Current Viability of Long Term Rental Investment in Calgary

[Graham M.]

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

[Stevo Sun]

Quote from @Graham M.:

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

It's the state of the market. Costs have gone up a lot and with the higher interest rates, deals don't pencil unless you have higher down payment amounts.

[Anthony Therrien-Bernard]

Quote from @Graham M.:

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

 It's very difficult to cashflow positive in Calgary right now but it IS possible. We've been helping several investors find such properties over the last few months (I'm a Realtor). You have to be quite selective and in some cases make some changes to the property to make it cashflow (ie add a garage, renovations etc). Suited semi-detached in mature neighbourhoods tend to cashflow best right now. Anything that's 1 unit will be very, very difficult right now

[Anthony Therrien-Bernard]

Quote from @Graham M.:

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

 I would also suggest that you offload utilities to the tenants. Your 2 unit detached example will cost a lot more in utilities than $300 on average with current rates in Calgary, more like $500+. But just let the tenants pay with 60/40, same with the condos/townhouses. For your townhouse scenario $3000 rent is definitely on the high side, for the most part $2300-2500+utilities would be more realistic (generalizing). Your condo rents are also too high for the most part a $350k condo would fetch closer to $1800-2200 (large generalization again). I personally don't like using a % of rents of maintenance cost, realistically speaking an older unit with lower rents will have higher maintenance cost than a newer/nicer unit with higher rents.  I think your estimations are a little high. My personal average for a 2 unit detached is closer to $300, for an older property I think $300-400 is reasonable (not including vacancy).

[Caleb Schoepp]

Are you allowed to offload utilities to tenants even if maintain the relationship with the utility company? I'm considering purchasing a SFH with a basement suite in Edmonton that has the utilities tied together. Currently the landlord is paying the utilities but it's a huge expense and I'd like to offload it to the tenants. Something like the 60/40 split you mentioned. Ideally I keep the relationship with the utility companies and then the tenants pay me their split.

My two concerns though are that this is not legal and that tenants wouldn't be willing to do this sort of ad hoc split. Thoughts?

[Stevo Sun]

Quote from @Caleb Schoepp:

Are you allowed to offload utilities to tenants even if maintain the relationship with the utility company? I'm considering purchasing a SFH with a basement suite in Edmonton that has the utilities tied together. Currently the landlord is paying the utilities but it's a huge expense and I'd like to offload it to the tenants. Something like the 60/40 split you mentioned. Ideally I keep the relationship with the utility companies and then the tenants pay me their split.

My two concerns though are that this is not legal and that tenants wouldn't be willing to do this sort of ad hoc split. Thoughts?

 Landlords will do the split fairly frequently for that situation. I personally just include the utilities as part of the rent to avoid that hassle.

[Caleb Schoepp]

 Sure that makes sense to me charge (market rent) + (utilities portion) to each unit. What confuses me is that packing it into the rent makes the rent look really high and I'm guessing that would make it a lot harder to find tenants. 

[Anthony Therrien-Bernard]

Quote from @Caleb Schoepp:

Are you allowed to offload utilities to tenants even if maintain the relationship with the utility company? I'm considering purchasing a SFH with a basement suite in Edmonton that has the utilities tied together. Currently the landlord is paying the utilities but it's a huge expense and I'd like to offload it to the tenants. Something like the 60/40 split you mentioned. Ideally I keep the relationship with the utility companies and then the tenants pay me their split.

My two concerns though are that this is not legal and that tenants wouldn't be willing to do this sort of ad hoc split. Thoughts?

 It's completely legal that's what I do I pay the bills to the utility company and send a copy to the tenants and collect the 60/40 split from them each month

[Graham M.]

Quote from @Anthony Therrien-Bernard:

Quote from @Graham M.:

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

 I would also suggest that you offload utilities to the tenants. Your 2 unit detached example will cost a lot more in utilities than $300 on average with current rates in Calgary, more like $500+. But just let the tenants pay with 60/40, same with the condos/townhouses. For your townhouse scenario $3000 rent is definitely on the high side, for the most part $2300-2500+utilities would be more realistic (generalizing). Your condo rents are also too high for the most part a $350k condo would fetch closer to $1800-2200 (large generalization again). I personally don't like using a % of rents of maintenance cost, realistically speaking an older unit with lower rents will have higher maintenance cost than a newer/nicer unit with higher rents.  I think your estimations are a little high. My personal average for a 2 unit detached is closer to $300, for an older property I think $300-400 is reasonable (not including vacancy).

 Thanks very much for the detailed and informative reply. Interesting to hear that suited semi-detached seem to work best - I hadn't run the numbers on any of those yet, and good feedback on the costs as well.

[Anthony Therrien-Bernard]

Quote from @Graham M.:

Quote from @Anthony Therrien-Bernard:

Quote from @Graham M.:

Hi BP Calgary Community,

I live in Calgary and am looking getting into property investment. I am looking to invest about $100,000 on a down payment for a long term rental, but running the numbers on a few different property types I just don't see how it currently pencils out to positive cash flow. Wondering if this is just the state of the market right now, or if any of my assumptions or numbers are off. Here's a high level average cash flow calc for a few different property types based on what I'm seeing.

Apartment/Condo (2/3 BR, 1/2 Bath):

Purchase Price: $350k 

Mortgage Payment: $1550/month

Property Taxes: ~$1600/yr or $134/month

Maintenance Fee: $700/month

Property Insurance: $125/month

Utilities: $300/month

Assume no maintenance/capex reserve since Condo. $140/month vacancy reserve (5%)

Rental Income: $2800/month

Cash Flow: -$134/mo

Townhouse:

Note: Looking at low price units on the market for < 7 days to possibly get more value / minimize mortgage payments

Purchase Price: $450k

Mortgage Payment: $2150/month

Property Taxes: $1900/yr or $159/mo

Utilities: $300/month

Property Insurance: $125/month

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $500/mo

Rental Income: $3000/month

Cash Flow: -$232.64

Detached Home - Single Unit

Purchase Price: $600k

Mortgage Payment: $3193

Even if I can get $3300-3400/month for a 3-4BR home purchased at $600k, maintenance and reserves will cause it to be negative cash flow

Detached Home - Two Units

Purchase Price: $700k

Mortgage Payment: $3831

Property Taxes: $3500/yr or $292/mo

Utilities: $300

Property Insurance: $125/mo

Maintenance (5% rent) + Capex + Vacancy (5% rent) Reserve: $860/mo

Cash Flow: -$608.57

Are any of my numbers way off? Reserves too high? Rents too low? I just don't see how this works out profitably in the current market.

 I would also suggest that you offload utilities to the tenants. Your 2 unit detached example will cost a lot more in utilities than $300 on average with current rates in Calgary, more like $500+. But just let the tenants pay with 60/40, same with the condos/townhouses. For your townhouse scenario $3000 rent is definitely on the high side, for the most part $2300-2500+utilities would be more realistic (generalizing). Your condo rents are also too high for the most part a $350k condo would fetch closer to $1800-2200 (large generalization again). I personally don't like using a % of rents of maintenance cost, realistically speaking an older unit with lower rents will have higher maintenance cost than a newer/nicer unit with higher rents.  I think your estimations are a little high. My personal average for a 2 unit detached is closer to $300, for an older property I think $300-400 is reasonable (not including vacancy).

 Thanks very much for the detailed and informative reply. Interesting to hear that suited semi-detached seem to work best - I hadn't run the numbers on any of those yet, and good feedback on the costs as well.

 No problem! If you want to discuss more in dept about this you can message me as well

[Kevan Baum]

Calgary is challenging right now.  Not impossible to cashflow, but it's certainly getting there.  You need to be a strong value add investor and a strong operator.  I'd say for a newer investor Edmonton is a much easier market to get started in.  This is coming from someone who likes the city of Calgary way more than Edmonton too.  I stopped buying in southern AB almost 2 years ago now.  Exclusively north of Red Deer and into parts of Sask as well.