Rental property

Discussion in 'General Open Forum' started by slaydown, Dec 2, 2019.

  1. slaydown

    slaydown Active Member

    Hey guys,
    I feel that some of you may have some pointers on rental properties. I am looking into buying a rental house (most likely chilliwack). I have been researching as much as possible as well as running the numbers and after some basic calculations it looks like I will be paying a couple hundred out of pocket each month after every expense is paid and tax is deducted.What I am wondering is if I'm insane to do this right now. Unfortunately I do not know many people with 2nd properties so I am hoping for a little insight. I have read American articles on a 2% realestate rule but those numbers seem ridiculous as a 600k house would need 12k month rent. I know this is probably a complex issue so I'm just trying to get a rough idea from individuals who have experience.
     
  2. Captain PartyMarty

    Captain PartyMarty Well-Known Member

    I have been interested in this fro a while. I was looking into doing this with condos/townhouses in Langley. After all the reading and calculating I just couldn't make the numbers work. Add that to hassle of our renter first rental laws here in BC its just not worth it.
     
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  3. Sharphooks

    Sharphooks Well-Known Member

    I’m thinking if you want an intelligent response, you’ll have to provide more details regarding the “basic calculations” you made that leave you cash-negative by a “couple of hundred” each month.

    Did your “basic calculations” include a very CONSERVATIVE monthly rental return with some LIBERAL estimates of up-keep costs (lawn care, the middle of the night call about leaky plumbing etc etc etc)?

    Unless you paid a large down-payment on the house to reduce the size of the monthly mortgage payments, that “couple of hundred” out of pocket each month could all of a sudden become double or triple that, depending on a decrease in comp rental costs in your area or unforeseen expenses with the house (broken leases, tenants who damage the house in excess of what your damage deposit was negotiated at etc etc)

    I’m just throwing stuff on the table here as I don’t know your circumstances. I had a house worth 600K that I turned into a rental. Even with a ridiculously low monthly mortgage payment (I bought the house thirty years ago) I still found being a landlord a royal PITA. No matter how severe your pre-screening is for tenants, trust me, you’ll still end with lease-breakers and they’ll do it at the worst possible time, or scum bags who damage house or yard well in excess of what the damage deposit is and leave you twisting in the wind on trying to get things back to the way they were to get fresh tenants into the house

    If you were cash positive, you can take those unforeseen peripheral costs in stride, but starting off cash-negative, you better have a sharp point on your pencil when doing your “basic calculations”.

    Tax write-offs for expenses is one thing, but you’ll need cash flow coming in on the other side to off-set those costs

    Just my .02 cents worth, adjusted for inflation and today’s currency exchange...
     
    Last edited: Dec 2, 2019
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  4. Captain PartyMarty

    Captain PartyMarty Well-Known Member

    We actually went another direction, instead of rental properties we sold out single family home and bought acreage in a future development zone. So far we have no regrets, we are enjoying the large property and the developments are closing in around us at the moment.
     
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  5. ab1752

    ab1752 Well-Known Member

    I have used a reputable property management company and a holdco to make sure the assets are at arms length. Best to sit down with your accountant as everyone will have a different situation, make sure you determine what your goals are for this investment including a timeline. If the opportunity exists, aim for commercial space and a triple net scenario. Good luck.
     
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  6. Rain City

    Rain City Crew Member

    Buy bank stocks and go fishing.
     
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  7. Rum Buddies

    Rum Buddies Well-Known Member

    Basically you'll be subsiding somebody else's rent, just so you can call yourself a real estate investor.

    That's why renting is a smarter financial move, mortgages are more expensive than the rent for the same place.

    If the back of the napkin numbers show a loss, there's your answer. Don't trick yourself into thinking "it'll be somebody else paying my mortgage"
     
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  8. slaydown

    slaydown Active Member

    Really appreciate any replies and insight. And to add context.
    I based my numbers off the low end for rent. So after mortgage, property taxes and insurance on a 600k house then taking off the rent and end of the year tax write offs I end up owing 350 a month. I plan on having mine or my wifes tfsa as the insurance account for unexpected expenses(unpaid rent, roof etc..)
    So my rationale is this, I end up paying 126k after 30 years on the property that will at a minimum be worth hopefully the 600k. We got lucky with the market and have a large chunk of equity in our current home, so I'm borrowing against that.
    I realize I am subsidizing it, the market is nuts, interest rates could climb, tenants could be a headache. All I know for sure is there are a ton of people immigrating here for the foreseeable future(1.1 million by 2041)
    Or is the days of rental properties long gone with the huge surge in real estate here.
     
  9. Damien

    Damien Well-Known Member

    Aside from agreeing with most of what others have said that I won't echo. Note also the opportunity cost of removing equity in your home to invest.

    This carries interest costs of course, instead that money COULD be invested in a low cost ETF portfolio inside of an RRSP or TFSA which COULD outperform the equity increase in the home. Either way, this is called leveraged investing which in and of itself is risky.

    As a landlord for over 10 years, currently with three sets of tenants. It can take on a life of its own. Luckily my wife is much better at handling tenant headaches than I am. We have had virtually every situation you could imagine.

    Damage beyond what the deposit was. Tenants leaving without paying rent. Inviting others to live with them unanounced. Parties. Floods. Leaks. Damage to appliances (you'd be shocked at what even seamingly rational tenants can do to appliances), particulary dishwashers, clothes washers and dryers. Breaking a lease is standard operating procedure, home owners have virutally no cards to play, the government's lease agreement isn't worth the paper it is written on for the landlord. But for a tenant, they can quickly fashion themselves an arm chair Lawyer when something happens, the victim card WILL be played.

    I had one guy flood one of our basement suites, call me at 11pm on new year's eve citing all sorts of stuff from the tenancy act. Turns out, he is a roofer and some bits of flashing and nails jammed up the washing machine causing the flood. Still didn't matter, I had to put him and his live-in GF up in a hotel for 3 nights while we changed the flooring, baseboards and bottom foot of drywall. We replaced the laminate floor with tile in some areas to avoid this in the future, they complained that it was too hard on her knees to walk on tile. So they got to leave, without paying rent.

    We managed our properties to 'cover themselves' but realistically, we always wound up subsidizing something. Rents went up and down in that time, sometimes it was leaner than others. Strata on the a condo we own changed (never downwards) special levies etc. Costs of electricity spike a few years ago and that stung. Costs of landscaping increased. Sometimes rental rates increased enough to cover, sometimes not. The only constant is change.

    Man...I could write a book. If I was to do it again, I probably would have stayed diligent and invested all the money into the markets. The problem is the diligence part. Once you are a landlord you become more vested in making things work, and the mortgage paydown is a sort of 'forced savings'. It is easy to get off course when trying to invest on your own, harder to do when you are focused on not missing payments and protecting a home.

    That said, our Kelowna rental house in the Black Mountain area is 7 years from being paid off, this low rate environment we have been on for the last 10-12 has really helped us take down the principal. The house still pretty new and in great condition (walk out rancher which may be handy further down the road). Could very well be our retirement home if we sell out in Langley and walk into a free and clear home...That part can make all the headaches worth it.
     
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  10. ab1752

    ab1752 Well-Known Member

    Cap rates are the killer here in the lower mainland all around. If you're sitting on a pile of cash and need to diversify then adding real estate is just part of the deal. The reason I like commercial is you're dealing with companies instead of individuals so that takes the drama and emotion out of the discussion. Then go triple net on the lease and all those annoying problems of calls with a broken dishwasher on nye are gone.

    Commercial investments carry their own issues in that you need to have more cash up front, and these are typically in strata properties.

    You should consider other regions in BC as well.
     
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  11. Sir Reel

    Sir Reel Well-Known Member

    I had a rental property for 10 years but just sold as I though conditions were right and prices were good. I am quite happy I am not a landlord anymore.
    We bought a brand new condo and overall had very good tenants but it is a constant worry. You need to regularly check on your property too.
    You need to have a desirably location and property which we had. However one of my tenants gave notice Dec 1st and I could not find renters until Jan 15th and had also lowered rent a bit to get someone in.
    They were my best tenants but also stayed the longest and due to the BC maximum rental increase allowed I could not get my rent back up to the market average for 3 years until they left.
    After 3 years I was probably $200 a month lower than what it should be. You need to factor in you may miss a rent a month here and there too while trying to rent.
    I think you need to have a positive cash flow after all expenses otherwise not a good idea. There is lots of talk of long over due economic downturn.

    Don't want to discourage you but it is work and not free money. A lot of factors have to align to make it viable.

    Here is a link to the BC rental agreement form. Make sure to get it signed by all parties and copies to all parties.
    Also get and check references!

    https://www2.gov.bc.ca/assets/gov/housing-and-tenancy/residential-tenancies/forms/rtb1c.pdf

    Good luck!
     
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  12. wildmanyeah

    wildmanyeah Crew Member

    The best time to buy into our market was when there were lots of foreclosures. In 2013 was a good time.

    Rentals in coastal cities have been good investments over the long term.

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    Attached Files:

    Last edited: Dec 2, 2019
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  13. Rain City

    Rain City Crew Member

    I'm a landlord only so we could own "land" but we ended up building a laneway house and living in it while our $3800 a month rent for the main house covers interest only on our astronomical mortgage. If you own a house in vancouver adding a laneway house for 300k can get you $2400 pee month on average. Not a bad return if you're not borrowing the build cost.
     
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  14. ab1752

    ab1752 Well-Known Member

    If you're in a shitton of cash go buy up some of the distressed properties that have been developed in west van and are rotting on the market.

    For the rest of us here in bc, make no mistake the communities effected by the forestry downturn are going to feel serious pain. Quesnel, Williams Lake etc. I have a personal problem benefiting from others misfortune however. It looks like that sector is in for a hard landing for some time to come.
     
  15. wildmanyeah

    wildmanyeah Crew Member

    Yeah sorry i should of clarified BIG coastal cities, Vancouver,Tokyo,San Francisco, New York ect...and their suburbs...

    in 2013 there were foreclosures that I looked at in Maple Ridge, that were going for less 200-300k....2k Square foot, probably needed 100k worth of work. Those same properties are going for 600k -700k.
     
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  16. blindmonkey

    blindmonkey Active Member

    The numbers don’t work unless subsidized by owner. I won’t repeat all the other issues identified earlier however definitely worthy of consideration as well as thinking about the tax on the capital gain eventually. Real estate investing does work however significant risk exists in B.C. In regard to investing in distressed communities that can work however remember the vacancy rate will climb significantly and rents will be lower and possibly leave the property vacant increasing your risk.
     
  17. triplenickel

    triplenickel Well-Known Member

    I'm a landlord and I'd do it if your numbers are truly only a couple hundred a month out of pocket. The so called downturn in the lower mainland has been "just around the corner" for decades. Here in Campbell River the rental rates are high and vacancies are super low, I never had to advertise more than 2 hours to get dozens of good applicants which I'd vet myself. Because of a presence and regular inspections the worst I've had to deal with was re-steam cleaning a hall way carpet. Now I have an older couple, retired husband, wife that is finishing her career working for the school district and they're beauties, I've kept it at a level where I'd be happy to live there and they appreciate it. they've made yard improvements and rent has been in my account a day or two before the first every time for the last three years. Vet yourself and you'll likely be fine. they'll be here until they can't live on their own. The only thing I'd have done differently was buy a duplex, way easier to be cash positive here right off the bat. I rent a bit below market value and kick in $200 per month, after a small down payment 12 years ago, taxes, insurance, inside and outside paint and rental rate gap for all that time the spread between my outlay and equity is a solid $250k and it gets better every month.
     
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  18. wildmanyeah

    wildmanyeah Crew Member

    I am in an investment group that gets togeather once a month one of the guys has 3 rental properties.

    He rights off things gas for the lawn mower. He explained the nitty gritty of it to us but I don’t quite remember.
     
  19. Rain City

    Rain City Crew Member

    Like one of those pat each other on the back cult things?
     
  20. ab1752

    ab1752 Well-Known Member

    To your point on capital gains, under the current tax act I would way rather pay capital gains then my personal income tax rate. Any residuals in the holdco come out as dividends or you can declare a bare trust if that's better for you.
     
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