvotes
Zero Hope wrote: 3 weeks later, this price doesn't seem crazy if you compare it to what Richcraft is charging in Westwood (Stittsville).

https://www.richcraft.com/home/birchstone/

800k base for a bungalow without a finished basement on a standard 50'x105' lot. 19 Bridadge was on a 65'x105' lot, had a finished basement, premium finishes. Its in line with what Richcraft is charging.
Yea you are right, it doesn't seem as absurd anymore... I still find it mind boggling, but current market is bringing these prices forward. I must say, however, I walk by the lot every day for my walk... and it does not seem like a 105 foot long lot. Seems very short. 65 foot wide makes sense.
Deal Addict
May 23, 2017
1358 posts
1343 upvotes
bhushh009 wrote: Do you mind sharing your calculation in detail? I ran quick numbers on 500k property with rent 2500 per month , included expenses like 8% management,5% maintenance, Insurance, property tax etc.
Cash flow is negative -$800 each month.. Am i missing something here?
I do not pay 8% management (we manage all properties ourselves). Depends on the type of property of course but 5% maintenance is quite high IMO, that's $25k/year on a $500k property. I don't spend nearly that much. Maintenance is hard to estimate but I'd say 1% is probably closer, so $5k/year. Many of my properties are newer though so I've barely spent anything on maintenance--if you have an older property perhaps this will need to be higher. (Even my 60-year-old bungalow though has been fairly low maintenance.)

Here's a brief breakdown of my calculations: (assume $500k purchase price, 20% downpayment, 2.50% interest rate, 30-year amortization, tenants pay all utilities)
- $1580 mortgage
- $83 insurance ($1000/year, all of my actual properties are actually much lower than this)
- $300 property tax
- $420 maintenance
Total: $2383/month
canabiz wrote: I do claim the interest portion of my rental property mortgage when I do my income tax but I do not see how that is applicable to the monthly cash flow calculations?

If it does, I would love to hear more about it (formula etc)
I am curious as well...?
Deal Addict
May 23, 2017
1358 posts
1343 upvotes
Jay31 wrote: Is that in the outer areas of Ottawa (Kanata, Orleans, etc)? In the core, I'm still seeing questionable semis in the 6-800k range selling $150k over asking... $70-80k over seems not bad. I would say in the central neighbourhoods, the sellers market is even more extreme than pre-COVID. That said, I have a friend who just bought a place only $10k over asking in Kanata.. and it does (at least visually) look like there are more listings starting to build in those areas, so perhaps it is starting to turn. It'll be interesting to see how things evolve as we get into the traditional "summer" months, or if the July 1st mortgage changes have any impact. Or whether Canada Day kicks off a 2nd COVID wave like memorial day seemed to in the US. So many questions...
Yes, Kanata North...I haven't had time to track many areas anymore as life has been busy, so I've mostly just been observing properties near my principal residence (Kanata Lakes, sometimes I'll look at Arcadia and Morgan's Grant etc). So I definitely can't speak to the other areas of the city, just observing that in my neck of the woods many houses seem to be sitting rather than going way over asking like they used to before COVID-19. (Prices still high and not coming down though.)
canabiz wrote: Here is 1 in Riverside South that has been on the market for a while and is under $500K (asking)

https://www.realtor.ca/real-estate/2196 ... side-south

Like the one in Kanata discussed a few pages ago, I am not too crazy about the different colour schemes, the carpets upstairs and the dated look in the kitchen/bathrooms but it is in a solid location (with Riverside South picking up steam, as mentioned before) and is an end-unit with a finished basement and complete landscaping to boot.

I am guessing the typical rent for this part of town is very similar to Barrhaven e.g. $2,200/month for 3 bed-room town, utilities extra. That won't necessarily give you the cash flow you need, based on your rule of $500 for every $100K invested, assuming this goes under asking, although that is not too far off...
RSS still seems quite expensive! I saw a 3-bed town go for approx. $400k in Barrhaven recently, again rather dated finishes but that was a good deal IMO.
Last edited by jk9088 on Jul 2nd, 2020 4:25 pm, edited 1 time in total.
Member
User avatar
Jul 7, 2005
313 posts
101 upvotes
Ottawa
canabiz wrote: I do claim the interest portion of my rental property mortgage when I do my income tax but I do not see how that is applicable to the monthly cash flow calculations?

If it does, I would love to hear more about it (formula etc)
Sorry, was referring to overall return rather than monthly CF..
Deal Guru
User avatar
Jun 28, 2003
12183 posts
5651 upvotes
Ottawa
letterip wrote: Sorry, was referring to overall return rather than monthly CF..
Even for overall return, I still don't see how the interest portion of the rental mortgage will fit in. Can you please elaborate on this? Do you also include other rental expenses that we usually claim on our income tax as well (renovations, advertising, property management if applicable)?

As I mentioned to some of the folks who are new to real estate a few pages back, it is best to keep things simple and lay out everything on the table in black and white to get a good idea if an investment property is worth pursuing, before getting into complex formulae and calculations.
Jr. Member
Aug 15, 2007
160 posts
62 upvotes
jk9088 wrote: I do not pay 8% management (we manage all properties ourselves). Depends on the type of property of course but 5% maintenance is quite high IMO, that's $25k/year on a $500k property. I don't spend nearly that much. Maintenance is hard to estimate but I'd say 1% is probably closer, so $5k/year. Many of my properties are newer though so I've barely spent anything on maintenance--if you have an older property perhaps this will need to be higher. (Even my 60-year-old bungalow though has been fairly low maintenance.)

Here's a brief breakdown of my calculations: (assume $500k purchase price, 20% downpayment, 2.50% interest rate, 30-year amortization, tenants pay all utilities)
- $1580 mortgage
- $83 insurance ($1000/year, all of my actual properties are actually much lower than this)
- $300 property tax
- $420 maintenance
Total: $2383/month



I am curious as well...?
I think the previous poster meant 5% maintenance is per month on the rent, just like property management, not on the purchase price of the home. For a 500k home, let's say you charge $2500 / month in rent, the maintenance is approximately $125/ month or $1500 per year. I find this to pretty accurate for my properties.
I manage my own properties as well, but I still enter the 8% property management when calculating my cash flow because 1) my time is not free, there's opportunity cost to my time 2) in the even that I want to scale up or retire, 8% is what I have to pay for single family homes in Ottawa.

I'd also include vacancy cost in the cashflow calculation, so I usually assume 2% vacancy rate. Not sure if your maintenance cost include capital expenditure, if not it seems high unless lawn maintenance and snow removal are included.
Deal Addict
May 23, 2017
1358 posts
1343 upvotes
golfyfan wrote: I think the previous poster meant 5% maintenance is per month on the rent, just like property management, not on the purchase price of the home. For a 500k home, let's say you charge $2500 / month in rent, the maintenance is approximately $125/ month or $1500 per year. I find this to pretty accurate for my properties.
I manage my own properties as well, but I still enter the 8% property management when calculating my cash flow because 1) my time is not free, there's opportunity cost to my time 2) in the even that I want to scale up or retire, 8% is what I have to pay for single family homes in Ottawa.

I'd also include vacancy cost in the cashflow calculation, so I usually assume 2% vacancy rate. Not sure if your maintenance cost include capital expenditure, if not it seems high unless lawn maintenance and snow removal are included.
I assumed it was on property price as I believe usually that's what people refer to when they estimate a "%" maintenance, plus that's the only way I could arrive at anything close to a negative $800 monthly cashflow as per their calculations (OP please clarify?). 2% vacancy is fair, so definitely should add that on, I was doing a pretty basic calculation.

I ask my tenants to take care of all lawn maintenance and snow removal so that doesn't matter for me. I agree maintenance seems high, my actual expenses are far less but I believe a 1% of property price is a fairly typical rule of thumb and you do have to account for big expenses (so for example replacing a roof or furnace one year might eat up more than a year's worth of calculated maintenance cost all at once). Plus it's always good to allow for a larger margin in case things go wrong.

Anyways, it was just to demonstrate the rule of thumb. If you'd like to add the 8% management and 2% vacancy and lower the maintenance, the numbers still work out fairly well for my cashflow rule of thumb.
Jr. Member
Aug 15, 2007
160 posts
62 upvotes
agreed. For quick math on freeholds, I also do the 0.5% rule. If it's worth $500k I'll only consider it if I can rent it for $2500 / month or higher.
Sr. Member
Jan 29, 2020
526 posts
496 upvotes
canabiz wrote: I was only responding to a snippet from arbytor post. It is possible he made a typo and meant $3K in rent instead.

Even with $3K in rent, you can clearly see the landlord is barely staying afloat. I didn't even consider any potential vacancy and/or renos/fix and I understand all of this can be claimed as business expense.

The point that I am trying to make is it's not all peaches and cream being a landlord. There seems to be some serious misconceptions, among new and seasoned real estate investors, out there and all I can say is you have to crunch your own numbers to see if it makes sense, before pulling the trigger. You can't rely on rumours, innuendos, and opinions, no matter how well-intentioned they can be.
If you spend a couple of hours in Excel with the realtor.ca site open, it is hard to come to any other conclusion than housing is way overpriced. This is because we have a national policy of encouraging home ownership by people who are not creditworthy. I claim that people who can only come up with 5% downpayments are not really creditworthy because it's clear that they do not have the income/discipline to come up with a decent downpayment, which I think should be in the 20-30% range.

Your unrecoverable costs of home ownership look like this, every year:

1% - property tax
1% - maintenance
3.57% - opportunity cost of having your capital tied up when it could be in the stock market which returns more over long timescales

It means that the unrecoverable cost of owning a $500k townhouse is $27850.

It means that you have to achieve rent of $2320 just to break even. This does not take into account vacancies.

The best basis for pricing a house is the amount of rent you can receive for it. It's clear that the price to rent ratio is out of whack if you can't have positive cash flow.

Now, consider this from the renter's perspective. Any tenant you would want, who has a steady job and is of good character, can do this calculation too. It means that he will just buy the townhouse instead of paying you rent. It is super easy for anyone with a stable job to get a mortgage, he just has to be able to fog a mirror the way the government has rigged the market.

When I looked on kijiji, I came to the conclusion that it was not going to be easy to achieve a cash flow positive situation given the ads I saw.

The people who are buying these townhouses to rent out, are not really thinking clearly.
Sr. Member
May 6, 2012
863 posts
649 upvotes
KANATA
When I was starting RE investment, I was also fixating these numbers and that is why I didn't get new town homes in the burbs but duplex within greenbelt. But right after that, town homes started appreciation like crazy while I was knocking my head fixing the dated duplex and dealing with all kinds of tenants headaches. Guys, good investment is not just about numbers. And if it is, everyone can be rich.
Deal Addict
Nov 13, 2013
4527 posts
3687 upvotes
Ottawa
jk9088 wrote: I assumed it was on property price as I believe usually that's what people refer to when they estimate a "%" maintenance, plus that's the only way I could arrive at anything close to a negative $800 monthly cashflow as per their calculations (OP please clarify?). 2% vacancy is fair, so definitely should add that on, I was doing a pretty basic calculation.

I ask my tenants to take care of all lawn maintenance and snow removal so that doesn't matter for me. I agree maintenance seems high, my actual expenses are far less but I believe a 1% of property price is a fairly typical rule of thumb and you do have to account for big expenses (so for example replacing a roof or furnace one year might eat up more than a year's worth of calculated maintenance cost all at once). Plus it's always good to allow for a larger margin in case things go wrong.

Anyways, it was just to demonstrate the rule of thumb. If you'd like to add the 8% management and 2% vacancy and lower the maintenance, the numbers still work out fairly well for my cashflow rule of thumb.

1% is a pretty low estimate I tend towards 3-4% of the replacement cost. I say replacement cost not purchase price because I have properties where more than 50% of the purchase cost was land value so that shouldn't be a factor. In other words my $900k townhouse in New Edinburgh will have the same maintenance as your $550k townhouse in the suburbs and the $375k one in Smith Falls. People under-estimating maintenance and depreciation is why we think condo fees are so expensive because they charge you now for repairs that will need to be done in 20 years. A roof lasts 25 years. Hot Water tank 15 etc. In 30 years if you do nothing you will need to replace almost everything in the home. All this should be divided by each year to get a fair estimate for maintenance.

All that said as poster above says appreciation can happen above the numbers when people are buying their primary residence. So an inner city duplex is limited to it's investment value but a townhouse in a family neighborhood can vastly exceed it's rent return. In Vancouver you can rent condos for less than the condo fees, taxes and even today's super low 2% interest rate. No maintenance or other costs even considered. Rents can decouple from prices even in the long term.
Deal Addict
May 23, 2017
1358 posts
1343 upvotes
^ I think maintenance is really just one of those things that is extremely difficult to estimate using a rule of thumb for all properties because every property is so different. Even basing it on "replacement value", while good in theory I find is not necessarily accurate. For example, a brand new house with the most modern finishes would have a high replacement cost but low maintenance, while an old 100-year-old bungalow might have low replacement cost but require significant maintenance costs.

So really you have to have a good idea of what works for your case. 1% may sound low but IMO it's actually on the high side for a townhouse built in the last few years where literally everything is brand new. In fact, the maintenance costs should really be close to zero in the first few years, but I assume 1% as almost a "reserve fund" for costs 10-15 years down the road. If you plan to sell that townhouse within 10 years though, probably very little of that reserve fund will end up being used so maintenance is going to be pretty negligible.

Compare that with a 60-year-old bungalow, where lots of things are quite old...one I bought last year, I had to replace the roof, repair the interlock front walkway and replace 2 major appliances right off the bat. Retaining wall is starting to fall apart so that's going to be a big expense in the near future. Furnace is maybe 15 years old so again, another major expense to budget for. 1% is probably too low an estimate in this case, I'd say 2% of total price is fair which I think is close to your estimate of 3-4% of replacement cost. (Although in my case I kind of mentally rolled all those upfront "maintenance costs" into the price of buying the property since I knew they were things I was going to do right after buying; so I think it's still fair to assume 1% as many big-ticket items are taken care of now.)
Deal Expert
Feb 22, 2011
16520 posts
21867 upvotes
Toronto
Cashforlife wrote: If you spend a couple of hours in Excel with the realtor.ca site open, it is hard to come to any other conclusion than housing is way overpriced. This is because we have a national policy of encouraging home ownership by people who are not creditworthy. I claim that people who can only come up with 5% downpayments are not really creditworthy because it's clear that they do not have the income/discipline to come up with a decent downpayment, which I think should be in the 20-30% range.

Your unrecoverable costs of home ownership look like this, every year:

1% - property tax
1% - maintenance
3.57% - opportunity cost of having your capital tied up when it could be in the stock market which returns more over long timescales

It means that the unrecoverable cost of owning a $500k townhouse is $27850.

It means that you have to achieve rent of $2320 just to break even. This does not take into account vacancies.

The best basis for pricing a house is the amount of rent you can receive for it. It's clear that the price to rent ratio is out of whack if you can't have positive cash flow.

Now, consider this from the renter's perspective. Any tenant you would want, who has a steady job and is of good character, can do this calculation too. It means that he will just buy the townhouse instead of paying you rent. It is super easy for anyone with a stable job to get a mortgage, he just has to be able to fog a mirror the way the government has rigged the market.

When I looked on kijiji, I came to the conclusion that it was not going to be easy to achieve a cash flow positive situation given the ads I saw.

The people who are buying these townhouses to rent out, are not really thinking clearly.
I'm sorry but this calculation makes no sense. How are you calculating the opportunity cost on the total amount of the mortgage, it's not even your money it's money you borrowed backed by an asset. You would not have that money to invest elsewhere. You need to calculate it on your down payment only. The money you could have otherwise invested.

Also you are ignoring leverage and appreciation. Which makes even less sense because you are using opportunity cost which factors in appreciation elsewhere but ignores it on this investment?
Deal Addict
May 23, 2017
1358 posts
1343 upvotes
welcomelm wrote: When I was starting RE investment, I was also fixating these numbers and that is why I didn't get new town homes in the burbs but duplex within greenbelt. But right after that, town homes started appreciation like crazy while I was knocking my head fixing the dated duplex and dealing with all kinds of tenants headaches. Guys, good investment is not just about numbers. And if it is, everyone can be rich.
Houses within greenbelt have also done extremely well in the last two years though? Especially ones in good locations (e.g. near current or future LRT stop), the appreciation has been quite substantial as well. I agree though the ongoing maintenance of the older duplex certainly eclipses that of a brand new townhouse which makes it a more difficult investment.

But also, the cashflow calculations for suburban townhomes were pretty good before. Just 3 years ago you could pick them up in the low 300s (3-storey townhouse were selling in the 200s). That made for great cashflow and it made sense why they skyrocketed in popularity--they really were excellent value. Now of course prices are hitting the 500s but rent has only increased maybe 20%, so you're not going to find great cashflow. I can't see the suburban townhouses continue their crazy increases in the future (though they've definitely surprised me before).

Just pointing out that making RE investment decisions based on cashflow calculations in Ottawa did make a lot of sense before, and the numbers would have indeed led you to surburban townhouses before they took off. In the current market of course valuations are getting out of whack, so it is much harder to make sense of what's the best investment strategy...I do agree with your point though that "good investment is not just about numbers". We just have to look south to Toronto where many people made it rich buying up extremely cashflow-negative properties which nonetheless appreciated like crazy. Will that happen in Ottawa? I don't think to nearly that extent, but to a lesser degree, perhaps.

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