Real Estate

Turning a profit as a landloard

  • Last Updated:
  • Aug 29th, 2019 1:04 am
Tags:
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto

Turning a profit as a landloard

At some stage in the new future, I'll have the option of funding an investment property (house) and I'm trying to decide if it's worth the outlay. I'm not interested in a discussion on where house prices are going, this would be a long-term investment in Toronto.

I'm struggling with two perceived barriers

1. People factor: How do you make money if you can't raise rents to keep them in line with the market or even inflation? (Whether that be for legal reasons or because you're fond of the tenants)

2. Maintenance costs: How do you make a decent return on investment if I need to bring in a tradesperson or contractor every time something needs fixing as I am not that way inclined.

Thoughts and advice appreciated.
18 replies
Banned
Aug 3, 2005
1235 posts
1168 upvotes
lestat83 wrote: At some stage in the new future, I'll have the option of funding an investment property (house) and I'm trying to decide if it's worth the outlay. I'm not interested in a discussion on where house prices are going, this would be a long-term investment in Toronto.

I'm struggling with two perceived barriers

1. People factor: How do you make money if you can't raise rents to keep them in line with the market or even inflation? (Whether that be for legal reasons or because you're fond of the tenants)

2. Maintenance costs: How do you make a decent return on investment if I need to bring in a tradesperson or contractor every time something needs fixing as I am not that way inclined.

Thoughts and advice appreciated.
1. You can raise rent every year. Read the rules...also, kicking existing tenants out and getting new ones is easy peasy. Sometimes "surprise" family comes to visit for a few months and you need use of the unit ;)

2. Learn to be a man and do most of it yourself.

If you are not willing to do that stuff, look elsewhere to invest your money.
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto
ekcivichb wrote: 1. You can raise rent every year. Read the rules...also, kicking existing tenants out and getting new ones is easy peasy. Sometimes "surprise" family comes to visit for a few months and you need use of the unit ;)

2. Learn to be a man and do most of it yourself.

If you are not willing to do that stuff, look elsewhere to invest your money.
All good points.

Unfortunately my "man card" may have been revoked, I'm unsure if I'll be able to ruthlessly kick tennants out or fix things around the house, which suggests I should look elsewhere for places to park my money.
Banned
Aug 3, 2005
1235 posts
1168 upvotes
lestat83 wrote: All good points.

Unfortunately my "man card" may have been revoked, I'm unsure if I'll be able to ruthlessly kick tennants out or fix things around the house, which suggests I should look elsewhere for places to park my money.
That was just me being a d**k :)

Of course some stuff you will need professionals to do, but depending on the year of the house and state its in, what sort of maintenance are you talking about? Like I assume you can cut grass, switch out any appliances, lights, general outdoor upkeep stuff etc....but when it comes to plumbing, roofs, HVAC etc, you will probably needs pros to do the job...so its done properly.

But some stuff should not give you issues for years though....
Deal Guru
User avatar
Mar 23, 2008
12436 posts
8943 upvotes
Edmonton
You'll need to crunch the numbers for yourself. You also need to define "make money" and "decent return". Keep in mind that out of your mortgage payments every month, part of it is interest (and tax deductible) and part of it is principal, which is paying off your mortgage leaving you with equity even if the property value doesn't go up.

You can increase your cash flow by putting down more money, but then your return on investment will go down. So you need to decide if a positive cash flow is more important to you than higher return on investment, or vice versa.

As far as your questions...

1) The government of Ontario has determined what your "inflation" costs are, which drives your maximum rent increase each year. You'd be foolish not to increase by the maximum allowed (IMHO), as there's no playing catch-up in following years. At least, not until you can reset by having a tenant replacement. So one of your options is to not rent in Ontario and go to someplace without rent controls, if this is important to you. Other jurisdictions also allow you, as the landlord, to decide not to renew the lease when it expires, which allows you much more control over your tenant situation.

2) As far as not doing your own maintenance, you can either buy a property that's new enough to not require much/any maintenance for the foreseeable future (appliances and HVAC under warranty), buy a condo (which you've already excluded), or get a property manager (which will eat into your profit). There's not really a magic solution.

One of your options (if you want to be more hands off) is to look into a REIT. Yeah, your profits may be lower. But so will your headaches.

C
Deal Addict
Feb 19, 2019
1240 posts
1748 upvotes
Stouffville ON
lestat83 wrote: At some stage in the new future, I'll have the option of funding an investment property (house) and I'm trying to decide if it's worth the outlay. I'm not interested in a discussion on where house prices are going, this would be a long-term investment in Toronto.

I'm struggling with two perceived barriers

1. People factor: How do you make money if you can't raise rents to keep them in line with the market or even inflation? (Whether that be for legal reasons or because you're fond of the tenants)

2. Maintenance costs: How do you make a decent return on investment if I need to bring in a tradesperson or contractor every time something needs fixing as I am not that way inclined.

Thoughts and advice appreciated.
Turning a profit should not be difficult, being cash flow positive if putting minimum donwpayment will be very difficult.

In general terms the quality of the tenants will differ depending on the location, a good building downtown will attract professionals, while a basement apartment will be the opposite.


You can limit the maintenance by purchasing a condo.

If you decide to buy a house:
- Consider a property that is within a convenient commute for you, 15 minutes drive to address the small issue will be much easier than 2 hours drive from one end of the city to another.
- If possible buy a property which has two units to rent, main and the basement.
- Consider property which is somewhat run down, if you buy one in a very good shape the tenants will make it will get to a run down stage over time.
- You can learn to do many repairs yourself, youtube etc is great for it, you can acquire tools that will make number of the tasks easier.
- Before making offer on the property make sure the basement is legal, driveway wide enough to accommodate tenants from basement and main floor if possible, has laundry for each unit, if these are not in place inquire with the town that the improvements can be made.
Full Time and Full Service Realtor
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto
ekcivichb wrote: That was just me being a d**k :)

Of course some stuff you will need professionals to do, but depending on the year of the house and state its in, what sort of maintenance are you talking about? Like I assume you can cut grass, switch out any appliances, lights, general outdoor upkeep stuff etc....but when it comes to plumbing, roofs, HVAC etc, you will probably needs pros to do the job...so its done properly.

But some stuff should not give you issues for years though....
All good.

I was mainly referring to things that a handyman would be able to do (replacing faucets, power points, reticulation etc). I think about what I spend on getting tradesmen out a year and realize it's a fair chunk of cash going out the door on one house.
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto
CNeufeld wrote: You'll need to crunch the numbers for yourself. You also need to define "make money" and "decent return". Keep in mind that out of your mortgage payments every month, part of it is interest (and tax deductible) and part of it is principal, which is paying off your mortgage leaving you with equity even if the property value doesn't go up.
I've given this a bit of thought actually, from a cashflow perspective something above 3% per year (after tax) would be a nice starting point. I'm not as interested in capital appreciation as the properties will likely be passed onto the next generation.
Deal Guru
User avatar
Mar 23, 2008
12436 posts
8943 upvotes
Edmonton
lestat83 wrote: All good.

I was mainly referring to things that a handyman would be able to do (replacing faucets, power points, reticulation etc). I think about what I spend on getting tradesmen out a year and realize it's a fair chunk of cash going out the door on one house.
How much do you spend for a "handyman" to do those things in your personal house over the past 5 years? Why would you expect it to be significantly more for a rental unit?

I must confess to having no idea what a "power point" or "reticulation" is, however... I can say that faucets are a once every 5 or 10 year thing in my experience, so the cost is insignificant.

C
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto
CNeufeld wrote: How much do you spend for a "handyman" to do those things in your personal house over the past 5 years? Why would you expect it to be significantly more for a rental unit?

I must confess to having no idea what a "power point" or "reticulation" is, however... I can say that faucets are a once every 5 or 10 year thing in my experience, so the cost is insignificant.

C
Buying an old house in Toronto a few years ago has seen us replace the roof, HVAC and require call-out's for numerous spot fixes, which has consumed every bit of the $500 a month "cost to maintain" I budgeted when we bought. I'd assume $500 a month on the rental property as well.
Deal Guru
User avatar
Mar 23, 2008
12436 posts
8943 upvotes
Edmonton
lestat83 wrote: Buying an old house in Toronto a few years ago has seen us replace the roof, HVAC and require call-out's for numerous spot fixes, which has consumed every bit of the $500 a month "cost to maintain" I budgeted when we bought. I'd assume $500 a month on the rental property as well.
Buying an "old house" when you want to be a hands-off landlord would be ludicrous, IMHO. You want to buy something turnkey and maintenance free. Otherwise you're not likely to be making any kind of positive cash flow because, as you've noted, you'll be spending a ton of money on maintenance.

Your other option is to become a slum-lord, I guess... Buy a run-down property, leave it run down, ignore tenant complaints as much as possible, etc. Not my idea of a good time. But I guess plenty of people make money off that approach.

C
[OP]
Member
Jul 21, 2013
289 posts
180 upvotes
Toronto
CNeufeld wrote: Buying an "old house" when you want to be a hands-off landlord would be ludicrous, IMHO. You want to buy something turnkey and maintenance free. Otherwise you're not likely to be making any kind of positive cash flow because, as you've noted, you'll be spending a ton of money on maintenance.

Your other option is to become a slum-lord, I guess... Buy a run-down property, leave it run down, ignore tenant complaints as much as possible, etc. Not my idea of a good time. But I guess plenty of people make money off that approach.

C
Haha, well if I am expecting to have a hard time raising rent on tennants I like, I'm not sure I have it in me to be a slumlord.

I appreciate you comments in this thread.
Newbie
Jul 30, 2019
13 posts
3 upvotes
ekcivichb wrote: 1. You can raise rent every year. Read the rules...also, kicking existing tenants out and getting new ones is easy peasy. Sometimes "surprise" family comes to visit for a few months and you need use of the unit ;)

2. Learn to be a man and do most of it yourself.

If you are not willing to do that stuff, look elsewhere to invest your money.
2. Learn to be a man and do most of it yourself.

You lost me on this point, tbh.... how is being a man and fixing things yourself related... you could be time constraint, have a full-time job, work out of town so you need contractors
Newbie
Jul 30, 2019
13 posts
3 upvotes
Just wondering... I have a condo that is almost done being built which I plan to rent out.... do rent control guidelines in Ontario not apply to me because of some Ford amendment to the Residential Tenancies Act?
Deal Expert
User avatar
Jun 12, 2007
16611 posts
5233 upvotes
London
lestat83 wrote: ..
1. People factor: How do you make money if you can't raise rents to keep them in line with the market or even inflation? (Whether that be for legal reasons or because you're fond of the tenants)...
I thought current rent controls only applied to rental units first occupied prior to Nov 15, 2018 ? It does not apply to new rental units created after that date ? Obviously, you would not look at buying any units that fall under rent controls
Sr. Member
Jul 10, 2018
515 posts
485 upvotes
Maintaining old houses can be expensive and a nuisance which is one of many reasons why many investors in Toronto buy condos.

You do need tradespeople for big jobs and critical things that you want warranty on (e.g. new roof), but you should get acquainted with smaller things like drywall repair. There are thousands of great do-it-yourself projects/repairs videos on YouTube.

Knowing tradespeople (do you have friends in the trades?) can save you a chunk of money as many of them work for cash as a side hustle.
Sr. Member
Jun 19, 2007
795 posts
756 upvotes
Halifax
lestat83 wrote: At some stage in the new future, I'll have the option of funding an investment property (house) and I'm trying to decide if it's worth the outlay. I'm not interested in a discussion on where house prices are going, this would be a long-term investment in Toronto.

I'm struggling with two perceived barriers

1. People factor: How do you make money if you can't raise rents to keep them in line with the market or even inflation? (Whether that be for legal reasons or because you're fond of the tenants)

2. Maintenance costs: How do you make a decent return on investment if I need to bring in a tradesperson or contractor every time something needs fixing as I am not that way inclined.

Thoughts and advice appreciated.
You make money by running numbers assuming that rents can only go up 1.8%/yr or whatever for the next 10 years. You make money assuming you pay $100 call outs and $50/hr for whatever services you need, along side amortized big ticket items like 5% the estimated cost of a new roof every 20 years. You discount the gross rent by that, further for tax/insurance etc, and once you have net rent per year, divide by whatever return rate you think is reasonable 5%? 10%? Up to you really what you want. You now have what the property is "worth", and if the selling price is less than that, pull the trigger.

There are tons of great RE blogs out there about people doing exactly this, and the rule of thumb since over the long haul RE only really appreciates around inflation + GPD growth, is that since you can't count on speculation, you want your rents to be roughly 10-12%/year the value of the property. Roughly half this will go to long term maintenance/management, and as you pointed out, theses things are expensive. If you're just going to do it yourself, that's fine, but make sure you account for the 10% management fee (or whatever) + $100/call out +$50/hr for any maintenance, because otherwise you're just lying to yourself - You haven't bought an investment, you've just bought yourself a handyman/property management job, and is absolutely not scalable.

I'm an engineer. If it's just me, I can pay myself nothing, and working from home undercut every big firm. Once I get too much business though, unless I hire other engineers, and pay them engineer salaries, these low rates I charge will be impossible to keep up. Same thing here. People lie to themselves. The numbers are bad as it is with them doing things. Once it gets to the point where it's too much for them to handle on their own due to a FT job or whatever, the bad numbers will be exacerbated that much more.

When I invest in bank stocks, it isn't me calling home owners asking where the mortgage check is, and similarly, to look at RE as a true investment, it shouldn't be you doing it either.

Now, what I've laid out is a true investment. You provide the capital and make the decisions. Other people do the heavy lifting. Most people don't look at their "investments" that way, because if they did they would realize they are actually piss poor ones. There are very few markets in Canada which are attractive right now from a cap rate perspective, and the *only* was to come out ahead of anything that even approaches conservative bank stocks is if appreciation continues well in excess of GDP growth, inflation, and wage growth. Which simply can't go on forever, because you get to a point where more than 100% of income goes to housing.

This isn't even meant to be a bullish/bearish argument. Even if housing goes up with inflation for the foreseeable future, these are horrible investments. I repeat that the *only* way to come out well ahead is if 10% increases go on until the point you sell.
Deal Guru
User avatar
Mar 23, 2008
12436 posts
8943 upvotes
Edmonton
TheSinner wrote: Maintaining old houses can be expensive and a nuisance which is one of many reasons why many investors in Toronto buy condos.

You do need tradespeople for big jobs and critical things that you want warranty on (e.g. new roof), but you should get acquainted with smaller things like drywall repair. There are thousands of great do-it-yourself projects/repairs videos on YouTube.

Knowing tradespeople (do you have friends in the trades?) can save you a chunk of money as many of them work for cash as a side hustle.
Cool story, Captain Obvious!

C
Deal Expert
User avatar
Oct 26, 2003
35341 posts
4387 upvotes
Winnipeg
Hard to start, once you been in the business for few years you will figure things out and know people who is handy and fix stuff on the side, like their day job is building houses and sometimes they can do weekend work on the side for you if you know them, otherwise it is not really worth their time to advertise. There are also people who do advertise on kijiji so you certainly have to try out those you don't know too. Eventually, say after 5 years or so, you will have a list of contacts whom you can trust to do good work and they will trust you which gives you good rates and sometimes only ask you to pay after the work is completed, then it really saves time. I think most of the annoying time sink is to find good contractors, once you made your list of contacts you just txt them and get schedule the work and get it done. I think it goes both ways, people know me can get my help with stuff which I never advertise.

There are many ways to keep positive cash flow but RE is heavy region dependent so it is hard for me to comment on GTA which is a special case similar to GVA, rest of the country work differently.

Top